Washington, D.C. 20549
Apollo Commercial Real Estate Finance, Inc.
Apollo Commercial Real Estate Finance, Inc.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large"large accelerated filer,” “accelerated" "accelerated filer,” “smaller" "smaller reporting company,”" and “emerging"emerging growth company”company" in Rule 12b-2 of the Exchange Act.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicalpracticable date.
Apollo Commercial Real Estate Finance, Inc. and Consolidated Subsidiaries
Apollo Commercial Real Estate Finance, Inc. and Consolidated Subsidiaries
Apollo Commercial Real Estate Finance, Inc. and Consolidated Subsidiaries
Condensed Consolidated Statement of Comprehensive Income (Unaudited)
(in thousands)
|
| | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Net income available to common stockholders | $ | 57,208 |
| | $ | 60,583 |
| | $ | 121,946 |
| | $ | 77,864 |
|
Foreign currency translation adjustment | — |
| | 73 |
| | 3,811 |
| | 499 |
|
Comprehensive income | $ | 57,208 |
| | $ | 60,656 |
| | $ | 125,757 |
| | $ | 78,363 |
|
Apollo Commercial Real Estate Finance, Inc. and Consolidated Subsidiaries
Condensed Consolidated Statement of Changes in Stockholders’ Equity (Unaudited)
(in thousands—except share and per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred Stock | | | | Common Stock | | | | Additional Paid-In-Capital | | Accumulated Deficit | | | | Total |
| Shares | | Par | | Shares | | Par | | | | | | | | |
Balance at January 1, 2020 | 6,770,393 | | | $ | 68 | | | 153,537,296 | | | $ | 1,535 | | | $ | 2,825,317 | | | $ | (196,945) | | | | | $ | 2,629,975 | |
Adoption of ASU 2016-13, see Note 2 | — | | | — | | | — | | | — | | | — | | | (30,867) | | | | | (30,867) | |
Capital increase (decrease) related to Equity Incentive Plan | — | | | — | | | 503,251 | | | 5 | | | (2,236) | | | — | | | | | (2,231) | |
Repurchase of common stock | — | | | — | | | (300,000) | | | (3) | | | (2,438) | | | — | | | | | (2,441) | |
Net loss | — | | | — | | | — | | | — | | | — | | | (127,842) | | | | | (127,842) | |
Dividends declared on preferred stock - $0.50 per share | — | | | — | | | — | | | — | | | — | | | (3,385) | | | | | (3,385) | |
Dividends declared on common stock - $0.40 per share | — | | | — | | | — | | | — | | | — | | | (62,298) | | | | | (62,298) | |
Balance at March 31, 2020 | 6,770,393 | | | $ | 68 | | | 153,740,547 | | | $ | 1,537 | | | $ | 2,820,643 | | | $ | (421,337) | | | | | $ | 2,400,911 | |
Capital increase related to Equity Incentive Plan | — | | | — | | | 82,235 | | | 1 | | | 4,251 | | | — | | | | | 4,252 | |
Repurchase of common stock | — | | | — | | | (5,495,976) | | | (55) | | | (43,783) | | | — | | | | | (43,838) | |
Net income | — | | | — | | | — | | | — | | | — | | | 60,201 | | | | | 60,201 | |
Dividends declared on preferred stock - $0.50 per share | — | | | — | | | — | | | — | | | — | | | (3,385) | | | | | (3,385) | |
Dividends declared on common stock - $0.35 per share | — | | | — | | | — | | | — | | | — | | | (52,635) | | | | | (52,635) | |
Balance at June 30, 2020 | 6,770,393 | | | $ | 68 | | | 148,326,806 | | | $ | 1,483 | | | $ | 2,781,111 | | | $ | (417,156) | | | | | $ | 2,365,506 | |
Capital increase related to Equity Incentive Plan | — | | | — | | | 160 | | | — | | | 4,212 | | | — | | | | | 4,212 | |
Repurchase of common stock | — | | | — | | | (5,038,619) | | | (50) | | | (45,472) | | | — | | | | | (45,522) | |
Net income | — | | | — | | | — | | | — | | | — | | | 49,338 | | | | | 49,338 | |
Dividends declared on preferred stock - $0.50 per share | — | | | — | | | — | | | — | | | — | | | (3,385) | | | | | (3,385) | |
Dividends declared on common stock - $0.35 per share | — | | | — | | | — | | | — | | | — | | | (50,868) | | | | | (50,868) | |
Balance at September 30, 2020 | 6,770,393 | | | $ | 68 | | | 143,288,347 | | | $ | 1,433 | | | $ | 2,739,851 | | | $ | (422,071) | | | | | $ | 2,319,281 | |
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| Preferred Stock | | | | Common Stock | | | | Additional Paid-In-Capital | | Accumulated Deficit | | | | Total |
| Shares | | Par | | Shares | | Par | | | | | | | | |
Balance at January 1, 2019 | 13,670,393 | | | $ | 137 | | | 133,853,565 | | | $ | 1,339 | | | $ | 2,638,441 | | | $ | (130,170) | | | | | $ | 2,509,747 | |
Capital increase (decrease) related to Equity Incentive Plan | — | | | — | | | 433,426 | | | 4 | | | (1,099) | | | — | | | | | (1,095) | |
| | | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | | |
Conversions of convertible senior notes for common stock | — | | | — | | | 1,967,361 | | | 20 | | | 33,758 | | | — | | | | | 33,778 | |
| | | | | | | | | | | | | | | |
Net income | — | | | — | | | — | | | — | | | — | | | 67,758 | | | | | 67,758 | |
| | | | | | | | | | | | | | | |
Dividends declared on preferred stock - $0.50 per share | — | | | — | | | — | | | — | | | — | | | (6,835) | | | | | (6,835) | |
Dividends declared on common stock - $0.46 per share | — | | | — | | | — | | | — | | | — | | | (63,529) | | | | | (63,529) | |
Balance at March 31, 2019 | 13,670,393 | | | $ | 137 | | | 136,254,352 | | | $ | 1,363 | | | $ | 2,671,100 | | | $ | (132,776) | | | | | $ | 2,539,824 | |
Capital increase related to Equity Incentive Plan | — | | | — | | | 27,245 | | | — | | | 4,294 | | | — | | | | | 4,294 | |
Issuance of common stock | — | | | — | | | 17,250,000 | | | 172 | | | 314,985 | | | — | | | | | 315,157 | |
| | | | | | | | | | | | | | | |
Redemption of preferred stock | (6,900,000) | | | (69) | | | — | | | — | | | (172,431) | | | — | | | | | (172,500) | |
| | | | | | | | | | | | | | | |
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Offering costs | — | | | — | | | — | | | — | | | (406) | | | — | | | | | (406) | |
Net income | — | | | — | | | — | | | — | | | — | | | 61,424 | | | | | 61,424 | |
| | | | | | | | | | | | | | | |
Dividends declared on preferred stock - $0.50 per share | — | | | — | | | — | | | — | | | — | | | (4,919) | | | | | (4,919) | |
Dividends declared on common stock - $0.46 per share | — | | | — | | | — | | | — | | | — | | | (71,475) | | | | | (71,475) | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred Stock | | Common Stock | | Additional Paid In Capital | | Retained Earnings (Accumulated Deficit) | | Accumulated Other Comprehensive Loss | | |
| Shares | | Par | | Shares | | Par | | | | | Total |
Balance at January 1, 2017 | 18,350,000 |
| | $ | 184 |
| | 91,422,676 |
| | $ | 914 |
| | $ | 1,983,010 |
| | $ | (48,070 | ) | | $ | (3,811 | ) | | $ | 1,932,227 |
|
Capital increase related to Equity Incentive Plan | — |
| | — |
| | 200,859 |
| | 3 |
| | 7,551 |
| | — |
| | — |
| | 7,554 |
|
Issuance of common stock | — |
| | — |
| | 13,800,000 |
| | 138 |
| | 248,883 |
| | — |
| | — |
| | 249,021 |
|
Redemption of preferred stock | (3,450,000 | ) | | (35 | ) | | — |
| | — |
| | (86,215 | ) | | — |
| | — |
| | (86,250 | ) |
Preferred stock redemption charge | — |
| | — |
| | — |
| | — |
| | 3,016 |
| | — |
| | — |
| | 3,016 |
|
Issuance of restricted common stock | — |
| | — |
| | 27,700 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Offering costs | — |
| | — |
| | — |
| | — |
| | (120 | ) | | — |
| | — |
| | (120 | ) |
Issuance of convertible senior notes | — |
| | — |
| | — |
| | — |
| | 7,414 |
| | — |
| | — |
| | 7,414 |
|
Net income | — |
| | — |
| | — |
| | — |
| | — |
| | 151,714 |
| | — |
| | 151,714 |
|
Change in other comprehensive loss | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 3,811 |
| | 3,811 |
|
Dividends on common stock | — |
| | — |
| | — |
| | — |
| | — |
| | (141,042 | ) | | — |
| | (141,042 | ) |
Dividends on preferred stock | — |
| | — |
| | — |
| | — |
| | — |
| | (29,768 | ) | | — |
| | (29,768 | ) |
Balance at September 30, 2017 | 14,900,000 |
| | $ | 149 |
| | 105,451,235 |
| | $ | 1,055 |
| | $ | 2,163,539 |
| | $ | (67,166 | ) | | $ | — |
| | $ | 2,097,577 |
|
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Balance at June 30, 2019 | 6,770,393 | | | $ | 68 | | | 153,531,597 | | | $ | 1,535 | | | $ | 2,817,542 | | | $ | (147,746) | | | | | $ | 2,671,399 | |
Capital increase related to Equity Incentive Plan | — | | | — | | | 159 | | | — | | | 3,889 | | | — | | | | | 3,889 | |
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Offering costs | — | | | — | | | — | | | — | | | (12) | | | — | | | | | (12) | |
Net income | — | | | — | | | — | | | — | | | — | | | 29,089 | | | | | 29,089 | |
| | | | | | | | | | | | | | | |
Dividends declared on preferred stock - $0.50 per share | — | | | — | | | — | | | — | | | — | | | (3,385) | | | | | (3,385) | |
Dividends declared on common stock - $0.46 per share | — | | | — | | | — | | | — | | | — | | | (71,470) | | | | | (71,470) | |
Balance at September 30, 2019 | 6,770,393 | | | 68 | | | 153,531,756 | | | 1,535 | | | 2,821,419 | | | (193,512) | | | | | 2,629,510 | |
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See notes to unaudited condensed consolidated financial statements.
Apollo Commercial Real Estate Finance, Inc. and Consolidated Subsidiaries
Condensed Consolidated Statement of Cash Flows (Unaudited)
(in thousands)
| | | | | | | | | | | |
| For the nine months ended September 30, | | |
| 2020 | | 2019 |
Cash flows provided by operating activities: | | | |
Net income (loss) | $ | (18,303) | | | $ | 158,271 | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | |
Amortization of discount/premium and PIK | (53,670) | | | (61,949) | |
Amortization of deferred financing costs | 9,652 | | | 8,535 | |
Equity-based compensation | 12,721 | | | 7,084 | |
Provision for loan losses | 151,954 | | | 20,000 | |
Foreign currency loss | 34,225 | | | 22,111 | |
Unrealized (gain) loss on derivative instruments | (33,000) | | | 11,391 | |
Realized loss on investments | 17,442 | | | 12,513 | |
Changes in operating assets and liabilities: | | | |
Proceeds received from PIK | 0 | | | 11,469 | |
Other assets | (6,251) | | | (4,216) | |
Accounts payable, accrued expenses and other liabilities | (1,233) | | | 2,462 | |
Payable to related party | (503) | | | 630 | |
Net cash provided by operating activities | 113,034 | | | 188,301 | |
Cash flows used in investing activities: | | | |
New funding of commercial mortgage loans | (457,449) | | | (1,277,606) | |
Add-on funding of commercial mortgage loans | (262,193) | | | (271,720) | |
New funding of subordinate loans and other lending assets | 0 | | | (493,017) | |
Add-on funding of subordinate loans and other lending assets | (47,627) | | | (18,323) | |
Proceeds received from the repayment and sale of commercial mortgage loans | 528,782 | | | 570,305 | |
Proceeds received from the repayment of subordinate loans and other lending assets | 5,122 | | | 254,019 | |
Origination and exit fees received on commercial mortgage loans, and subordinate loans and other lending assets, net | 6,420 | | | 24,524 | |
Increase (decrease) in collateral held related to derivative contracts, net | 25,130 | | | (19,830) | |
Net cash (used in) provided by investing activities | (201,815) | | | (1,231,648) | |
Cash flows from financing activities: | | | |
Proceeds from issuance of common stock | 0 | | | 315,157 | |
Redemption of preferred stock | 0 | | | (172,500) | |
Repurchase of common stock | (91,801) | | | 0 | |
| | | |
Payment of offering costs | 0 | | | (153) | |
Proceeds from secured debt arrangements | 1,465,757 | | | 1,948,037 | |
Repayments of secured debt arrangements | (1,083,849) | | | (1,264,223) | |
Repayments of senior secured term loan principal | (3,750) | | | (1,250) | |
| | | |
Proceeds from issuance of senior secured term loan | 0 | | | 497,500 | |
Exchanges of convertible senior notes | 0 | | | (704) | |
Payment of deferred financing costs | (8,092) | | | (11,043) | |
Other financing activities | (6,494) | | | 0 | |
Dividends on common stock | (186,883) | | | (197,757) | |
Dividends on preferred stock | (10,155) | | | (18,589) | |
Net cash (used in) provided by financing activities | 74,733 | | | 1,094,475 | |
Net increase in cash and cash equivalents | (14,048) | | | 51,128 | |
Cash and cash equivalents, beginning of period | 452,282 | | | 109,806 | |
Cash and cash equivalents, end of period | $ | 438,234 | | | $ | 160,934 | |
Supplemental disclosure of cash flow information: | | | |
Interest paid | $ | 100,573 | | | $ | 96,201 | |
Supplemental disclosure of non-cash financing activities: | | | |
Exchange of convertible senior notes for common stock | $ | 0 | | | $ | 33,778 | |
Dividend declared, not yet paid | $ | 54,254 | | | $ | 74,855 | |
Offering costs payable | $ | 0 | | | $ | 200 | |
Loan proceeds held by servicer | $ | 0 | | | $ | 3,323 | |
Deferred financing costs, not yet paid | $ | 2,596 | | | $ | 5,420 | |
Transfer of proceeds borrowed under secured credit facilities to Barclays Private Securitization | $ | 782,006 | | | $ | 0 | |
Restructuring of subordinate loan to commercial mortgage loan | $ | 68,500 | | | $ | 0 | |
See notes to unaudited condensed consolidated financial statements.
|
| | | | | | | |
| Nine months ended September 30, 2017 | | Nine months ended September 30, 2016 |
Cash flows provided by operating activities: | | | |
Net income | $ | 151,714 |
| | $ | 98,849 |
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | | |
Amortization of discount/premium and PIK interest | (15,491 | ) | | (7,443 | ) |
Amortization of deferred financing costs | 4,464 |
| | 3,199 |
|
Equity-based compensation | 7,551 |
| | 2,808 |
|
Unrealized (gain) loss on securities | (11,830 | ) | | 36,601 |
|
Provision for loan losses and impairment | 5,000 |
| | 15,000 |
|
Income (loss) from unconsolidated joint venture | 2,259 |
| | (207 | ) |
Foreign currency (gain) loss | (16,940 | ) | | 21,122 |
|
Realized (gain) loss on derivative instruments | 289 |
| | (21,100 | ) |
Unrealized (gain) loss on derivative instruments | 17,564 |
| | (1,731 | ) |
Realized loss on sale of securities | 5,118 |
| | 225 |
|
Bargain purchase gain | — |
| | (40,021 | ) |
Changes in operating assets and liabilities: | | | |
Accrued interest receivable, less purchased interest | (27,910 | ) | | (17,638 | ) |
Other assets | (983 | ) | | (121 | ) |
Accounts payable, accrued expenses and other liabilities | (8,623 | ) | | (10,410 | ) |
Payable to related party | 1,295 |
| | 606 |
|
Net cash provided by operating activities | 113,477 |
| | 79,739 |
|
Cash flows provided by (used in) investing activities: | | | |
Funding of commercial mortgage loans | (581,567 | ) | | (548,171 | ) |
Funding of subordinate loans | (475,503 | ) | | (51,921 | ) |
Payments received on commercial mortgage loans | 17,062 |
| | 118,120 |
|
Payments received on subordinate loans | 221,478 |
| | 81,524 |
|
Origination and exit fees received on commercial mortgage loans and subordinate loans | 13,047 |
| | 7,509 |
|
Funding of unconsolidated joint venture | (726 | ) | | (362 | ) |
Funding of other assets | (1,379 | ) | | — |
|
Proceeds (payments) on settlements of derivative instruments | (201 | ) | | 21,100 |
|
Decrease (Increase) in collateral held related to derivative contracts | (14,262 | ) | | 13,110 |
|
Proceeds from sale of securities | 128,945 |
| | 86,451 |
|
Proceeds from sale of investment in unconsolidated joint venture | 24,498 |
| | — |
|
Payments received on securities | 13,306 |
| | 22,424 |
|
Payments received on securities, held-to-maturity | 146,530 |
| | 5,970 |
|
Payments received on other assets | — |
| | 107 |
|
Proceeds from sale of AMTG assets, net | — |
| | 1,474,111 |
|
ARI Investment in AMTG, net of cash acquired | — |
| | 189,795 |
|
Net cash provided by (used in) investing activities | (508,772 | ) | | 1,419,767 |
|
Cash flows provided by (used in) financing activities: | | | |
Proceeds from issuance of common stock | 249,021 |
| | — |
|
Redemption of Series A preferred stock | (86,250 | ) | | — |
|
Payment of offering costs | (359 | ) | | (45 | ) |
Proceeds from repurchase agreement borrowings | 866,548 |
| | 448,177 |
|
Repayments of repurchase agreement borrowings | (727,691 | ) | | (352,914 | ) |
Repayments of AMTG repurchase agreement borrowings | — |
| | (1,254,517 | ) |
Proceeds from issuance of convertible senior notes | 227,700 |
| | — |
|
Repayments of participations sold | (85,081 | ) | | (3,770 | ) |
Payment of deferred financing costs | (8,585 | ) | | (3,741 | ) |
Dividends on common stock | (136,404 | ) | | (94,625 | ) |
Dividends on preferred stock | (26,752 | ) | | (18,646 | ) |
Net cash provided by (used in) financing activities | 272,147 |
| | (1,280,081 | ) |
Net increase (decrease) in cash, cash equivalents, and restricted cash | (123,148 | ) | | 219,425 |
|
Cash, cash equivalents, and restricted cash, beginning of period | 263,453 |
| | 97,542 |
|
Cash, cash equivalents, and restricted cash, end of period | $ | 140,305 |
| | $ | 316,967 |
|
Supplemental disclosure of cash flow information: | | | |
Interest paid | $ | 44,303 |
| | $ | 47,093 |
|
Supplemental disclosure of non-cash investing and financing activities: | | | |
Dividend declared, not yet paid | $ | 55,916 |
| | $ | 46,028 |
|
Deferred financing costs, not yet paid | $ | — |
| | $ | — |
|
Offering costs payable | $ | 41 |
| | $ | 220 |
|
Fair value of assets acquired from AMTG | $ | — |
| | $ | 1,936 |
|
Fair value of liabilities assumed from AMTG | $ | — |
| | $ | (1,285 | ) |
Fair value of common stock issued to AMTG | $ | — |
| | $ | 218 |
|
Fair value of preferred stock issued to AMTG | $ | — |
| | $ | 173 |
|
Apollo Commercial Real Estate Finance, Inc. and Consolidated Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(in thousands—except share and per share data)
Note 1 – Organization
Apollo Commercial Real Estate Finance, Inc. (together with its consolidated subsidiaries, is referred to throughout this report as the “Company,” “ARI,” “we,” “us”"Company," "ARI," "we," "us" and “our”"our") is a corporation that has elected to be taxed as a real estate investment trust (“REIT”("REIT") for U.S. federal income tax purposes and primarily originates, acquires, invests in and manages performing commercial first mortgage loans, subordinate financings, commercial mortgage-backed securities (“CMBS”) and other commercial real estate-related debt investments in the United States.investments. These asset classes are referred to as the Company’sour target assets.
The Company, organizedWe were formed in Maryland on June 29, 2009, commenced operations on September 29, 2009 and isare externally managed and advised by ACREFI Management, LLC (the “Manager”"Manager"), an indirect subsidiary of Apollo Global Management, LLCInc. (together with its subsidiaries, “Apollo”"Apollo").
The CompanyWe elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, commencing with the taxable year ended December 31, 2009. To maintain itsour tax qualification as a REIT, the Company iswe are required to distribute at least 90% of itsour taxable income, excluding net capital gains, to stockholders and meet certain other asset, income, and ownership tests.
Note 2 – Summary of Significant Accounting Policies
Basis of Presentation
The accompanying condensed consolidated financial statements include the Company’sour accounts and those of itsour consolidated subsidiaries. All intercompany amounts have been eliminated. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”("GAAP") requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The Company’sOur most significant estimates include the fair value of financial instruments, loan loss reserves and impairment.allowances. Actual results could differ from those estimates.
These unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’sour Annual Report on Form 10-K for the year ended December 31, 2016,2019 ("Annual Report"), as filed with the Securities and Exchange Commission (the “SEC”"SEC"). In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the Company’sour financial position, results of operations and cash flows have been included. The Company'sOur results of operations for the three and nine months ended September 30, 20172020 are not necessarily indicative of the results to be expected for the full year or any other future period.
On August 31, 2016,We currently operate in 1 reporting segment.
Risks and Uncertainties
During the Company, pursuantfirst quarter of 2020, there was a global outbreak of a novel coronavirus ("COVID-19"), which was declared by the World Health Organization as a pandemic. In response to COVID-19, the termsUnited States and conditionsnumerous other countries have declared national emergencies, which has led to large scale quarantines as well as restrictions to business deemed non-essential. These responses to COVID-19 have disrupted economic activities and could have a continued significant adverse effect on economic and market conditions. As we are still in the midst of the AgreementCOVID-19 pandemic we are not in a position to estimate the ultimate impact this will have on our business and Planthe economy as a whole. We believe the estimates used in preparing our financial statements and related footnotes are reasonable and supportable based on the best information available to us as of Merger, dated February 26, 2016 (as amended,September 30, 2020. The uncertainty surrounding COVID-19 may materially impact the “AMTG Merger Agreement”) acquired Apollo Residential Mortgage, Inc. (“AMTG”). AMTG merged withaccuracy of the estimates and intoassumptions used in the Company (the “AMTG Merger”) with the Company continuingfinancial statements and related footnotes and, as the surviving entity. As a result, all operations of AMTG and its former subsidiaries are consolidated with the operations of the Company. As of December 31, 2016 all assets acquiredactual results may vary significantly from AMTG were sold.estimates.
Under Financial Accounting Standards Board (the “FASB”Current Expected Credit Losses ("CECL") ASC Topic 805, “Business Combinations”, or ASC 805, the acquirer in a business combination must recognize, with certain exceptions, the fair values of assets acquired, liabilities assumed, and non-controlling interests when the acquisition constitutes a change in control of the acquired entity. We applied the provisions of ASC 805 in accounting for the Company's acquisition of AMTG. In doing so, we recorded provisional amounts for certain items as of the date of the acquisition, including the fair value of certain assets and liabilities. During the measurement period, a period which shall not exceed one year, the Company retrospectively adjusted the provisional amounts recognized at the acquisition date to reflect new information obtained about facts and circumstances that existed as of such date that, if known, would have affected the measurement of the amounts recognized. See further discussion in "Note 17 - Business Combination."
The Company currently operates in one business segment.
Recent Accounting Pronouncements
In May 2014, the FASB issued guidance which broadly amends the accounting guidance for revenue recognition. The guidance is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017. The Company does not anticipate that the adoption of this guidance will have a material impact on the Company's condensed consolidated financial statements.
In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” or ASU 2014-15. ASU 2014-15 introduces an explicit requirement for management to assess and provide certain disclosures if there is substantial doubt about an entity’s ability to continue as a going concern. ASU 2014-15 is effective for the annual period ending after December 15, 2016. The Company adopted this guidance and determined that there was no material impact on the Company's condensed consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting (Topic 718),” or ASU 2016-09. ASU 2016-09 requires all income tax effects of share-based payment awards to be recognized in the income statement when the awards vest or are settled. It also allows an employer to repurchase more of an employee’s shares for tax withholding purposes than is permitted under current guidance without triggering liability accounting. Finally, the guidance allows a policy election to account for employee forfeitures as they occur. The guidance is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company adopted this guidance and determined there was no material impact on the Company's condensed consolidated financial statements.
In June 2016, the FASBFinancial Accounting Standards Board ("FASB") issued ASU 2016-13 “Financial"Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments (Topic 326),” or Instruments" ("ASU 2016-13. ASU 2016-13 significantly changes2016-13"), which we refer to as the "CECL Standard." This update has changed how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income.value. The guidance will replaceCECL Standard replaced the “incurred loss”"incurred loss" approach under existing guidance with an “expected loss”"expected loss" model for instruments measured at amortized cost, and requirecost. The CECL Standard requires entities to record allowances for available-for-saleheld-to-maturity debt securities rather than reducethat are deducted from the carrying amount of the assets to present the net carrying value at the amounts expected to be collected on the assets. We continue to record loan specific allowances as they do todaya practical expedient under the other-than-temporary impairment model. It also simplifiesCECL Standard ("Specific CECL Allowance"), which we apply to assets that are collateral
dependent and where the borrower or sponsor is experiencing financial difficulty. In addition, we now record a general allowance in accordance with the CECL Standard on the remainder of the loan portfolio ("General CECL Allowance", and together with the Specific CECL Allowance, "CECL Allowances") on a collective basis by assets with similar risk characteristics.
The CECL Standard requires us to record an allowance for credit losses that are deducted from the carrying amount of our loan portfolio to present the net carrying value at the amounts expected to be collected on the assets. We adopted the CECL Standard through a cumulative-effect adjustment to retained earnings on January 1, 2020. Subsequent changes to the General CECL Allowance are recognized through net income (loss) on our condensed consolidated statement of operations.
The CECL Standard requires an entity to consider historical loss experience, current conditions, and a reasonable and supportable forecast of the macroeconomic environment. The FASB recognizes the weighted average remaining maturity ("WARM") method as an acceptable approach for computing current expected credit losses. We have adopted the WARM method to comply with the CECL Standard in determining a General CECL Allowance for a majority of our portfolio. In the future, we may use other acceptable methods, such as a probability-of-default/loss-given-default method. For loans where we have deemed the borrower/sponsor to be experiencing financial difficulty, we have elected to apply a practical expedient in which the fair value of the underlying collateral is compared to the amortized cost of the loan in determining a Specific CECL Allowance.
In accordance with the WARM method, an annual historical loss rate is applied to the amortized cost of an asset or pool of assets over the remaining expected life. The WARM method requires consideration of the timing of expected future fundings of existing commitments and repayments over each asset’s remaining life. An annual loss factor, adjusted for macroeconomic estimates, is applied over each subsequent period and aggregated to arrive at the General CECL Allowance.
