SEC Filing | Front Yard Residential Corporation

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aamc-20200630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR TRANSITION PERIOD FROM __________ TO __________

COMMISSION FILE NUMBER: 001-35657

Front Yard Residential Corporation

(Exact name of registrant as specified in its charter)


Maryland			46-0633510
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

c/o Altisource Asset Management Corporation

5100 Tamarind Reef

Christiansted, U.S. Virgin Islands 00820

(Address of principal executive office)

(340) 692-0525

(Registrant’s telephone number, including area code)

Securities registered or to be registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.01 per share	RESI	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer

☐

Accelerated Filer

☒

Non-Accelerated Filer

☐

Smaller Reporting Company

☐

Emerging Growth Company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 3, 2020, 58,747,146 shares of our common stock were outstanding.

Front Yard Residential Corporation

June 30, 2020

Table of Contents


Part I			1
Item 1. Financial Statements (Unaudited)			1
Condensed Consolidated Balance Sheets			1
Condensed Consolidated Statements of Operations			2
Condensed Consolidated Statements of Comprehensive Income (Loss)			3
Condensed Consolidated Statements of Stockholders' Equity			4
Condensed Consolidated Statements of Cash Flows			6
Notes to Condensed Consolidated Financial Statements			8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			27
Item 3. Quantitative and Qualitative Disclosures about Market Risk			40
Item 4. Controls and Procedures			41
Part II			42
Item 1. Legal Proceedings			42
Item 1A. Risk Factors			42

Item 4. Mine Safety Disclosures			43

Item 6. Exhibits			44
Signatures			45

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References in this report to “we,” “our,” “us” or the “Company” refer to Front Yard Residential Corporation and its consolidated subsidiaries, unless otherwise indicated. References in this report to “AAMC” refer to Altisource Asset Management Corporation and its consolidated subsidiaries, unless otherwise indicated.

Special note on forward-looking statements

Our disclosure and analysis in this Quarterly Report on Form 10-Q contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In some cases, you can identify forward-looking statements by the use of forward-looking terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts” or “potential” or the negative of these words and phrases or similar words or phrases that are predictions of or indicate future events or trends and that do not relate solely to historical matters. You can also identify forward-looking statements by discussions of strategy, plans or intentions.

The forward-looking statements contained in this report reflect our current views about future events and are subject to numerous known and unknown risks, uncertainties, assumptions and changes in circumstances that may cause our actual results to differ significantly from those expressed in any forward-looking statement. Factors that may materially affect such forward-looking statements include, but are not limited to:

•our ability to implement our business strategy;

•our ability to make distributions to our stockholders;

•the potential for the COVID-19 pandemic to adversely affect our business, financial position, operations, business prospects, customers, employees and third-party service providers;

•the effect of the termination of the Agreement and Plan of Merger (the “Merger Agreement”) with BAF Holdings, LLC, a Delaware limited liability company (“Parent”), and BAF Sub, LLC, a Maryland limited liability company (“Merger Sub”) on our relationships with our customers, financing sources, third-party service providers, operating results and business generally;

•the impact of the costs of the merger transaction that were borne by the Company despite the merger transaction being terminated;

•the effect of management’s attention being diverted from our ongoing business operations and costs associated with shareholder activism;

•the impact of defending any litigation;

•our ability to successfully implement our strategic initiatives and achieve their anticipated impact;

•our ability to acquire single-family rental assets for our portfolio, including difficulties in identifying assets to acquire;

•the impact of changes to the supply of, value of and the returns on single-family rental assets;

•our ability to successfully integrate newly acquired properties into our portfolio of single-family rental properties;

•our ability to successfully operate HavenBrook Partners, LLC (“HavenBrook”) as a property manager and perform property management services for our single-family rental assets at the standard and/or the cost that we anticipate;

•our ability to predict our costs;

•our ability to effectively compete with our competitors;

•our ability to apply the proceeds from financing activities or non-rental real estate owned asset sales to target single-family rental assets in a timely manner;

•our ability to sell non-rental real estate owned properties on favorable terms and on a timely basis or at all;

