Rialto Investments Segment (Rialto [Member]) | 3 Months Ended |
Feb. 28, 2015 |
Rialto [Member] | |
Segment Reporting Information [Line Items] | |
Rialto Segment | | | | | | | | | | | | | | | | | | | | | | | | | |
| Rialto Segment | | | | | | | | | | | | | | | | | | | | | | | |
The assets and liabilities related to the Rialto segment were as follows: |
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(In thousands) | February 28, | | November 30, | | | | | | | | | | | | | | | | | | |
2015 | 2014 | | | | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | $ | 147,219 | | | 303,889 | | | | | | | | | | | | | | | | | | | |
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Restricted cash (1) | 19,488 | | | 46,975 | | | | | | | | | | | | | | | | | | | |
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Receivables, net (2) | — | | | 153,773 | | | | | | | | | | | | | | | | | | | |
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Loans receivable, net | 116,725 | | | 130,105 | | | | | | | | | | | | | | | | | | | |
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Loans held-for-sale (3) | 360,045 | | | 113,596 | | | | | | | | | | | | | | | | | | | |
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Real estate owned - held-for-sale | 185,511 | | | 190,535 | | | | | | | | | | | | | | | | | | | |
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Real estate owned - held-and-used, net | 242,569 | | | 255,795 | | | | | | | | | | | | | | | | | | | |
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Investments in unconsolidated entities | 182,878 | | | 175,700 | | | | | | | | | | | | | | | | | | | |
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Investments held-to-maturity | 17,624 | | | 17,290 | | | | | | | | | | | | | | | | | | | |
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Other | 107,782 | | | 70,494 | | | | | | | | | | | | | | | | | | | |
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| $ | 1,379,841 | | | 1,458,152 | | | | | | | | | | | | | | | | | | | |
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Liabilities: | | | | | | | | | | | | | | | | | | | | | |
Notes and other debts payable (4) | $ | 646,082 | | | 623,246 | | | | | | | | | | | | | | | | | | | |
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Other | 51,676 | | | 123,798 | | | | | | | | | | | | | | | | | | | |
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| $ | 697,758 | | | 747,044 | | | | | | | | | | | | | | | | | | | |
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-1 | Restricted cash primarily consists of cash held in escrow by the Company's loan servicer provider on behalf of customers and lenders and is disbursed in accordance with agreements between the transacting parties. | | | | | | | | | | | | | | | | | | | | | | | |
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-2 | Receivables, net primarily relate to loans sold but not settled as of November 30, 2014. | | | | | | | | | | | | | | | | | | | | | | | |
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-3 | Loans held-for-sale relate to unsold loans originated by RMF carried at fair value. | | | | | | | | | | | | | | | | | | | | | | | |
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-4 | Notes and other debts payable include $351.8 million and $351.9 million related to the 7.00% Senior Notes due 2018 (“7.00% Senior Notes”) as of February 28, 2015 and November 30, 2014, respectively, $183.2 million and $141.3 million related to the RMF warehouse repurchase financing agreements as of February 28, 2015 and November 30, 2014, respectively, and $40.4 million and $58.0 million related to the notes issued through a structured note offering as of February 28, 2015 and November 30, 2014, respectively. | | | | | | | | | | | | | | | | | | | | | | | |
Rialto’s operating earnings were as follows: |
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| Three Months Ended | | | | | | | | | | | | | | | | | | |
| February 28, | | | | | | | | | | | | | | | | | | |
(In thousands) | 2015 | | 2014 | | | | | | | | | | | | | | | | | | |
Revenues | $ | 41,197 | | | 46,955 | | | | | | | | | | | | | | | | | | | |
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Costs and expenses (1) | 40,781 | | | 47,576 | | | | | | | | | | | | | | | | | | | |
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Rialto equity in earnings from unconsolidated entities | 2,664 | | | 5,354 | | | | | | | | | | | | | | | | | | | |
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Rialto other expense, net | (272 | ) | | (1,229 | ) | | | | | | | | | | | | | | | | | | |
Operating earnings (2) | $ | 2,808 | | | 3,504 | | | | | | | | | | | | | | | | | | | |
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-1 | Costs and expenses for the three months ended February 28, 2015 and 2014 included loan impairments of $1.2 million and $6.7 million, respectively, primarily associated with the segment's FDIC loans portfolio (before noncontrolling interests). | | | | | | | | | | | | | | | | | | | | | | | |