In determining the General CECL Allowance, we considered various factors including (i) historical loss experience in the commercial real estate lending market, (ii) timing of expected repayments and satisfactions, (iii) expected future funding, (iv) capital subordinate to us when we are the senior lender, (v) capital senior to us when we are the subordinate lender, and (vi) our current and future view of the macroeconomic environment. The standard requires the use of significant judgment to arrive at an estimated credit loss. There is significant uncertainty related to future macroeconomic conditions as the result of COVID-19.
We derived an annual historical loss rate based on a commercial mortgage backed securities ("CMBS") database with historical losses from 1998 through the third quarter of 2020 provided by a third party, Trepp LLC. We applied various filters to arrive at a CMBS dataset most analogous to our current portfolio from which to determine an appropriate historical loss rate. The annual historical loss rate was further adjusted to reflect our expectations of the macroeconomic environment for a reasonable and supportable forecast period which we have determined to be one year.
The General CECL Allowance on subordinate loans is calculated by incorporating both the loan balance of the position(s) of the structurally senior third-party lender(s) and the balance of our subordinate loan(s). The subordinate loans, by virtue of being the first loss position, are required to absorb losses prior to the senior position(s) being impacted, resulting in a higher percentage allowance attributable to the subordinate loan. The General CECL Allowance on unfunded loan commitments is time-weighted based on our expected commitment to fund such obligations. The General CECL Allowance on unfunded commitments is recorded as a liability on our condensed consolidated balance sheet within accounts payable, accrued expenses and other liabilities. At adoption, the General CECL Allowance was $30.9 million and was recorded in our condensed consolidated statement of changes in stockholders’ equity.
Refer to "Note 4 - Commercial Mortgage, Subordinate Loans and Other Lending Assets, Net" for further information regarding CECL.
Secured Debt Arrangements
Secured debt arrangements are accounted for as financing transactions, unless they meet the criteria for sale accounting. Loans financed through a secured debt arrangement remain on our balance sheet as an asset and cash received from the purchaser is recorded on our condensed consolidated balance sheet as a liability. Interest incurred in accordance with secured debt arrangements is recorded as interest expense.
During the second quarter of 2020, we entered into a private securitization with Barclays Bank, plc (the "Barclays Private Securitization"). We have determined that the issuer of this securitization, ACRE Debt 2 PLC, is a Variable Interest Entity ("VIE") of which we were deemed to be the primary beneficiary and therefore, we consolidated the operations of this entity for GAAP. The collateral assets of the securitization are included in commercial mortgage loans, net on our condensed consolidated balance sheet. The liabilities of the securitization to the senior noteholders, excluding the notes held by us, are included in secured debt arrangements, net on our condensed consolidated balance sheet.
Recent Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06 "Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity" ("ASU 2020-06"). The intention of ASU 2020-06 is to address the complexities in accounting model for purchased credit-impairedcertain financial instruments with a debt securities and loans. The guidanceequity component. Under ASU 2020-06, the number of accounting models for convertible notes will be reduced and entities that issue convertible debt will be required to use the if-converted method for the computation of diluted "Earnings per share" under ASC 260. ASC 2020-06 is effective for fiscal years beginning after December 15, 20192021 and is tomay be adopted through either a cumulative-effect adjustment to retained earnings asmodified retrospective method of the beginningtransition or a fully retrospective method of the first reporting period in which the guidance is effective. The Company istransition. We are currently assessing the impact if any, thethis guidance will have on the Company's condensed consolidated financial statements when adopted.
In August 2016, the FASB issued ASU 2016-15 “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,” or ASU 2016-15. ASU 2016-15 is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The new guidance addresses the classification of various transactions including debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments, contingent consideration payments made after a business combination, distributions received from equity method investments, beneficial interests in securitization transactions, and others. The Company adopted this guidance in the third quarter of 2016 and determined that there was no material impact on the Company'sour condensed consolidated financial statements.
In November 2016,March 2020, the FASB issued ASU 2016-18 “Statement2020-04 “Reference Rate Reform (Topic 848) – Facilitation of Cash Flows (Topic 230): Restricted Cash,”the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”). ASU 2020-04 provides optional expedients and exceptions for applying GAAP to debt instruments, derivatives, and other contracts that reference LIBOR or ASU 2016-18. ASU 2016-18 is intendedother reference rates expected to clarify how entities present restricted cash in the statement of cash flows. The guidance requires entities to show the changes in the total of cash and cash equivalents and restricted cash in the statement of cash flows. Asbe discontinued as a result entities will no longer present transfers between cashof reference rate reform. This guidance is optional and cash equivalentsmay be elected through December 31, 2022 using a prospective application on all eligible contract modifications. We have loan agreements, debt agreements, and restricted cash in the statement of cash flows. When cash and cash equivalents and restricted cash are presented in more than one line item on the balance sheet, the new guidance requiresan interest rate cap that incorporate LIBOR as a reconciliation of the totals in the statement of cash flowsreferenced interest rate. It is difficult to the related captions in the balance sheet. This reconciliation can be presented either on the face of the statement of cash flows or in the notes to the financial statements. ASU 2016-18 is effective for fiscal years beginning after December 15, 2017 and is to be applied retrospectively. The Company early adopted ASU 2016-18 on June 30, 2017, which changed the Company's condensed consolidated statement of cash flows and related disclosures for all periods presented. The following is a reconciliation of the Company's cash, cash equivalents, and restricted cash to the total presented in the Company's condensed consolidated statement of cash flows for the nine months ended September 30, 2017 and September 30, 2016, respectively:
|
| | | | | | | |
| Nine months ended September 30, |
| 2017 | | 2016 |
Cash and cash equivalents | $ | 140,229 |
| | $ | 254,643 |
|
Restricted cash | 76 |
| | 62,324 |
|
Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statement of cash flows | $ | 140,305 |
| | $ | 316,967 |
|
In August 2017, the FASB issued ASU 2017-12 "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities,” or ASU 2017-12. The intention of ASU 2017-12 is to align an entity’s financial reporting for hedging activities with the economic objectives of those activities. Upon adoption of ASU 2017-12, the cumulative ineffectiveness previously recognized on existing cash flow and net investment hedges will be adjusted and removed from beginning retained earnings and placed in accumulated other comprehensive income (loss). The Company is currently assessing the impact,predict what effect, if any, the guidance willphase-out of LIBOR and the use of alternative benchmarks may have on our business or on the Company's condensed consolidatedoverall financial statements when adopted. ASU 2017-12 is effective for fiscal years beginning after December 15, 2018 and is applied retroactively.markets. We have not adopted any of the optional expedients or exceptions through September 30, 2020, but will continue to evaluate the possible adoption of any such expedients or exceptions.
Note 3 – Fair Value Disclosure
GAAP establishes a hierarchy of valuation techniques based on the observability of the inputs utilized in measuring financial instruments at fair values. Market basedMarket-based or observable inputs are the preferred source of values, followed by valuation models using managementmanagement's assumptions in the absence of marketmarket-based or observable inputs. The three levels of the hierarchy as noted in ASC 820 "Fair Value Measurements and Disclosures,Disclosures" are described below:
Level I — Quoted prices in active markets for identical assets or liabilities.
Level II — Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants would use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk and others.
Level III — Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used.
While the Company anticipateswe anticipate that itsour valuation methods will be appropriate and consistent with valuation methods used by other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. The CompanyWe will use inputs that are current as of the measurement date, which may include periods of market dislocation, during which price transparency may be reduced.
The estimated fair value of the Company's CMBS portfolio is determined by reference to market prices provided by certain dealers who make a market in these financial instruments. The Company believes that these dealers who are usually market makers in these securities utilize various valuation techniques and inputs including, but not limited to, observable trades, discounted cash flow, market yield and duration to price these securities. Broker quotes are only indicative of fair value and may not necessarily represent what the Company would receive in an actual trade for the applicable instrument. Management performs additional analysis on prices received based on broker quotes to validate the prices and adjustments are made as deemed necessary by management to capture current market information. As of December 31, 2016 the estimated fair values of the Company’s securities were based on observable inputs and were classified as Level II in the fair value hierarchy. In June 2017, the Manager determined that, based on illiquidity in the market for these securities, broker quotes lack observable inputs and thus a transfer into Level III in the fair value hierarchy was necessary. Based on this determination, as of June 30, 2017, we have applied Level III classification to these securities. In accordance with GAAP, the Company elects the fair value option for these securities at the date of purchase in order to allow the Company to measure these securities at fair value with the change in estimated fair value included as a component of earnings in order to reflect the performance of the investment in a timely manner.
The estimated fair values of the Company’sour derivative instruments are determined using a discounted cash flow analysis on the expected cash flows of each derivative. The fair values of interest rate swapsinstrument. Our derivative instruments are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The fair values of interest rate caps are determined using the market standard methodology of discounting the future expected cash receipts (or payments) that would occur if variable interest rates rise above the strike
rate of the caps. The variable interest rates usedclassified as Level II in the calculation of projected cash flows are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities. fair value hierarchy.
The fair values of foreign exchange forwards are determined by comparing the contracted forward exchange rate to the current market exchange rate. The current market exchange rates are determined by using market spot rates, forward rates and interest rate curves for the underlying countries.
The Company’s derivative instruments are classified as Level IIfair value of interest rate swaps is determined by comparing the present value of remaining fixed payments to the present value of expected floating rate payments based on the forward one-month London Inter-bank Offered Rate ("LIBOR") curve. As of September 30, 2020, we had 0 interest rate swaps on our condensed consolidated balance sheet.
The fair value of our interest rate cap is determined by using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rise above the strike rate of the interest rate cap. The variable interest rates used in the fair value hierarchy.calculation of projected receipts on the interest rate cap are based on a third party expert's expectation of future interest rates derived from observable market interest rate curves and volatilities.
The following table summarizes the levels in the fair value hierarchy into which the Company’s financial instrumentsour derivative assets were categorized as of September 30, 20172020 and December 31, 20162019 ($ in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value as of September 30, 2017 | | Fair Value as of December 31, 2016 |
| Level I | | Level II | | Level III | | Total | | Level I | | Level II | | Level III | | Total |
CMBS (Fair Value Option) | $ | — |
| | $ | — |
| | $ | 191,902 |
| | $ | 191,902 |
| | $ | — |
| | $ | 331,076 |
| | $ | — |
| | $ | 331,076 |
|
Derivative instruments, net | — |
| | (11,746 | ) | | — |
| | (11,746 | ) | | — |
| | 5,906 |
| | — |
| | 5,906 |
|
Total | $ | — |
| | $ | (11,746 | ) | | $ | 191,902 |
| | $ | 180,156 |
| | $ | — |
| | $ | 336,982 |
| | $ | — |
| | $ | 336,982 |
|
The following is a reconciliation of investments for which Level III inputs were used in determining fair value:
|
| | | | |
| | CMBS |
Fair value at December 31, 2016 | | $ | — |
|
Transfers into Level III (1) | | 254,484 |
|
Net realized loss on investments | | (4,076 | ) |
Net increase in unrealized gain on investments | | 13,488 |
|
Sales and repayments of investments | | (71,073 | ) |
Amortization of purchase discount, net | | (921 | ) |
Fair value at September 30, 2017 | | $ | 191,902 |
|
———————
(1) Transfers into Level III of the fair value hierarchy represent investments that experienced an insignificant level of market activity during the period and were thus valued in the absence of observable inputs. Transfers into Level III of the fair value hierarchy are recorded at the end of the reporting period. In June 2017, the Manager determined that, based on illiquidity in the market for these securities, broker quotes, which are the primary valuation technique used to mark these investments at fair value, lack observable inputs and thus a transfer into Level III was necessary. Based on this determination, as of June 30, 2017, we have applied Level III classification to these securities.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value as of September 30, 2020 | | | | | | | | Fair Value as of December 31, 2019 | | | | | | |
| Level I | | Level II | | Level III | | Total | | Level I | | Level II | | Level III | | Total |
Foreign currency forward, net | $ | 0 | | | $ | 13,481 | | | $ | 0 | | | $ | 13,481 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Interest rate cap | 0 | | | 173 | | | 0 | | | 173 | | | 0 | | | 0 | | | 0 | | | 0 | |
Total financial instruments assets | $ | 0 | | | $ | 13,654 | | | $ | 0 | | | $ | 13,654 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
The following table summarizes information about significant unobservable inputs usedthe levels in the fair value measurement of Level III investmentshierarchy into which our derivative liabilities were categorized as of September 30, 2017. There were no Level III investments as of2020 and December 31, 2016:2019 ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value as of September 30, 2020 | | | | | | | | Fair Value as of December 31, 2019 | | | | | | |
| Level I | | Level II | | Level III | | Total | | Level I | | Level II | | Level III | | Total |
Foreign currency forward, net | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 4,876 | | | $ | 0 | | | $ | 4,876 | |
Interest rate swap liability | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 14,470 | | | 0 | | | 14,470 | |
Total financial instrument liabilities | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 19,346 | | | $ | 0 | | | $ | 19,346 | |
|
| | | | | | | | | |
| | | | | | Unobservable Input |
Asset Category | | Fair Value | | Primary Valuation Technique | | Input | | Range |
CMBS | | 191,902 |
| | Broker quotes | | Price (1)
| | 63 - 101 |
———————
(1) A significant increase (decrease) in the unobservable input in isolation would result in significantly higher (lower) fair value measurement.
Note 4 – SecuritiesCommercial Mortgage, Subordinate Loans and Other Lending Assets, Net
At Our loan portfolio was comprised of the following at September 30, 2017, all2020 and December 31, 2019 ($ in thousands):
| | | | | | | | | | | | | | |
Loan Type | | September 30, 2020 | | December 31, 2019 |
Commercial mortgage loans, net (1) | | $ | 5,427,945 | | | $ | 5,326,967 | |
Subordinate loans and other lending assets, net | | 1,009,092 | | | 1,048,126 | |
Carrying value, net | | $ | 6,437,037 | | | $ | 6,375,093 | |
———————
(1)Includes $156.4 million and $126.7 million in 2020 and 2019, respectively, of the Company's CMBS (Fair Value Option) were pledged to secure borrowings under the Company’s master repurchase agreement Deutsche Bank AG ("DB") (the "DB Facility"). The Company's master repurchase agreement with UBS AG, London Branch ("UBS") (the "UBS Facility") matured in September, 2017 and was fully repaid by the Company. See "Note 7 - Borrowings Under Repurchase Agreements" for further information regarding these facilities.contiguous financing structured as subordinate loans.
CMBS (Held-to-Maturity) represents a
Our loan the Company closed during May 2014 that was subsequently contributed to a securitization during August 2014. During May 2014, the Company closed a $155,000 floating-rate whole loan secured by the first mortgage and equity interests in an entity that owns a resort hotel in Aruba. The property consistsportfolio consisted of 442 hotel rooms, 114 timeshare units, two casinos and approximately 131,500 square feet of retail space. During June 2014, the Company syndicated a $90,000 senior participation in the loan and retained a $65,000 junior participation. The Company evaluated this transaction and concluded that due to its continuing involvement, the transaction should not be accounted for as a sale. During August 2014, both the $90,000 senior participation and the Company's $65,000 junior participation were contributed to a CMBS securitization. In exchange for contributing its $65,000 junior participation, the Company received a CMBS secured solely by the $65,000 junior participation. During May 2017, the loan and associated CMBS (Held-to-Maturity) were fully repaid and the related Securities, held-to-maturity and participation sold line items were removed from the Company's condensed consolidated balance sheet.
The95% floating rate loans, based on amortized cost, and estimated fair valueas of the Company’s debt securities at September 30, 2017 are summarized as follows:2020 and December 31, 2019, respectively.
|
| | | | | | | | | | | | | | | | | | | |
Security Description | Face Amount | | Amortized Cost | | Gross Unrealized Gain | | Gross Unrealized Loss | | Estimated Fair Value |
CMBS (Fair Value Option) | $ | 222,522 |
| | $ | 217,242 |
| | $ | 247 |
| | $ | (25,587 | ) | | $ | 191,902 |
|
DuringActivity relating to our loan portfolio, for the nine months ended September 30, 2017, the Company sold securities resulting2020, was as follows ($ in a net realized loss of $5,118.thousands):
The amortized cost and estimated fair value of the Company’s debt securities at December 31, 2016 are summarized as follows:
|
| | | | | | | | | | | | | | | | | | | |
Security Description | Face Amount | | Amortized Cost | | Gross Unrealized Gain | | Gross Unrealized Loss | | Estimated Fair Value |
CMBS (Fair Value Option) | $ | 375,861 |
| | $ | 368,247 |
| | $ | 292 |
| | $ | (37,463 | ) | | $ | 331,076 |
|
CMBS (Held-to-Maturity) | 146,530 |
| | 146,352 |
| | — |
| | — |
| | 146,352 |
|
Total | $ | 522,391 |
| | $ | 514,599 |
| | $ | 292 |
| | $ | (37,463 | ) | | $ | 477,428 |
|
During August 2016, the Company sold CMBS with an amortized cost of $86,676 resulting in a net realized loss of $225, which was comprised of realized gains of $90 and realized losses of $315. The sale generated net proceeds of $16,222 after the repayment of $70,229 of borrowings under the DB Facility.
The overall statistics for the Company’s CMBS (Fair Value Option) calculated on a weighted average basis as of September 30, 2017 and December 31, 2016 are as follows:
|
| | | | | |
| September 30, 2017 | | December 31, 2016 |
Credit Ratings * | BB-D |
| | B+-NR |
|
Coupon | 5.9 | % | | 5.9 | % |
Yield | 4.2 | % | | 6.0 | % |
Weighted Average Life | 2.0 years |
| | 2.5 years |
|
-————————
| |
* | Ratings per Fitch Ratings, Moody’s Investors Service or Standard & Poor's. |
The percentage vintage, property type and location of the collateral securing the Company's CMBS (Fair Value Option) calculated on a weighted average basis as of September 30, 2017 and December 31, 2016 are as follows:
|
| | | | | |
Vintage | September 30, 2017 | | December 31, 2016 |
2005 | — | % | | 2.0 | % |
2006 | 21.2 |
| | 12.1 |
|
2007 | 57.0 |
| | 73.5 |
|
2008 | 21.8 |
| | 12.4 |
|
Total | 100.0 | % | | 100.0 | % |
|
| | | | | |
Property Type | September 30, 2017 | | December 31, 2016 |
Office | 37.8 | % | | 34.6 | % |
Retail | 25.8 |
| | 29.0 |
|
Multifamily | 13.6 |
| | 12.4 |
|
Other (1) | 22.8 |
| | 24.0 |
|
Total | 100.0 | % | | 100.0 | % |
———————
(1) No other individual category comprises more than 10% of the total.
|
| | | | | |
Location | September 30, 2017 | | December 31, 2016 |
South Atlantic | 28.3 | % | | 23.8 | % |
Middle Atlantic | 11.9 |
| | 16.7 |
|
Pacific | 5.8 |
| | 15.3 |
|
East North Central | 16.7 |
| | 10.8 |
|
Other (1)
| 37.3 |
| | 33.4 |
|
Total | 100.0 | % | | 100.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Principal Balance | | Deferred Fees/Other Items (1) | | Specific Provision for Loan Loss | | Carrying Value, Net |
December 31, 2019 | | $ | 6,467,842 | | | $ | (35,768) | | | $ | (56,981) | | | $ | 6,375,093 | |
New loan fundings | | 457,449 | | | — | | | — | | | 457,449 | |
Add-on loan fundings (2) | | 309,820 | | | — | | | — | | | 309,820 | |
Loan repayments and sales | | (543,535) | | | — | | | — | | | (543,535) | |
Gain (loss) on foreign currency translation | | (15,060) | | | 543 | | | — | | | (14,517) | |
Specific CECL Allowance | | — | | | — | | | (139,950) | | | (139,950) | |
Realized loss on investment | | (20,569) | | | 3,127 | | | — | | | (17,442) | |
Deferred fees | | — | | | (6,027) | | | — | | | (6,027) | |
PIK interest and amortization of fees | | 38,197 | | | 17,225 | | | — | | | 55,422 | |
September 30, 2020 | | $ | 6,694,144 | | | $ | (20,900) | | | $ | (196,931) | | | $ | 6,476,313 | |
General CECL Allowance (3) | | | | | | | | (39,276) | |
Carrying value, net | | | | | | | | $ | 6,437,037 | |
———————
(1) No other individual category comprises more than 10% of the total.
Note 5 – Loans, Held for Investment
The Company’s loans receivable are comprised of the following:
|
| | | | | | | | |
Loan Type | | September 30, 2017 | | December 31, 2016 |
Commercial mortgage loans, held for investment, net | | $ | 2,218,222 |
| | $ | 1,641,856 |
|
Subordinate loans, held for investment, net | | 1,340,378 |
| | 1,051,236 |
|
Total loans, held for investment, net | | $ | 3,558,600 |
| | $ | 2,693,092 |
|
Activity relating to our loans, held for investment portfolio was as follows:
|
| | | | | | | | | | | | |
| | Principal Balance | | Deferred Fees/Other Items (1) | | Provision for Loan Loss (2) | | Carrying Value |
December 31, 2016 | | 2,720,344 |
| | (12,252 | ) | | (15,000 | ) | | 2,693,092 |
|
Loan fundings | | 1,057,070 |
| | — |
| | — |
| | 1,057,070 |
|
Loan repayments | | (238,541 | ) | | — |
| | — |
| | (238,541 | ) |
Unrealized gain on foreign currency translation | | 20,974 |
| | — |
| | — |
| | 20,974 |
|
Provision for loan loss (2) | | — |
| | — |
| | (1,981 | ) | | (1,981 | ) |
Deferred fees and other items (1) | | — |
| | (13,047 | ) | | — |
| | (13,047 | ) |
PIK interest, amortization of fees and other items (1) | | 19,321 |
| | 21,712 |
| | — |
| | 41,033 |
|
September 30, 2017 | | 3,579,168 |
| | (3,587 | ) | | (16,981 | ) | | 3,558,600 |
|
———————
(1) Other items primarily consist of purchase discounts or premiums, cost recovery interest, exit fees and deferred origination expenses.
(2) In additionRepresents fundings for loans closed prior to 2020.
(3)$3.6 million of the $1,981 provision for loan loss, the CompanyGeneral CECL Allowance is excluded from this table because it relates to unfunded commitments and has been recorded an impairment of $3,019 againstas a related investment previously recordedliability under accounts payable, accrued expenses and other assets on the Company'sliabilities in our condensed consolidated balance sheet.
The following table details overall statistics for our loan portfolio:portfolio at the dates indicated ($ in thousands):
| | | | | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 |
Number of loans | | 70 | | | 72 | |
Principal balance | | $ | 6,694,144 | | | $ | 6,467,842 | |
Carrying value, net | | $ | 6,437,037 | | | $ | 6,375,093 | |
Unfunded loan commitments (1) | | $ | 1,426,404 | | | $ | 1,952,887 | |
Weighted-average cash coupon (2) | | 5.6 | % | | 6.5 | % |
Weighted-average remaining fully-extended term (3) | | 2.9 years | | 3.3 years |
Weighted-average expected term (4) | | 2.0 years | | 1.8 years |
|
| | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
Number of loans | | 56 |
| | 45 |
|
Principal balance | | $ | 3,579,168 |
| | $ | 2,720,344 |
|
Carrying value | | $ | 3,558,600 |
| | $ | 2,693,092 |
|
Unfunded loan commitments (1) | | $ | 80,164 |
| | $ | 170,365 |
|
Weighted-average cash coupon (2) | | 8.5 | % | | 8.88 | % |
———————
| |
(1) | Unfunded loan commitments are primarily funded to finance property improvements or lease-related expenditures by the borrowers. These future commitments are funded over the term of each loan, subject in certain cases to an expiration date. |
| |
(2) | For floating rate loans, assumes one-month LIBOR of 1.23%and 0.77%, as of September 30, 2017 and December 31, 2016, respectively. |
(1)Unfunded loan commitments are funded to finance construction costs, tenant improvements, leasing commissions, or carrying costs. These future commitments are funded over the term of each loan, subject in certain cases to an expiration date.
(2)For floating rate loans, based on applicable benchmark rates as of the specified dates. For loans placed on non-accrual or cost recovery the interest rate used in calculating weighted-average cash coupon is 0%.
(3)Assumes all extension options are exercised.
(4)Expected term represents our estimated timing of repayments as of September 30, 2020 and December 31, 2019, respectively.
Property Type
The tablestable below detaildetails the property type of the properties securing the loans in our portfolio at the dates indicated ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | | | December 31, 2019 | | |
Property Type | | Carrying Value | | % of Portfolio(1) | | Carrying Value | | % of Portfolio |
Office | | $ | 1,832,607 | | | 28.3 | % | | $ | 1,401,400 | | | 22.0 | % |
Hotel | | 1,578,614 | | | 24.4 | | | 1,660,162 | | | 26.0 | |
Residential-for-sale: construction | | 894,610 | | | 13.8 | | | 692,816 | | | 10.9 | |
Residential-for-sale: inventory | | 150,015 | | | 2.3 | | | 321,673 | | | 5.1 | |
Urban Retail | | 636,308 | | | 9.8 | | | 643,706 | | | 10.1 | |
Urban Predevelopment | | 295,728 | | | 4.6 | | | 409,864 | | | 6.4 | |
Healthcare | | 363,170 | | | 5.6 | | | 371,423 | | | 5.8 | |
Industrial | | 228,674 | | | 3.5 | | | 227,940 | | | 3.6 | |
Other | | 496,587 | | | 7.7 | | | 646,109 | | | 10.1 | |
Total | | $ | 6,476,313 | | | 100.0 | % | | $ | 6,375,093 | | | 100.0 | % |
General CECL Allowance (2) | | (39,276) | | | | | | | |
Carrying value, net | | $ | 6,437,037 | | | | | | | |
———————
(1)Percentage of portfolio calculations are made prior to consideration of General CECL Allowance.
(2)$3.6 million of the General CECL Allowance is excluded from this table because it relates to unfunded commitments and has been recorded as a liability under accounts payable, accrued expenses and other liabilities in our condensed consolidated balance sheet.
Geography
The table below details the geographic distribution of the properties securing the loans in our portfolio:portfolio at the dates indicated ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | | | December 31, 2019 | | |
Geographic Location | | Carrying Value | | % of Portfolio(1) | | Carrying Value | | % of Portfolio |
New York City | | $ | 2,393,012 | | | 37.0 | % | | $ | 2,167,487 | | | 34.0 | % |
Northeast | | 138,448 | | | 2.1 | | | 110,771 | | | 1.7 | |
United Kingdom | | 1,179,761 | | | 18.2 | | | 1,274,390 | | | 20.0 | |
West | | 741,971 | | | 11.5 | | | 728,182 | | | 11.4 | |
Midwest | | 556,011 | | | 8.6 | | | 614,337 | | | 9.6 | |
Southeast | | 576,420 | | | 8.9 | | | 564,166 | | | 8.9 | |
Other | | 890,690 | | | 13.7 | | | 915,760 | | | 14.4 | |
Total | | $ | 6,476,313 | | | 100.0 | % | | $ | 6,375,093 | | | 100.0 | % |
General CECL Allowance (2) | | (39,276) | | | | | | | |
Carrying value, net | | $ | 6,437,037 | | | | | | | |
———————
(1)Percentage of portfolio calculations are made prior to consideration of General CECL Allowance.
