| Segment Reporting |
Segment Reporting Following the Combination, the Company conducted its business through the following five operating segments: the loan portfolio, CRE debt securities, net leased real estate, other, and corporate. The Company continually monitors and reviews its segment reporting structure in accordance with authoritative guidance to determine whether any changes have occurred that would impact our reportable segments. During the third quarter of 2019, the Company realigned the business and reportable segment information to reflect how the Chief Operating Decision Makers (“CODM”) regularly reviews and manages the business. As a result, effective for the quarter ended September 30, 2019, the Company presents its business segments as follows: | | • | Core Portfolio, which consists of the following four segments and remain unchanged from the prior segments: |
| | ◦ | Senior and Mezzanine Loans and Preferred Equity—CRE debt investments including senior mortgage loans, mezzanine loans, and preferred equity interests as well as participations in such loans. The segment also includes ADC loan arrangements accounted for as equity method investments. |
| | ◦ | CRE Debt Securities—investments in CMBS (including “B-pieces” of a CMBS securitization pool) or CRE CLOs (collateralized by pools of CRE debt investments). |
| | ◦ | Net Leased Real Estate—direct investments in commercial real estate with long-term leases to tenants on a net lease basis, where such tenants generally will be responsible for property operating expenses such as insurance, utilities, maintenance, capital expenditures and real estate taxes. |
| | ◦ | Corporate—includes corporate-level asset management and other fees, related party and general and administrative expenses to the Core Portfolio only. |
| | • | Legacy, Non-Strategic Portfolio—segment consists of direct investments in operating real estate such as multi-tenant office and multifamily residential assets such as real estate acquired in settlement of loans (“REO”) which the Company plans to exit. It also includes two portfolios of PE Investments and certain retail and other legacy loans originated prior to the Combination. This segment includes corporate-level asset management and other fees, related party and general and administrative expenses related to the Legacy, Non-Strategic Portfolio only. |
There were no changes in the structure of the Company’s internal organization that prompted the change in reportable segments. Prior period amounts have been revised to conform to the current year presentation shown below. The Company primarily generates revenue from net interest income on the loan, preferred equity and securities portfolios, rental and other income from its net leased, hotel, multi-tenant office, and multifamily real estate assets, as well as equity in earnings of unconsolidated ventures, including from PE Investments. CRE debt securities include the Company’s investment in the subordinate tranches of the securitization trusts which are eliminated in consolidation. The Company’s income is primarily derived through the difference between revenue and the cost at which the Company is able to finance its investments. The Company may also acquire investments which generate attractive returns without any leverage. The following tables present segment reporting for the three months ended September 30, 2019 and 2018 (dollars in thousands): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Core | | | | | | | Senior and MezzanineLoans and Preferred Equity | | CRE Debt Securities | | Net Leased Real Estate | | Corporate(1) | | Total Core Portfolio | | Legacy, Non-Strategic Portfolio | | Total | Three Months Ended September 30, 2019 | | | | | | | | | | | | | | | Net interest income (expense) | | $ | 21,295 |