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-2 | Operating earnings for the three months ended February 28, 2015 and 2014 included net earnings (loss) attributable to noncontrolling interests of ($1.8) million and $0.9 million, respectively. | | | | | | | | | | | | | | | | | | | | | | | |
The following is a detail of Rialto other expense, net: |
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| Three Months Ended | | | | | | | | | | | | | | | | | | |
| February 28, | | | | | | | | | | | | | | | | | | |
(In thousands) | 2015 | | 2014 | | | | | | | | | | | | | | | | | | |
Realized gains on REO sales, net | $ | 3,130 | | | 9,509 | | | | | | | | | | | | | | | | | | | |
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Unrealized losses on transfer of loans receivable to REO and impairments, net | (2,556 | ) | | (2,377 | ) | | | | | | | | | | | | | | | | | | |
REO and other expenses | (13,242 | ) | | (31,172 | ) | | | | | | | | | | | | | | | | | | |
Rental and other income | 12,396 | | | 22,811 | | | | | | | | | | | | | | | | | | | |
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Rialto other expense, net | $ | (272 | ) | | (1,229 | ) | | | | | | | | | | | | | | | | | | |
Loans Receivable |
In February 2010, the Rialto segment acquired indirectly 40% managing member equity interests in two limited liability companies (“LLCs”), in partnership with the FDIC (“FDIC Portfolios”), which retained 60% equity interests in the LLCs, for approximately $243 million (net of transaction costs and a $22 million working capital reserve). If the LLCs exceed expectations and meet certain internal rate of return and distribution thresholds, the Company’s equity interest in the LLCs could be reduced from 40% down to 30%, with a corresponding increase to the FDIC’s equity interest from 60% up to 70%. As these thresholds have not been met, distributions continue being shared 60%/40% with the FDIC. During the three months ended February 28, 2015 and 2014, the LLCs distributed $73.5 million and $53.1 million, respectively, of which $44.1 million and $31.9 million, respectively, was distributed to the FDIC and $29.4 million and $21.2 million, respectively, was distributed to Rialto, the parent company. |
The LLCs met the accounting definition of VIEs and since the Company was determined to be the primary beneficiary, the Company consolidated the LLCs. The Company was determined to be the primary beneficiary because it has the power to direct activities of the LLCs that most significantly impact the LLCs' performance through Rialto's management and servicer contracts. At February 28, 2015, these consolidated LLCs had total combined assets and liabilities of $423.8 million and $13.8 million, respectively. At November 30, 2014, these consolidated LLCs had total combined assets and liabilities of $508.4 million and $21.5 million, respectively. |
In September 2010, the Rialto segment acquired approximately 400 distressed residential and commercial real estate loans (“Bank Portfolios”) and over 300 REO properties from three financial institutions. The Company paid $310 million for the distressed real estate and real estate related assets of which $124 million was financed through a 5-year senior unsecured note provided by one of the selling institutions that was extended and is due on December 2016. As of both February 28, 2015 and November 30, 2014, there was $60.6 million outstanding. |
In May 2014, the Rialto segment issued $73.8 million principal amount of notes through a structured note offering (the “Structured Notes”) collateralized by certain assets originally acquired in the Bank Portfolios transaction at a price of 100%, with an annual coupon rate of 2.85%. Proceeds from the offering, after payment of expenses and hold backs for a cash reserve, were $69.1 million. In November 2014, the Rialto segment issued an additional $20.8 million of the Structured Notes at a price of 99.5%, with an annual coupon rate of 5.0%. Proceeds from the offering, after payment of expenses, were $20.7 million. The estimated final payment date of the Structured Notes is December 15, 2015. As of February 28, 2015 and November 30, 2014, the outstanding amount related to Rialto's structured note offering was $40.4 million and $58.0 million, respectively. |
The loans receivable portfolios consist of loans acquired at a discount. Based on the nature of these loans, the portfolios are managed by assessing the risks related to the likelihood of collection of payments from borrowers and guarantors, as well as monitoring the value of the underlying collateral. The following table displays the loans receivable, net by aggregate collateral type and risk categories: |