(2)$3.6 million of the General CECL Allowance is excluded from this table because it relates to unfunded commitments and has been recorded as a liability under accounts payable, accrued expenses and other liabilities in our condensed consolidated balance sheet.
Risk Rating
We assess the risk factors of each loan and assign a risk rating based on a variety of factors, including, without limitation, loan-to-value ratio ("LTV"), debt yield, property type, geographic and local market dynamics, physical
|
| | | | | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
Property Type | | Carrying Value | | % of Portfolio | | Carrying Value | | % of Portfolio |
Residential - for sale | | 735,551 |
| | 20.7 | % | | 469,997 |
| | 17.5 | % |
Hotel | | 652,745 |
| | 18.3 | % | | 408,428 |
| | 15.2 | % |
Urban Retail Predevelopment | | 644,283 |
| | 18.1 | % | | 491,187 |
| | 18.2 | % |
Mixed Use | | 352,094 |
| | 9.9 | % | | 134,797 |
| | 5.0 | % |
Office | | 293,093 |
| | 8.2 | % | | 255,031 |
| | 9.5 | % |
Residential Rental | | 278,117 |
| | 7.8 | % | | 309,243 |
| | 11.5 | % |
Retail Center | | 197,120 |
| | 5.5 | % | | 209,401 |
| | 7.8 | % |
Healthcare | | 174,244 |
| | 4.9 | % | | 170,549 |
| | 6.3 | % |
Other | | 154,017 |
| | 4.3 | % | | 87,650 |
| | 3.3 | % |
Industrial | | 77,336 |
| | 2.3 | % | | 156,809 |
| | 5.7 | % |
| | 3,558,600 |
| | 100.0 | % | | 2,693,092 |
| | 100.0 | % |
condition, cash flow volatility, leasing and tenant profile, loan structure and exit plan, and project sponsorship. This review is performed quarterly. Based on a 5-point scale, our loans are rated "1" through "5," from less risk to greater risk, which ratings are defined as follows:
1. Very low risk
2. Low risk
|
| | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
Geographic Location | | Carrying Value | | % of Portfolio | | Carrying Value | | % of Portfolio |
Manhattan, NY | | $1,246,235 | | 35.0% | | $870,914 | | 32.3% |
Brooklyn, NY | | 244,501 | | 6.9% | | 163,389 | | 6.1% |
Northeast | | 133,979 | | 3.8% | | 137,770 | | 5.1% |
Southeast | | 530,881 | | 14.9% | | 332,276 | | 12.3% |
Midwest | | 524,984 | | 14.7% | | 405,992 | | 15.1% |
Mid Atlantic | | 248,786 | | 7.0% | | 263,717 | | 9.8% |
West | | 205,274 | | 5.8% | | 219,664 | | 8.2% |
Southwest | | 33,824 | | 1.0% | | 54,614 | | 2.0% |
United Kingdom | | 312,159 | | 8.7% | | 244,756 | | 9.1% |
Other International | | 77,977 | | 2.2% | | — | | —% |
Total | | $3,558,600 | | 100% | | $2,693,092 | | 100% |
4. High risk/potential for loss: a loan that has a risk of realizing a principal loss
5. Impaired/loss likely: a loan that has a high risk of realizing principal loss, has incurred principal loss or an impairment has been recorded
The Company evaluates itsfollowing tables allocate the carrying value of our loan portfolio based on our internal risk ratings and date of origination at the dates indicated ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
September 30, 2020 | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Year Originated | | | | | | | | | | |
Risk Rating | | Number of Loans | | Total | | % of Portfolio | | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | Prior |
1 | | 0 | | | $ | 0 | | | 0 | % | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
2 | | 1 | | | 32,000 | | | 0.5 | % | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 32,000 | |
3 | | 62 | | | 6,035,647 | | | 93.2 | % | | | 450,119 | | | 2,685,060 | | | 1,350,949 | | | 815,789 | | | 88,685 | | | 645,045 | |
4 | | 0 | | | 0 | | | 0 | % | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
5 | | 7 | | | 408,666 | | | 6.3 | % | | | 0 | | | 0 | | | 28,872 | | | 137,798 | | | 114,910 | | | 127,086 | |
Total | | 70 | | | $ | 6,476,313 | | | 100.0 | % | | | $ | 450,119 | | | $ | 2,685,060 | | | $ | 1,379,821 | | | $ | 953,587 | | | $ | 203,595 | | | $ | 804,131 | |
General CECL Allowance | | | | (39,276) | | | | | | | | | | | | | | | | |
Total carrying value, net | | | | $ | 6,437,037 | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Weighted Average Risk Rating | | | | 3.1 | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2019 | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Year Originated | | | | | | | | | | |
Risk Rating | | Number of Loans | | Total | | % of Portfolio | | | 2019 | | 2018 | | 2017 | | 2016 | | 2015 | | Prior |
1 | | 0 | | | $ | 0 | | | 0 | % | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
2 | | 8 | | | 348,324 | | | 5.5 | % | | | 0 | | | 241,676 | | | 0 | | | 36,250 | | | 24,546 | | | 45,852 | |
3 | | 61 | | | 5,707,555 | | | 89.5 | % | | | 2,736,825 | | | 1,355,014 | | | 912,636 | | | 72,540 | | | 499,700 | | | 130,840 | |
4 | | 1 | | | 182,910 | | | 2.9 | % | | | 0 | | | 0 | | | 0 | | | 182,910 | | | 0 | | | 0 | |
5 | | 2 | | | 136,304 | | | 2.1 | % | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 136,304 | |
Total | | 72 | | | $ | 6,375,093 | | | 100.0 | % | | | $ | 2,736,825 | | | $ | 1,596,690 | | | $ | 912,636 | | | $ | 291,700 | | | $ | 524,246 | | | $ | 312,996 | |
| | | | | | | | | | | | | | | | | | | |
Weighted Average Risk Rating | | | | 3.0 | | | | | | | | | | | | | | | |
Current Expected Credit Losses
Refer to the following schedule of the General CECL Allowance as of September 30, 2020, and as of the date of adoption, January 1, 2020 ($ in thousands):
| | | | | | | | | | | | | | |
| | September 30, 2020 | | January 1, 2020(1) |
Commercial mortgage loans, net | | $ | 20,161 | | | $ | 12,149 | |
Subordinate loans and other lending assets, net | | 19,115 | | | 15,630 | |
Unfunded commitments(2) | | 3,595 | | | 3,088 | |
Total General CECL Allowance | | $ | 42,871 | | | $ | 30,867 | |
———————
(1)As of January 1, 2020, we adopted the CECL Standard through a cumulative-effect adjustment to retained earnings
(2)The General CECL Allowance on unfunded commitments is recorded as a liability on our condensed consolidated balance sheet within accounts payable, accrued expenses and other liabilities
In assessing the General CECL Allowance, we consider macroeconomic factors, including unemployment rate, commercial real estate prices, and market liquidity. We compared the historical data for each metric to historical commercial real estate losses in order to determine the correlation of the data. We used projections, obtained from third-party service providers, of each factor to approximate the impact the macroeconomic outlook may have on our loss rate.
The General CECL Allowance increased by $12.0 million from initial adoption on January 1, 2020, to September 30, 2020. The increase is primarily related to a change in our view of estimated future macroeconomic conditions in the backdrop of the global COVID-19 pandemic and an increase in our view of the remaining expected term of our loan portfolio as of September 30, 2020.
The General CECL Allowance decreased by $5.8 million in the quarter ended September 30, 2020. The decrease is primarily related to an improved view of estimated future macroeconomic conditions since the prior quarter end.
Although our secured debt obligations and senior secured term loan financing have a minimum tangible net worth maintenance covenant, the General CECL Allowance has no impact on these covenants as we are permitted to add back the General CECL Allowance for the computation of tangible net worth as defined in the respective agreements.
We have made an accounting policy election to exclude $38.4 million accrued interest receivable, included in Other Assets on our condensed consolidated balance sheet, from the amortized cost basis of the related commercial mortgage loans for possible impairmentand subordinate loans and other lending assets in determining the General CECL Allowance as any uncollected accrued interest receivable is written off in a timely manner. We discontinue accruing interest on loans if we deem the interest to be uncollectible with any previously accrued uncollected interest on the loan charged to interest income in the same period. Under certain circumstances, we may apply the cost recovery method under which interest collected on a loan is a reduction to its amortized cost. The amortized cost basis for loans on cost recovery was $408.7 million and $136.3 million as of September 30, 2020 and December 31, 2019, respectively. For the three and nine months ended September 30, 2020, we received $0.3 million and $1.6 million, respectively, in interest that reduced amortized cost under the cost recovery method. Accrued interest is past due for 90 or more days for loans with an amortized cost basis of $408.7 million and $136.3 million as of September 30, 2020 and December 31, 2019, respectively.
The following schedule illustrates the quarterly basis. The Companychanges in the CECL Allowance since we adopted the CECL Standard on January 1, 2020 ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Specific CECL Allowance(1) | | General CECL Allowance | | | | Total CECL Allowance | | CECL Allowance as % of Amortized Cost | |
| | | | Funded | Unfunded | Total | | | | General | Total |
December 31, 2019 | | $56,981 | | $ | 0 | | $ | 0 | | $ | 0 | | | $ | 56,981 | | | 0 | % | 0 | % |
Changes: | | | | | | | | | | | |
| January 1, 2020 - Adoption of CECL Standard | 0 | | | 27,779 | | 3,088 | | 30,867 | | | 30,867 | | | | |
| Q1 Allowances | 150,000 | | | 30,494 | | 2,971 | | 33,465 | | | 183,465 | | | | |
March 31, 2020 | | $ | 206,981 | | | $ | 58,273 | | $ | 6,059 | | $ | 64,332 | | | $ | 271,313 | | | 1.08 | % | 4.05 | % |
Changes: | | | | | | | | | | | |
| Q2 Allowances (Reversals) | 5,500 | | | (13,729) | | (1,940) | | (15,669) | | | (10,169) | | | | |
| Realized Loss | (15,000) | | | 0 | | 0 | | 0 | | | (15,000) | | | | |
June 30, 2020 | | $ | 197,481 | | | $ | 44,544 | | $ | 4,119 | | $ | 48,663 | | | $ | 246,144 | | | 0.81 | % | 3.71 | % |
Changes: | | | | | | | | | | | |
| Q3 Reversals | (550) | | | (5,268) | | (524) | | (5,792) | | | (6,342) | | | | |
September 30, 2020 | | $ | 196,931 | | | $ | 39,276 | | $ | 3,595 | | $ | 42,871 | | | $ | 239,802 | | | 0.71 | % | 3.59 | % |
———————
(1)As of December 31, 2019, amount represents specific loan loss provisions recorded on assets before the adoption of the CECL Standard. After the adoption of the CECL Standard on January 1, 2020, amounts represent Specific CECL Allowances.
Specific CECL Allowance
We regularly evaluatesevaluate the extent and impact of any credit deteriorationmigration associated with the performance and/or value of the underlying collateral property as well as the financial and operating capability of the borrower/sponsor on a loan by loan basis. Specifically, a property’s operating results and any cash reserves are analyzed and used to assess (i) whether cash from operations areis sufficient to cover the debt service requirements currently and into the future, (ii) the ability of the borrower to refinance the loan and/or (iii) the property’s liquidation value. The Companyvalue of the underlying collateral. We also evaluatesevaluate the financial wherewithal of any loan guarantors as well as the borrower’s competency in managing and operating the properties. In addition, the Company considerswe consider the overall economic environment, real estate sector and geographic sub-market in which the borrower operates. Such loan loss analyses areimpairment analysis is completed and reviewed by asset management and finance personnel who utilize various data sources, including (i) periodic financial data such as debt service coverage ratio, property occupancy, tenant profile, rental rates, operating expenses, the borrower’s exit plan, and capitalization and discount rates, (ii) site inspections and (iii) current credit spreads and discussions with market participants. An allowance for loan loss is established when it is deemed probable that the Company will not be able to collect all amounts due according to the contractual terms of the loan.
During the second quarter of 2017, the Company recorded a loan loss provision of $1,981We evaluate our loans on a commercial mortgage loan secured by fully-built, for-sale residential condominium units locatedquarterly basis. For loans where we have deemed the borrower/sponsor to be experiencing financial difficulty, we have elected to apply a practical expedient in Bethesda, MD.accordance with the CECL Standard. In addition toaccordance with the $1,981 provision for loan loss, the Company recorded an impairment of $3,019 on a related investment previously recorded under other assets on the Company's condensed consolidated balance sheet. The loan loss provision and impairment were based on the difference between fair value of the underlying collateral, and the carrying value of the loan (prior topractical expedient approach, we determine the loan loss provision and related impairment). Fair value of the collateral was determined using a discounted cash flow analysis. The significant unobservable inputs used in determining the collateral value were sales price per square foot and discount rate which were an average of $678 dollars per square foot across properties and 15%, respectively. Effective April 1, 2017, the Company ceased accruing all interest associated with the loan and accounts for the loan on a cost-recovery basis (all proceeds are applied towards the loan balance).
During 2016, the Company recorded a loan loss provision of $10,000 on a multifamily commercial mortgage loan and $5,000 on a multifamily subordinate loan secured by a multifamily property located in Williston, ND. The loan loss provision was based onto be the difference between the fair value of the underlying collateral and the carrying value of the loan (prior to the loan loss provision). FairWhen the repayment or satisfaction of a loan is dependent on a sale, rather than operations, of the collateral, the fair value is adjusted for the estimated cost to sell the collateral. The fair value of the underlying collateral wasis determined by using amethod(s) such as discounted cash flow, analysis.the market approach, or direct capitalization approach. The significantkey unobservable inputs used to determine the fair value of the underlying collateral may vary depending on the information available to us and market conditions as of the valuation date.
We evaluate modifications to our loan portfolio to determine if the modifications constitute a troubled debt restructuring ("TDR") and/or substantial modification, under ASC Topic 310 "Receivables". During the second quarter of 2020, one commercial mortgage loan, secured by a hotel in determiningNew York City, was restructured and was deemed to be a TDR. In connection with this restructuring, the collateral value were terminal capitalization rateborrower contributed additional equity of $15.0 million and discount rateconcurrently we wrote down our principal on this loan by $15.0 million, which were 11% and 10%, respectively. The Company ceased accruing payment in kind ("PIK") interest associated with the loan and recognizing interest income upon receipt of cash.
had been previously recorded as a Specific CECL Allowance. As of September 30, 2017,2020, the aggregateloan had a principal balance and amortized cost of $142.8 million and $144.5 million, respectively, has a risk rating of 3, and is on accrual status. During the three months ended June 30, 2020, the CECL Allowance of $15.0 million was reversed through reversal of loan losses, while the write-down was recorded in realized loss on investments in our condensed consolidated statement of operations.
The following table summarizes the specific provision for loan losses that has been recorded on our portfolio as of September 30, 2020 ($ in thousands):
| | | | | | | | | | | | | | |
Type | Property type | Location | Amortized cost(1) | Interest recognition status/ as of date |
Mortgage | | | | |
| Urban Predevelopment(3) | Brooklyn, NY | 128,418 | | Cost Recovery/ 3/1/2020 |
| Urban Predevelopment(3) | Miami, FL | 114,910 | | Cost Recovery/ 3/1/2020 |
| Retail Center(4)(5) | Cincinnati, OH | 105,561 | | Cost Recovery/ 10/1/2019 |
| Hotel(2) | Pittsburgh, PA | 28,872 | | Cost Recovery/ 3/31/2020 |
| Residential-for-sale: inventory(6)(7) | Bethesda, MD | 3,095 | | Cost Recovery/ 1/1/2018 |
Mortgage total: | | | $ | 380,856 | | |
Mezzanine | | | | |
| Hotel(2) | Washington, DC | 18,430 | | Cost Recovery/ 3/31/2020 |
| Hotel(8) | Anaheim, CA | 9,380 | | Cost Recovery/ 9/30/2020 |
Mezzanine total: | | | $ | 27,810 | | |
Grand total: | | | $ | 408,666 | | |
———————
(1)Amortized cost is shown net of $196.9 million of net loan loss provisionprovisions. During the three and nine months ended September 30, 2020, there was $11,981 $(0.6) million and $5,000$140.0 million in (reversals)/provisions taken due to factors including COVID-19. See Note 2 for commercial mortgage loansadditional information regarding COVID-19.
(2)The fair value of hotel collateral was determined by applying a discount rate ranging from 8.5% to 11.0% and subordinate loans, respectively. As of December 31, 2016,a capitalization rate ranging from 7.0% to 9.0%. For the aggregate loan loss provision was $10,000 and $5,000 for commercial mortgage loans and subordinate loans, respectively.
Forhotel located in Washington, DC, during the three and nine months ended September 30, 2017,2020, there was $0 and $0.2 million of interest paid applied towards reducing the Company received pre-payment penaltiescarrying value of $3,590the loan, respectively.
(3)The fair value of urban predevelopment collateral was determined by assuming rent per square foot ranging from $48 to $225 and $3,998, respectively. Fora capitalization rate ranging from 5.0% to 5.5%.
(4)The fair value of retail collateral was determined by applying a capitalization rate of 8.3%.
(5)The entity in which we own an interest and which owns the underlying property was deemed to be a VIE and we determined that we are not the primary beneficiary of that VIE. During the three and nine months ended September 30, 2016,2020, $0.4 million and $1.1 million, respectively, of interest paid was applied towards reducing the Company received pre-payment penaltiescarrying value of $4,000the loan.
(6)Subsequent to September 30, 2020, the remaining collateral on this loan was sold. In connection with the sale of the underlying collateral, a $1.9 million reversal of the previously recognized specific CECL Allowance was recorded during the three months ended September 30, 2020. Refer to "Note 18 - Subsequent Events" for more information.
(7)A $3.0 million portion of this provision was recorded on an investment previously recorded under other assets on our condensed consolidated balance sheet.
(8)The fair value of the hotel, located in Anaheim, California, was determined using the market approach where the fair market value of the underlying collateral, less projected closing costs, was compared to the amortized cost of the loan.
Other Loan and $5,225, respectively. The Company records pre-payment penalty income underLending Assets Activity
We recognized payment-in-kind ("PIK") interest income.
Forof $12.5 million and $37.3 million for the three and nine months ended September 30, 2017, the Company recognized PIK interest of $5,3092020, respectively, and $19,323, respectively. For$13.7 million and $42.8 million for the three and nine months ended September 30, 2016,2019, respectively.
We recognized $0 and $0.2 million in pre-payment penalties and accelerated fees for the Company recognized PIKthree and nine months ended September 30, 2020, respectively, and $0.3 million and $4.0 million for the three and nine months ended September 30, 2019, respectively.
Our portfolio includes two other lending assets, which are subordinate risk retention interests in securitization vehicles. The underlying mortgages related to our subordinate risk retention interests are secured by a portfolio of properties located throughout the United States. Our maximum exposure to loss from the subordinate risk retention interests is limited to the book value of such interests of $68.1 million as of September 30, 2020. These interests have a weighted average maturity of 6.07 years. We are not obligated to provide, and do not intend to provide financial support to these subordinate risk retention interests. Both interests are accounted for as held-to-maturity and recorded at amortized cost on our condensed consolidated balance sheet.
In January 2020, we sold £62.2 million ($81.3 million assuming conversion into U.S. dollars) in a mezzanine loan and £50.0 million ($65.3 million assuming conversion into U.S. dollars) unfunded commitment of a senior mortgage secured by a mixed-use property in London, UK to a fund managed by an affiliate of the Manager, that was originated by us in December 2019. This transaction was evaluated under ASC 860 - Transfers and Servicing, and we determined that it qualifies as a sale and accounted for it as such. We recorded no gain or loss related to this sale.
In the second quarter of 2020, we sold interests in three construction loans, with aggregate commitments of $376.9 million (of which approximately $127 million was funded at the time of sale). The sales were to entities managed by affiliates of the Manager. In connection with these sales, we agreed to indemnify each buyer on a limited basis for realized losses of up to 10% of the committed amount on each of the loans provided that; (i) the loan is in default on or prior to December 15, 2020 and (ii) the buyer realized a loss from an enforcement action pursuant to the underlying loan agreement on or prior to June 15, 2021. The limited indemnity does not cover a loss on sale of the loan or an unrealized mark-to-market loss. We recorded a loss of approximately $1.4 million in connection with these sales. These transactions were evaluated under ASC 860 - Transfers and Servicing, and we determined that they qualify as sales and accounted for them as such.
In July 2020, we sold our interest in a foreign residential-for-sale inventory loan, with outstanding principal of $5,808£97.5 million ($124.2 million assuming conversion into USD). We recorded a loss of approximately $1.0 million in connection with this sale. This transaction was evaluated under ASC 860 - Transfers and $15,902, respectively.Servicing, and we determined that it qualifies as a sale and accounted for it as such.
Note 5 – Loan Proceeds Held by Servicer
Loan proceeds held by servicer represents principal payments held by our third-party loan servicer as of the balance sheet date which were remitted to us subsequent to the balance sheet date. There were 0 loan proceeds held by servicer as of September 30, 2020. Loan proceeds held by servicer were $8.3 million as of December 31, 2019.
Note 6 – Unconsolidated Joint VentureOther Assets
InThe following table details the components of our other assets at the dates indicated ($ in thousands):
| | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
Interest receivable | $ | 38,401 | | | $ | 35,581 | |
Collateral deposited under derivative agreements | 1,810 | | | 17,090 | |
Other | 3,433 | | | 45 | |
Total | $ | 43,644 | | | $ | 52,716 | |
Note 7 – Secured Debt Arrangements, Net
At September 2014,30, 2020 and December 31, 2019, our borrowings included the Company, through a wholly owned subsidiary, acquired a 59% ownershipfollowing secured debt arrangements, maturities and weighted-average interest rates ($ in Champ L.P. (“Champ LP”) following which a wholly-owned subsidiary of Champ LP then acquired a 35% ownership interest in Bremer Kreditbank AG ("BKB"). The Company acquired its ownership interest in Champ LP for an initial purchase price paid at closing of approximately €30,724 (or $39,477). The Company committed to invest up to approximately €38,000 (or $50,000). Champ LP together with certain unaffiliated third party investors, in aggregate, own 100% of BKB.thousands):
BKB specializes in corporate banking and financial services for medium-sized German companies. It also provides professional real estate financing, acquisition finance, institutional asset management and private wealth management services for German high-net-worth individuals.
The Company evaluated Champ LP to determine if it met the definition of a variable interest entity ("VIE") in accordance with ASC 810, Consolidation. The Company determined that Champ LP met the definition of a VIE, however, the Company was not the primary beneficiary; therefore, the Company was not required to consolidate the assets and liabilities of the partnership in accordance with the authoritative guidance. Additionally, Champ LP is an Investment Company under GAAP, and is therefore reflected at fair value. The Company's investment in Champ LP was accounted for as an equity method investment and therefore the Company recorded its proportionate share of the net asset value in accordance with ASC 323, Investments - Equity Method and Joint Ventures. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2020 | | | | | | December 31, 2019 | | | | |
| Maximum Amount of Borrowings(1) | | Borrowings Outstanding(1) | | Maturity (2) | | Maximum Amount of Borrowings(1) | | Borrowings Outstanding(1) | | Maturity (2) |
JPMorgan (USD) | $ | 1,132,013 | | | $ | 989,278 | | | June 2024 | | $ | 1,154,109 | | | $ | 1,090,160 | | | June 2024 |
JPMorgan (GBP) | 97,661 | | | 97,661 | | | June 2024 | | 51,702 | | | 50,410 | | | June 2024 |
JPMorgan (EUR) | 70,326 | | | 70,326 | | | June 2024 | | 94,189 | | | 94,189 | | | June 2024 |
DB (USD) | 1,000,000 | | | 526,743 | | | March 2023 | | 1,250,000 | | | 513,876 | | | March 2021 |
Goldman (USD) | 500,000 | | | 362,139 | | | November 2021 | | 500,000 | | | 322,170 | | | November 2021 |
CS - USD | 378,903 | | | 378,781 | | | January 2023(3) | | 226,068 | | | 218,644 | | | June 2020 |
CS - GBP | — | | | — | | | N/A(4) | | 93,915 | | | 93,915 | | | June 2020 |
HSBC - USD | 47,223 | | | 47,223 | | | January 2021 | | 50,625 | | | 50,625 | | | October 2020 |
HSBC - GBP | 0 | | | 0 | | | N/A | | 34,634 | | | 34,634 | | | June 2020 |
HSBC - EUR | 157,148 | | | 157,148 | | | July 2021 | | 154,037 | | | 154,037 | | | January 2021 |
Barclays (USD) | 200,000 | | | 35,192 | | | March 2024 | | N/A | | N/A | | N/A |
Barclays (GBP) | — | | | — | | | N/A(4) | | 538,916 | | | 290,347 | | | February 2024(5) |
Barclays (EUR) | — | | | — | | | N/A(4) | | 182,549 | | | 182,549 | | | November 2020 |
Total Secured Credit Facilities | 3,583,274 | | | 2,664,491 | | | | | 4,330,744 | | | 3,095,556 | | | |
Barclays Private Securitization | 813,592 | | | 813,592 | | | March 2024(5) | | N/A | | N/A | | N/A |
Total Secured Debt Arrangements | 4,396,866 | | | 3,478,083 | | | | | 4,330,744 | | | 3,095,556 | | | |
less: deferred financing costs | N/A | | (12,746) | | | | | N/A | | (17,190) | | | |
Total Secured Debt Arrangements, net(6)(7)(8) | $ | 4,396,866 | | | $ | 3,465,337 | | | | | $ | 4,330,744 | | | $ | 3,078,366 | | | |
| | | | | | | | | | | |
In January 2015, the Company funded an additional investment of €3,331 (or $3,929) related to its investment in Champ LP. In February 2015, the Company sold approximately 48% of its ownership interest in Champ LP at cost to an investment fund managed by Apollo for €16,314 (or $20,794) (of which $2,614 related to foreign exchange losses which were previously included in accumulated other comprehensive loss). In June 2016, the Company transferred €427 of its unfunded commitment to Apollo, reducing its unfunded commitment to Champ LP to €2,802 (or $2,985).———————
In May 2017, the Company sold its remaining ownership interest in Champ LP to unaffiliated third parties for €21,792 or $24,498, resulting in a loss of $3,305. (1)As of September 30, 2017, the Company had no interest in Champ LP.