| | $ | 5,102 |
| | $ | — |
| | $ | (2,363 | ) | | $ | 24,034 |
| | $ | 2,077 |
| | $ | 26,111 |
| Property and other income | | 209 |
| | 200 |
| | 28,316 |
| | 369 |
| | 29,094 |
| | 35,218 |
| | 64,312 |
| Management fee expense | | — |
| | — |
| | — |
| | (9,084 | ) | | (9,084 | ) | | (2,271 | ) | | (11,355 | ) | Property operating expense | | — |
| | — |
| | (8,340 | ) | | — |
| | (8,340 | ) | | (21,416 | ) | | (29,756 | ) | Transaction, investment and servicing expense | | (512 | ) | | (3 | ) | | (103 | ) | | (245 | ) | | (863 | ) | | (570 | ) | | (1,433 | ) | Interest expense on real estate | | — |
| | — |
| | (8,695 | ) | | — |
| | (8,695 | ) | | (5,586 | ) | | (14,281 | ) | Depreciation and amortization | | — |
| | — |
| | (11,673 | ) | | — |
| | (11,673 | ) | | (14,261 | ) | | (25,934 | ) | Provision for loan losses | | — |
| | — |
| | — |
| | — |
| | — |
| | (110,314 | ) | | (110,314 | ) | Impairment of operating real estate | | — |
| | — |
| | (23,911 | ) | | — |
| | (23,911 | ) | | (248,811 | ) | | (272,722 | ) | Administrative expense | | (312 | ) | | (244 | ) | | (78 | ) | | (3,537 | ) | | (4,171 | ) | | (3,561 | ) | | (7,732 | ) | Unrealized gain (loss) on mortgage loans and obligations held in securitization trusts, net | | — |
| | 215 |
| | — |
| | (2,191 | ) | | (1,976 | ) | | — |
| | (1,976 | ) | Realized gain on mortgage loans and obligations held in securitization trusts, net | | — |
| | — |
| | — |
| | 2,724 |
| | 2,724 |
| | — |
| | 2,724 |
| Other gain (loss), net | | (15 | ) | | (4,683 | ) | | 2,019 |
| | (3 | ) | | (2,682 | ) | | (6 | ) | | (2,688 | ) | Income (loss) before equity in earnings of unconsolidated ventures and income taxes | | 20,665 |
| | 587 |
| | (22,465 | ) | | (14,330 | ) | | (15,543 | ) | | (369,501 | ) | | (385,044 | ) | Equity in earnings (loss) of unconsolidated ventures | | 2,736 |
| | — |
| | — |
| | — |
| | 2,736 |
| | (18,641 | ) | | (15,905 | ) | Income tax expense | | — |
| | — |
| | (201 | ) | | — |
| | (201 | ) | | (845 | ) | | (1,046 | ) | Net income (loss) | | $ | 23,401 |
| | $ | 587 |
| | $ | (22,666 | ) | | $ | (14,330 | ) | | $ | (13,008 | ) | | $ | (388,987 | ) | | $ | (401,995 | ) | | | | | | | | | | | | | | | | Three Months Ended September 30, 2018 | | | | | | | | | | | | | | | Net interest income (expense) | | $ | 13,089 |
| | $ | 7,704 |
| | $ | 2 |
| | $ | (1,794 | ) | | $ | 19,001 |
| | $ | 10,957 |
| | $ | 29,958 |
| Property and other income | | 34 |
| | 6 |
| | 27,799 |
| | 367 |
| | 28,206 |
| | 25,731 |
| | 53,937 |
| Management fee expense | | — |
| | — |
| | — |
| | (9,501 | ) | | (9,501 | ) | | (2,376 | ) | | (11,877 | ) | Property operating expense | | (2 | ) | | — |
| | (8,261 | ) | | — |
| | (8,263 | ) | | (12,954 | ) | | (21,217 | ) | Transaction, investment and servicing expense | | (412 | ) | | — |
| | (40 | ) | | (1,283 | ) | | (1,735 | ) | | (1,896 | ) | | (3,631 | ) | Interest expense on real estate | | (9 | ) | | — |
| | (8,066 | ) | | — |
| | (8,075 | ) | | (5,266 | ) | | (13,341 | ) | Depreciation and amortization | | — |