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(In thousands) | February 28, | | November 30, | | | | | | | | | | | | | | | | | | |
2015 | 2014 | | | | | | | | | | | | | | | | | | |
Land | $ | 78,397 | | | 89,603 | | | | | | | | | | | | | | | | | | | |
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Single family homes | 19,092 | | | 20,402 | | | | | | | | | | | | | | | | | | | |
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Commercial properties | 7,118 | | | 7,286 | | | | | | | | | | | | | | | | | | | |
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Other | 12,118 | | | 12,814 | | | | | | | | | | | | | | | | | | | |
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Loans receivable, net | $ | 116,725 | | | 130,105 | | | | | | | | | | | | | | | | | | | |
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In order to assess the risk associated with each risk category, the Rialto segment evaluates the forecasted cash flows and the value of the underlying collateral securing loans receivable on a quarterly basis or when an event occurs that suggests a decline in the collateral’s fair value. |
During the fourth quarter of 2014, in an effort to better reflect the performance of the FDIC Portfolios and Bank Portfolios, the Company changed from recording accretable yield income on a loan pool basis to recording income on a cost recovery basis per loan as expected cash flows on the remaining loan portfolios could no longer be reasonably estimated. Therefore, all the loans receivable, net presented above are classified as nonaccrual loans in accordance with ASC 310-10, Receivables (“ASC 310-10”) at February 28, 2015 and November 30, 2014. |
With regard to loans accounted for under ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality, (“ASC 310-30”), prior to the fourth quarter of 2014 the Rialto segment estimated the cash flows, at acquisition, it expected to collect on the FDIC Portfolios and Bank Portfolios. In accordance with ASC 310-30, the difference between the contractually required payments and the cash flows expected to be collected at acquisition was referred to as the nonaccretable difference. This difference was neither accreted into income nor recorded on the Company’s condensed consolidated balance sheets. The excess of cash flows expected to be collected over the cost of the loans acquired was referred to as the accretable yield and was recognized in interest income over the remaining life of the loans using the effective yield method. |
For the three months ended February 28, 2015, there was no activity in the accretable yield for the FDIC Portfolios and Bank Portfolios as all the remaining accreting loans were classified as nonaccrual loans during the fourth quarter of 2014, as explained above. For the three months ended February 28, 2014 the activity in the accretable yield was as follows: |
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| Three Months Ended | | | | | | | | | | | | | | | | | | | | | |
| February 28, | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | 2014 | | | | | | | | | | | | | | | | | | | | | |
Accretable yield, beginning of period | $ | 73,144 | | | | | | | | | | | | | | | | | | | | | | |
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Additions | 1,352 | | | | | | | | | | | | | | | | | | | | | | |
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Deletions | (8,704 | ) | | | | | | | | | | | | | | | | | | | | | |
Accretions | (9,795 | ) | | | | | | | | | | | | | | | | | | | | | |
Accretable yield, end of period | $ | 55,997 | | | | | | | | | | | | | | | | | | | | | | |
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Additions primarily represent reclasses from nonaccretable yield to accretable yield on the portfolios. Deletions represent loan impairments, net of recoveries, and disposal of loans, which includes foreclosure of underlying collateral and result in the removal of the loans from the accretable yield portfolios. |
When forecasted principal and interest cannot be reasonably estimated, management classifies the loan as nonaccrual and accounts for these assets in accordance with ASC 310-10. When a loan is classified as nonaccrual, any subsequent cash receipt is accounted for using the cost recovery method. In accordance with ASC 310-10, a loan is considered impaired when based on current information and events it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected. Although these loans met the definition of ASC 310-10, these loans were not considered impaired relative to the Company’s recorded investment at the time of acquisition since they were acquired at a substantial discount to their unpaid principal balance. A provision for loan losses is recognized when the recorded investment in the loan is in excess of its fair value. The fair value of the loan is determined by using either the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral less estimated costs to sell. |