Note 7 – Borrowings Under Repurchase Agreements
At September 30, 20172020, British Pound Sterling ("GBP") and Euros ("EUR") borrowings were converted to U.S. Dollars ("USD") at a rate of 1.29 and 1.17, respectively. As of December 31, 2016, the Company’s2019, GBP and EUR borrowings had the following outstanding balances, maturitieswere converted at a rate of 1.33 and weighted average interest rates:1.12, respectively.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2017 | | | December 31, 2016 |
Lender | Maximum Amount of Borrowings | | Borrowings Outstanding | | Maturity (1) | | Weighted Average Rate (2) | | | Maximum Amount of Borrowings | | Borrowings Outstanding | | Maturity (1) | | Weighted Average Rate (2) |
JPMorgan Facility (3) | $ | 1,118,000 |
| | $ | 840,360 |
| | March 2020 | | L+2.27% |
| | | $ | 943,000 |
| | $ | 657,452 |
| | January 2019 | | L+2.25% |
|
DB Repurchase Facility (4) | 565,491 |
| | 265,658 |
| | March 2020 | | L+2.35% |
| | | 300,000 |
| | 137,355 |
| | September 2019 | | L+2.66% |
|
Goldman Loan | 34,180 |
| | 34,180 |
| | April 2019 | | L+3.50% |
| | | N/A |
| | 40,657 |
| | April 2019 | | L+3.50% |
|
Sub-total | 1,717,671 |
| | 1,140,198 |
| | | | L+2.32% |
| | |
|
| | 835,464 |
| | | | L+2.38% |
|
| | | | | | | | | | | | | | | | |
UBS Facility | N/A |
| | N/A |
| | N/A | | N/A |
| | | N/A |
| | 133,899 |
| | September 2018 | | 2.79 | % |
DB Facility (5) | 300,000 |
| | 149,317 |
| | April 2018 | | 3.48 | % | | | N/A |
| | 177,203 |
| | April 2018 | | 3.63 | % |
Sub-total | 300,000 |
| | 149,317 |
| | | | 3.48 | % | | |
|
| | 311,102 |
| | | | 3.27 | % |
| | | | | | | | | | | | | | | | |
Less: deferred financing costs | N/A |
| | (10,884 | ) | | | | N/A |
| | | N/A |
| | (6,763 | ) | | | | N/A |
|
Total / Weighted Average | $ | 2,017,671 |
| | $ | 1,278,631 |
| | | | 3.55 | % | | |
|
| | $ | 1,139,803 |
| | | | 3.18 | % |
———————
(1) (2)Maturity date assumes all extensions at our option are exercised.exercised with consent of financing providers, where applicable.
(2) (3)Assumes one-month LIBOR was 1.23% and 0.77%financings are extended in line with the underlying loans.
(4)As of September 30, 2020, there are no loans pledged to this facility.
(5)Represents weighted average maturity across various financings with the counterparty. See below for additional details.
(6)Weighted-average borrowing costs as of September 30, 20172020 and December 31, 2016,2019 were USD L + 2.15% / GBP L + 1.82% / EUR L + 1.46% and USD L + 2.07% / GBP L + 1.75% / EUR L + 1.36%, respectively.
(3) (7)Weighted average advance rates based on cost as of September 30, 2020 and December 31, 2019 were 64.3% (63.8% (USD) / 67.9% (GBP) / 61.3% (EUR)) and 63.8% (66.7% (USD) / 47.1% (GBP) / 76.1% (EUR)).
(8)As of September 30, 2017,2020 and December 31, 2019, approximately 55% and 54% of the Company's masteroutstanding balance under these secured borrowings were recourse to us.
Each of our existing secured debt arrangements include "credit based and other mark-to-market" features. "Credit mark-to-market" provisions in repurchase agreementfacilities are designed to keep the lenders' credit exposure generally constant as a percentage of the underlying collateral value of the assets pledged as security to them. If the credit of the underlying collateral value decreases, the amount of leverage available to us will be reduced as our assets are marked-to-market, which would reduce our liquidity. Generally, the lender under the applicable secured debt arrangement calls for and/or sets the valuation and any revaluation of the collateral assets in its sole, good faith discretion. If it is determined (subject to certain conditions) that the market value of the underlying collateral has decreased by more than a defined minimum amount, the lender may require us to provide additional collateral or may make margin calls, which may require us to repay all or a portion of the funds advanced. We closely monitor our liquidity and intend to maintain sufficient liquidity on our balance sheet in order to meet any margin calls in the event of any significant decreases in asset values. As of September 30, 2020 and December 31, 2019, the weighted average haircut under our secured debt arrangements was approximately 35.7% and 36.2%, respectively. In addition, our existing secured debt arrangements are not entirely term-matched financings and may mature before our commercial real estate debt investments that represent underlying collateral to those financings. We are in frequent dialogue with the lenders under our secured debt arrangements regarding our management of their collateral assets and as we negotiate renewals and extensions of these liabilities, we may experience lower advance rates and higher pricing under the renewed or extended agreements.
JPMorgan Facility
In November 2019, through 3 indirect wholly-owned subsidiaries, we entered into a Sixth Amended and Restated Master Repurchase Agreement with JPMorgan Chase Bank, National Association
( (as amended, the "JPMorgan Facility") provided. The JPMorgan Facility allows for $1.3 billion of maximum total borrowings comprised(with amounts borrowed in British pounds and Euros converted to USD for purposes of calculating availability based on the greater of the $975,000 repurchase facilityspot rate as of the initial financing under the corresponding mortgage loan and a $143,000 asset specific financing.the then-current spot rate) and matures in June 2022 and has 2 one-year extensions available at our option, which are subject to certain conditions. The JPMorgan Facility enables us to elect to receive advances in USD, GBP, or EUR. Margin calls may occur any time at specified aggregate margin deficit thresholds.
(4) As of September 30, 2017,2020, we had $1.2 billion (including £75.6 million and €60.0 million assuming conversion into USD) of borrowings outstanding under the Company's master repurchase agreementJPMorgan Facility secured by certain of our commercial mortgage loans.
DB Facility
In March 2020, through an indirect wholly-owned subsidiary, we entered into a Third Amended and Restated Master Repurchase Agreement with Deutsche Bank AG, Cayman Islands Branch, (theLondon Branch (as amended, the "DB Repurchase Facility") provided, which provides for maximum total borrowings comprisedadvances of up to $1.0 billion for the $450,000sale and £45,000repurchase of eligible first mortgage loans secured by commercial or multifamily properties located in the United States, United Kingdom and the European Union, and enables us to elect to receive advances in USD, GBP, or EUR. The repurchase facility matures in March 2021, and a $55,200 asset specific financing.has 2 one-year extensions available at our option, subject to certain conditions. Margin calls may occur any time at specified aggregate margin deficit thresholds.
(5) Advances under the DB Facility accrue interest at a per annum pricing rate based on the rate implied by the fixed rate bid under a fixed for floating interest rate swap for the receiptAs of payments indexed to three-month U.S. dollar LIBOR, plus a financing spread ranging from 2.09% to 2.39% based on the rating of the collateral pledged.
At September 30, 2017, the Company’s borrowings2020, we had the following remaining maturities:
|
| | | | | | | | | | | | | | | | | | | |
| Less than 1 year (1) | | 1 to 3 years (1) | | 3 to 5 years | | More than 5 years | | Total |
JPMorgan Facility | $ | 166,273 |
| | $ | 674,087 |
| | $ | — |
| | $ | — |
| | $ | 840,360 |
|
DB Repurchase Facility | — |
| | 265,658 |
| | — |
| | — |
| | 265,658 |
|
Goldman Loan | — |
| | 34,180 |
| | — |
| | — |
| | 34,180 |
|
DB Facility | 149,317 |
| | — |
| | — |
| | — |
| | 149,317 |
|
Total | $ | 315,590 |
| | $ | 973,925 |
| | $ | — |
| | $ | — |
| | $ | 1,289,515 |
|
———————
(1) Assumes underlying assets are financed through the fully extended maturity date of the facility.
At September 30, 2017, the Company’s collateralized financings were comprised$526.7 million of borrowings outstanding under the JPMorganDB Facility the DB Repurchasesecured by certain of our commercial mortgage loans.
Goldman Facility the Company's
In November 2017, through an indirect wholly-owned subsidiary, we entered into a master repurchase and securities contract agreement with Goldman Sachs Bank USA (the "Goldman Loan"Facility"), which provides advances up to $500.0 million and matures in November 2020, and has 1 one-year extension available at our option, subject to certain conditions. Margin calls may occur any time at specified margin deficit thresholds.
As of September 30, 2020, we had $362.1 million of borrowings outstanding under the DB Facility. Goldman Facility secured by certain of our commercial mortgage loans.
CS Facility - USD
In July 2018, through an indirect wholly-owned subsidiary, we entered into a Master Repurchase Agreement with Credit Suisse AG, acting through its Cayman Islands Branch and Alpine Securitization Ltd (the "CS Facility - USD"), which provides for advances for the sale and repurchase of eligible commercial mortgage loans secured by real estate. The CS Facility - USD has an "evergreen" feature such that the facility continues unless terminated at any time by Credit Suisse with six months' notice. Margin calls may occur any time at specified aggregate margin deficit thresholds.
As of September 30, 2020, we had $378.8 million of borrowings outstanding under the CS Facility - USD secured by certain of our commercial mortgage loans.
CS Facility - GBP
In June 2018, through an indirect wholly-owned subsidiary, we entered into a Global Master Repurchase Agreement with Credit Suisse Securities (Europe) Limited (the "CS Facility - GBP"). During the third quarter of 2020, the facility was repaid in connection with the sale of the underlying loan.
HSBC Facility - USD
In October 2019, through an indirect wholly-owned subsidiary, we entered into a secured debt arrangement with HSBC Bank plc (the "HSBC Facility - USD"), which provides for a single asset financing. The facility is scheduled to mature in January 2021. Margin calls may occur any time at specified aggregate margin thresholds.
As of September 30, 2020, we had $47.2 million of borrowings under the HSBC Facility - USD secured by one commercial mortgage loan.
HSBC Facility - GBP
In September 2018, through an indirect wholly-owned subsidiary, we entered into a secured debt arrangement with HSBC Bank plc (the "HSBC Facility - GBP"), which provided for a single asset financing. The facility matured and was repaid in June 2020 in connection with the repayment of the underlying loan.
HSBC Facility - EUR
In July 2019, through an indirect wholly-owned subsidiary, we entered into a secured debt arrangement with HSBC Bank plc (the "HSBC Facility - EUR"), which provides for a single asset financing. The facility matures in July 2021. Margin calls may occur any time at specified aggregate margin deficit thresholds.
As of September 30, 2020, we had $157.1 million (€134.1 million assuming conversion into USD) of borrowings outstanding under the HSBC Facility - EUR secured by one commercial mortgage loan.
Barclays Facility - USD
In March 2020, through an indirect wholly-owned subsidiary, we entered into a secured debt arrangement pursuant to a Master Repurchase Agreement with Barclays Bank plc ("Barclays Facility - USD"). The Barclays Facility - USD allows for $200.0 million of maximum borrowings and initially matures in March 2023 with extensions available at our option, subject to certain conditions. Margin calls may occur any time at specified aggregate margin deficit thresholds.
As of September 30, 2020, we had $35.2 million of borrowings outstanding under the Barclays Facility - USD secured by one commercial mortgage loan.
Barclays Facility - GBP/EUR
Beginning in October 2019, through an indirect wholly-owned subsidiary, we entered into five secured debt arrangements pursuant to a Global Master Repurchase Agreement with Barclays Bank plc (the "Barclays Facility - GBP/EUR"). In June 2020, all assets previously financed pursuant to this facility were refinanced under the Barclays Private Securitization.
Barclays Private Securitization
In June 2020, through a newly formed entity, we entered into a private securitization with Barclays Bank plc, of which Barclays Bank plc retained $782.0 million of senior notes. This Barclays Private Securitization finances the loans that were previously financed under the Barclays Facility - GBP/EUR. In addition, we pledged an additional commercial mortgage loan with an outstanding principal balance of £26.0 million and pledged additional collateral of a financed loan of €5.3 million as of June 30, 2020.
The securitization eliminates daily margining provisions and grants us significant discretion to modify certain terms of the underlying collateral including waiving certain loan-level covenant breaches and deferring or waiving of debt service payments for up to 18 months. The securitization includes LTV based covenants with significant headroom to existing levels that are also subject to a six-month holiday through December 2020. These deleveraging requirements are based on significant declines in the value of the collateral as determined by an annual third-party (engaged by us) appraisal process tied to the provisions of the underlying loan agreements. We believe this provides us with both cushion and predictability to avoid sudden unexpected outcomes and material repayment requirements. In addition to the pledge of the additional collateral noted above, we paid down the previous financing by €16.5 million (totaling $18.5 million in USD) and agreed to increase the financing spreads by 0.25%.
The table below provides the borrowings outstanding (on an as converted basis) and weighted-average fully-extended maturities by currency for the assets financed under the Barclays Private Securitization as of September 30, 2020 ($ in thousands):
| | | | | | | | |
| Borrowings outstanding | Fully-Extended Maturity(1) |
Total/Weighted-Average GBP | $670,024 | January 2024 |
Total/Weighted-Average EUR | 143,568 | August 2021(2) |
Total/Weighted-Average Securitization | $813,592 | March 2024 |
———————
(1)Assumes underlying loans extend to fully extended maturity and extensions at our option are exercised.
(2)The EUR portion of the Barclays Private Securitization has an "evergreen" feature such that the facility continues for one year and can be terminated by either party on certain dates with, depending on the date of notice, a minimum of nine to twelve months' notice.
The table below provides the assets and liabilities of the Barclays Private Securitization VIE included in our condensed consolidated balance sheet ($ in thousands):
| | | | | |
| September 30, 2020 |
Assets: | |
Cash | $ | 921 | |
Commercial mortgage loans, net(1) | 1,224,154 | |
Other Assets | 9,401 | |
Total Assets | $ | 1,234,476 | |
Liabilities: | |
Secured debt arrangements, net (net of deferred financing costs of $0.2 million) | $ | 813,431 | |
Accounts payable, accrued expenses and other liabilities(2) | 1,084 | |
Total Liabilities | $ | 814,515 | |
———————
(1)Net of the General CECL Allowance of $6.1 million.
(2)Represents General CECL Allowance related to unfunded commitments on commercial mortgage loans, net of $0.3 million.
| | | | | |
| Three months ended |
| September 30, 2020 |
Net Interest Income: | |
Interest income from commercial mortgage loans | $ | 15,075 | |
Interest expense | (4,278) | |
Net interest income | $ | 10,797 | |
Provision for loan losses and impairments | $ | (2,318) | |
Foreign currency gain | 17,078 |
Net Income | $ | 25,557 | |
As of September 30, 2020, we had $813.6 million (£518.6 million and €122.5 million assuming conversion into USD) of borrowings outstanding under the Barclays Private Securitization secured by certain of our commercial mortgage loans.
At September 30, 2020, our borrowings had the following remaining maturities ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Less than 1 year | | 1 to 3 years | | 3 to 5 years | | More than 5 years | | Total |
JPMorgan | $ | 45,918 | | | $ | 432,440 | | | $ | 678,907 | | | $ | 0 | | | $ | 1,157,265 | |
DB | 15,594 | | | 511,149 | | | 0 | | | 0 | | | 526,743 | |
Goldman | 0 | | | 362,139 | | | 0 | | | 0 | | | 362,139 | |
CS - USD | 94,299 | | | 146,994 | | | 137,488 | | | 0 | | | 378,781 | |
HSBC - USD | 47,223 | | | 0 | | | 0 | | | 0 | | | 47,223 | |
HSBC - EUR | 157,148 | | | 0 | | | 0 | | | 0 | | | 157,148 | |
Barclays - USD | 0 | | | 0 | | | 35,192 | | | 0 | | | 35,192 | |
Barclays Private Securitization | 143,568 | | | 289,769 | | | 380,255 | | | 0 | | | 813,592 | |
Total | $ | 503,750 | | | $ | 1,742,491 | | | $ | 1,231,842 | | | $ | 0 | | | $ | 3,478,083 | |
The table above reflects the fully extended maturity date of the facility and assumes facilities with an "evergreen" feature continue to extend through the fully-extended maturity of the underlying asset and assumes underlying loans are extended with consent of financing providers.
The table below summarizes the outstanding balances at September 30, 2017,2020, as well as the maximum and average month-end balances for the nine months ended September 30, 20172020 for our borrowings under secured debt arrangements ($ in thousands).
| | | | | | | | | | | | | | | | | | | | | | | |
| As of September 30, 2020 | | | | For the nine months ended September 30, 2020 | | |
| Balance | | Amortized Cost of Collateral | | Maximum Month-End Balance | | Average Month-End Balance |
JPMorgan | $ | 1,157,265 | | | $ | 1,976,965 | | | $ | 1,192,288 | | | $ | 1,106,461 | |
DB | 526,743 | | | 804,835 | | | 526,743 | | | 501,470 | |
Goldman | 362,139 | | | 548,671 | | | 362,139 | | | 343,882 | |
CS - USD | 378,781 | | | 523,272 | | | 378,781 | | | 339,425 | |
CS - GBP | — | | | 0 | | | 90,111 | | | 57,459 | |
HSBC - USD | 47,223 | | | 67,203 | | | 50,625 | | | 48,357 | |
HSBC - GBP | 0 | | | 0 | | | 34,500 | | | 32,900 | |
HSBC - EUR | 157,148 | | | 204,040 | | | 160,034 | | | 152,982 | |
Barclays - USD | 35,192 | | | 49,929 | | | 35,193 | | | 27,372 | |
Barclays - GBP | 0 | | | 0 | | | 666,810 | | | 347,590 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Barclays - EUR | 0 | | | 0 | | | 180,595 | | | 94,028 | |
Barclays Private Securitization | 813,592 | | | 1,230,305 | | | 839,563 | | | 814,844 | |
Total | $ | 3,478,083 | | | $ | 5,405,220 | | | | | |
The table below summarizes the outstanding balances at December 31, 2019, as well as the maximum and average month-end balances for the Company'syear ended December 31, 2019 for our borrowings under repurchase agreements.secured debt arrangements ($ in thousands).
| | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2019 | | | | For the year ended December 31, 2019 | | |
| Balance | | Amortized Cost of Collateral | | Maximum Month-End Balance | | Average Month-End Balance |
JPMorgan | $ | 1,234,759 | | | $ | 1,845,400 | | | $ | 1,234,759 | | | $ | 947,400 | |
DB | 513,876 | | | 766,676 | | | 757,117 | | | 604,067 | |
Goldman | 322,170 | | | 513,559 | | | 324,821 | | | 246,318 | |
CS - USD | 218,644 | | | 308,884 | | | 218,644 | | | 182,646 | |
CS - GBP | 93,915 | | | 129,723 | | | 150,811 | | | 134,694 | |
HSBC - USD | 50,625 | | | 66,960 | | | 50,625 | | | 50,625 | |
HSBC - GBP | 34,634 | | | 49,976 | | | 50,784 | | | 42,296 | |
HSBC - EUR | 154,037 | | | 190,780 | | | 154,037 | | | 151,889 | |
Barclays - GBP | 290,347 | | | 738,455 | | | 290,347 | | | 139,004 | |
Barclays - EUR | 182,549 | | | 241,674 | | | 182,549 | | | 181,159 | |
Total | $ | 3,095,556 | | | $ | 4,852,087 | | | | | |
We were in compliance with the covenants under each of our secured debt arrangements at September 30, 2020 and December 31, 2019.
Note 8 – Senior Secured Term Loan, Net
|
| | | | | | | | | | | |
| | | For the nine months ended September 30, 2017 |
| Balance at September 30, 2017 | | Maximum Month-End Balance | | Average Month-End Balance |
JPMorgan Facility borrowings | $ | 840,360 |
| | $ | 986,611 |
| | $ | 849,355 |
|
DB Repurchase Facility borrowings | 265,658 |
| | 367,010 |
| | 286,326 |
|
Goldman Loan borrowings | 34,180 |
| | 39,590 |
| | 37,554 |
|
DB Facility borrowings | 149,317 |
| | 177,203 |
| | 136,930 |
|
Total | $ | 1,289,515 |
| | | | |
JPMorgan Facility
On March 31, 2017, the Company, through two indirect wholly owned subsidiaries, amended and restated the JPMorgan Facility, which currently provides for maximum total borrowings of $1,118,000, comprised of the $975,000 repurchase facility andIn May 2019, we entered into a $143,000 asset specific financing, and a$500.0 million senior secured term expiring in March 2019 plus a one-year extension option available at the Company's option, subject to certain conditions. Amounts borrowed under the JPMorgan Facility bearloan. The senior secured term loan bears interest at spreads ranging from 2.25%LIBOR plus 2.75% and was issued at a price of 99.5%. The senior secured term loan matures in May 2026 and contains restrictions relating to 3.50% over one-month LIBOR. Margin calls may occur any timeliens, asset sales, indebtedness, and investments in non-wholly owned entities.
During the aggregate repurchase price exceedsthree and nine months ended September 30, 2020, we repaid $1.3 million and $3.8 million of principal related to the agreed upon advance rate multiplied by the market valuesenior secured term loan, respectively. The outstanding principal balance as of the assets by more than $250. The Company has agreed to provide a limited guarantee of the obligations of its indirect wholly-owned subsidiaries under the JPMorgan Facility.
September 30, 2020 and December 31, 2019 was $493.8 million and $497.5 million, respectively. As of September 30, 2017,2020, the Companysenior secured term loan had $840,360a carrying value of borrowings outstanding under the JPMorgan Facility secured by certain$484.2 million net of the Company's commercial mortgagedeferred financing costs of $7.6 million and subordinate loans.
DB Repurchase Facility
On September 29, 2016, the Company, through indirect wholly-owned subsidiaries, entered into the DB Repurchase Facility which provides for maximum total borrowingsan unamortized discount of $565,491 comprised of the $450,000 and £45,000 repurchase facility as well as a $55,200 asset specific financing in connection with financing first mortgage loans secured by real estate. The DB Repurchase Facility matures in March 2018 with two one-year extension options available at the Company's option, subject to certain conditions. Amounts borrowed under the DB Repurchase Facility bear interest at spreads ranging from 2.10% to 3.00% over one-month LIBOR. Margin calls may occur any time at specified aggregate margin deficit thresholds. The Company has agreed to provide a guarantee of the obligations of its indirect wholly-owned subsidiaries under this facility.
$2.0 million. As of September 30, 2017,December 31, 2019, the Companysenior secured term loan had $265,658 (inclusive of £45,000) borrowings outstanding under the DB Repurchase Facility secured by certain of the Company's commercial mortgage loans.
Goldman Loan
On January 26, 2015, the Company, through an indirect wholly-owned subsidiary, entered into the Goldman Loan. The Goldman Loan provides for a purchase price of $34,180 (as of September 30, 2017) and a repurchase date of the earliest of: (1) April 30, 2019, (2) an early repurchase date as a result of repayment or sale of the purchased loan, or (3) an accelerated repurchase date as a result of certain events of default. Subject to the terms and conditions thereof, the Goldman Loan provides for the purchase and sale of certain participation interests in a mortgage loan secured by single-family and condominium properties. Amounts borrowed under the Goldman Loan bear interest at a spread of 3.5% plus one-month LIBOR. In addition, the Goldman Loan provides that margin calls may occur during the continuance of certain credit events if the marketcarrying value of the mortgaged properties drop below$488.0 million net of deferred financing costs of $7.3 million and an agreed upon percentage. The Goldman Loan contains affirmative and negative covenants and provisions regarding eventsunamortized discount of default that are normal and customary for similar repurchase agreements.$2.3 million.
As of September 30, 2017, the Company had $34,180 of borrowings outstanding under the Goldman Loan secured by one commercial mortgage loan held by the Company.
UBS Facility
In September 2013, the Company, through an indirect wholly-owned subsidiary, entered into the UBS Facility, which provided that the Company may borrow up to $133,899 in order to finance the acquisition of CMBS. The UBS Facility matured in September 2017 and the Company repaid the outstanding borrowings in full.
DB Facility
In April 2014, the Company, through an indirect wholly-owned subsidiary, entered into the DB Facility, which currently provides that the Company may borrow up to $300,000 in order to finance the acquisition of CMBS. The DB Facility matures in April 2018. Advances under the DB Facility accrue interest at a per annum pricing rate based on the rate implied by the fixed rate bid under a fixed for floating interest rate swap for the receipt of payments indexed to three-month U.S. dollar LIBOR, plus a financing spread ranging from 2.09% to 2.39% based on the rating of the collateral pledged.
Covenants
The Company posts margin in cash based onsenior secured term loan includes the fair valuefollowing financial covenants: (i) our ratio of the underlying collateral. The margin posted is classified as restricted cash on the Company's condensed consolidated balance sheets.total recourse debt to tangible net worth cannot be greater than 3:1; and (ii) our ratio of total unencumbered assets to total pari-passu indebtedness must be at least 1.25:1.
Additionally, the undrawn amount is subject to a 1.8% non-use fee. The DB Facility contains customary terms and conditions for facilities of this type and financial covenants to be met by the Company, including minimum shareholder's equity of 50% of the gross capital proceeds of its initial public offering and any subsequent public or private offerings.
As of September 30, 2017, the Company had $149,317 of borrowings outstanding under the DB Facility secured by CMBS held by the Company.
The Company wasWe were in compliance with the financial covenants under each of its borrowing agreementsthe senior secured term loan at September 30, 20172020 and December 31, 2016.2019.
In connection with the senior secured term loan, we previously entered into an interest rate swap to fix LIBOR at 2.12% effectively fixing our all-in coupon on the senior secured term loan at 4.87%. During the second quarter of 2020 we terminated the interest rate swap and recognized a realized loss of $53.9 million.
Interest Rate Cap
During the second quarter of 2020, we entered into a three-year interest rate cap to cap LIBOR at 0.75%. This effectively limits the maximum all-in coupon on our senior secured term loan to 3.50%. In connection with the interest rate cap, we incurred up-front fees of $1.1 million, which we recorded as a deferred financing cost on our condensed consolidated balance
sheet and interest expense will be recognized over the duration of the interest rate cap in our condensed consolidated statement of operations.
Note 89 – Convertible Senior Notes, Net
On March 17,In 2 separate offerings during 2014, the Companywe issued $143,750an aggregate principal amount of $254.8 million of 5.50% Convertible Senior Notes due 2019 (the "March 2019"2019 Notes"), for which the Companywe received net proceeds,$248.6 million, after deducting the underwriting discount and estimated offering expense payable by the Company, of approximately $139,037. At September 30, 2017, the Marchexpenses. The 2019 Notes had a carrying valuewere exchanged or converted for shares of $142,251our common stock and an unamortized discount of $1,499.cash as follows:
(i) On August 18, 2014,2, 2018, we entered into privately negotiated exchange agreements with a limited number of holders of the Company2019 Notes pursuant to which we exchanged $206.2 million of the 2019 Notes for an aggregate of (a) 10,020,328 newly issued shares of our common stock, and (b) $39.3 million in cash. We recorded $166.0 million of additional paid-in-capital in our condensed consolidated statement of changes in stockholders' equity in connection with these transactions,
(ii) Certain holders elected to convert $47.9 million of the 2019 Notes, which were settled for an aggregate of (a) 2,775,509 newly issued shares of our common stock, and (b) $0.2 million in cash. We recorded $13.9 million of additional $111,000paid-in-capital in our condensed consolidated statement of changes in stockholders' equity in connection with these transactions. These conversions occurred from August 2018 through maturity.