•the failure to identify unforeseen expenses or material liabilities associated with asset acquisitions through the due diligence process prior to such acquisitions;

•changes in the market value of our single-family rental properties and real estate owned;

•changes in interest rates;

•our ability to obtain and access financing arrangements on favorable terms or at all;

•our ability to maintain adequate liquidity;

•risks related to our engagement of AAMC as our asset manager;

•the failure of our third party vendors to effectively perform their obligations under their respective agreements with us;

•our failure to maintain our qualification as a REIT;

•our failure to maintain our exemption from registration under the Investment Company Act;

•the impact of adverse real estate, mortgage or housing markets;

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•the impact of adverse legislative, regulatory or tax changes; and

•general economic and market conditions.

While forward-looking statements reflect our good faith beliefs, assumptions and expectations, they are not guarantees of future performance. Such forward-looking statements speak only as of their respective dates, and we assume no obligation to update them to reflect changes in underlying assumptions or factors, new information or otherwise. For a further discussion of these and other factors that could cause our future results to differ materially from any forward-looking statements, please see Part II, Item 1A in this Quarterly Report on Form 10-Q and “Item 1A. Risk factors” in our Annual Report on Form 10-K for the year ended December 31, 2019.

iii

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Part I

Item 1. Financial Statements (Unaudited)

Front Yard Residential Corporation

Condensed Consolidated Balance Sheets

(In thousands, except share and per share amounts)


	June 30, 2020		December 31, 2019
	(unaudited)
Assets:
Real estate held for use:
Land	$	397,878	$	398,840
Rental residential properties	1,718,513		1,707,043
Real estate owned	12,684		16,328
Total real estate held for use	2,129,075		2,122,211
Less: accumulated depreciation	(244,183)		(206,464)
Total real estate held for use, net	1,884,892		1,915,747
Real estate assets held for sale	4,699		14,395

Cash and cash equivalents	109,018		43,727
Restricted cash	31,994		34,282
Accounts receivable	5,199		9,235

Goodwill	13,376		13,376
Prepaid expenses and other assets	23,431		22,360
Total assets	$	2,072,609	$	2,053,122

Liabilities:
Repurchase and loan agreements	$	1,629,283	$	1,644,230

Accounts payable and accrued liabilities	67,309		64,619
Payable to AAMC	3,886		5,014
Total liabilities	1,700,478		1,713,863

Commitments and contingencies (Note 7)	—		—

Equity:
Common stock, 0.01 par value, 200,000,000 authorized shares; 58,747,146 shares issued and outstanding as of June 30, 2020 and 53,933,575 shares issued and outstanding as of December 31, 2019	587		539
Additional paid-in capital	1,245,493		1,189,236
Accumulated deficit	(855,085)		(830,602)
Accumulated other comprehensive loss	(18,864)		(19,914)
Total equity	372,131		339,259
Total liabilities and equity	$	2,072,609	$	2,053,122

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Front Yard Residential Corporation

Condensed Consolidated Statements of Operations

(In thousands, except share and per share amounts)

(Unaudited)


	Three months ended June 30,						Six months ended June 30,
	2020		2019		2020		2019
Revenues:
Rental revenues	$	55,128	$	51,553	$	109,456	$	104,178

Total revenues	55,128		51,553		109,456		104,178
Expenses:
Residential property operating expenses	18,826		18,968		37,687		37,405
Property management expenses	3,627		3,538		7,798		7,213
Depreciation and amortization	20,242		19,936		40,608		42,321
Acquisition and integration costs	73		651		142		2,862
Impairment	654		1,576		889		2,596
Mortgage loan servicing costs	—		194		—		581
Interest expense	18,916		21,165		38,412		42,675
Share-based compensation	936		1,811		2,423		2,930
General and administrative	9,052		7,992		16,643		13,758
Management fees to AAMC	3,584		3,556		7,168		7,131
Total expenses	75,910		79,387		151,770		159,472
Net (loss) gain on real estate and mortgage loans	(163)		3,842		1,370		12,619
Operating loss	(20,945)		(23,992)		(40,944)		(42,675)
Casualty losses	(345)		(184)		(632)		(577)
Insurance recoveries	12		11		75		538
Other income (loss)	25,301		(846)		25,309		(797)
Net income (loss) before income taxes	4,023		(25,011)		(16,192)		(43,511)
Income tax expense	28		6		28		14
Net income (loss)	$	3,995	$	(25,017)	$	(16,220)	$	(43,525)