The following tables represent nonaccrual loans in the FDIC Portfolios and Bank Portfolios accounted for under ASC 310-10 aggregated by collateral type: |
February 28, 2015 |
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| | | Recorded Investment | | | | | | | | | | | | | | |
(In thousands) | Unpaid | | With | | Without | | Total Recorded | | | | | | | | | | | | |
Principal Balance | Allowance | Allowance | Investment | | | | | | | | | | | | |
Land | $ | 199,367 | | | 76,354 | | | 2,043 | | | 78,397 | | | | | | | | | | | | | |
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Single family homes | 60,723 | | | 14,514 | | | 4,578 | | | 19,092 | | | | | | | | | | | | | |
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Commercial properties | 21,425 | | | 6,983 | | | 135 | | | 7,118 | | | | | | | | | | | | | |
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Other | 61,787 | | | — | | | 12,118 | | | 12,118 | | | | | | | | | | | | | |
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Loans receivable | $ | 343,302 | | | 97,851 | | | 18,874 | | | 116,725 | | | | | | | | | | | | | |
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November 30, 2014 |
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| | | Recorded Investment | | | | | | | | | | | | | | |
(In thousands) | Unpaid | | With | | Without | | Total Recorded | | | | | | | | | | | | |
Principal Balance | Allowance | Allowance | Investment | | | | | | | | | | | | |
Land | $ | 228,245 | | | 85,912 | | | 3,691 | | | 89,603 | | | | | | | | | | | | | |
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Single family homes | 66,183 | | | 18,096 | | | 2,306 | | | 20,402 | | | | | | | | | | | | | |
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Commercial properties | 34,048 | | | 3,368 | | | 3,918 | | | 7,286 | | | | | | | | | | | | | |
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Other | 64,284 | | | 5 | | | 12,809 | | | 12,814 | | | | | | | | | | | | | |
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Loans receivable | $ | 392,760 | | | 107,381 | | | 22,724 | | | 130,105 | | | | | | | | | | | | | |
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The average recorded investment in impaired loans totaled approximately $123 million and $7 million for the three months ended February 28, 2015 and 2014, respectively. |
Accrual — Loans in which forecasted cash flows under the loan agreement, as it might be modified from time to time, can be reasonably estimated at the date of acquisition. The risk associated with loans in this category relates to the possible default by the borrower with respect to principal and interest payments and the possible decline in value of the underlying collateral and thus, both could cause a decline in the forecasted cash flows used to determine accretable yield income and the recognition of an impairment through an allowance for loan losses but can be reversed if conditions improve. For the three months ended February 28, 2015, there is no activity in the Company's allowance related to accrual loans as there were no loans classified as accrual loans at both February 28, 2015 and November 30, 2014. For the three months ended February 28, 2014, the activity in the Company's allowance rollforward related to accrual loans was as follows: |
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| Three Months Ended | | | | | | | | | | | | | | | | | | | | | |
| February 28, | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | 2014 | | | | | | | | | | | | | | | | | | | | | |
Allowance on accrual loans, beginning of period | $ | 18,952 | | | | | | | | | | | | | | | | | | | | | | |
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Provision for loan losses, net of recoveries | 6,637 | | | | | | | | | | | | | | | | | | | | | | |
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Charge-offs | (667 | ) | | | | | | | | | | | | | | | | | | | | | |
Allowance on accrual loans, end of period | $ | 24,922 | | | | | | | | | | | | | | | | | | | | | | |
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Nonaccrual — Loans in which forecasted principal and interest could not be reasonably estimated. The risk of nonaccrual loans relates to a decline in the value of the collateral securing the outstanding obligation and the recognition of an impairment through an allowance for loan losses if the recorded investment in the loan exceeds its fair value. The activity in the Company's allowance rollforward related to nonaccrual loans was as follows: |
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| Three Months Ended | | | | | | | | | | | | | | | | | | |
| February 28, | | | | | | | | | | | | | | | | | | |
(In thousands) | 2015 | | 2014 | | | | | | | | | | | | | | | | | | |