The remaining $0.7 million in principal amount of the 2019 Notes was repaid at maturity on March 15, 2019.
In 2 separate offerings during 2017, we issued an aggregate principal amount of 5.50% Convertible Senior Notes due 2019 (the "August 2019 Notes" and together with the March 2019 Notes, the "2019 Notes"), for which the Company received net proceeds, after deducting the underwriting discount and estimated offering expense payable by the Company, of approximately $109,615. At September 30, 2017, the August 2019 Notes had a carrying value of $109,187 and an unamortized discount of $1,813.
On August 21, 2017, the Company issued $230,000 aggregate principal amount$345.0 million of 4.75% Convertible Senior Notes due 2022 (the "August 2022"2022 Notes" and together with the 2019 Notes, the "Notes"), for which the Companywe received net proceeds,$337.5 million, after deducting the underwriting discount and estimated offering expense payable by the Company, of approximately $224,825. expenses.At September 30, 2017,2020, the August 2022 Notes had a carrying value of $220,473$339.7 million and an unamortized discount of $9,527.$5.3 million.
During the fourth quarter of 2018, we issued $230.0 million of 5.375% Convertible Senior Notes due 2023 (the "2023 Notes" and, together with the 2022 Notes, the "Notes"), for which we received $223.7 million after deducting the underwriting discount and offering expenses. At September 30, 2020, the 2023 Notes had a carrying value of $224.9 million and an unamortized discount of $5.1 million.
The following table summarizes the terms of the Notes.Notes ($ in thousands):
|
| | | | | | |
| Principal Amount | Coupon Rate | Effective Rate (1) | Conversion Rate (2) | Maturity Date | Remaining Period of Amortization |
March 2019 Notes | $143,750 | 5.50% | 6.25% | 57.3034 | 3/15/2019 | 1.46 years |
August 2019 Notes | $111,000 | 5.50% | 6.50% | 57.3034 | 3/15/2019 | 1.46 years |
August 2022 Notes | $230,000 | 4.75% | 5.72% | 50.2260 | 8/23/2022 | 4.90 years |
| | | | | | | | | | | | | | | | | | | | |
| Principal Amount | Coupon Rate | Effective Rate (1) | Conversion Rate (2) | Maturity Date | Remaining Period of Amortization |
2022 Notes | $ | 345,000 | | 4.75 | % | 5.60 | % | 50.2260 | | 8/23/2022 | 1.90 |
2023 Notes | 230,000 | | 5.38 | % | 6.16 | % | 48.7187 | | 10/15/2023 | 3.04 |
Total | $ | 575,000 | | | | | | |
———————
| |
(1) | Effective rate includes the effect of the adjustment for the conversion option (see footnote (2) below), the value of which reduced the initial liability and was recorded in additional paid-in-capital. |
| |
(2) | The Company has(1)Effective rate includes the effect of the adjustment for the conversion option (See footnote (2) below), the value of which reduced the initial liability and was recorded in additional paid-in-capital. (2)We have the option to settle any conversions in cash, shares of common stock or a combination thereof. The conversion rate represents the number of shares of common stock issuable per $1,000 principal amount of the Notes converted, and includes adjustments relating to cash dividend payments made by the Company to stockholders that have been deferred and carried-forward in accordance with, and are not yet required to be made pursuant to, the terms of the applicable supplemental indenture. |
The Companyconversion rate represents the number of shares of common stock issuable per 1 thousand principal amount of the Notes converted, and includes adjustments relating to cash dividend payments made by us to stockholders that have been deferred and carried-forward in accordance with, and are not yet required to be made pursuant to, the terms of the applicable supplemental indenture.
We may not redeem the Notes prior to maturity.maturity except in limited circumstances. The closing price of the Company'sour common
stock on September 29, 201730, 2020 of $18.11$9.01 was greater than the per share conversion price of the 2019 Notes and less than the per share conversion price of the August 2022 Notes. The Company has the intent and ability to settle the Notes in cash and, as a result, the Notes did not have any impact on the Company's diluted earnings per share.
In accordance with ASC 470 "Debt," the liability and equity components of convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) isare to be separately accounted for in a manner that reflects the issuer’s nonconvertible debt borrowing rate. GAAP requires that the initial proceeds from the sale of the Notes be allocated between a liability component and an equity component in a manner that reflects interest expense at the interest rate of similar nonconvertible debt that could have been issued by the Companyus at such time. The CompanyWe measured the fair value of the debt components of the Notes as of their issuance date based on effective interest rates. As a result, the Companywe attributed approximately $18,859$15.4 million of the proceeds to the equity component of the Notes ($11,44511.0 million to the 20192022 Notes and $7,414$4.4 million to the August 20222023 Notes), which represents the excess proceeds received over the fair value of the liability component of the Notes at the date of issuance. The equity component of the Notes has been reflected within additional paid-in capital in theour condensed consolidated balance sheet
as of September 30, 2017.2020. The resulting debt discount is being amortized over the period during which the Notes are expected to be outstanding (the maturity date) as additional non-cash interest expense. The additional non-cash interest expense attributable to each of the Notes will increase in subsequent reporting periods through the maturity date as the Notes accrete to their par value over the same period.
The aggregate contractual interest expense was approximately $4,717$7.2 million and $11,722$21.6 million for the three and nine months ended September 30, 2017, respectively. The aggregate contractual interest expense was approximately $3,5032020, respectively, as compared to $7.2 million and $10,508$21.9 million for the three and nine months ended September 30, 2016,2019, respectively. With respect to the amortization of the discount on the liability component of the Notes as well as the amortization of deferred financing costs, the Companywe reported additional non-cash interest expense of approximately $1,213$1.5 million and $3,025$4.5 million for the three and nine months ended September 30, 2017, respectively. With respect2020, respectively, as compared to the
amortization of the discount on the liability component of the Notes as well as the amortization of deferred financing costs, the Company reported additional non-cash interest expense of approximately $895$1.5 million and $2,654$4.6 million for the three and nine months ended September 30, 2016,2019, respectively.
Note 9 – Participations Sold
Participations sold represent the interests in loans the Company originated and subsequently partially sold. The Company presents the participations sold as both assets and non-recourse liabilities because the participation does not qualify as a sale according to ASC 860, Transfers and Servicing. The income earned on the participation sold is recorded as interest income and an identical amount is recorded as interest expense on the Company's condensed consolidated statements of operations.
During January 2015, the Company closed a £34,519 (or $51,996) floating-rate mezzanine loan secured by a portfolio of 44 senior housing facilities located throughout the United Kingdom. During February 2015, the Company closed an additional £20,000 (or $30,672) and participated that balance to an investment fund affiliated with Apollo. During December 2016, the Company qualified for sale accounting with respect to the previous participation sold that was converted to a discrete financial instrument, and therefore deconsolidated the participation sold.
During May 2014, the Company closed a $155,000 floating-rate whole loan secured by the first mortgage and equity interests in an entity that owns a resort hotel in Aruba. During June 2014, the Company syndicated a $90,000 senior participation in the loan and retained a $65,000 junior participation in the loan. During August 2014, both the $90,000 senior participation and the Company's $65,000 junior participation were contributed to a CMBS securitization. In exchange for contributing its $65,000 junior participation, the Company received a CMBS secured solely by the $65,000 junior participation and classified it as CMBS (Held-to-Maturity) on its condensed consolidated financial statements. During May 2017, the loan and associated CMBS (Held-to-Maturity) were fully repaid and the related Securities, held-to-maturity and participation sold line items were removed from the Company's condensed consolidated balance sheet.
Note 10 – Derivative InstrumentsDerivatives
The Company usesWe use forward currency contracts to economically hedge interest and principal payments due under itsour loans denominated in currencies other than U.S. dollars.USD.
The Company hasWe have entered into a series of forward contracts to sell an amount of foreign currency (British pound ("GBP"))(GBP and EUR) for an agreed upon amount of U.S. dollarsUSD at various dates through April 2018.December 2024. These forward contracts were executed to economically fix the U.S. dollarUSD amounts of foreign denominated cash flows expected to be received by the Companyus related to foreign denominated loan investments.
The following table summarizes our non-designated foreign exchange ("Fx") forwards and our interest rate cap as of September 30, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2020 | | | | | | | | |
| Number of Contracts | | Aggregate Notional Amount (in thousands) | | Notional Currency | | Maturity | | Weighted-Average Years to Maturity |
Fx contracts - GBP | 106 | | 422,585 | | GBP | | October 2020 - December 2024 | | 2.16 |
Fx contracts - EUR | 70 | | 238,817 | | EUR | | November 2020 - August 2024 | | 2.79 |
Interest rate cap | 1 | | 500,000 | | USD | | June 2023 | | 2.71 |
The following table summarizes the Company's non-designated foreign exchange (“Fx”) forwards as of September 30, 2017:
|
| | | | | | | |
Type of Derivative | September 30, 2017 |
| Number of Contracts | | Aggregate Notional Amount | | Notional Currency | | Maturity |
Fx Contracts - GBP | 13 | | 197,401 | | GBP | | October 2017- April 2018
|
The following table summarizes the Company'sour non-designated Fx forwards and our interest rate swap as of December 31, 2016:2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2019 | | | | | | | | |
| Number of Contracts | | Aggregate Notional Amount (in thousands) | | Notional Currency | | Maturity | | Weighted-Average Years to Maturity |
Fx contracts - GBP | 156 | | 735,349 | | GBP | | January 2020 - December 2024 | | 1.49 |
Fx contracts - EUR | 44 | | 168,879 | | EUR | | February 2020 - August 2024 | | 3.22 |
Interest rate swap | 1 | | 500,000 | | USD | | May 2026 | | 6.37 |
|
| | | | | | | |
Type of Derivative | December 31, 2016 |
| Number of Contracts | | Aggregate Notional Amount | | Notional Currency | | Maturity |
Fx Contracts - GBP | 11 | | 148,310 | | GBP | | January 2017- December 2017 |
The Company hasWe have not designated any of itsour derivative instruments as hedges as defined in ASC 815 - Derivatives and Hedging and, therefore, changes in the fair value of the Company'sour derivative instruments are recorded directly in earnings. The following table summarizes the amounts recognized on theour condensed consolidated statements of operations related to the Company’s derivative instrumentsour derivatives for the three and nine months ended September 30, 20172020 and 2016.2019 ($ in thousands):
|
| | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| Location of Loss Recognized in Income | 2017 | | 2016 | | 2017 | | 2016 |
Forward currency contract | Gain (loss) on derivative instruments - unrealized | $ | (7,308 | ) | | $ | (10,304 | ) | | $ | (17,629 | ) | | $ | 1,812 |
|
Forward currency contract | Gain (loss) on derivative instruments - realized | (179 | ) | | 15,112 |
| | (290 | ) | | 21,100 |
|
Interest rate caps (1) | Gain (loss) on derivative instruments - unrealized | 6 |
| | 7 |
| | 3 |
| | (81 | ) |
Sub-total | | $ | (7,481 | ) | | $ | 4,815 |
| | $ | (17,916 | ) | | $ | 22,831 |
|
| | | | | | | | |
Forward currency contract | Income (loss) from unconsolidated joint venture | — |
| | — |
| | (587 | ) | | — |
|
Total | | $ | (7,481 | ) | | $ | 4,815 |
| | $ | (18,503 | ) | | $ | 22,831 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Amount of gain (loss) recognized in income | | | | | | |
| | | Three months ended September 30, | | | | Nine months ended September 30, | | |
| Location of Gain (Loss) Recognized in Income | | 2020 | | 2019 | | 2020 | | 2019 |
Forward currency contracts | Unrealized gain (loss) on derivative instruments | | $ | (35,076) | | | $ | 16,227 | | | $ | 18,356 | | | $ | 12,029 | |
Forward currency contracts | Realized gain on derivative instruments | | 539 | | | 7,926 | | | 14,603 | | | 16,590 | |
Total | | | $ | (34,537) | | | $ | 24,153 | | | $ | 32,959 | | | $ | 28,619 | |
In connection with our senior secured term loan, in May 2019, we entered into an interest rate swap to fix LIBOR at 2.12% or an all-in interest rate of 4.87%. We used our interest rate swap to manage exposure to variable cash flows on our borrowings under our senior secured term loan. Our interest rate swap allowed us to receive a variable rate cash flow based on LIBOR and pay a fixed rate cash flow, mitigating the impact of this exposure. However during the second quarter of 2020, we terminated our interest rate swap due to a significant decrease in LIBOR and recognized a realized loss on the accompanying condensed consolidated statement of operations.
In June 2020, we entered into an interest rate cap for approximately $1.1 million. We use our interest rate cap to manage exposure to variable cash flows on our borrowings under our senior secured term loan by effectively limiting LIBOR from exceeding 0.75%. This effectively limits the maximum all-in coupon on our senior secured term loan to 3.50%. Unrealized gains or losses related to the interest rate swap and cap were recorded net under interest expense in our condensed consolidated statement of operations.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Amount of loss recognized in income | | | | | | |
| | | Three months ended September 30, | | | | Nine months ended September 30, | | |
| Location of Loss Recognized in Income | | 2020 | | 2019 | | 2020 | | 2019 |
Interest rate cap(1) | Unrealized gain (loss) on interest rate cap | | $ | (564) | | | $ | 0 | | | $ | 174 | | | $ | 0 | |
Interest rate swap(2) | Unrealized gain (loss) on interest rate swap | | 0 | | | (10,307) | | | 14,470 | | | (23,420) | |
Interest rate swap(2) | Realized loss on interest rate swap | | 0 | | | 0 | | | (53,851) | | | 0 | |
Total | | | $ | (564) | | | $ | (10,307) | | | $ | (39,207) | | | $ | (23,420) | |
———————
(1)With a notional amount of $41,507$500.0 million and $46,798$0 at September 30, 20172020, and 2016,2019, respectively.
(2)With a notional amount of $0 and $500.0 million at September 30, 2020, and 2019, respectively.
The following table summarizestables summarize the gross asset and liability amounts related to the Company's derivative instrumentsour derivatives at September 30, 20172020 and December 31, 2016.2019 ($ in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2020 | | | | | | December 31, 2019 | | | | |
| Gross Amount of Recognized Assets | | Gross Amounts Offset in our Condensed Consolidated Balance Sheet | | Net Amounts of Assets Presented in our Condensed Consolidated Balance Sheet | | Gross Amount of Recognized Assets | | Gross Amounts Offset in our Condensed Consolidated Balance Sheet | | Net Amounts of Assets Presented in our Condensed Consolidated Balance Sheet |
Forward currency contracts | $ | 20,788 | | | $ | (7,307) | | | $ | 13,481 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Interest rate cap | 173 | | | 0 | | | 173 | | | 0 | | | 0 | | | 0 | |
Total | $ | 20,961 | | | $ | (7,307) | | | $ | 13,654 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2017 | | December 31, 2016 |
| Gross Amount of Recognized Liabilities | | Gross Amounts Offset in the Condensed Consolidated Balance Sheet | | Net Amounts of Liabilities Presented in the Condensed Consolidated Balance Sheet | | Gross Amount of Recognized Assets | | Gross Amounts Offset in the Consolidated Balance Sheet | | Net Amounts of Assets Presented in the Consolidated Balance Sheet |
Interest rate caps | $ | — |
| | $ | 1 |
| | $ | 1 |
| | $ | 23 |
| | $ | — |
| | $ | 23 |
|
Forward currency contract | (11,747 | ) | | — |
| | (11,747 | ) | | 5,883 |
| | — |
| | 5,883 |
|
Total derivative instruments | $ | (11,747 | ) | | $ | 1 |
| | $ | (11,746 | ) | | $ | 5,906 |
| | $ | — |
| | $ | 5,906 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2020 | | | | | | December 31, 2019 | | | | |
| Gross Amount of Recognized Liability | | Gross Amounts Offset in our Condensed Consolidated Balance Sheet | | Net Amounts of Liability Presented in our Condensed Consolidated Balance Sheet | | Gross Amount of Recognized Liabilities | | Gross Amounts Offset in our Condensed Consolidated Balance Sheet | | Net Amounts of Liabilities Presented in our Condensed Consolidated Balance Sheet |
Interest rate swap | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 14,470 | | | $ | 0 | | | $ | 14,470 | |
Forward currency contracts | 0 | | | 0 | | | 0 | | | 12,687 | | | (7,811) | | | 4,876 | |
Total derivative liabilities | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 27,157 | | | $ | (7,811) | | | $ | 19,346 | |
Note 11 – Accounts Payable, Accrued Expenses and Other Liabilities
The following table details the components of our accounts payable, accrued expense and other liabilities ($ in thousands):
| | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
Accrued dividends payable | $ | 53,689 | | | $ | 74,771 | |
Collateral deposited under derivative agreements | 12,780 | | | 2,930 | |
Accrued interest payable | 13,013 | | | 16,089 | |
Accounts payable and other liabilities | 6,145 | | | 6,922 | |
General CECL Allowance on unfunded commitments(1) | 3,595 | | | 0 | |
Total | $ | 89,222 | | | $ | 100,712 | |
———————
(1)Refer to Note 4 - Commercial Mortgage, Subordinate Loans and Other Lending Assets, Net for additional disclosure related to the General CECL Allowance on unfunded commitments for the quarter ended September 30, 2020.
Note 1112 – Related Party Transactions
AMTG Merger
As fully described in "Note 17- Business Combination", in August 2016, the Company acquired AMTG, an entity managed by an affiliate of Apollo.
Management Agreement
In connection with the Company’sour initial public offering in September 2009, the Companywe entered into a management agreement (the “Management Agreement”"Management Agreement") with the Manager, which describes the services to be provided by the Manager and its compensation for those services. The Manager is responsible for managing the Company’sour day-to-day operations, subject to the direction and oversight of the Company’sour board of directors.
Pursuant to the terms of the Management Agreement, the Manager is paid a base management fee equal to 1.5% per annum of the Company’sour stockholders’ equity (as defined in the Management Agreement), calculated and payable (in cash) quarterly in arrears.
The current term of the Management Agreement expireswill expire on September 29, 20182021, and is automatically renewed for successive one-year terms on each anniversary thereafter. The Management Agreement may be terminated upon expiration of the one-year extension term only upon the affirmative vote of at least two-thirds of the Company’sour independent directors, based upon (1) unsatisfactory performance by the Manager that is materially detrimental to the CompanyARI or (2) a determination that the management fee payable to the Manager is not fair, subject to the Manager’s right to prevent such a termination based on unfair fees by accepting a mutually acceptable reduction of management fees agreed to by at least two-thirds of the Company’sour independent directors. The Manager must be provided with written notice of any such termination at least 180 days prior to the expiration of the then existing term and will be paid a termination fee equal to three times the sum of the average annual base management fee during the 24-month24-month period immediately preceding the date of termination, calculated as of the end of the most recently completed fiscal quarter prior to the date of termination. Following a meeting by the Company’sour independent
directors in February 2017,2020, which included a discussion of the Manager’s performance and the level of the management fees thereunder, the Companywe determined not to seek termination of the Management Agreement.
For the three and nine months ended September 30, 2017, the CompanyWe incurred approximately $8,309$9.9 million and $23,484, respectively,$30.2 million in base management fees under the Management Agreement. ForAgreement for the three and nine months ended September 30, 2016,2020, respectively, as compared to $10.4 million and $30.3 million for the Company incurred approximately $5,903three and $16,374, respectively, in base management fees under the Management Agreement. nine months ended September 30, 2019, respectively.
In addition to the base management fee, the Company iswe are also responsible for reimbursing the Manager for certain expenses paid by the Manager on our behalf of the Company or for certain services provided by the Manager to the Company.us. For the three and nine months ended September 30, 2017, the Company2020 we paid expenses totaling $37$0.6 million and $231$1.7 million, respectively, related to reimbursements for certain expenses paid by the Manager on our behalf of the Company under the Management Agreement. For the threeAgreement as compared to $0.5 million and nine months ended September 30, 2016, the Company paid expenses totaling $517 and $1,359,$2.0 million, respectively related to reimbursements for certain expenses paid by the Manager on behalf of the Company under the Management Agreement. Expenses incurred by the Manager and reimbursed by the Companyus are reflected in the respective condensed consolidated statement of operations expense category or theour condensed consolidated balance sheet based on the nature of the item.
Included in payable to related party on theour condensed consolidated balance sheet at September 30, 20172020 and December 31, 20162019 are approximately $8,309$9.9 million and $7,015,$10.4 million, respectively, for base management fees incurred but not yet paid under the Management Agreement.
Unconsolidated Joint Venture
In September 2014, the Company, through a wholly owned subsidiary, acquired a 59% ownership interest in Champ LP following which a wholly-owned subsidiary of Champ LP then acquired a 35% ownership interest in BKB. The Company acquired its ownership interest in Champ LP for an initial purchase price paid at closing of approximately €30,724 (or $39,477). The Company committed to invest up to approximately €38,000 (or $50,000).
In January 2015, the Company funded an additional investment of €3,331 (or $3,929) related to its investment in Champ LP. In February 2015, the Company sold approximately 48% of its ownership interest in Champ LP at cost to an account managed by Apollo for approximately €16,314 (or $20,794). In June 2016, the Company transferred €427 of its unfunded commitment to Apollo, reducing its unfunded commitment to Champ LP to €2,802 (or $2,985).
In May 2017, the Company sold its remaining ownership interest in Champ LP, to unaffiliated third parties for €21,792 or $24,498, resulting in a loss of $3,305. As of September 30, 2017, the Company had no interest in Champ LP.
Loans receivable
In June, 2017, the Company increased its outstanding loan commitment through the acquisition of an additional $25,000 of interestsJanuary 2020, we sold £62.2 million ($81.3 million assuming conversion into U.S. dollars) in an existing pre-developmenta mezzanine loan fromand £50.0 million ($65.3 million assuming conversion into U.S. dollars) unfunded commitment of a senior mortgage secured by a mixed-use property in London, UK to a fund managed by an affiliate of the Manager, increasingthat was originated by us in December 2019. This transaction was evaluated under ASC 860 - Transfers and Servicing, and we determined that it qualifies as a sale and accounted for as such.
In the Company's total outstanding loan commitmentsecond quarter of 2020, we sold our interests in three construction loans to $100,000. Furthermore, in September 2017 the Company funded an additional $25,000 to acquire a portionentities managed by affiliates of the same pre-development mezzanine loan from a fund managed byManager. Refer to "Note 4 - Commercial Mortgage, Subordinate Loans and Other Lending Assets, Net" for additional information related to these sales.
Term Loan
In May 2019, Apollo Global Funding, LLC, an affiliate of the Manager, increasingserved as one of the Company's total outstanding loan commitment to $125,000. The pre-development mezzanine loan isfive arrangers for the constructionissuance of a residential condominium building in New York, New Yorkour senior secured term loan and is partreceived $0.6 million of a $300,000 mezzanine loan.arrangement fees.
Note 1213 – Share-Based Payments
On September 23, 2009, the Company’sour board of directors approved the Apollo Commercial Real Estate Finance, Inc., 2009 Equity Incentive Plan (as("2009 LTIP") and on April 16, 2019, our board of directors approved the Amended and Restated Apollo Commercial Real Estate Finance, Inc. 2019 Equity Incentive Plan ("2019 LTIP," and together with the 2009 LTIP, the "LTIPs"), which amended from time to time,and restated the “LTIP”). 2009 LTIP. Following the approval of the 2019 LTIP by our stockholders at our 2019 annual meeting of stockholders on June 12, 2019, no additional awards will be granted under the 2009 LTIP and all outstanding awards granted under the 2009 LTIP remain in effect in accordance with the terms in the 2009 LTIP.
The 2019 LTIP provides for grants of restricted common stock, restricted stock units ("RSUs") and other equity-based awards up to an aggregate of 7.5% of the issued and outstanding7,000,000 shares of the Company’sour common stock (on a fully diluted basis).stock. The LTIP isLTIPs are administered by the compensation committee of the Company’sour board of directors (the “Compensation Committee”"Compensation Committee") and all grants under the LTIPLTIPs must be approved by the Compensation Committee.
The CompanyWe recognized stock-based compensation expense of $2,635$4.2 million and $9,887, respectively, for the three and nine months ended September 30, 2017, related to restricted stock and RSU vesting. The Company recognized stock-based compensation expense of $1,828 and $5,434, respectively,$12.7 million for the three and nine months ended September 30, 2016,2020, respectively, related to restricted common stock and RSU vesting. vesting, as compared to $3.9 million and $12.1 million for the three and nine months ended September 30, 2019, respectively.
The following table summarizes the activity related togrants, vesting and forfeitures of restricted common stock and RSUs during the nine months ended September 30, 2017:2020:
| | | | | | | | | | | | | | | | | | | | | | | |
| Type | | Restricted Stock | | RSUs | | Grant Date Fair Value ($ in thousands) |
Outstanding at December 31, 2019 | | | 25,356 | | | 2,007,355 | | | |
| Granted | | 82,235 | | | 54,867 | | | 906 | |
| Vested | | (25,356) | | | (264) | | | N/A |
| Forfeiture | | 0 | | | (13,587) | | | N/A |
Outstanding at September 30, 2020 | | | 82,235 | | | 2,048,371 | | | |
|
| | | | | | | | | | | | | | | | |
| Type | Date | | Restricted Stock | | RSUs | | Estimated Fair Value on Grant Date | | Initial Vesting | | Final Vesting |
Outstanding at December 31, 2016 | | 150,110 |
| | 1,703,775 |
| | | | | | |
| | | | | | | | | | | | |
| Canceled upon delivery | January 2017 | | — |
| | (332,349 | ) | | n/a |
| | n/a | | n/a |
| Vested | January 2017 | | (5,161 | ) | | — |
| | n/a |
| | n/a | | n/a |
| Forfeiture | March 2017 | | — |
| | (1,971 | ) | | n/a |
| | n/a | | n/a |
| Vested | April 2017 | | (5,164 | ) | | | | n/a |
| | n/a | | n/a |
| Grant | April 2017 | | 14,674 |
| | — |
| | $ | 275 |
| | April 2018 | | April 2020 |
| Canceled upon delivery | May 2017 | | — |
| | (1,971 | ) | | n/a |
| | n/a | | n/a |
| Vested | July 2017 | | (4,004 | ) | | | | n/a |
| | n/a | | n/a |
| Canceled upon delivery | July 2017 | | | | (544 | ) | | n/a |
| | n/a | | n/a |
| Grant | August 2017 | | 13,026 |
| | | | $ | 233 |
| | August 2018 | | August 2018 |
| Grant | August 2017 | | | | 790 |
| | $ | 14 |
| | August 2018 | | August 2021 |
| Forfeiture | September 2017 | | | | (8,273 | ) | | n/a |
| | n/a | | n/a |
| | | | | | | | | | | | |
Outstanding at September 30, 2017 | | 163,481 |
| | 1,359,457 |
| | | | | | |
Below is a summary of restricted stock and RSU vesting dates as of September 30, 2017.2020:
| | | | | | | | | | | | | | | | | | | | |
Vesting Year | | Restricted Stock | | RSU | | Total Awards |
2020 | | 0 | | | 956,738 | | | 956,738 | |
2021 | | 82,235 | | | 699,903 | | | 782,138 | |
2022 | | 0 | | | 373,441 | | | 373,441 | |
2023 | | 0 | | | 18,289 | | | 18,289 | |
Total | | 82,235 | | | 2,048,371 | | | 2,130,606 | |
|
| | | | | | | | |
Vesting Date | Restricted Stock Vesting | | RSU Vesting | | Total Awards |
October 2017 | 3,997 |
| | — |
| | 3,997 |
|
December 2017 | 53,923 |
| | 603,677 |
| | 657,600 |
|
January 2018 | 2,749 |
| | — |
| | 2,749 |
|
April 2018 | 7,645 |
| | — |
| | 7,645 |
|
June 2018 | — |
| | 544 |
| | 544 |
|
July 2018 | 1,420 |
| | — |
| | 1,420 |
|
October 2018 | 1,424 |
| | — |
| | 1,424 |
|
December 2018 | 41,670 |
| | 477,173 |
| | 518,843 |
|
January 2019 | 1,419 |
| | — |
| | 1,419 |
|
April 2019 | 6,314 |
| | — |
| | 6,314 |
|
December 2019 | 25,000 |
| | 277,273 |
| | 302,273 |
|
April 2020 | 4,894 |
| | — |
| | 4,894 |
|
August 2020 | — |
| | 264 |
| | 264 |
|
Total | 163,481 |
| | 1,359,457 |
| | 1,522,939 |
|
At September 30, 2017, the Company2020, we had unrecognized compensation expense of approximately $1,932$0.3 million and $16,629,$22.9 million, respectively, related to the vesting of restricted stock awards and RSUs noted in the table above.