Earnings (loss) per share of common stock - basic:
Earnings (loss) per basic share	$	0.07	$	(0.47)	$	(0.29)	$	(0.81)
Weighted average common stock outstanding - basic	56,272,446		53,714,998		55,107,940		53,672,835
Earnings (loss) per share of common stock - diluted:
Earnings (loss) per diluted share	$	0.07	$	(0.47)	$	(0.29)	$	(0.81)
Weighted average common stock outstanding - diluted	56,796,936		53,714,998		55,107,940		53,672,835

Dividends declared per common share	$	—	$	0.15	$	0.15	$	0.30

See accompanying notes to condensed consolidated financial statements.

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Front Yard Residential Corporation

Condensed Consolidated Statements of Comprehensive Income (Loss)

(In thousands)

(Unaudited)


	Three months ended June 30,						Six months ended June 30,
	2020		2019		2020		2019
Net income (loss)	$	3,995	$	(25,017)	$	(16,220)	$	(43,525)

Other comprehensive income (loss):
Change in fair value of interest rate caps	104		(3,482)		(1,711)		(11,091)
Losses from interest rate caps reclassified into earnings from accumulated other comprehensive income (loss)	1,393		1,248		2,761		2,235
Net other comprehensive income (loss)	1,497		(2,234)		1,050		(8,856)

Comprehensive income (loss)	$	5,492	$	(27,251)	$	(15,170)	$	(52,381)

See accompanying notes to condensed consolidated financial statements.

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Front Yard Residential Corporation

Condensed Consolidated Statements of Stockholders' Equity

(In thousands, except share and per share amounts)

(Unaudited)


	Common Stock					Additional Paid-in Capital		Accumulated Deficit		Accumulated Comprehensive Loss		Total Equity
	Number of Shares	Amount
December 31, 2019	53,933,575	$	539	$	1,189,236	$	(830,602)	$	(19,914)	$	339,259

Common shares issued under share-based compensation plans	243,089	3		62		—		—		65
Shares withheld for taxes upon vesting of restricted stock	(64,290)	(1)		(767)		—		—		(768)

Dividends on common stock ($0.15 per share)	—	—		—		(8,263)		—		(8,263)
Share-based compensation	—	—		1,487		—		—		1,487
Change in fair value of cash flow hedging derivatives in other comprehensive loss	—	—		—		—		(447)		(447)
Net loss	—	—		—		(20,215)		—		(20,215)
March 31, 2020	54,112,374	541		1,190,018		(859,080)		(20,361)		311,118
Issuance of common stock, including shares under share-based compensation plans	4,693,383	47		54,953		—		—		55,000
Shares withheld for taxes upon vesting of restricted stock	(58,611)	(1)		(414)		—		—		(415)

Share-based compensation	—	—		936		—		—		936
Change in fair value of cash flow hedging derivatives in other comprehensive income	—	—		—		—		1,497		1,497
Net loss	—	—		—		3,995		—		3,995
June 30, 2020	58,747,146	$	587	$	1,245,493	$	(855,085)	$	(18,864)	$	372,131

See accompanying notes to condensed consolidated financial statements.

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Front Yard Residential Corporation

Condensed Consolidated Statements of Stockholders' Equity (continued)

(In thousands, except share and per share amounts)

(Unaudited)


	Common Stock					Additional Paid-in Capital		Accumulated Deficit		Accumulated Comprehensive Loss		Total Equity
	Number of Shares	Amount
December 31, 2018	53,630,204	$	536	$	1,184,132	$	(700,623)	$	(12,653)	$	471,392
Adoption of ASC 842	—	—		—		96		—		96