| | — |
| | (19,774 | ) | | — |
| | (19,774 | ) | | (10,764 | ) | | (30,538 | ) | Provision for loan losses | | — |
| | — |
| | — |
| | — |
| | — |
| | (35,059 | ) | | (35,059 | ) | Impairment of operating real estate | | — |
| | — |
| | — |
| | — |
| | — |
| | (29,378 | ) | | (29,378 | ) | Administrative expense | | (154 | ) | | (416 | ) | | (58 | ) | | (3,083 | ) | | (3,711 | ) | | (3,086 | ) | | (6,797 | ) | Unrealized gain (loss) on mortgage loans and obligations held in securitization trusts, net | | — |
| | (1,834 | ) | | — |
| | 895 |
| | (939 | ) | | — |
| | (939 | ) | Realized loss on mortgage loans and obligations held in securitization trusts, net | | — |
| | (549 | ) | | — |
| | — |
| | (549 | ) | | — |
| | (549 | ) | Other gain (loss), net | | — |
| | (129 | ) | | 108 |
| | — |
| | (21 | ) | | 6 |
| | (15 | ) | Income (loss) before equity in earnings of unconsolidated ventures and income taxes | | 12,546 |
| | 4,782 |
| | (8,290 | ) | | (14,399 | ) | | (5,361 | ) | | (64,085 | ) | | (69,446 | ) | Equity in earnings (loss) of unconsolidated ventures | | 10,274 |
| | — |
| | — |
| | — |
| | 10,274 |
| | (1,950 | ) | | 8,324 |
| Income tax benefit (expense) | | — |
| | — |
| | 91 |
| | — |
| | 91 |
| | 2,365 |
| | 2,456 |
| Net income (loss) | | $ | 22,820 |
| | $ | 4,782 |
| | $ | (8,199 | ) | | $ | (14,399 | ) | | $ | 5,004 |
| | $ | (63,670 | ) | | $ | (58,666 | ) |
_________________________________________ | | (1) | Includes income earned from the CRE securities purchased at a discount, recognized using the effective interest method had the transaction been recorded as an available for sale security, at amortized cost. During the three months ended September 30, 2019 and September 30, 2018, $2.2 million and $0.9 million, |
respectively, was attributable to discount accretion income and was eliminated in consolidation in the corporate segment. The corresponding interest expense is recorded in net interest income in the Corporate column. The following tables present segment reporting for the nine months ended September 30, 2019 and 2018 (dollars in thousands): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Core | | | | | | Senior and MezzanineLoans and Preferred Equity | | CRE Debt Securities | | Net Leased Real Estate | | Corporate(1) | | Total Core Portfolio | | Legacy, Non-Strategic Portfolio | | Total | Nine Months Ended September 30, 2019 | | | | | | | | | | | | | | | Net interest income (expense) | | $ | 55,077 |
| | $ | 15,856 |
| | $ | 2 |
| | $ | (7,674 | ) | | $ | 63,261 |
| | $ | 8,735 |
| | $ | 71,996 |
| Property and other income | | 450 |
| | 341 |
| | 88,067 |
| | 371 |
| | 89,229 |
| | 103,595 |
| | 192,824 |
| Management fee expense | | — |
| | — |
| | — |
| | (27,256 | ) | | (27,256 | ) | | (6,814 | ) | | (34,070 | ) | Property operating expense | | — |
| | — |
| | (25,187 | ) | | — |
| | (25,187 | ) | | (60,889 | ) | | (86,076 | ) | Transaction, investment and servicing expense | | (1,325 | ) | | (4 | ) | | (208 | ) | | 301 |
| | (1,236 | ) | | (1,777 | ) | | (3,013 | ) | Interest expense on real estate | | — |
| | — |
| | (26,078 | ) | | — |
| | (26,078 | ) | | (15,708 | ) | | (41,786 | ) | Depreciation and amortization | | — |
| | — |
| | (37,645 | ) | | — |
| | (37,645 | ) | | (45,208 | ) | | (82,853 | ) | Provision for loan losses | | — |
| | — |
| | — |
| | — |
| | — |