Allowance on nonaccrual loans, beginning of period | $ | 58,236 | | | 1,213 | | | | | | | | | | | | | | | | | | | |
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Provision for loan losses, net of recoveries | 1,224 | | | 79 | | | | | | | | | | | | | | | | | | | |
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Charge-offs | (8,441 | ) | | (868 | ) | | | | | | | | | | | | | | | | | | |
Allowance on nonaccrual loans, end of period | $ | 51,019 | | | 424 | | | | | | | | | | | | | | | | | | | |
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Real Estate Owned |
The acquisition of properties acquired through, or in lieu of, loan foreclosure are reported within the condensed consolidated balance sheets as REO held-and-used, net and REO held-for-sale. When a property is determined to be held-and-used, net, the asset is recorded at fair value and depreciated over its useful life using the straight line method. When certain criteria set forth in ASC 360, Property, Plant and Equipment, are met, the property is classified as held-for-sale. When a real estate asset is classified as held-for-sale, the property is recorded at the lower of its cost basis or fair value less estimated costs to sell. The fair value of REO held-for-sale is determined in part by placing reliance on third-party appraisals of the properties and/or internally prepared analyses of recent offers or prices on comparable properties in the proximate vicinity. |
The following tables represent the activity in REO: |
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| Three Months Ended | | | | | | | | | | | | | | | | | | |
| February 28, | | | | | | | | | | | | | | | | | | |
(In thousands) | 2015 | | 2014 | | | | | | | | | | | | | | | | | | |
REO - held-for-sale, beginning of period | $ | 190,535 | | | 197,851 | | | | | | | | | | | | | | | | | | | |
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Improvements | 1,704 | | | 1,593 | | | | | | | | | | | | | | | | | | | |
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Sales | (24,925 | ) | | (41,233 | ) | | | | | | | | | | | | | | | | | | |
Impairments and unrealized losses | (1,418 | ) | | (1,791 | ) | | | | | | | | | | | | | | | | | | |
Transfers from held-and-used, net (1) | 19,615 | | | 29,814 | | | | | | | | | | | | | | | | | | | |
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REO - held-for-sale, end of period | $ | 185,511 | | | 186,234 | | | | | | | | | | | | | | | | | | | |
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| Three Months Ended | | | | | | | | | | | | | | | | | | |
| February 28, | | | | | | | | | | | | | | | | | | |
(In thousands) | 2015 | | 2014 | | | | | | | | | | | | | | | | | | |
REO - held-and-used, net, beginning of period | $ | 255,795 | | | 428,989 | | | | | | | | | | | | | | | | | | | |
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Additions | 8,912 | | | 8,034 | | | | | | | | | | | | | | | | | | | |
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Improvements | 643 | | | 763 | | | | | | | | | | | | | | | | | | | |
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Impairments | (1,413 | ) | | (904 | ) | | | | | | | | | | | | | | | | | | |
Depreciation | (789 | ) | | (1,393 | ) | | | | | | | | | | | | | | | | | | |
Transfers to held-for-sale (1) | (19,615 | ) | | (29,814 | ) | | | | | | | | | | | | | | | | | | |
Other | (964 | ) | | — | | | | | | | | | | | | | | | | | | | |
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REO - held-and-used, net, end of period | $ | 242,569 | | | 405,675 | | | | | | | | | | | | | | | | | | | |
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-1 | During the three months ended February 28, 2015 and 2014, the Rialto segment transferred certain properties from REO held-and-used, net to REO held-for-sale as a result of changes in the disposition strategy of the real estate assets. | | | | | | | | | | | | | | | | | | | | | | | |
Rialto Mortgage Finance |
RMF originates and sells into securitizations five, seven and ten year commercial first mortgage loans, generally with principal amounts between $2 million and $75 million, which are secured by income producing properties. During the three months ended February 28, 2015, RMF originated loans with a total principal balance of $565.5 million and sold $318.1 million of loans into two separate securitizations. During the three months ended February 28, 2014, RMF originated loans with a total principal balance of $295.5 million and sold $253.0 million of loans into two separate securitizations. As November 30, 2014, $147.2 million of the originated loans were sold into a securitization trust but not settled and thus were included as receivables, net. |