RSU Deliveries
During the nine months ended September 30, 2017, the Company2020 and 2019, we delivered 200,859503,411 and 433,585 shares of common stock for 334,864868,421 and 730,980 vested RSUs. The Company allowsRSUs, respectively. We allow RSU participants to settle their tax liabilities with a reduction of their share delivery from the originally granted and vested RSUs. The amount, when agreed to by the participant, results in a cash payment to the Manager related to this tax liability and a corresponding adjustment to additional paid-in-capitalpaid in capital on theour condensed consolidated statement of changes in stockholders' equity. The adjustment was $2,336$6.5 million and $5.0 million for the nine months ended September 30, 2017,2020 and 2019, respectively. The adjustment is included as a reduction of capital increase related to the Company'sour equity incentive plan and is presented net of increases of capital related to our equity incentive plan in theour condensed consolidated statement of changes in stockholders’stockholders' equity.
Note 1314 – Stockholders’ Equity
The Company'sOur authorized capital stock consists of 450,000,000 shares of common stock, $0.01 par value per share and 50,000,000 shares of preferred stock, $0.01 par value per share. As of September 30, 2017, 105,451,2352020, 143,288,347 shares of common stock were issued and outstanding, and there were 8,000,0006,770,393 shares of 8.00% Fixed-to-Floating Series B Cumulative Redeemable Perpetual Preferred Stock ("Series B Preferred Stock") were issued and outstanding andoutstanding.
On June 10, 2019, we redeemed all 6,900,000 shares of 8.00% Series C Cumulative Redeemable Perpetual Preferred Stock ("Series C Preferred Stock") issued and
outstanding.
On August 2, 2017, Holders of the Company redeemed all 3,450,000 shares of 8.625% Series A Cumulative Redeemable PerpetualC Preferred Stock ("Series A Preferred Stock") atreceived the redemption price of $25.00 plus accumulated but unpaid dividends to the redemption date of $0.1079$0.2223 per share.
Dividends. The following table details our dividend activity:
Dividends. During 2017, the Company declared the following dividends on its common stock: | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended | | | | Nine months ended | | |
Dividend declared per share of: | September 30, 2020 | | September 30, 2019 | | September 30, 2020 | | September 30, 2019 |
Common Stock | $0.35 | | $0.46 | | $1.10 | | $1.38 |
Series B Preferred Stock | 0.50 | | 0.50 | | 1.50 | | 1.50 |
Series C Preferred Stock | N/A | | N/A | | N/A | | 0.7223 |
|
| | | |
Declaration Date | Record Date | Payment Date | Per Share |
March 14, 2017 | March 31, 2017 | April 17, 2017 | $0.4600 |
June 15, 2017 | June 30, 2017 | July 17, 2017 | $0.4600 |
September 14, 2017 | September 29, 2017 | October 16, 2017 | $0.4600 |
During 2017, the Company declared the following dividends on its Series A Preferred Stock:
|
| | | |
Declaration Date | Record Date | Payment Date | Per Share |
March 14, 2017 | March 31, 2017 | April 17, 2017 | $0.5391 |
June 15, 2017 | June 30, 2017 | July 17, 2017 | $0.5391 |
July 3, 2017 | August 2, 2017 | August 2, 2017 | $0.1079 |
During 2017, the Company declared the following dividends on its Series B Preferred Stock:
|
| | | |
Declaration Date | Record Date | Payment Date | Per Share |
March 14, 2017 | March 31, 2017 | April 17, 2017 | $0.5000 |
June 15, 2017 | June 30, 2017 | July 17, 2017 | $0.5000 |
September 14, 2017 | September 29, 2017 | October 16, 2017 | $0.5000 |
During 2017, the Company declared the following dividends on its Series C Preferred Stock:
|
| | | |
Declaration Date | Record Date | Payment Date | Per Share |
March 14, 2017 | March 31, 2017 | April 28, 2017 | $0.5000 |
June 15, 2017 | June 30, 2017 | July 31, 2017 | $0.5000 |
September 14, 2017 | September 29, 2017 | October 31, 2017 | $0.5000 |
Common Stock Offerings. During the first quarter of 2019, we issued 1,967,361 shares of our common stock, at a per share conversion price of $17.17, related to conversions of the 2019 Notes, the remainder of which matured on March 15, 2019. We recorded a $33.8 million increase in additional paid in capital in our condensed consolidated statement of changes in stockholders' equity. Refer to "Note 9 - Convertible Senior Notes, Net" for a further discussion on the conversions of the 2019 Notes.
During the second quarter of 2017, the Company2019, we completed a follow-on public offering of 13,800,00017,250,000 shares of itsour common stock, including shares issued pursuant to the underwriters' option to purchase additional shares, at a price of $18.05$18.27 per share. The aggregate net proceeds from the offering including proceeds from the sale of the additional shares, were approximately $248,900$314.8 million after deducting estimated offering expenses.
During the fourth quarter of 2016, the Company completed a follow-on public offering of 10,500,000 shares of itsCommon Stock Repurchases. The following table details our common stock at a price of $16.97 per share. The aggregate net proceeds fromrepurchase activity during the offering, including proceeds from the sale of the additional shares, were approximately $177,796 after deducting estimated offering expenses.nine months ended September 30, 2020:
AMTG Merger. In addition, in 2016 the Company issued common and preferred equity in connection with the AMTG Merger as described in "Note 17 - Business Combination."
30
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended | | | | | | |
| March 31, 2020 | | June 30, 2020 | | September 30, 2020 | | Total |
Shares Repurchased | 300,000 | | | 5,495,976 | | | 5,038,619 | | | 10,834,595 | |
Weighted Average Price | $8.12 | | $7.96 | | $9.01 | | $ | 8.45 | |
Note 1415 – Commitments and Contingencies
Legal Proceedings. From time to time, the Companywe may be involved in various claims and legal actions arising in the ordinary course of business.
After the announcement of the execution of the AMTG Merger Agreement, two putative class On June 28, 2018, AmBase Corporation, 111 West 57th Street Manager Funding LLC and 111 West 57th Investment LLC commenced an action lawsuits challenging the proposed First Merger (as definedcaptioned AmBase Corporation et al v. ACREFI Mortgage Lending, LLC et al (No 653251/2018) in the AMTG Merger Agreement), captioned Aivasian v. Apollo Residential Mortgage, Inc., et al., No. 24-C-16-001532 and Wiener v. Apollo Residential Mortgage, Inc., et al., No. 24-C-16-001837, were filed in the Circuit Court for Baltimore City, (the “Court”). A putative class and derivative lawsuit was later filed in the Court captioned Crago v. Apollo Residential Mortgage, Inc., No. 24-C-16-002610. Following a hearing on May 6, 2016, the Court entered orders among other things, consolidating the three actions under the caption In Re Apollo Residential Mortgage, Inc. Shareholder Litigation, Case No.: 24-C-16-002610.New York Supreme Court. The plaintiffs have designated the Crago complaint as the operative complaint. The operative complaint includes both direct and derivative claims, names as defendants AMTG,(i) ACREFI Mortgage Lending, LLC, a subsidiary of the boardCompany, (ii) the Company, and (iii) certain funds managed by Apollo, which are co-lenders on a mezzanine loan against the development of directors of AMTG (the “AMTG Board”), ARI, Arrow Merger Sub Inc., Apollo and Athene Holding Ltd. and alleges, among other things,a residential condominium building in Manhattan, New York. The plaintiffs allege that the membersdefendants tortiously interfered with the contractual equity put right in the plaintiffs’ joint venture agreement with the developers of the AMTG Board breached their fiduciary duties to the AMTG stockholdersproject, and that the other corporate defendants aided and abetted suchbreaches of fiduciary breaches. The operative complaint further alleges, among other things, thatduty by the proposed First Merger involves inadequate consideration, was the result of an inadequate and conflicted sales process, and includes unreasonable deal protection devices that purportedly preclude competing offers. It also alleges that the transactions with Athene Holding Ltd. are unfair and that the registration statement on Form S-4 filed with the SEC on April 6, 2016 contains materially misleading disclosures and omits certain material information. The operative complaint seeks, among other things, certificationdevelopers of the proposed class, declaratory relief, preliminaryproject. The plaintiffs allege the loss of a $70.0 million investment as part of total damages of $700.0 million, which includes punitive damages. The defendants' motion to dismiss was granted on October 23, 2019 and permanent injunctive relief, including enjoining or rescinding the First Merger, unspecified damages, and an award of other unspecified attorneys’ and other fees and costs. On May 6, 2016, counsel for the plaintiffs filed with the Court a stipulation seeking the appointment of interim co-lead counsel, which stipulation was approved by the Court on June 9, 2016. Defendants’ motions to dismiss have been fully briefed,
and oral argument was held on December 8, 2016. On August 14, 2017, the Court issued an opinionentered judgment dismissing the operative complaint in its entirety with prejudice. The time toon November 8, 2019. Plaintiffs filed a timely notice of appeal on December 6, 2019 and, as of September 28, 2020, the order dismissingparties have now fully briefed the lawsuit has expired,appeal. We are awaiting scheduling of oral argument. We believe the claims are without merit and no appealsdo not believe this will have been filed.a material adverse effect on our condensed consolidated financial statements.
On January 4, 2017, the United States Department of Justice served a Request for Information and Documents (the “Request”) on the Company, in connection with a preliminary investigation into certain aspects of the Company's former residential real estate portfolio, which the Company acquired in connection with the AMTG Merger and subsequently sold in 2016. The Request seeks a range of information in connection with the residential real estate portfolio, including, among other things, information concerning policies, procedures, and practices related to advertising, marketing, identifying, or acquiring residential properties for sale or rent, and various data for all rental and sales contracts executed since January 1, 2012. The Company is cooperating with the Department of Justice and fully complying with the Request.
Loan Commitments. As described in "Note 54 - Commercial Mortgage, Subordinate Loans Held for Investment",and Other Lending Assets, Net" at September 30, 2017, the Company2020, we had $80,164$1.4 billion of unfunded commitments related to itsour commercial mortgage loan portfolio and subordinate loans. The timings and amounts of fundings are uncertain as these commitments relate to loans for construction costs, capital expenditures, leasing costs, interest and carry costs, among others. As such, the timings and amounts of future fundings depend on the progress and performance of the underlying assets of our loans. Certain of our lenders are contractually obligated to fund their ratable portion of these loan portfolio.commitments over time, while other lenders have some degree of discretion over future loan funding obligations. The total unfunded commitment is expected to be funded over the remaining expected 4.1 years weighted average tenor of these loans.
COVID-19. The COVID-19 global pandemic has brought forth uncertainty and disruption to the global economy. The magnitude and duration of the COVID-19 pandemic and its impact on our borrowers and their tenants, cash flows and future results of operations could be significant and will largely depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the COVID-19 pandemic, the success of actions taken to contain or treat the pandemic, and reactions by consumers, companies, governmental entities and capital markets. The prolonged duration and impact of the COVID-19 pandemic could materially disrupt our business operations and impact our financial performance. As of September 30, 2020, we have not recorded any contingencies on our condensed consolidated balance sheet related to COVID-19. To the extent COVID-19 continues to cause dislocations in the global economy, our financial condition, results of operations, and cash flows may continue to be adversely impacted. Refer to “Note 2 - Summary of Significant Accounting Policies” for further discussion regarding COVID-19.
Note 1516 – Fair Value of Financial Instruments
The following table presents the carrying value and estimated fair value of the Company’sour financial instruments not carried at fair value on theour condensed consolidated balance sheet at September 30, 20172020 and December 31, 20162019 ($ in thousands):
|
| | | | | | | | | | | | | | | |
| September 30, 2017 | | December 31, 2016 |
| Carrying Value | | Estimated Fair Value | | Carrying Value | | Estimated Fair Value |
Cash and cash equivalents | $ | 140,229 |
| | $ | 140,229 |
| | $ | 200,996 |
| | $ | 200,996 |
|
Restricted cash | 76 |
| | 76 |
| | 62,457 |
| | 62,457 |
|
Securities, held-to-maturity | — |
| | — |
| | 146,352 |
| | 146,352 |
|
Commercial mortgage loans | 2,218,222 |
| | 2,235,084 |
| | 1,641,856 |
| | 1,648,896 |
|
Subordinate loans | 1,340,378 |
| | 1,323,249 |
| | 1,051,236 |
| | 1,060,882 |
|
Borrowings under repurchase agreements | (1,289,515 | ) | | (1,288,982 | ) | | (1,146,566 | ) | | (1,146,807 | ) |
2019 Notes | (251,438 | ) | | (277,041 | ) | | (249,994 | ) | | (268,124 | ) |
August 2022 Notes | (220,473 | ) | | (234,025 | ) | | — |
| | — |
|
Participations sold | — |
| | — |
| | (84,979 | ) | | (85,072 | ) |
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2020 | | | | December 31, 2019 | | |
| Carrying Value | | Estimated Fair Value | | Carrying Value | | Estimated Fair Value |
Cash and cash equivalents | $ | 438,234 | | | $ | 438,234 | | | $ | 452,282 | | | $ | 452,282 | |
Commercial mortgage loans, net | 5,427,945 | | | 5,337,301 | | | 5,326,967 | | | 5,380,693 | |
Subordinate loans and other lending assets, net(1) | 1,009,092 | | | 982,961 | | | 1,048,126 | | | 1,050,961 | |
Secured debt arrangements, net | (3,465,337) | | | (3,465,337) | | | (3,078,366) | | | (3,078,366) | |
Senior secured term loan, net | (484,191) | | | (471,531) | | | (487,961) | | | (499,988) | |
2022 Notes | (339,695) | | | (326,867) | | | (337,755) | | | (348,060) | |
2023 Notes | (224,916) | | | (206,126) | | | (223,818) | | | (234,600) | |
———————
(1)Includes subordinate risk retention interests in securitization vehicles with an estimated fair value that approximates their carrying value.
To determine estimated fair values of the financial instruments listed above, market rates of interest, which include credit assumptions, are used to discount contractual cash flows. The estimated fair values are not necessarily indicative of the amount the Companywe could realize on disposition of the financial instruments. The use of different market assumptions or estimation methodologies could have a material effect on the estimated fair value amounts. Estimates of fair value for cash and cash equivalents, restricted cash and convertible senior notes, net and senior secured term loan, net are measured using observable Level I inputs as defined in "Note 3 - Fair Value Disclosure." Estimates of fair value for all other financial instruments in the table above are measured using significant estimates, or unobservable Level III inputs as defined in "Note 3 - Fair Value Disclosure."
Note 1617 – Net Income (Loss) per Share
ASC 260 Earnings"Earnings per share,share" requires the use of the two-class method of computing earnings per share for all periods presented for each class of common stock and participating security as if all earnings for the period had been distributed. Under the two-class method, during periods of net income, the net income is first reduced for dividends declared on all classes of securities to arrive at undistributed earnings. During periods of net losses, the net loss is reduced for dividends declared on participating securities only if the security has the right to participate in the earnings of the entity and an objectively determinable contractual obligation to share in net losses of the entity.
The remaining earnings are allocated to common stockholders and participating securities to the extent that each security shares in earnings as if all of the earnings for the period had been distributed. Each total is then divided by the applicable number of shares to arrive at basic earnings per share. For the diluted earnings, the denominator includes all outstanding shares of common stock and all potential shares of common stock assumed issued if they are dilutive. The numerator is adjusted for any changes in income or loss that would result from the assumed conversion of these potential shares of common stock.
The table below presents the computation of basic and diluted net income (loss) income per share of common stock using the two-class method for the three and nine months ended September 30, 20172020 and 2019 ($ in thousands except per share data):
| | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended September 30, | | | | For the nine months ended September 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
Basic Earnings | | | | | | | |
Net income (loss) | $ | 49,338 | | | $ | 29,089 | | | $ | (18,303) | | | $ | 158,271 | |
Less: Preferred dividends | (3,385) | | | (3,385) | | | (10,155) | | | (15,139) | |
Net income (loss) available to common stockholders | $ | 45,953 | | | $ | 25,704 | | | $ | (28,458) | | | $ | 143,132 | |
Less: Dividends on participating securities | (717) | | | (847) | | | (2,238) | | | (2,547) | |
Basic Earnings | $ | 45,236 | | | $ | 24,857 | | | $ | (30,696) | | | $ | 140,585 | |
| | | | | | | |
Diluted Earnings | | | | | | | |
Net income (loss) available to common stockholders | $ | 45,953 | | | $ | 25,704 | | | $ | (28,458) | | | $ | 143,132 | |
Less: Dividends on participating securities | (717) | | | 0 | | | (2,238) | | | 0 | |
Add: Interest expense on Notes | 0 | | | 0 | | | 0 | | | 0 | |
Diluted Earnings | $ | 45,236 | | | $ | 25,704 | | | $ | (30,696) | | | $ | 143,132 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
Number of Shares: | | | | | | | |
Basic weighted-average shares of common stock outstanding | 146,612,313 | | | 153,531,678 | | | 150,679,773 | | | 144,638,237 | |
Diluted weighted-average shares of common stock outstanding | 146,612,313 | | | 153,531,678 | | | 150,679,773 | | | 144,638,237 | |
| | | | | | | |
Earnings Per Share Attributable to Common Stockholders | | | | | | | |
Basic | $ | 0.31 | | | $ | 0.16 | | | $ | (0.20) | | | $ | 0.97 | |
Diluted | $ | 0.31 | | | $ | 0.16 | | | $ | (0.20) | | | $ | 0.97 | |
The dilutive effect to earnings per share is determined using the "if-converted" method whereby interest expense on the outstanding Notes is added back to the diluted earnings per share numerator and all of the potentially dilutive shares are included in the diluted earnings per share denominator. For the three and nine months ended September 30, 2016:
|
| | | | | | | | | | | | | | | |
| For the three months ended September 30, | | For the nine months ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Numerator: | | | | | | | |
Net income | $ | 68,356 |
| | $ | 69,893 |
| | $ | 151,714 |
| | $ | 98,849 |
|
Preferred dividends | (11,148 | ) | | (9,310 | ) | | (29,768 | ) | | (20,985 | ) |
Net income available to common stockholders | 57,208 |
| | 60,583 |
| | 121,946 |
| | 77,864 |
|
Dividends declared on common stock | (48,507 | ) | | (37,180 | ) | | (139,155 | ) | | (99,182 | ) |
Dividends on participating securities | (625 | ) | | (413 | ) | | (1,884 | ) | | (1,298 | ) |
Net income (loss) attributable to common stockholders | $ | 8,076 |
| | $ | 22,990 |
| | $ | (19,093 | ) | | $ | (22,616 | ) |
Denominator: | | | | | | | |
Basic weighted average shares of common stock outstanding | 105,446,704 |
| | 71,919,549 |
| | 97,546,437 |
| | 68,913,362 |
|
Diluted weighted average shares of common stock outstanding | 106,812,721 |
| | 72,861,611 |
| | 98,919,689 |
| | 69,865,603 |
|
Basic and diluted net income per weighted average share of common stock | | | | | | | |
Distributable Earnings | $ | 0.46 |
| | $ | 0.52 |
| | $ | 1.43 |
| | $ | 1.44 |
|
Undistributed income (loss) | $ | 0.08 |
| | $ | 0.31 |
| | $ | (0.20 | ) | | $ | (0.33 | ) |
Basic and diluted net income per share of common stock | $ | 0.54 |
| | $ | 0.83 |
| | $ | 1.23 |
| | $ | 1.11 |
|
2020, 28,533,271 weighted-average potentially issuable shares with respect to the Notes were excluded from the calculation of diluted net income per share because the effect was anti-dilutive. For the three and nine months ended September 30, 2019, 28,533,271 and 29,041,856 weighted-average potentially issuable shares with respect to the Notes, respectively, were excluded from the calculation of diluted net income per share because the effect was anti-dilutive. Refer to "Note 9 - Convertible Senior Notes, Net" for further discussion.For the three and nine months ended September 30, 2017, 1,366,0162020, 2,051,311 and 1,373,2522,028,573 weighted-average unvested RSUs, respectively, were excluded from the calculation of diluted net income per share because the effect was anti-dilutive. For the three and nine months ended September 30, 2016, 942,0622019, 1,839,631 and 952,2411,845,086 of weighted-average unvested RSUs, respectively, were excluded from the calculation of diluted net income per share because the effect was anti-dilutive.
Note 17 – Business Combination
On August 31, 2016, the Company, pursuant to the terms and conditions of the AMTG Merger Agreement, acquired AMTG for consideration of common stock and preferred stock, as applicable and cash. AMTG merged with and into the Company with the Company continuing as the surviving entity. As a result, all operations of AMTG and its former subsidiaries are consolidated with the operations of the Company. In connection with financing the AMTG Merger, on August 31, 2016, the Company entered into a Loan Agreement (the “Athene Loan Agreement”) with Athene USA Corporation, a subsidiary of Athene Holding Ltd., as lender (“Athene USA”), pursuant to which the Company borrowed $175,000 in order to fund a portion of the Company’s obligations under the AMTG Merger Agreement. The Athene Loan Agreement was repaid in full and terminated on September 1, 2016. On August 31, 2016, pursuant to an Asset Purchase and Sale Agreement, dated February 26, 2016 (as amended, the “Asset Purchase Agreement”) by and among Athene Annuity & Life Assurance Company and Athene Annuity and Life Company (collectively, “Athene Annuity”) and the Company, the Company sold primarily non-agency residential mortgage backed securities previously held by AMTG to Athene Annuity for cash consideration of approximately $1,100,000. Proceeds from the sale were used to repay approximately $804,000 in associated financing, $175,000 to satisfy the Athene Loan Agreement and for general corporate purposes. All of the assets acquired from AMTG were sold during 2016.
The AMTG Merger was accounted for as a business combination in accordance with ASC 805, Business Combinations. The transactions pursuant to the Athene Loan Agreement and the Asset Purchase Agreement were contemporaneous with and contingent on the AMTG Merger, therefore the Company recorded the transaction net. The Company was designated as the accounting acquirer. The total purchase price has been allocated based upon management’s estimates of fair value. The difference between the fair value of net assets of AMTG and the consideration was recorded as a bargain purchase gain.
The bargain purchase gain was computed as follows:
|
| | | | |
Consideration Paid: | $ (in thousands) |
|
| Cash | $ | 220,159 |
|
| Common stock issued | 218,397 |
|
| Preferred stock assumed | 172,500 |
|
| Total consideration paid | $ | 611,056 |
|
| | |
Assets acquired: |
|
|
| Cash and cash equivalents | 399,402 |
|
| Restricted cash | 10,552 |
|
| Investments | 1,491,484 |
|
| Other assets | 34,822 |
|
| | |
Liabilities assumed: |
|
|
| Borrowings under repurchase agreements | (1,254,518 | ) |
| Other liabilities | (30,665 | ) |
| | |
| Net assets acquired | 651,077 |
|
|
|
|
|
| Bargain purchase gain | $ | 40,021 |
|
The Company incurred $11,350 of transaction-related expenses related to the AMTG Merger during 2016. Transaction-related expenses are comprised primarily of transaction fees and AMTG Merger costs, including legal, finance, consulting, professional fees and other third-party costs.
The following table provides the pro forma consolidated operational data as if the AMTG Merger had occurred on January 1, 2016:
|
| | | | | | | |
| Three Months Ended | | Nine Months Ended |
(in thousands, except per share data) | September 30, 2016 | | September 30, 2016 |
Total revenue | $ | 89,665 |
| | $ | 280,230 |
|
Net income attributable to common shareholders | 15,615 |
| | 40,161 |
|
| | | |
Common shares outstanding at September 30, 2016 | 80,826,566 |
| | 80,826,566 |
|
Net income per common share, basic and diluted | $ | 0.19 |
| | $ | 0.50 |
|
The pro forma consolidated operational data is based on assumptions and estimates considered appropriate by our management; however, these pro forma results are not necessarily indicative of the results of operations that would have been obtained had the AMTG Merger occurred at the beginning of the period presented, nor do they purport to represent the consolidated results of operations for future periods. The pro forma consolidated operational data does not include the impact of any synergies that may be achieved from the AMTG Merger or any strategies that management may consider in order to continue to efficiently manage operations.
Note 18 – Subsequent Events
In October 2017, the Company received approximately $48,357 in proceeds from sales and principal pay downs from four CMBS.
Subsequent to the endquarter ended September 30, 2020, the following events took place:
Investment activity: We funded approximately $33.0 million for previously closed loans.
Loan Repayments. We received approximately $1.3 million from loan repayments.
In addition, the remaining collateral of for-sale residential condominium units located in Bethesda, MD, was sold for net proceeds approximately equal to the carrying value of the third quarter, the Company committed capital to $294,134loan.
Loan Sales: We sold, at par, a $25.0 million subordinate position of first mortgage loans, alla residential-for-sale: construction loan with a total commitment of which were funded.$110.0 million.
The Company funded approximately $2,475 of previously closed loans.
The Company received approximately $166,240 from loan repayments, including $35,530 of first mortgage loans and $130,710 from subordinate loans.
In October 2017, the Company concurrentlyUnconsolidated Joint Venture: We entered into a common stock purchase agreementjoint venture which owns the underlying properties that secure our $180.0 million first mortgage predevelopment loan located in Miami, FL. The entity in which we own an interest, and which owns the underlying properties was deemed to be a preferred stock repurchase agreement with QH RE Asset Company, LLC (“QHREAC”). Pursuant toVIE and we determined that we are not the agreements, (i) QHREAC purchased 1,670,000 sharesprimary beneficiary of the Company’s common stock, par value $0.01 per share, for cash at an aggregate purchase price of $30,795 ($18.44 per share), and (ii) the Company repurchased from QHREAC 1,229,607 shares of the Company’s Series B Preferred Stock, par value $0.01 per share, for an aggregate purchase price of $30,795 ( approximately $25.04 per share, made up of $25 liquidation value per share, plus $0.04 per share of accumulated and unpaid dividends through, but not including, the closing date of the transaction).that VIE.