Dividends on common stock ($0.15 per share)	—	—		—		(8,158)		—		(8,158)
Share-based compensation	—	—		1,119		—		—		1,119
Change in fair value of cash flow hedging derivatives in other comprehensive loss	—	—		—		—		(6,622)		(6,622)
Net loss	—	—		—		(18,508)		—		(18,508)
March 31, 2019	53,630,204	536		1,185,251		(727,193)		(19,275)		439,319
Common shares issued under share-based compensation plans, net of shares withheld for employee taxes	234,389	2		59		—		—		61
Shares withheld for taxes upon vesting of restricted stock	(38,135)	—		(438)		—		—		(438)
Dividends on common stock ($0.15 per share)	—	—		—		(8,258)		—		(8,258)
Share-based compensation	—	—		1,811		—		—		1,811
Change in fair value of cash flow hedging derivatives in other comprehensive loss	—	—		—		—		(2,234)		(2,234)
Net loss	—	—		—		(25,017)		—		(25,017)
June 30, 2019	53,826,458	$	538	$	1,186,683	$	(760,468)	$	(21,509)	$	405,244

See accompanying notes to condensed consolidated financial statements.

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Front Yard Residential Corporation

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Six months ended June 30,
	2020		2019
Operating activities:
Net loss	$	(16,220)	$	(43,525)
Adjustments to reconcile net loss to net cash used in operating activities:
Net gain on real estate and mortgage loans	(1,370)		(12,619)



Depreciation and amortization	40,608		42,321
Impairment	889		2,596
Share-based compensation	2,423		2,930
Amortization of deferred financing costs	3,657		2,528
Casualty losses	632		577
Insurance recoveries	(75)		(538)
Change in fair value of interest rate cap derivatives in profit or loss	2,761		2,235
Changes in operating assets and liabilities:
Accounts receivable	859		2,630

Deferred leasing costs	(1,477)		(1,418)
Prepaid expenses and other assets	(2,913)		(30)
Accounts payable and accrued liabilities	3,366		(6,557)
Payable to AAMC	(1,128)		24
Net cash provided by (used in) operating activities	32,012		(8,846)
Investing activities:
Investment in real estate	(543)		(7,374)
Investment in renovations	(16,205)		(13,707)

Payment of real estate tax advances	—		(29)
Proceeds from mortgage loan resolutions and dispositions	—		1,690
Receipt of mortgage loan payments	—		138
Proceeds from dispositions of real estate	21,456		144,432
Proceeds from casualty insurance	75		1,550


Net cash provided by investing activities	4,783		126,700
Financing activities:
Proceeds from issuance of common stock, including stock option exercises	55,086		137
Payment of tax withholdings on share-based compensation plan awards	(21)		(76)

Shares withheld for taxes upon vesting of restricted stock	(1,183)		(438)
Dividends on common stock	(8,557)		(16,237)


Proceeds from repurchase and loan agreements	42,568		32,068
Repayments of repurchase and loan agreements	(57,530)		(131,983)


Payment of financing costs	(3,642)		(463)
Principal repayments of finance leases	(513)		(632)
Net cash provided by (used in) financing activities	26,208		(117,624)
Net change in cash, cash equivalents and restricted cash	63,003		230
Cash, cash equivalents and restricted cash as of beginning of the period	78,009		81,160
Cash, cash equivalents and restricted cash as of end of the period	$	141,012	$	81,390

See accompanying notes to condensed consolidated financial statements.

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Front Yard Residential Corporation Condensed Consolidated Statements of Cash Flows (continued) (In thousands) (Unaudited)
	Six months ended June 30,
	2020		2019
Supplemental disclosure of cash flow information:
Cash paid for:
Interest	$	32,687	$	38,911


Non-cash transactions:

Transfer of mortgage loans to real estate owned, net	$	—	$	3,740

Changes in accrued capital expenditures	(202)		(2,064)
Changes in receivables from mortgage loan resolutions and dispositions, payments and real estate tax advances to borrowers, net	—		(68)
Changes in receivables from real estate owned dispositions	(3,205)		(8,767)
Change in other comprehensive loss from cash flow hedges	1,050		(8,856)
Right-of-use lease assets recognized - operating leases	—		1,485
Right-of-use lease assets recognized - finance leases	333		1,103
Operating lease liabilities incurred	—		1,437
Finance lease liabilities incurred	333		1,109
Dividends declared but not paid	405		8,376

See accompanying notes to condensed consolidated financial statements.