| | (220,572 | ) | | (220,572 | ) | Impairment of operating real estate | | — |
| | — |
| | (23,911 | ) | | — |
| | (23,911 | ) | | (258,935 | ) | | (282,846 | ) | Administrative expense | | (614 | ) | | (979 | ) | | (178 | ) | | (10,206 | ) | | (11,977 | ) | | (10,418 | ) | | (22,395 | ) | Unrealized gain (loss) on mortgage loans and obligations held in securitization trusts, net | | — |
| | 6,035 |
| | — |
| | (1,433 | ) | | 4,602 |
| | — |
| | 4,602 |
| Realized gain on mortgage loans and obligations held in securitization trusts, net | | — |
| | 48 |
| | — |
| | 2,724 |
| | 2,772 |
| | — |
| | 2,772 |
| Other gain (loss), net | | (15 | ) | | (14,909 | ) | | 2,399 |
| | 1 |
| | (12,524 | ) | | (1,305 | ) | | (13,829 | ) | Income (loss) before equity in earnings of unconsolidated ventures and income taxes | | 53,573 |
| | 6,388 |
| | (22,739 | ) | | (43,172 | ) | | (5,950 | ) | | (509,296 | ) | | (515,246 | ) | Equity in earnings (loss) of unconsolidated ventures | | 39,020 |
| | — |
| | — |
| | — |
| | 39,020 |
| | (21,058 | ) | | 17,962 |
| Income tax benefit (expense) | | (12 | ) | | — |
| | 1,822 |
| | (382 | ) | | 1,428 |
| | (1,972 | ) | | (544 | ) | Net income (loss) | | $ | 92,581 |
| | $ | 6,388 |
| | $ | (20,917 | ) | | $ | (43,554 | ) | | $ | 34,498 |
| | $ | (532,326 | ) | | $ | (497,828 | ) | | | | | | | | | | | | | | | | Nine Months Ended September 30, 2018 | | | | | | | | | | | | | | | Net interest income (expense) | | $ | 44,872 |
| | $ | 18,406 |
| | $ | 3 |
| | $ | (3,897 | ) | | $ | 59,384 |
| | $ | 31,014 |
| | $ | 90,398 |
| Property and other income | | 182 |
| | 19 |
| | 56,675 |
| | 903 |
| | 57,779 |
| | 65,079 |
| | 122,858 |
| Management fee expense | | — |
| | — |
| | — |
| | (25,334 | ) | | (25,334 | ) | | (6,334 | ) | | (31,668 | ) | Property operating expense | | 10 |
| | — |
| | (16,423 | ) | | — |
| | (16,413 | ) | | (32,773 | ) | | (49,186 | ) | Transaction, investment and servicing expense | | (1,149 | ) | | — |
| | (40 | ) | | (34,830 | ) | | (36,019 | ) | | (2,193 | ) | | (38,212 | ) | Interest expense on real estate | | (175 | ) | | — |
| | (16,301 | ) | | — |
| | (16,476 | ) | | (12,971 | ) | | (29,447 | ) | Depreciation and amortization | | — |
| | — |
| | (37,901 | ) | | — |
| | (37,901 | ) | | (34,788 | ) | | (72,689 | ) | Provision for loan loss | | — |
| | — |
| | — |
| | — |
| | — |
| | (34,542 | ) | | (34,542 | ) | Impairment of operating real estate | | — |
| | — |
| | — |
| | — |
| | — |
| | (29,378 | ) | | (29,378 | ) | Administrative expense | | (413 | ) | | (817 | ) | | (62 | ) | | (7,774 | ) | | (9,066 | ) | | (7,843 | ) | | (16,909 | ) | Unrealized gain on mortgage loans and obligations held in securitization trusts, net | | — |
| | 655 |
| | — |
| | 2,599 |
| | 3,254 |
| | — |
| | 3,254 |
| Realized loss on mortgage loans and obligations held in securitization trusts, net | | — |
| | (2,752 | ) | | — |
| | — |
| | (2,752 | ) | | — |
| | (2,752 | ) | Other gain (loss), net | | — |
| | (128 | ) | | 108 |
| | — |
| | (20 | ) | | 480 |
| | 460 |
| Income (loss) before equity in earnings of unconsolidated ventures and income taxes | | 43,327 |
| | 15,383 |
| | (13,941 | ) | | (68,333 | ) | | (23,564 | ) | | (64,249 | ) | | (87,813 | ) | Equity in earnings of unconsolidated ventures | | 25,749 |
| | — |
| | — |
| | — |
| | 25,749 |
| | 14,024 |
| | 39,773 |
| Income tax benefit | | — |
| | — |
| | 91 |
| | — |
| | 91 |
| | 2,756 |
