Consolidated K-Series

9 Months Ended

Sep. 30, 2020

In March 2020, the Company sold its first loss POs and certain mezzanine securities issued by certain Freddie Mac-sponsored multi-family loan K-Series securitizations that we consolidated in our financial statements in accordance with GAAP and which we refer to as the Consolidated K-Series. These sales, for total proceeds of approximately $555.2 million, resulted in the de-consolidation of each Consolidated K-Series as of the sale date of each first loss PO, a realized net loss on de-consolidation of multi-family loans held in securitization trusts and multi-family collateralized debt obligations of $54.1 million and reversal of previously recognized net unrealized gains of $168.5 million. The sales also resulted in the de-consolidation of $17.4 billion in multi-family loans held in securitization trusts and $16.6 billion in multi-family collateralized debt obligations. Also in March 2020, the Company transferred its remaining IOs and mezzanine and senior securities owned in the Consolidated K-Series with a fair value of approximately $237.3 million to investment securities available for sale.

The Company elected the fair value option on the assets and liabilities held within the Consolidated K-Series, which required that changes in valuations in the assets and liabilities of the Consolidated K-Series be reflected in the Company's condensed consolidated statements of operations. Our investment in the Consolidated K-Series was limited to the multi-family CMBS that we owned with an aggregate net carrying value of $1.1 billion at December 31, 2019 (see Note 9).

The condensed consolidated balance sheet of the Consolidated K-Series at December 31, 2019 is as follows (dollar amounts in thousands):


Balance Sheet	December 31, 2019
Assets
Multi-family loans held in securitization trusts, at fair value	$	17,816,746
Receivables (1)	59,417
Total Assets	$	17,876,163
Liabilities and Equity
Multi-family CDOs, at fair value	$	16,724,451
Accrued expenses	57,873
Total Liabilities	16,782,324
Equity	1,093,839
Total Liabilities and Equity	$	17,876,163

(1)Included in receivables and other assets on the accompanying condensed consolidated balance sheets.

The multi-family loans held in securitization trusts had unpaid aggregate principal balances of approximately $16.8 billion at December 31, 2019. The multi-family CDOs (the "Multi-Family CDOs") had aggregate unpaid principal balances of approximately $16.8 billion at December 31, 2019 and had a weighted average interest rate of 3.85%.

The Company did not have any claims to the assets or obligations for the liabilities of the Consolidated K-Series (other than those securities represented by the first loss POs, IOs and certain senior and mezzanine securities owned by the Company). We elected the fair value option for the Consolidated K-Series. The net fair value of our investment in the Consolidated K-Series, which represented the difference between the carrying values of multi-family loans held in securitization trusts less the carrying value of Multi-Family CDOs, approximated the fair value of our underlying securities (see Note 14).

The condensed consolidated statements of operations of the Consolidated K-Series for the three months ended September 30, 2019, for the nine months ended September 30, 2020 (prior to the sale of first loss POs and de-consolidation of the Consolidated K-Series) and for the nine months ended September 30, 2019, respectively, are as follows (dollar amounts in thousands):


	Three Months Ended September 30,		Nine Months Ended September 30,
Statements of Operations	2019		2020		2019
Interest income	$	139,818	$	151,841	$	384,743
Interest expense	120,329		129,762		332,041
Net interest income	19,489		22,079		52,702
Unrealized gains (losses), net	7,630		(10,951)		22,247
Net income	$	27,119	$	11,128	$	74,949

The geographic concentrations of credit risk exceeding 5% of the total loan balances related to multi-family loans held in securitization trusts as of December 31, 2019 were as follows:


	December 31, 2019
California	15.9	%
Texas	12.4	%
Florida	6.2	%

Maryland	5.8	%