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Front Yard Residential Corporation

Notes to Condensed Consolidated Financial Statements

June 30, 2020

(Unaudited)

1. Organization and Basis of Presentation

Front Yard Residential Corporation (“we,” “our,” “us,” or the “Company”) is a Maryland real estate investment trust (“REIT”) focused on acquiring, owning and managing single-family rental (“SFR”) properties throughout the United States. We conduct substantially all of our activities through our wholly owned subsidiary, Front Yard Residential, L.P., and its subsidiaries.

On August 8, 2018, we acquired a property management firm and commenced the internalization of our property management function. During the first quarter of 2019, we completed the transition of property management for our SFR properties that were previously externally managed to our internal property management platform. We anticipate that all SFR properties acquired in the future will also be managed internally.

As of June 30, 2020, we had a core rental portfolio of 14,512 homes. In addition, we had 120 rental homes that are identified for future sale, and we had a small portfolio of non-rental real estate owned (“REO”) properties remaining from our previous mortgage loan portfolio acquisitions. We have engaged third-party service providers to manage REO and certain other properties. We are currently preparing these non-core assets for future disposition in order to create additional liquidity and purchasing power to continue building our core rental portfolio.

We are managed by Altisource Asset Management Corporation (“AAMC” or our “Manager”). AAMC provides us with dedicated personnel to administer certain aspects of our business and perform certain of our corporate governance functions. AAMC also provides oversight of our acquisition and management of SFR properties and the ongoing management of our remaining REO properties. See Note 8 for a description of this related-party relationship.

On February 17, 2020, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with BAF Holdings, LLC, a Delaware limited liability company (“Parent”), and BAF Sub, LLC, a Maryland limited liability company (“Merger Sub”), each affiliates of Amherst Single Family Residential Partners VI, LP (collectively, “Amherst”), providing for the acquisition of the Company by Parent. Following the approval of the merger, the parties ultimately determined that it was not feasible to proceed with the transaction, and on May 4, 2020, we entered into a Termination and Settlement Agreement to terminate the Merger Agreement. Pursuant to the Termination and Settlement Agreement, Amherst agreed to pay the Company a $25 million cash termination fee, purchase from the Company 4.4 million shares of Front Yard common stock for an aggregate cash purchase price of $55 million ($12.50 per share) pursuant to an Investment Agreement and provide the Company with a $20 million committed Non-Negotiable Promissory Note.

We have included the $25 million termination fee received from Amherst within other income in our condensed consolidated statements of operations for the three and six months ended June 30, 2020.

Since the termination of the Merger Agreement, we have continued to operate our business in the ordinary course as a stand-alone company.

Basis of presentation and use of estimates

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). All wholly owned subsidiaries are included, and all intercompany accounts and transactions have been eliminated.

The unaudited interim condensed consolidated financial statements and accompanying unaudited condensed consolidated financial information, in our opinion, contain all adjustments that are of a normal recurring nature and are necessary for a fair presentation of our financial position, results of operations and cash flows for the interim periods. The interim results are not necessarily indicative of results for a full year. We have omitted certain notes and other information from the interim condensed consolidated financial statements presented in this Quarterly Report on Form 10-Q as permitted by Securities and Exchange Commission (“SEC”) rules and regulations. These condensed consolidated financial statements should be read in conjunction with our annual consolidated financial statements included within our 2019 Annual Report on Form 10-K, which was filed with the SEC on February 28, 2020.

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Use of estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ materially from those estimates.

Recently issued accounting standards

Adoption of recent accounting standards

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments, which amends the guidance on measuring credit losses on financial assets held at amortized cost. The amendment is intended to address the issue that the previous “incurred loss” methodology was restrictive for an entity's ability to record credit losses based on not yet meeting the “probable” threshold. The new language requires these assets to be valued at amortized cost presented at the net amount expected to be collected with a valuation provision. This ASU is effective for fiscal years beginning after December 15, 2019. The amendments in ASU 2016-13 should be applied on a modified retrospective transition basis. We adopted this standard on January 1, 2020, and our adoption of this standard did not have a material impact on our consolidated financial statements because the standard, as amended, excludes receivables arising from operating leases, which represent the majority of our receivables.