| | 2,847 |
| Net income (loss) | | $ | 69,076 |
| | $ | 15,383 |
| | $ | (13,850 | ) | | $ | (68,333 | ) | | $ | 2,276 |
| | $ | (47,469 | ) | | $ | (45,193 | ) |
_________________________________________ | | (1) | Includes income earned from the CRE securities purchased at a discount, recognized using the effective interest method had the transaction been recorded as an available for sale security, at amortized cost. During the nine months ended September 30, 2019 and September 30, 2018, $1.4 million and $2.6 million, |
respectively, was attributable to discount accretion income and was eliminated in consolidation in the corporate segment. The corresponding interest expense is recorded in net interest income in the Corporate column. The following table presents total assets by segment as of September 30, 2019 and December 31, 2018 (dollars in thousands): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Core | | | | | Total Assets | | Senior and Mezzanine Loans and Preferred Equity(1) | | CRE Debt Securities | | Net Leased Real Estate | | Corporate(2) | | Total Core Portfolio | | Legacy, Non-Strategic Portfolio(3) | | Total | September 30, 2019 | | $ | 2,894,232 |
| | $ | 2,267,596 |
| | $ | 1,254,172 |
| | $ | (61,122 | ) | | $ | 6,354,878 |
| | $ | 1,088,979 |
| | $ | 7,443,857 |
| December 31, 2018 | | 2,111,443 |
| | 3,507,404 |
| | 1,313,220 |
| | (70,600 | ) | | 6,861,467 |
| | 1,799,263 |
| | 8,660,730 |
|
_________________________________________ | | (1) | Includes investments in unconsolidated ventures totaling $557.0 million and $742.2 million as of September 30, 2019 and December 31, 2018, respectively. |
| | (2) | Includes cash, unallocated receivables, deferred costs and other assets, net and the elimination of the subordinate tranches of the securitization trusts in consolidation. |
| | (3) | Includes PE Investments totaling $14.3 million and $160.9 million as of September 30, 2019 and December 31, 2018, respectively. |
Geography Geography is generally defined as the location in which the income producing assets reside or the location in which income generating services are performed. Geography information on total income includes equity in earnings of unconsolidated ventures. Geography information on total income and long lived assets are presented as follows (dollars in thousands): | | | | | | | | | | | | | | | | | | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | 2019 | | 2018 | | 2019 | | 2018 | Total income by geography: | | | | | | | | | United States | | $ | 105,826 |
| | $ | 135,743 |
| | $ | 400,864 |
| | $ | 373,458 |
| Europe | | 12,161 |
| | 5,559 |
| | 37,080 |
| | 5,559 |
| Other | | (3 | ) | | 359 |
| | 32 |
| | 1,309 |
| Total(1) | | $ | 117,984 |
| | $ | 141,661 |
| | $ | 437,976 |
| | $ | 380,326 |
|
| | | | | | | | | | | | September 30, 2019 | | December 31, 2018 | Long-lived assets by geography: | | | | | United States | | $ | 1,386,138 |
| | $ | 1,764,247 |
| Europe | | 307,616 |
| | 329,511 |
| Total(2) | | $ | 1,693,754 |
| | $ | 2,093,758 |
|
_________________________________________ | | (1) | Includes interest income, interest income on mortgage loans held in securitization trusts, property and other income and equity in earnings of unconsolidated ventures. |
(2) Long-lived assets are comprised of real estate and real estate related intangible assets, and excludes financial instruments and assets held for sale.
|