As of both February 28, 2015 and November 30, 2014, RMF had two warehouse repurchase financing agreements that mature in fiscal year 2015 with commitments totaling $650 million to help finance the loans it makes. Borrowings under these facilities were $183.2 million and $141.3 million as of February 28, 2015 and November 30, 2014, respectively. In March 2015, RMF entered into an additional warehouse repurchase facility with commitments totaling $250 million that matures in fiscal 2016. |
In November 2013, the Rialto segment issued $250 million aggregate principal amount of the 7.00% senior notes due 2018 (“7.00% Senior Notes”), at a price of 100% in a private placement. Proceeds from the offering, after payment of expenses, were approximately $245 million. Rialto used a majority of the net proceeds of the sale of the 7.00% Senior Notes as working capital for RMF and used $100 million to repay sums that had been advanced to RMF from Lennar to enable it to begin originating and securitizing commercial mortgage loans. In March 2014, the Rialto segment issued an additional $100 million of the 7.00% Senior Notes, at a price of 102.25% of their face value in a private placement. Proceeds from the offering, after payment of expenses, were approximately $102 million. Rialto used the net proceeds of the offering to provide additional working capital for RMF, and to make investments in the funds that Rialto manages, as well as for general corporate purposes. Interest on the 7.00% Senior Notes is due semi-annually. At February 28, 2015 and November 30, 2014, the carrying amount of the 7.00% Senior Notes was $351.8 million and $351.9 million, respectively. Under the indenture, Rialto is subject to certain covenants limiting, among other things, Rialto’s ability to incur indebtedness, to make investments, to make distributions to, or enter into transactions with, Lennar or to create liens, subject to certain exceptions and qualifications. Rialto also has quarterly and annual reporting requirements, similar to an SEC registrant, to holders of the 7.00% Senior Notes. The Company believes it was in compliance with its debt covenants at February 28, 2015. |
Investments |
All of Rialto's investments in funds have the attributes of an investment company in accordance with ASC 946, Financial Services – Investment Companies, as amended by ASU 2013-08, Financial Services - Investment Companies (Topic 946): Amendments to the Scope, Measurement, and Disclosure Requirements, the attributes of which are different from the attributes that would cause a company to be an investment company for purposes of the Investment Company Act of 1940. As a result, the assets and liabilities of Rialto's funds investment are recorded at fair value with increases/decreases in fair value recorded in their respective statements of operations and the Company’s share is recorded in Rialto equity in earnings from unconsolidated entities in the Company's statement of operations. |
The following table reflects Rialto's investments in funds that invest in and manage real estate related assets and other investments: |
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| | | | | | | | | February 28, | | February 28, | | November 30, |
2015 | 2015 | 2014 |
(Dollars in thousands) | Inception Year | | Equity Commitments | | Equity Commitments Called | | Commitment to fund by the Company | | Funds contributed by the Company | | Investment |
Rialto Real Estate Fund, LP | 2010 | | $ | 700,006 | | | $ | 700,006 | | | $ | 75,000 | | | $ | 75,000 | | | $ | 68,760 | | | 71,831 | |
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Rialto Real Estate Fund II, LP | 2012 | | 1,305,000 | | | 860,058 | | | 100,000 | | | 65,905 | | | 74,632 | | | 67,652 | |
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Rialto Mezzanine Partners Fund, LP | 2013 | | 300,000 | | | 213,536 | | | 33,799 | | | 24,058 | | | 23,674 | | | 20,226 | |
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Other investments | | | | | | | | | | | 15,812 | | | 15,991 | |
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| | | | | | | | | | | $ | 182,878 | | | 175,700 | |
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Rialto's share of earnings (loss) from unconsolidated entities was as follows: |
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| Three Months Ended | | | | | | | | | | | | | | | | | | |
| February 28, | | | | | | | | | | | | | | | | | | |
(In thousands) | 2015 | | 2014 | | | | | | | | | | | | | | | | | | |
Rialto Real Estate Fund, LP | $ | 746 | | | 5,059 | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Rialto Real Estate Fund II, LP | 893 | | | 38 | | | | | | | | | | | | | | | | | | | |
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Rialto Mezzanine Partners Fund, LP | 475 | | | 289 | | | | | | | | | | | | | | | | | | | |
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Other investments | 550 | | | (32 | ) | | | | | | | | | | | | | | | | | | |