Recently issued accounting standards not yet adopted

In December 2019, the FASB issued ASU 2019-12, Income Taxes - Simplifying the Accounting for Income Taxes (Topic 740), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for fiscal years beginning after December 15, 2021. While we are currently evaluating the impact of the adoption of this standard, we do not expect the adoption of this standard to have a material impact on our consolidated financial statements.

2. Asset Acquisitions and Dispositions

Real estate assets

Real estate acquisitions

During the three months ended June 30, 2020, we acquired no SFR properties. During the three months ended June 30, 2019, we acquired 43 SFR properties for an aggregate purchase price of $5.5 million.

During the six months ended June 30, 2020 and 2019, we acquired 4 and 57 SFR properties, respectively, for an aggregate purchase price of $0.5 million and $7.4 million, respectively.

Real estate dispositions

During the three months ended June 30, 2020 and 2019, we sold 30 and 160 properties, respectively. Net proceeds of these sales were $5.9 million and $27.9 million, respectively.

During the six months ended June 30, 2020 and 2019, we sold 112 and 736 properties, respectively. Net proceeds of these sales were $18.8 million and $153.2 million, respectively.

Mortgage loan dispositions and resolutions

On October 7, 2019, we sold the last of our remaining mortgage loans. During the three and six months ended June 30, 2019, we resolved 5 and 13 mortgage loans, respectively, primarily through short sales, refinancing and foreclosure sales. Net proceeds of these resolutions were $0.6 million and $1.6 million, respectively.

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Net gain (loss) on real estate and mortgage loans

The following table presents the components of net gain (loss) on real estate and mortgage loans during the three and six months ended June 30, 2020 and 2019 ($ in thousands):


	Three months ended June 30,						Six months ended June 30,
	2020		2019		2020		2019

Conversion of mortgage loans to REO, net	$	—	$	137	$	—	$	752
Change in fair value of mortgage loans, net	—		176		—		292


Net realized gain on mortgage loans	—		204		—		727
Net realized (loss) gain on sales of real estate	(163)		3,325		1,370		10,848
Net (loss) gain on real estate and mortgage loans	$	(163)	$	3,842	$	1,370	$	12,619

3. Real Estate Assets, Net

The following table presents the number of real estate assets held by the Company by status as of the dates indicated:


June 30, 2020	Held for Use	Held for Sale	Total Portfolio
Rental Properties:
Leased	14,221	—	14,221
Listed and ready for rent	94	—	94
Unit turn	160	—	160
Renovation	37	—	37
Total rental properties	14,512
Previous rentals identified for sale	91	29	120
Legacy REO	5	3	8
	14,608	32	14,640

December 31, 2019
Rental Properties:
Leased	13,711	—	13,711
Listed and ready for rent	371	—	371
Unit turn	369	—	369
Renovation	94	—	94
Total rental properties	14,545
Previous rentals identified for sale	94	87	181
Legacy REO	10	12	22
	14,649	99	14,748

For properties held for sale or identified for future sale, management has determined to divest these properties because they do not meet our residential rental property investment criteria.

Impairment of real estate

During the three months ended June 30, 2020 and 2019, we recognized $0.7 million and $1.6 million, respectively, of impairment on our real estate assets held for sale.

During the six months ended June 30, 2020 and 2019, we recognized $0.9 million and $2.6 million, respectively, of impairment on our real estate assets held for sale.

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4. Fair Value of Financial Instruments

The following table sets forth the carrying value and fair value of our financial assets and liabilities by level within the fair value hierarchy as of June 30, 2020 and December 31, 2019 ($ in thousands):


			Level 1		Level 2		Level 3
	Carrying Value		Quoted Prices in Active Markets		Observable Inputs Other Than Level 1 Prices		Unobservable Inputs
June 30, 2020
Recurring basis (assets)

Interest rate cap derivatives (1)	$	359	$	—	$	359	$	—
Not recognized on condensed consolidated balance sheets at fair value (liabilities)
Repurchase and loan agreements	1,629,283		—