Loans Receivable

3 Months Ended

Mar. 31, 2013

Loans Receivable [Abstract]

Loans Receivable

5. Loans Receivable

The following table summarizes the Trust’s loans receivable at March 31, 2013 and December 31, 2012 (in thousands):

			Carrying Amount				Contractual Maturity Date
Description	Loan Position	Stated Interest Rate	March 31, 2013		December 31,  2012
Hotel Wales	Whole Loan	LIBOR + 4.0%(2)	$	20,101	$	20,101		10/05/13
Renaissance Walk	Mezzanine	LIBOR + 12.0%(3)		3,000		3,000		01/01/14
Fenway Shea (1)	Whole Loan	12.0%		2,273		2,273		04/05/14
The Shops at Wailea	B-Note	6.15%		5,573		5,376		10/06/14
Legacy Orchard (1)	Corporate Loan	15.0%		9,750		9,750		10/31/14
Queensridge	Whole Loan	LIBOR + 11.5%(4)		28,976		39,170		11/15/14
San Marbeya	Whole Loan	5.88%		27,323		27,149		01/01/15
Playa Vista	Mezzanine	LIBOR + 14.25%(4)		10,323		—		01/23/15
Churchill (1)	Whole Loan	LIBOR + 3.75%		687		683		06/01/15
Rockwell	Mezzanine	12.0%		342		323		05/01/16
500-512 7th Ave	B-Note	7.19%		10,013		10,009		07/11/16
Pinnacle II	B-Note	6.31%		4,648		4,652		09/06/16
Popiu Shopping Village	B-Note	6.62%		1,972		1,948		01/06/17
Wellington Tower	Mezzanine	6.79%		2,719		2,687		07/11/17
Mentor Building	Whole Loan	10.0%		2,512		2,512		09/10/17
1515 Market	Whole Loan	(5)		—		58,650		(5)
127 West 25th Street	Mezzanine	—		—		8,687		(6)
180 N. Michigan	Mezzanine	—		—		5,237		(6)
The Disney Building	B-Note	—		—		9,043		(7)
			$	130,212	$	211,250

(1) The Trust determined that certain loans receivable are variable interests in VIEs primarily based on the fact that the underlying entities do not have sufficient equity at risk to permit the entity to finance its activities without additional subordinated financial support. The Trust does not have the power to direct the activities of the entity that most significantly impact the entity’s economic performance and is not required to consolidate the underlying entity.

(2) LIBOR floor of 3%.

(3) LIBOR floor of 2%.

(4) LIBOR floor of 0.5%.

(5) This loan was in maturity default at the time of acquisition. The loan was modified on February 1, 2013. See Note 4 – Acquisition, Disposition, Leasing and Financing Activity for details on the modification.

(6) The loans were satisfied during the three months ended March 31, 2013.

(7) The loan was sold during the three months ended March 31, 2013.

The carrying amount of loans receivable includes accrued interest of $832,000 and $1,016,000 at March 31, 2013 and December 31, 2012, respectively, and cumulative accretion of $3,243,000 and $2,527,000 at March 31, 2013 and December 31, 2012, respectively.

At March 31, 2013 and December 31, 2012, the Trust’s loans receivable have unamortized discount totaling $6,622,000 and $9,865,000, respectively.

The weighted average coupon on the Trust’s loans receivable was 7.59% and 7.65% and the weighted average yield to maturity was 11.84% and 11.43% at March 31, 2013 and December 31, 2012, respectively.

The San Marbeya, Hotel Wales and Queensridge loans receivable are part of secured financing transactions, as outlined in GAAP, with recourse and non-recourse financings at March 31, 2013. The Trust had outstanding non-recourse secured financings related to the San Marbeya and Hotel Wales loans receivable in the amount of $29,150,000 at March 31, 2013 and December 31, 2012. The Trust had recourse secured financings related to the Queensridge loan receivable in the amount of $13,653,000 and $23,770,000 at March 31, 2013 and December 31, 2012, respectively. No other loans receivable are part of secured financing transactions at March 31, 2013. Please see Note 8 for additional disclosures regarding the Trust’s secured financings.

Loan Receivable Activity

Activity related to loans receivable is as follows (in thousands):

	Three Months Ended March 31, 2013
Balance at beginning of period	$	211,250
Purchase and advances		22,382
Interest (received) accrued, net		161
Repayments		(43,606	)
Elimination of 1515 Market		(60,691	)
Loan discount accretion		716
Discount accretion received in cash		—
Balance at end of period	$	130,212

The following table summarizes the Trust’s interest, dividend and discount accretion income for the three months ended March 31, 2013 and 2012 (in thousands):

	Three Months Ended  March 31, 2013
	2013		2012
Interest on loan assets	$	4,454	$	2,399
Accretion of loan discount		716		2,833
Interest and dividends on REIT securities		150		286
Total interest, dividends, and discount accretion	$	5,320	$	5,518

Credit Quality of Loans Receivable and Loan Losses

The Trust evaluates impairment on its loan portfolio on an individual basis and has developed a loan grading system for all of its outstanding loans that are collateralized directly or indirectly by real estate. Grading categories include debt yield, debt service coverage ratio, length of loan, property type, loan type, and other more subjective variables that include property or collateral location, market conditions, industry conditions, and sponsor’s financial stability. Management reviews each category and assigns an overall numeric grade for each loan to determine the loan’s risk of loss and to provide a determination as to whether an individual loan is impaired and whether a specific loan loss allowance is necessary. A loan’s grade of credit quality is determined quarterly.

All loans with a positive score do not require a loan loss allowance. Any loan graded with a neutral score or “zero” is subject to further review of the collectability of the interest and principal based on current conditions and qualitative factors to determine if impairment is warranted. Any loan with a negative score is deemed impaired and management then would measure the specific impairment of each loan separately using the fair value of the collateral less costs to sell.

Management estimates the loan loss allowance by calculating the estimated fair value less costs to sell of the underlying collateral securing the loan based on the fair value of underlying collateral and comparing the fair value to the loan’s net carrying value. If the fair value is less than the net carrying value of the loan, an allowance is created with a corresponding charge to the provision for loan losses. The allowance for each loan will be maintained at a level the Trust believes will be adequate to absorb losses.

The table below summarizes the Trust’s loans receivable by internal credit rating at March 31, 2013 and December 31, 2012 (in thousands, except for number of loans):

	March 31, 2013				December 31, 2012
Internal Credit Quality	Number of Loans		Carrying Value of Loans Receivable		Number of Loans		Carrying Value of Loans Receivable
Greater than zero		14	$	119,889		18	$	211,250
Equal to zero		1		10,323		—		—
Less than zero		—		—		—		—
		15	$	130,212		18	$	211,250

Non-Performing Loans

The Trust considers a loan to be non-performing and places loans on non-accrual status at such time as management determines it is probable that it will be unable to collect all amounts due according to the contractual terms of the loan. While on non-accrual status, based on the Trust’s judgment as to collectability of principal, loans are either accounted for on a cash basis, where interest income is recognized only upon actual receipt of cash, or on a cost-recovery basis, where all cash receipts reduce a loan’s carrying value. If and when a loan is brought back into compliance with its contractual terms, the Trust will resume accrual of interest. As of March 31, 2013 and December 31, 2012, there were no non-performing loans and no past due payments. The Trust did not record any provision for loan loss for the three months ended March 31, 2013.