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Rialto equity in earnings from unconsolidated entities | $ | 2,664 | | | 5,354 | | | | | | | | | | | | | | | | | | | |
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During the three months ended February 28, 2015 , the Company received $6.5 million of advance distributions with regard to Rialto's carried interest in Rialto Real Estate Fund, LP ("Fund I") and Rialto Real Estate Fund II, LP ("Fund II") in order to cover income tax obligations resulting from allocations of taxable income to Rialto's carried interests in Fund I and Fund II. These amounts of advance distributions are not subject to clawbacks and are included in Rialto's revenues. |
Summarized condensed financial information on a combined 100% basis related to Rialto’s investments in unconsolidated entities that are accounted for by the equity method was as follows: |
Balance Sheets |
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(In thousands) | February 28, | | November 30, | | | | | | | | | | | | | | | | | | |
2015 | 2014 | | | | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | $ | 77,844 | | | 141,609 | | | | | | | | | | | | | | | | | | | |
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Loans receivable | 515,229 | | | 512,034 | | | | | | | | | | | | | | | | | | | |
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Real estate owned | 442,258 | | | 378,702 | | | | | | | | | | | | | | | | | | | |
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Investment securities | 859,117 | | | 795,306 | | | | | | | | | | | | | | | | | | | |
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Investments in partnerships | 345,752 | | | 311,037 | | | | | | | | | | | | | | | | | | | |
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Other assets | 30,456 | | | 45,451 | | | | | | | | | | | | | | | | | | | |
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| $ | 2,270,656 | | | 2,184,139 | | | | | | | | | | | | | | | | | | | |
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Liabilities and equity: | | | | | | | | | | | | | | | | | | | | | |
Accounts payable and other liabilities | $ | 15,846 | | | 20,573 | | | | | | | | | | | | | | | | | | | |
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Notes payable | 407,446 | | | 395,654 | | | | | | | | | | | | | | | | | | | |
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Equity | 1,847,364 | | | 1,767,912 | | | | | | | | | | | | | | | | | | | |
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| $ | 2,270,656 | | | 2,184,139 | | | | | | | | | | | | | | | | | | | |
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Statements of Operations |
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| Three Months Ended | | | | | | | | | | | | | | | | | | |
| February 28, | | | | | | | | | | | | | | | | | | |
(In thousands) | 2015 | | 2014 | | | | | | | | | | | | | | | | | | |
Revenues | $ | 41,738 | | | 31,427 | | | | | | | | | | | | | | | | | | | |
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Costs and expenses | 23,005 | | | 26,109 | | | | | | | | | | | | | | | | | | | |
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Other income, net (1) | 5,874 | | | 48,170 | | | | | | | | | | | | | | | | | | | |
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Net earnings of unconsolidated entities | $ | 24,607 | | | 53,488 | | | | | | | | | | | | | | | | | | | |
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Rialto equity in earnings from unconsolidated entities | $ | 2,664 | | | 5,354 | | | | | | | | | | | | | | | | | | | |
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-1 | Other income, net, for the three months ended February 28, 2015 and 2014 included realized and unrealized gains (losses) on investments. | | | | | | | | | | | | | | | | | | | | | | | |
In 2010, the Rialto segment invested in non-investment grade commercial mortgage-backed securities (“CMBS”) at a 55% discount to par value. The carrying value of the investment securities at February 28, 2015 and November 30, 2014 was $17.6 million and $17.3 million, respectively. These securities bear interest at a coupon rate of 4% and have a stated and assumed final distribution date of November 2020 and a stated maturity date of October 2057. The Rialto segment reviews changes in estimated cash flows periodically to determine if other-than-temporary impairment has occurred on its investment securities. Based on the Rialto segment’s assessment, no impairment charges were recorded during both the three months ended February 28, 2015 and 2014. The Rialto segment classified these securities as held-to-maturity based on its intent and ability to hold the securities until maturity. |
In December 2014, the Rialto segment invested in a private commercial real estate services company at a price of $18.0 million. The investment is carried at cost at February 28, 2015 and is included in Rialto's other assets. |