In October 2017, the Company upsized its JPMorgan Facility increasing the maximum borrowing capacity amount to $1,393,000, comprised of a $1,250,000 repurchase facility and a $143,000 asset specific financing.
ITEMItem 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
(in thousands—except share and per share data)
FORWARD-LOOKING INFORMATION
The Company makes
We make forward-looking statements herein and will make forward-looking statements in future filings with the SEC, press releases or other written or oral communications within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”"Exchange Act"). For these statements, the Company claimswe claim the protections of the safe harbor for forward-looking statements contained in such Sections. Forward-looking statements are subject to substantial risks and uncertainties, many of which are difficult to predict and are generally beyond the Company’sour control. These forward-looking statements include information about possible or assumed future results of the Company’sour business, financial condition, liquidity, results of operations, plans and objectives. When the Company useswe use the words “believe,” “expect,” “anticipate,” “estimate,” “plan,” “continue,” “intend,” “should,” “may”"believe," "expect," "anticipate," "estimate," "plan," "continue," "intend," "should," "may" or similar expressions, it intends to identify forward-looking statements. Statements regarding the following subjects, among others, may be forward-looking: the macro- and micro-economic impact of the COVID-19 pandemic; the severity and duration of the COVID-19 pandemic; actions taken by governmental authorities to contain the COVID-19 pandemic or treat its impact; the impact of the COVID-19 pandemic on our financial condition, results of operations, liquidity and capital resources; market trends in the Company’sour industry, interest rates, real estate values, the debt securities markets or the general economy oreconomy; the demand for commercial real estate loans; the Company’sour business and investment strategy; the Company’sour operating results; actions and initiatives of the U.S. government and governments outside of the United States, and changes to government policies and the execution and impact of these actions, initiatives and policies; the state of the economy generally or in specific geographic regions; economic trends and economic recoveries; the Company’sour ability to obtain and maintain financing arrangements, including repurchase agreement financingsecured debt arrangements and securitizations; the timing and amount of expected future fundings of unfunded commitments; the availability of debt financing from traditional lenders; the volume of short-term loan extensions; the demand for new capital to replace maturing loans; expected leverage; general volatility of the securities markets in which the Company participates;we participate; changes in the value of the Company’sour assets; the scope of the Company’sour target assets; interest rate mismatches between the Company’sour target assets and any borrowings used to fund such assets; changes in interest rates and the market value of the Company’sour target assets; changes in prepayment rates on the Company’sour target assets; effects of hedging instruments on the Company’sour target assets; rates of default or decreased recovery rates on the Company’sour target assets; the degree to which hedging strategies may or may not protect the Companyus from interest rate volatility; impact of and changes in governmental regulations, tax law and rates, accounting, legal or regulatory issues or guidance and similar matters; the Company’sour continued maintenance of itsour qualification as a REIT for U.S. federal income tax purposes; the Company’sour continued exclusion from registration under the Investment Company Act of 1940, as amended; the availability of opportunities to acquire commercial mortgage-related, real estate-related and other securities; the availability of qualified personnel; estimates relating to the Company’sour ability to make distributions to itsour stockholders in the future; and the Company’sour present and potential future competition.competition; and unexpected costs or unexpected liabilities, including those related to litigation.
The forward-looking statements are based on the Company’sour beliefs, assumptions and expectations of itsour future performance, taking into account all information currently available to it.us. Forward-looking statements are not predictions of future events. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to the Company.us. See “Item 1A -"Item 1A. Risk Factors”Factors" of the Company’s Annualthis Quarterly Report on Form 10-K for the year ended December 31, 2016.10-Q and our Annual Report. These and other risks, uncertainties and factors, including those described in the annual, quarterly and current reports that the Company fileswe file with the SEC, could cause itsour actual results to differ materially from those included in any forward-looking statements the Company makes.we make. All forward-looking statements speak only as of the date they are made. New risks and uncertainties arise over time and it is not possible to predict those events or how they may affect us. Except as required by law, the Company iswe are not obligated to, and doesdo not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Overview
The Company isWe are a Maryland corporation that hasand have elected to be taxed as a REIT for U.S. federal income tax purposes. The CompanyWe primarily originates, acquires, investsoriginate, acquire, invest in and managesmanage performing commercial first mortgage loans, subordinate financings, CMBS and other commercial real estate-related debt investments. These asset classes are referred to as the Company’sour target assets.
The Company isWe are externally managed and advised by the Manager, an indirect subsidiary of Apollo, a leading global alternative investment manager with a contrarian and value orientedvalue-oriented investment approach in private equity, credit and real estate with assets under management of approximately $242$413.6 billion as of SeptemberJune 30, 2017.2020.
The Manager is led by an experienced team of senior real estate professionals who have significant expertise in underwriting and structuring commercial real estate financing transactions. The Company benefitsWe benefit from Apollo’s global infrastructure and operating platform, through which the Company iswe are able to source, evaluate and manage potential investments in the Company’sour target assets.
Current Market OverviewConditions
Based onDuring the current market dynamics, including significant upcoming commercial real estate debt maturities, we believefirst quarter of 2020, there remain compelling opportunities forwas a global outbreak of COVID-19, which was declared by the CompanyWorld Health Organization as a pandemic. In response to invest capital in its target assets at attractive risk adjusted returns. The Company will continue to focus on underlying real estate value, and transactions that benefit from the Company’s ability to execute complex and sophisticated transactions.
Although the Company does not participate in the conduit lending market, the Company believes that an active CMBS market can be viewed as an indicator of the active commercial real estate lending markets. New-issue CMBS issuance continued in 2017 with total issuance inCOVID-19, the United States of approximately $67 billion. During the nine months ended September 30, 2017, despite the robust issuance, current volumes of CMBS issuanceand numerous other countries declared national emergencies, which has led to large scale quarantines as well as restrictions to business deemed non-essential. These responses to COVID-19 have disrupted economic activities and could have a significant continued adverse effect on economic and market conditions, and could result in a recession. As we are still moderate relative toin the peakmidst of the market, which saw more than $229 billionCOVID-19 pandemic we are not in CMBS issuance in 2007, creating significant opportunities for non-CMBS lenders sucha position to estimate the ultimate impact this will have on our business and the economy as a whole. The effects of COVID-19 have adversely impacted the Company.
On February 3, 2017, President Trump signed an executive order for a broad reviewvalue of federal regulationour assets, business, financial condition, results of operations and cash flows, and our ability to operate successfully. Some of the U.S. financial system by the Secretary of the Treasury, in consultation with the heads of the member agencies of the Financial Stability Oversight Council, a panel comprising top U.S. financial regulators,factors that impacted us to be reported within 120 days of the day of the order. While the outcome is uncertain, there have been several indications that the new administration will seek to deregulate the U.S. financial industry, including by altering the Dodd-Frank Act, whichdate and may among other things, decrease the restrictions on banks and other financial institutions and allow them to compete with us for investment opportunities that were previously not available to them.
The Company believes the challenges faced by conduit lenders and the general uncertainty around value and pricing could create attractive risk adjusted investment opportunities for the Company. As a result, the Company expects to continue to affect us are outlined in "Item 1A. Risk Factors" of this Quarterly Report on Form 10-Q. Please see opportunities to originate mezzanine"Liquidity and first mortgage financings in transactions which benefit fromCapital Resources" below for additional discussion surrounding the Company’s ability to source, structureongoing impact we expect COVID-19 will have on our liquidity and execute complex transactions.
Critical Accounting Policies
A summary of the Company’sour critical accounting policies is set forth in itsour Annual Report on Form 10-K for the year ended December 31, 2016under “Item 7 –"Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations –- Critical Accounting Policies and Use of Estimates.”" There have been no material changes to the Company'sour critical accounting policies described in the Company'sour Annual Report on Form 10-K filed withother than the SEC on February 28, 2017.adoption of the CECL Standard, as described in "Note 2 - Summary of Significant Accounting Policies."
Financial Condition and Results of Operations
All non-U.S. dollarnon-USD denominated assets and liabilities are translated to U.S. dollarsUSD at the exchange rate prevailing at the reporting date and income, expenses, gains, and losses are translated at the prevailing exchange rate on the dates that they were recorded.
InvestmentsLoan Portfolio Overview
The following table sets forth certain information regarding the Company’s investments atour commercial real estate debt portfolio as of September 30, 2017:2020 ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Description | | Amortized Cost | | Weighted-Average Coupon (1) | | Weighted Average All-in Yield (1)(2) | | Secured Debt Arrangements (3) | | Cost of Funds | | Equity at cost(4)
| |
Commercial mortgage loans, net | | $ | 5,427,945 | | | 4.7 | % | | 5.2 | % | | $ | 3,478,083 | | | 2.2 | % | | $ | 1,949,862 | | |
Subordinate loans and other lending assets, net | | 1,009,092 | | | 10.5 | % | | 11.4 | % | | — | | | — | | | 1,009,092 | | |
Total/Weighted-Average | | $ | 6,437,037 | | | 5.6 | % | | 6.2 | % | | $ | 3,478,083 | | | 2.2 | % | | $ | 2,958,954 | | |
|
| | | | | | | | | | | | | | | | | | | | | |
Description | | Amortized Cost | | Weighted Average Coupon (1) | | Weighted Average All-in Yield (1) (2) | | Debt | | Cost of Funds | | Equity at cost |
First mortgages | | $ | 2,218,222 |
| | 6.5 | % | | 7.3 | % | | $ | 1,140,198 |
| | 3.6 | % | | $ | 1,078,024 |
|
Subordinate loans | | 1,340,378 |
| | 11.8 |
| | 13.1 |
| | — |
| | — |
| | 1,340,378 |
|
Total/Weighted Average | | $ | 3,558,600 |
| | 8.5 | % | | 9.5 | % | | $ | 1,140,198 |
| | 3.6 | % | | $ | 2,418,402 |
|
-————————
| |
(1) | Weighted-Average Coupon and Weighted Average All-in-Yield reflects one-month LIBOR at September 30, 2017, which was 1.23%. |
| |
(2) | Weighted-Average All-in-Yield includes the amortization of deferred origination fees, loan origination costs and accrual of both extension and exit fees. |
(1) Weighted-Average Coupon and Weighted-Average All-in Yield are based on the applicable benchmark rates as of September 30, 2020 on the floating rate loans.
(2)Weighted-Average All-in Yield includes the amortization of deferred origination fees, loan origination costs and accrual of both extension and exit fees. Weighted-Average All-in Yield excludes the benefit of forward points on currency hedges relating to loans denominated in currencies other than USD.
(3) Gross of deferred financing costs of $12.7 million.
(4) Represents loan portfolio at amortized cost less secured debt outstanding.
The Company'sfollowing table provides details of our commercial mortgage loan portfolio and subordinate and other lending assets portfolio, on a loan-by-loan basis, as of September 30, 2020 ($ in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial Mortgage Loan Portfolio | | | | | | | | |
# | Property Type | Risk Rating | Origination Date | Amortized Cost | Unfunded Commitment | Construction Loan | Fully-extended Maturity | Location |
1 | Urban Retail | 3 | 08/2019 | $317 | $— | | 09/2024 | Manhattan, NY |
2 | Urban Retail | 3 | 12/2019 | 320 | — | | 12/2023 | London, UK |
3 | Hotel | 3 | 10/2019 | 261 | 50 | | 08/2024 | Various |
4 | Healthcare | 3 | 10/2019 | 220 | 29 | | 10/2024 | Various |
5 | Office | 3 | 02/2020 | 216 | — | | 02/2025 | London, UK |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
6 | Industrial | 3 | 01/2019 | 197 | 7 | | 02/2024 | Brooklyn, NY |
7 | Office | 3 | 06/2019 | 204 | 29 | | 11/2026 | Berlin, Germany |
8 | Office | 3 | 10/2018 | 197 | 3 | | 01/2022 | Manhattan, NY |
9 | Urban Predevelopment (1) | 5 | 01/2016 | 115 | — | | 09/2021 | Miami, FL |
10 | Office | 3 | 09/2019 | 179 | — | | 09/2023 | London, UK |
11 | Office | 3 | 01/2020 | 184 | 103 | | 02/2025 | Long Island City, NY |
12 | Office | 3 | 11/2017 | 151 | — | | 01/2023 | Chicago, IL |
13 | Urban Predevelopment(1) | 5 | 03/2017 | 128 | — | | 12/2020 | Brooklyn, NY |
14 | Hotel | 3 | 04/2018 | 152 | — | | 04/2023 | Honolulu, HI |
15 | Hotel | 3 | 09/2015 | 145 | — | | 06/2024 | Manhattan, NY |
16 | Hotel | 3 | 05/2018 | 140 | — | | 06/2023 | Miami, FL |
17 | Hotel | 3 | 08/2019 | 139 | — | | 08/2024 | Puglia, Italy |
18 | Office | 3 | 01/2018 | 135 | 56 | | 01/2022 | Renton, WA |
19 | Retail center(1) | 5 | 11/2014 | 105 | — | | 09/2021 | Cincinnati, OH |
20 | Office | 3 | 10/2018 | 135 | 51 | Y | 10/2023 | Manhattan, NY |
21 | Residential-for-sale: construction | 3 | 12/2019 | 135 | 15 | Y | 01/2023 | Boston, MA |
22 | Hotel | 3 | 03/2017 | 105 | — | | 03/2022 | Atlanta, GA |
23 | Hotel | 3 | 11/2018 | 100 | — | | 12/2023 | Vail, CO |
24 | Hotel | 3 | 12/2017 | 91 | — | | 12/2022 | Manhattan, NY |
25 | Office | 3 | 03/2018 | 92 | — | | 04/2023 | Chicago, IL |
26 | Residential-for-sale: inventory | 3 | 12/2019 | 73 | — | | 07/2021 | Manhattan, NY |
27 | Office | 3 | 04/2019 | 97 | 62 | Y | 09/2025 | Culver City, CA |
28 | Office | 3 | 12/2017 | 87 | 37 | | 07/2022 | London, UK |
29 | Mixed Use | 3 | 12/2019 | 75 | 1 | | 12/2024 | London, UK |
30 | Residential-for-sale: construction | 3 | 12/2018 | 71 | 107 | Y | 12/2023 | Manhattan, NY |
31 | Residential-for-sale: construction | 3 | 10/2015 | 69 | — | | 08/2021 | Manhattan, NY |
32 | Multifamily | 3 | 04/2014 | 66 | — | | 07/2023 | Various |
33 | Hotel | 3 | 08/2019 | 67 | — | | 09/2022 | Manhattan, NY |
34 | Hotel | 3 | 04/2018 | 64 | — | | 05/2023 | Scottsdale, AZ |
35 | Urban Predevelopment | 3 | 12/2016 | 52 | — | | 06/2022 | Los Angeles, CA |
36 | Hotel | 3 | 09/2019 | 60 | — | | 10/2024 | Miami, FL |
37 | Residential-for-sale: construction | 3 | 01/2018 | 68 | 12 | Y | 01/2023 | Manhattan, NY |
38 | Hotel | 3 | 12/2019 | 59 | — | | 01/2025 | Tucson, AZ |
39 | Multifamily | 3 | 11/2014 | 54 | — | | 11/2021 | Various |
40 | Hotel | 3 | 05/2019 | 52 | — | | 06/2024 | Chicago, IL |
41 | Multifamily | 3 | 02/2020 | 50 | 1 | | 03/2024 | Cleveland, OH |
42 | Hotel | 3 | 12/2015 | 42 | — | | 08/2024 | St. Thomas, USVI |
43 | Residential-for-sale: construction | 3 | 12/2018 | 65 | 38 | Y | 01/2024 | Hallandale Beach, FL |
44 | Hotel(1) | 5 | 02/2018 | 29 | — | | 03/2023 | Pittsburgh, PA |
45 | Office | 3 | 12/2019 | 34 | 3 | | 12/2022 | Edinburgh, Scotland |
46 | Residential-for-sale: inventory | 3 | 05/2018 | 24 | — | | 03/2021 | Manhattan, NY |
47 | Residential-for-sale: inventory | 3 | 06/2018 | 13 | — | | 07/2021 | Manhattan, NY |
48 | Residential-for-sale: inventory(1) | 5 | 02/2014 | 3 | — | | 04/2021 | Bethesda, MD |
49 | Mixed Use | 3 | 12/2019 | 11 | 789 | Y | 06/2025 | London, UK |
| General CECL Allowance | | | (20) | | | | |
| Sub total / Weighted-Average Subordinate Loans and Other Lending Assets | 3.1 | | $5,428 | $1,393 | | 3.0 Years | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Subordinate Loan and Other Lending Asset Portfolio | | | | | | | | |
# | Property Type | Risk Rating | Origination Date | Amortized Cost | Unfunded Commitment | Construction Loan | Fully-extended Maturity | Location |
1 | Residential-for-sale: construction (2) | 3 | 06/2015 | $224 | — | Y | 12/2020 | Manhattan, NY |
2 | Residential-for-sale: construction | 3 | 12/2017 | 108 | 11 | Y | 06/2022 | Manhattan, NY |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
3 | Office | 3 | 01/2019 | 100 | — | | 12/2025 | Manhattan, NY |
4 | Healthcare(3) | 3 | 01/2019 | 76 | — | | 01/2024 | Various |
5 | Residential-for-sale: construction (2) | 3 | 11/2017 | 85 | — | Y | 12/2020 | Manhattan, NY |
6 | Residential-for-sale: construction | 3 | 12/2017 | 72 | — | Y | 04/2023 | Los Angeles, CA |
7 | Healthcare(4) | 3 | 07/2019 | 51 | — | | 06/2024 | Various |
8 | Mixed Use | 3 | 01/2017 | 42 | — | | 02/2027 | Cleveland, OH |
9 | Residential-for-sale: inventory | 3 | 10/2016 | 36 | — | | 10/2020 | Manhattan, NY |
10 | Mixed Use | 3 | 02/2019 | 38 | — | Y | 12/2022 | London, UK |
11 | Industrial | 2 | 05/2013 | 32 | — | | 05/2023 | Various |
12 | Mixed Use | 3 | 12/2018 | 29 | 22 | Y | 12/2023 | Brooklyn, NY |
13 | Hotel | 3 | 06/2015 | 24 | — | | 07/2025 | Phoenix, AZ |
14 | Hotel | 3 | 06/2018 | 20 | — | | 06/2023 | Las Vegas, NV |
15 | Multifamily | 3 | 05/2018 | 19 | — | | 05/2028 | Cleveland, OH |
16 | Healthcare(3)(4) | 3 | 02/2019 | 17 | — | | 01/2034 | Various |
17 | Office | 3 | 07/2013 | 14 | — | | 07/2022 | Manhattan, NY |
18 | Hotel(1) | 5 | 06/2015 | 18 | — | | 12/2022 | Washington, DC |
19 | Hotel(1) | 5 | 05/2017 | 9 | — | | 06/2027 | Anaheim, CA |
20 | Office | 3 | 08/2017 | 7 | — | | 09/2024 | Troy, MI |
21 | Mixed Use | 3 | 07/2012 | 7 | — | | 08/2022 | Chapel Hill, NC |
| General CECL Allowance | | | (19) | | | | |
| Sub total / Weighted-Average Subordinate Loans and Other Lending Assets | 3.0 | | $1,009 | $33 | | 2.5 Years | |
| | | | | | | | |
| Total / Weighted-Average Loan Portfolio | 3.1 | | $6,437 | $1,426 | | 2.9 Years | |
———————
(1)Amortized cost for these loans is net of the recorded provisions for loan losses.
(2)Both loans are secured by the same property.
(3)Loan and Single Asset, Single Borrower CMBS are secured by the same properties.
(4)Single Asset, Single Borrower CMBS.
Our average asset and debt balances for the nine months ended September 30, 2017, were:2020 were ($ in thousands):
| | | | | | | | | | | | | | |
| | Average month-end balances for the nine months ended September 30, 2020 | | |
Description | | Assets | | Related debt |
Commercial mortgage loans, net | | $ | 5,635,603 | | | $ | 3,399,455 | |
Subordinate loans and other lending assets, net | | 1,048,555 | | | — | |
|
| | | | | | | |
| Average month-end balances for the nine months ended September 30, 2017 |
Description | Assets | | Related debt |
First mortgages | $ | 2,027,620 |
| | $ | 1,173,235 |
|
Subordinate loans (1) | 1,209,787 |
| | — |
|
CMBS | 305,470 |
| | 233,884 |
|
Portfolio Management———————
(1) Subordinate loans also include CMBS (Held-to-Maturity).Due to the impact of COVID-19, some of our borrowers have experienced consequences which are preventing the execution of their business plans and in some cases temporary closures. As a result, we have worked with borrowers to execute loan modifications which are typically coupled with additional equity contributions from borrowers. Loan modifications to date have included repurposing of reserves, temporary deferrals of interest or principal, and partial deferral of coupon interest as payment-in-kind interest. None of these modifications are troubled debt restructurings.
Investment Activity
During the nine-monthsnine months ended September 30, 2017, the Company2020, we committed $910,566$562.0 million of capital to loans ($866,300457.4 million of which was funded at closing)during the nine months ended September 30, 2020). In addition, during the nine-monthsnine months ended September 30, 2017 the Company funded approximately $190,737 for previously closed loans and2020, we received $238,541$543.5 million in repayments from loans.and sales and funded $309.8 million for loans closed prior to 2020.
Net Income (Loss) Available to Common Stockholders
For the three months ended September 30, 20172020 and September 30, 2016, respectively, the Company’s2019 our net income available to common stockholders was $57,208,$46.0 million, or $0.54$0.31 per diluted share of common stock, and $60,583,$25.7 million, or $0.83$0.16 per share.diluted share of common
stock, respectively. For the nine months ended September 30, 20172020 and September 30, 2016, respectively, the Company’s2019, our net income (loss) available to common stockholders was $121,946,$(28.5) million, or $1.23$(0.20) per diluted share of common stock, and $77,864,$143.1 million, or $1.11$0.97 per share.diluted share of common stock, respectively.
Operating Results
The following table sets forth information regarding our consolidated results of operations and certain key operating metrics:metrics ($ in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | 2017 vs. 2016 | | Nine months ended September 30, | | 2017 vs. 2016 |
| 2017 | | 2016 | | $ | | 2017 | | 2016 | | $ |
Net interest income: | | | | | | | | | | | |
Interest income from securities | $ | 2,625 |
| | $ | 8,029 |
| | $ | (5,404 | ) | | $ | 9,247 |
| | $ | 23,685 |
| | $ | (14,438 | ) |
Interest income from securities, held to maturity | — |
| | 2,875 |
| | (2,875 | ) | | 4,132 |
| | 8,597 |
| | (4,465 | ) |
Interest income from commercial mortgage loans | 41,203 |
| | 27,460 |
| | 13,743 |
| | 112,690 |
| | 72,727 |
| | 39,963 |
|
Interest income from subordinate loans | 47,268 |
| | 32,207 |
| | 15,061 |
| | 121,298 |
| | 89,649 |
| | 31,649 |
|
Interest expense | (19,855 | ) | | (17,256 | ) | | (2,599 | ) | | (56,089 | ) | | (47,620 | ) | | (8,469 | ) |
Net interest income | 71,241 |
| | 53,315 |
| | 17,926 |
| | 191,278 |
| | 147,038 |
| | 44,240 |
|
Operating expenses: | | | | | | | | | | | |
General and administrative expenses | (4,629 | ) | | (8,352 | ) | | 3,723 |
| | (15,587 | ) | | (21,456 | ) | | 5,869 |
|
Management fees to related party | (8,309 | ) | | (5,903 | ) | | (2,406 | ) | | (23,484 | ) | | (16,374 | ) | | (7,110 | ) |
Total operating expenses | (12,938 | ) | | (14,255 | ) | | 1,317 |
| | (39,071 | ) | | (37,830 | ) | | (1,241 | ) |
Income (loss) from unconsolidated joint venture | — |
| | 80 |
| | (80 | ) | | (2,847 | ) | | 207 |
| | (3,054 | ) |
Other income | 359 |
| | 309 |
| | 50 |
| | 710 |
| | 334 |
| | 376 |
|
Provision for loan losses and impairments | — |
| | — |
| | — |
| | (5,000 | ) | | (15,000 | ) | | 10,000 |
|
Realized loss on sale of assets | (4,076 | ) | | (225 | ) | | (3,851 | ) | | (5,118 | ) | | (225 | ) | | (4,893 | ) |
Unrealized gain (loss) on securities | 13,488 |
| | (9,798 | ) | | 23,286 |
| | 11,830 |
| | (36,601 | ) | | 48,431 |
|
Foreign currency gain (loss) | 7,763 |
| | (4,369 | ) | | 12,132 |
| | 17,848 |
| | (21,926 | ) | | 39,774 |
|
Bargain purchase gain | — |
| | 40,021 |
| | (40,021 | ) | | — |
| | 40,021 |
| | (40,021 | ) |
Gain (loss) on derivative instruments | (7,481 | ) | | 4,815 |
| | (12,296 | ) | | (17,916 | ) | | 22,831 |
| | (40,747 | ) |
Net income | $ | 68,356 |
| | $ | 69,893 |
| | $ | (1,537 | ) | | $ | 151,714 |
| | $ | 98,849 |
| | $ | 52,865 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | | | 2020 vs 2019 | | Nine months ended September 30, | | | | 2020 vs. 2019 |
| 2020 | | 2019 | | | | 2020 | | 2019 | | |
Net interest income: | | | | | | | | | | | |
Interest income from commercial mortgage loans | $ | 74,522 | | | $ | 81,136 | | | $ | (6,614) | | | $ | 232,018 | | | $ | 236,880 | | | $ | (4,862) | |
Interest income from subordinate loans and other lending assets | 28,857 | | | 43,421 | | | (14,564) | | | 95,491 | | | 125,303 | | | (29,812) | |
Interest expense | (34,824) | | | (39,341) | | | 4,517 | | | (113,527) | | | (109,147) | | | (4,380) | |
Net interest income | 68,555 | | | 85,216 | | | (16,661) | | | 213,982 | | | 253,036 | | | (39,054) | |
Operating expenses: | | | | | | | | | | | |
General and administrative expenses | (6,624) | | | (5,839) | | | (785) | | | (19,580) | | | (18,564) | | | (1,016) | |
Management fees to related party | (9,927) | | | (10,434) | | | 507 | | | (30,152) | | | (30,306) | | | 154 | |
Total operating expenses | (16,551) | | | (16,273) | | | (278) | | | (49,732) | | | (48,870) | | | (862) | |
Other income | 128 | | | 429 | | | (301) | | | 1,479 | | | 1,431 | | | 48 | |
Realized loss on investments | (1,037) | | | — | | | (1,037) | | | (17,442) | | | (12,513) | | | (4,929) | |
Reversal of (provision for) loan losses - Specific CECL Allowance | 550 | | | (35,000) | | | 35,550 | | | (139,950) | | | (20,000) | | | (119,950) | |
Reversal of (provision for) loan losses - General CECL Allowance | 5,792 | | | — | | | 5,792 | | | (12,004) | | | — | | | (12,004) | |
Foreign currency translation gain (loss) | 27,002 | | | (19,129) | | | 46,131 | | | (8,388) | | | (20,012) | | | 11,624 | |
Gain (loss) on foreign currency forwards | (34,537) | | | 24,153 | | | (58,690) | | | 32,959 | | | 28,619 | | | 4,340 | |
Loss on interest rate hedging instruments | (564) | | | (10,307) | | | 9,743 | | | (39,207) | | | (23,420) | | | (15,787) | |
Net income (loss) | $ | 49,338 | | | $ | 29,089 | | | $ | 20,249 | | | $ | (18,303) | | | $ | 158,271 | | | $ | (176,574) | |
Net interest incomeInterest Income
Net interest income increaseddecreased by $17,926$16.7 million and $44,240$39.1 million during the three and nine months ended September 30, 2017,2020, respectively, as compared to the same periods in 2016.2019. The increasedecrease was primarily due to an increase(i) a 2.02% and 1.73% decrease in the principal balance of the Company's loan portfolio, by $1,222,797 as of September 30, 2017 compared to September 30, 2016 and an increase inaverage one-month LIBOR, of 0.70% from 0.53% as of September 30, 2016 to 1.23% as of September 30, 2017 partially offset by (i) an increase in interest expense due to an increase in the Company's debt balance of $490,861 as of September 30, 2017 compared to September 30, 2016 and (ii) a decrease in the principal balance of the Company's securities by $327,150 as of September 30, 2017 compared to September 30, 2016.
Forrespectively, for the three and nine months ended September 30, 2017,2020 compared to the Company received pre-payment penaltiessame periods in September 30, 2019 and (ii) loans with an aggregate principal balance of $3,590$602.2 million being on cost recovery or non-accrual status as of September 30, 2020 compared to $196.4 million as of September 30, 2019. This decrease was offset by (i) a $0.5 billion increase in loan principal balance as of September 30, 2020 compared to the same date in 2019 and $3,998, respectively. For(ii) in the money LIBOR floors on several of our loans.
We recognized PIK interest of $12.5 million and $37.3 million for the three and nine months ended September 30, 2016, the Company received pre-payment penalties of $4,0002020, respectively, and $5,225, respectively. The Company records pre-payment penalty income under interest income.
For$13.7 million and $42.8 million for the three and nine months ended September 30, 2017, the Company2019, respectively.
We recognized PIK interest of $5,309$0 and $19,323, respectively. For$0.2 million in pre-payment penalties and accelerated fees for the three and nine months ended September 30, 2016,2020, respectively, and $0.3 million and $4.0 million for the Company recognized PIK interest of $5,808three and $15,902,nine months ended September 30,
2019, respectively.
Operating Expenses
General and administrative expenses
Excluding $4,925 in expenses related to the AMTG merger, generalGeneral and administrative expenses increased by $1,202$0.8 million for the three months ended September 30, 20172020 compared to the same period in 2016.2019. The increase was primarily driven by ana $0.5 million increase of $807 ofin general operating expenses and $0.3 million increase in non-cash restricted stock and RSU amortization related to shares of stock awarded under the Company's long-term incentive plans and a $395 increase in general operating expenses.LTIPs.
Excluding $11,350 in expenses related to the AMTG merger, generalGeneral and administrative expenses increased by $5,481$1.0 million for the nine months ended September 30, 20172020 compared to the same period in 2016.2019. The increase was primarily driven by $4,453 ofdue to a $0.6 million increase in non-cash restricted stock and RSU amortization related to shares of common stock awarded under the Company's long-term incentive plansLTIPs and a $1,028$0.4 million increase in general operating expenses.
Management fees to related party
Management fee expense increaseddecreased by $2,406 and $7,110$0.5 million during the three and nine months ended September 30, 2017, respectively2020 as compared to the same periods in 2016.2019. The increasedecrease is primarily attributable to an increasea decrease in the Company’sour stockholders’ equity (as defined in the Management Agreement) as a result of our common stock repurchase of 10,834,595 shares during the Company’s issuancenine months ended September 30, 2020 (as described in "Note 14 - Stockholders' Equity").
Management fees decreased by $0.2 million during the nine months ended September 30, 2020 as compared to the same period in 2019. The decrease is primarily attributable to the decrease in our stockholders' equity as noted above and was partially offset by an increase in our management fee as a result of common and preferred equitya decrease in connection with the AMTG Merger in 2016, and the Company’s follow-on common equity offerings in December 2016 and June 2017. our quarterly dividend during 2020.
Management fees and the relationship between the Companyus and the Manager under the Management Agreement are discussed further in the accompanying condensed consolidated financial statements, in “Note 11—"Note 12 - Related Party Transactions.”"
Income (loss) from unconsolidated joint ventureReversal of (provision for) loan losses - General CECL Allowance
Income (loss) from unconsolidated joint ventures consists of activity related to our ownership interest in Champ LP, as described in Note 6 toThe General CECL Allowance decreased by $5.8 million during the unaudited condensed consolidated financial statements - Unconsolidated Joint Ventures. In May 2017, the Company sold its remaining ownership interest in Champ LP, to unaffiliated third parties, resulting in a loss of $3,305, which is the primary driver for the increase in the loss from unconsolidated joint venturesthree months ended September 30, 2020 and increased by $12.0 million during the nine months ended September 2017 compared to the same period in 2016. The realized loss included currency translation losses, which were previously included in accumulated other comprehensive loss on the Company's condensed consolidated statement of changes in stockholders' equity.
Provision for loan losses and impairments
During30, 2020. For the three andmonths ended September 30, 2020, the decrease is primarily related to an improvement in our view of estimated future market conditions since prior quarter end; for the nine months ended September 30, 2017,2020, the Company recorded $0increase is primarily related to a more negative view of estimated future macroeconomic conditions in the backdrop of the global COVID-19 pandemic and $5,000an increase in our view of the remaining expected term of our loan portfolio. Refer to "Note 2 - Summary of Significant Accounting Policies" and "Note 4 - Commercial Mortgage, Subordinate Loans and Other Lending Assets, Net" for provision foradditional information related to our General CECL Allowance.
Reversal of (provision for) loan losses and impairment, respectively. The $5,000, recognized in the second quarter of 2017, related to an investment in a fully-built, for-sale residential condominium units located in Bethesda, MD. - Specific CECL Allowance
During the three and nine months ended September 30, 2016, the Company2020, we recorded a loan loss provisionnet reversal of $10,000 on$0.6 million of Specific CECL Allowances predominately due to a multifamily commercial mortgage loan and $5,000 onreversal of a multifamily subordinate loan secured by a multifamily property located in Williston, ND.
Realized loss on sale of assets
Realized losses onpreviously recorded allowance. During the sale of assets relate to the sale of CMBS. These losses were $4,076 and $5,118 for the three and nine months ended September 30, 2017, respectively2020, we recorded Specific CECL Allowances on eight loans, totaling $156.9 million, two of which had existing loan loss provisions, partially offset by $16.9 million in reversals of previously recorded allowances. Refer to "Note 4 - Commercial Mortgage, Subordinate Loans and there was $225 in lossesOther Lending Assets, Net" for the three and nine months ended September 30, 2016.
Unrealized gain (loss) on securities
Unrealized losses on securities relateadditional information related to the change in fair value of the CMBS portfolio where the Company has elected the fair value option and were $13,488 and $11,830 for the three and nine months ended September 30, 2017, respectively and ($9,798) and ($36,601) for the three and nine months ended September 30, 2016, respectively.our Specific CECL Allowance.
Foreign currency gain (loss) and gain (loss) on derivative instruments
The Company usesWe use forward currency contracts to economically hedge interest and principal payments due under itsour loans denominated in currencies other than U.S. dollars. The Company has in the past used and may in the future use interest rate swaps and caps to manage exposure to variable cash flows on portions of its borrowings under repurchase agreements. Interest rate swap and cap agreements allow the Company to receive a variable rate cash flow based on LIBOR and pay a fixed rate cash flow, mitigating the impact of this exposure. As a result of mitigating the impact of this exposure, whenUSD. When foreign currency gains (losses)gain and gain (losses)(loss) on derivative instruments are looked atevaluated on a combined basis, the net impact for the three and nine months ended September 30, 20172020 was $282$(7.5) million and ($68),$24.6 million, respectively, and the net impact for the three and nine months ended September 30, 20162019 was $446$5.0 million and $905,$8.6 million, respectively.
DividendsLoss on interest rate hedges
Dividends. ForIn connection with the senior secured term loan, we had previously entered into an interest rate swap to fix LIBOR at 2.12% effectively fixing our all-in coupon on the senior secured term loan at 4.87%. During the second quarter of 2020 we terminated the interest rate swap and recognized a realized loss of $53.9 million. Subsequent to the termination of the
interest rate swap in the second quarter of 2020, we entered into a three-year interest rate cap to cap LIBOR at 0.75%. This effectively limits the maximum all-in coupon on our senior secured term loan to 3.50%. During the three and nine months ended September 30, 2017,2020, the Company declared theinterest rate cap had an unrealized loss of $0.6 million and an unrealized gain of $0.2 million, respectively.
Dividends
The following dividends on its common stock:table details our dividend activity:
|
| | | |
Declaration Date | Record Date | Payment Date | Amount |
March 14, 2017 | March 31, 2017 | April 17, 2017 | $0.4600 |
June 15, 2017 | June 30, 2017 | July 17, 2017 | $0.4600 |
September 14, 2017 | September 29, 2017 | October 16, 2017 | $0.4600 |
For the nine months ended September 30, 2017, the Company declared the following dividends on its Series A Preferred Stock:
|
| | | |
Declaration Date | Record Date | Payment Date | Amount |
March 14, 2017 | March 31, 2017 | April 17, 2017 | $0.5391 |
June 15, 2017 | June 30, 2017 | July 17, 2017 | $0.5391 |
September 14, 2017 | August 2, 2017 | August 2, 2017 | $0.1079 |
For the nine months ended September 30, 2017, the Company declared the following dividends on its Series B Preferred Stock:
|
| | | |
Declaration Date | Record Date | Payment Date | Amount |
March 14, 2017 | March 31, 2017 | April 17, 2017 | $0.5000 |
June 15, 2017 | June 30, 2017 | July 17, 2017 | $0.5000 |
September 14, 2017 | September 29, 2017 | October 16, 2017 | $0.5000 |
For the nine months ended September 30, 2017, the Company declared the following dividends on its Series C Preferred Stock:
|
| | | |
Declaration Date | Record Date | Payment Date | Amount |
March 14, 2017 | March 31, 2017 | April 28, 2017 | $0.5000 |
June 15, 2017 | June 30, 2017 | July 31, 2017 | $0.5000 |
September 14, 2017 | September 29, 2017 | October 31, 2017 | $0.5000 |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended | | | | Nine months ended | | |
Dividend declared per share of: | September 30, 2020 | | September 30, 2019 | | September 30, 2020 | | September 30, 2019 |
Common Stock | $0.35 | | $0.46 | | $1.10 | | $1.38 |
Series B Preferred Stock | 0.50 | | 0.50 | | 1.50 | | 1.50 |
Series C Preferred Stock | N/A | | N/A | | N/A | | 0.7223 |
Subsequent Events
Refer to "Note 18 - Subsequent Events" to the unauditedaccompanying condensed consolidated financial statements for disclosure regarding significant transactions that occurred subsequent to September 30, 2017.
Liquidity and Capital Resources
Liquidity is a measure of the Company’sour ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain itsour assets and operations, make distributions to itsour stockholders and other general business needs. The Company’sAs of September 30, 2020, we had $1.1 billion of corporate debt and $3.5 billion of asset specific financings. We have no corporate debt maturities until August 2022. As of September 30, 2020, we had $438 million of cash is usedon hand and $11.9 million of approved and undrawn capacity from our secured debt arrangements. In addition, we have a significant amount of unencumbered loan assets. In light of COVID-19 and its severe impact on the economy we have taken steps to purchase or originate target assets, repay principalincrease our cash balances in order to maintain an adequate level of liquidity to meet future outflows. As the duration and interestseverity of COVID-19 remain unknown, so does the impact it will have on borrowings, make distributionsour borrowers, lenders, and the economy as a whole. We will continue to stockholders and fund operations. The Company’sclosely monitor developments related to COVID-19 as it relates to our liquidity position is closely monitored and the Company believes it hasfinancial obligations. At this time we believe we have sufficient current liquidity and access to additional liquidity to meet financial obligations for at least the next 12 months.
Debt-to-Equity Ratio
The Company’sfollowing table presents our debt-to-equity ratio:
| | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
Debt to Equity Ratio (1) | 1.7 | | 1.4 |
———————
(1)Represents total debt less cash and loan proceeds held by servicer to total stockholders' equity.
Our primary sources of liquidity are as follows:
Cash Generated from Operations
Cash from operations is generally comprised of interest income from the Company’sour investments, net of any associated financing expense, principal repayments from the Company’sour investments, net of associated financing repayments, proceeds from the sale of investments, and changes in working capital balances. See “—Financial Condition and Results"Results of Operations—Investments”Operations – Loan Portfolio Overview" above for a summary of interest rates and weighted average lives related to the Company’sour investment portfolio at as of September 30, 2017. While there are no contractual paydowns related to the Company’s CMBS, periodic paydowns do occur. Repayments on the debt secured by the Company’s CMBS occur in conjunction with the paydowns on the collateral pledged.2020.
Borrowings Under Various Financing Arrangements
JPMorgan Facility
On March 31, 2017, the Company,In November 2019, through twothree indirect wholly ownedwholly-owned subsidiaries, amendedwe entered into a Sixth Amended and restated theRestated Master Repurchase Agreement with JPMorgan Chase Bank, National Association. The JPMorgan Facility which currently providesallows for $1.3 billion of maximum total borrowings (with amounts borrowed in British pounds and Euros converted to USD for
purposes of $1,118,000, comprisedcalculating availability based on the greater of the $975,000 repurchase facilityspot rate as of the initial financing under the corresponding mortgage loan and a $143,000 asset specific financing,the then-current spot rate) and a term expiringmatures in March 2019 plus aJune 2022 and has two one-year extension optionextensions available at the Company'sour option, which are subject to certain conditions. Amounts borrowed under theThe JPMorgan Facility bear interest at spreads ranging from 2.25%enables us to 3.50% over one-month LIBOR.elect to receive advances in USD, GBP, or EUR. Margin calls may occur any time theat specified aggregate repurchase price exceeds the agreed upon advance rate multiplied by the market value of the assets by more than $250. The Company has agreed to provide a limited guarantee of the obligations of its indirect wholly-owned subsidiaries under the JPMorgan Facility.margin deficit thresholds.
As of September 30, 2017, the Company2020, we had $840,360$1.2 billion (including £75.6 million and €60.0 million assuming conversion into USD) of borrowings outstanding under the JPMorgan Facility secured by certain of the Company'sour commercial mortgage and subordinate loans.
DB Repurchase Facility
On September 29, 2016, the Company,In March 2020, through an indirect wholly-owned subsidiaries,subsidiary, we entered into the DBa Third Amended and Restated Master Repurchase FacilityAgreement with Deutsche Bank AG, Cayman Islands Branch, London Branch, which provides for maximum total borrowingsadvances of $565,491 comprisedup to $1.0 billion for the sale and repurchase of the $450,000 and £45,000 repurchase facility as well as a $55,200 asset specific financing in connection with financingeligible first mortgage loans secured by real estate.commercial or multifamily properties located in the United States, United Kingdom and the European Union, and enables us to elect to receive advances in USD, GBP, or EUR. The DB Repurchase Facilityrepurchase facility matures in March 2018 with2021, and has two one-year extension optionsextensions available at the Company'sour option, subject to certain conditions. Amounts borrowed under the DB Repurchase Facility bear interest at spreads ranging from 2.10% to 3.00% over one-month LIBOR. Margin calls may occur any time at specified aggregate margin deficit thresholds. The Company has agreed to provide a guarantee of the obligations of its indirect wholly-owned subsidiaries under this facility.
As of September 30, 2017, the Company2020, we had $265,658 (inclusive of £45,000) borrowings outstanding under the DB Repurchase Facility secured by certain of the Company's commercial mortgage loans.
Goldman Loan
On January 26, 2015, the Company, through an indirect wholly-owned subsidiary, entered into the Goldman Loan. The Goldman Loan provides for a purchase price of $34,180 (as of September 30, 2017) and a repurchase date of the earliest of: (1) April 30, 2019, (2) an early repurchase date as a result of repayment or sale of the purchased loan, or (3) an accelerated repurchase date as a result of certain events of default. Subject to the terms and conditions thereof, the Goldman Loan provides for the purchase and sale of certain participation interests in a mortgage loan secured by single-family and condominium properties. Prior to an event of default, amounts borrowed under the Goldman Loan bear interest at a spread of 3.5% plus one-month LIBOR. In addition, the Goldman Loan provides that margin calls may occur during the continuance of certain credit events if the market value of the mortgaged properties drop below an agreed upon percentage. The Goldman Loan contains affirmative and negative covenants and provisions regarding events of default that are normal and customary for similar repurchase agreements.
As of September 30, 2017, the Company had $34,180 of borrowings outstanding under the Goldman Loan secured by one commercial mortgage loan held by the Company.
UBS Facility
In September 2013, the Company, through an indirect wholly-owned subsidiary, entered into the UBS Facility, which provided that the Company may borrow up to $133,899 in order to finance the acquisition of CMBS. The UBS Facility matured in September 2017 and the Company repaid the outstanding borrowings in full.
DB Facility
In April 2014, the Company, through an indirect wholly-owned subsidiary, entered into the DB Facility, which currently provides that the Company may borrow up to $300,000 in order to finance the acquisition of CMBS. The DB Facility matures in April 2018. Advances under the DB Facility accrue interest at a per annum pricing rate based on the rate implied by the fixed rate bid under a fixed for floating interest rate swap for the receipt of payments indexed to three-month U.S. dollar LIBOR, plus a financing spread ranging from 2.09% to 2.39% based on the rating of the collateral pledged.
The Company posts margin in cash based on the fair value of the underlying collateral. The margin posted is classified as restricted cash on the Company's condensed consolidated balance sheets.
Additionally, the undrawn amount is subject to a 1.8% non-use fee. The DB Facility contains customary terms and conditions for facilities of this type and financial covenants to be met by the Company, including minimum shareholder's equity of 50% of the gross capital proceeds of its initial public offering and any subsequent public or private offerings.
As of September 30, 2017, the Company had $149,317$526.7 million of borrowings outstanding under the DB Facility secured by CMBS heldcertain of our commercial mortgage loans.
Goldman Facility
In November 2017, through an indirect wholly-owned subsidiary, we entered into a master repurchase and securities contract agreement with Goldman Sachs Bank USA, which provides advances up to $500.0 million and matures in November 2020, and has one one-year extension available at our option, subject to certain conditions. Margin calls may occur any time at specified margin deficit thresholds.
As of September 30, 2020, we had $362.1 million of borrowings outstanding under the Goldman Facility secured by certain of our commercial mortgage loans.
CS Facility - USD
In July 2018, through an indirect wholly-owned subsidiary, we entered into a Master Repurchase Agreement with Credit Suisse AG, acting through its Cayman Islands Branch and Alpine Securitization Ltd, which provides for advances for the Company.sale and repurchase of eligible commercial mortgage loans secured by real estate. The CS Facility - USD has an "evergreen" feature such that the facility continues unless terminated at any time by Credit Suisse with six months' notice. Margin calls may occur any time at specified aggregate margin deficit thresholds.
As of September 30, 2020, we had $378.8 million of borrowings outstanding under the CS Facility - USD secured by certain of our commercial mortgage loans.
CS Facility - GBP
In June 2018, through an indirect wholly-owned subsidiary, we entered into a Global Master Repurchase Agreement with Credit Suisse Securities (Europe) Limited. During the third quarter of 2020, the facility was repaid in connection with the sale of the underlying loan.
HSBC Facility - USD
In October 2019, through an indirect wholly-owned subsidiary, we entered into a secured debt arrangement with HSBC Bank plc, which provides for a single asset financing. The facility is scheduled to mature in January 2021. Margin calls may occur any time at specified aggregate margin thresholds.
As of September 30, 2020, we had $47.2 million of borrowings under the HSBC Facility - USD secured by one commercial mortgage loan.
HSBC Facility - GBP
In September 2018, through an indirect wholly-owned subsidiary, we entered into a secured debt arrangement with HSBC Bank plc, which provided for a single asset financing. The facility matured and was repaid in June 2020 in connection with the repayment of the underlying loan.
HSBC Facility - EUR
In July 2019, through an indirect wholly-owned subsidiary, we entered into a secured debt arrangement with HSBC Bank plc, which provides for a single asset financing. The facility matures in July 2021. Margin calls may occur any time at specified aggregate margin deficit thresholds.
As of September 30, 2020, we had $157.1 million (€134.1 million assuming conversion into USD) of borrowings outstanding under the HSBC Facility - EUR secured by one commercial mortgage loan.
Barclays Facility - USD
In March 2020, through an indirect wholly-owned subsidiary, we entered into a secured debt arrangement pursuant to a Master Repurchase Agreement with Barclays Bank plc. The Barclays Facility - USD allows for $200.0 million of maximum borrowings and initially matures in March 2023 with extensions available at our option, subject to certain conditions. Margin calls may occur any time at specified aggregate margin deficit thresholds.
As of September 30, 2020, we had $35.2 million of borrowings outstanding under the Barclays Facility - USD secured by one commercial mortgage loan.
Barclays Facility - GBP/EUR
Beginning in October 2019, through an indirect wholly-owned subsidiary, we entered into five secured debt arrangements pursuant to a Global Master Repurchase Agreement with Barclays Bank plc. In June 2020, all assets previously financed pursuant to this facility were refinanced under the Barclays Private Securitization.
Barclays Private Securitization
In June 2020, through a newly formed entity, we entered into a private securitization with Barclays Bank plc, of which Barclays Bank plc retained $813.6 million of senior notes. This Barclays Private Securitization finances the loans that were previously financed under the Barclays Facility - GBP/EUR. In addition, we pledged an additional commercial mortgage loan with an outstanding principal balance of £26.0 million and pledged additional collateral of a financed loan of €5.3 million as of June 30, 2020.
The Company wassecuritization eliminates daily margining provisions and grants us significant discretion to modify certain terms of the underlying collateral including waiving certain loan-level covenant breaches and deferring or waiving of debt service payments for up to 18 months. The securitization includes LTV based covenants with significant headroom to existing levels that are also subject to a six-month holiday through December 2020. These deleveraging requirements are based on significant declines in compliancethe value of the collateral as determined by an annual third-party (engaged by us) appraisal process tied to the provisions of the underlying loan agreements. We believe this provides us with both cushion and predictability to avoid sudden unexpected outcomes and material repayment requirements. In addition to the pledge of the additional collateral noted above, we paid down the previous financing by €16.5 million (totaling $18.5 million in USD) and agreed to increase the financing spreads by 0.25%.
The table below provides the borrowings outstanding (on an as converted basis) and weighted-average fully-extended maturities by currency for the assets financed under the Barclays Private Securitization as of September 30, 2020 ($ in thousands):
| | | | | | | | |
| Borrowings outstanding | Fully-Extended Maturity(1) |
Total/Weighted-Average GBP | $670,024 | January 2024 |
Total/Weighted-Average EUR | 143,568 | August 2021(2) |
Total/Weighted-Average Securitization | $813,592 | March 2024 |
———————
(1)Assumes underlying loans extend to fully extended maturity and extensions at our option are exercised.
(2)The EUR portion of the Barclays Private Securitization has an "evergreen" feature such that the facility continues for one year and can be terminated by either party on certain dates with, depending on the date of notice, a minimum of nine to twelve months' notice.
As of September 30, 2020, we had $813.6 million (£518.6 million and €122.5 million assuming conversion into USD) of borrowings outstanding under the Barclays Private Securitization secured by certain of our commercial mortgage loans.
Debt Covenants
The guarantees related to our secured debt arrangements contain the following financial covenants under each(i) tangible net worth must be greater than $1.25 billion plus 75% of its borrowing agreements atthe net cash proceeds of any equity issuance after March 31, 2017 (ii) our ratio of total indebtedness to tangible net worth cannot be greater than 3.75:1; and (iii) our liquidity cannot be less than an amount equal to the greater of 5% of total recourse indebtedness or $30.0 million. Under these covenants, our General CECL Allowance is added back to our tangible net worth calculation.
Senior Secured Term Loan
In May 2019, we entered into the $500.0 million senior secured term loan. During the nine months ended September 30, 20172020, we repaid $3.8 million of principal related to the senior secured term loan. The senior secured term loan bears interest at LIBOR plus 2.75% and December 31, 2016.was issued at a price of 99.5%. The outstanding balance as of September 30, 2020 was $493.8 million. The senior secured term loan matures in May 2026 and contains restrictions relating to liens, asset sales, indebtedness, and investments in non-wholly owned entities. The senior secured term loan includes the following financial covenants: (i) our ratio of total recourse debt to tangible net worth cannot be greater than 3:1; and (ii) our ratio of total unencumbered assets to total pari-passu indebtedness must be at least 1.25:1.
Convertible Senior Notes
In 2014, the Companytwo separate offerings during 2017, we issued in two offerings with an aggregate principal amount of $254,750, 5.50% Convertible Senior Notes due 2019, for which the Company received aggregate net proceeds, after deducting the underwriting discount and estimated offering expenses payable by the Company, of approximately $248,652.
On August 21, 2017, the Company issued $230,000 aggregate principal amount$345.0 million of 4.75% Convertible Senior Notes due 2022, for which the Companywe received aggregate net proceeds,$337.5 million, after deducting the underwriting discount and estimated offering expenses payable byexpenses.At September 30, 2020, the Company,2022 Notes had a carrying value of approximately $224,825.$339.7 million and an unamortized discount of $5.3 million.
During the fourth quarter of 2018, we issued $230.0 million of 5.375% Convertible Senior Notes due 2023, for which we received $223.7 million after deducting the underwriting discount and offering expenses. At September 30, 2020, the 2023 Notes had a carrying value of $224.9 million and an unamortized discount of $5.1 million.
Cash Generated from Equity Offerings
During the second quarter of 2017, the Company2019, we completed a follow-on public offering of 13,800,00017,250,000 shares of itsour common stock, including shares issued pursuant to the underwriters' option to purchase additional shares, at a price of $18.05$18.27 per share. The aggregate net proceeds from the offering including proceeds from the sale of the additional shares, were approximately $248,900$314.8 million after deducting estimated offering expenses.
In March 2020, our board of directors approved a stock repurchase program for up to an aggregate of $150.0 million of our common stock. During the fourth quarter of 2016, the Company completed a follow-on public offering of 10,500,000nine months ended September 30, 2020, we repurchased 10,834,595 shares of itsour common stock under this program at a weighted-average price of $16.97$8.45 per share. The net proceeds from the offering were approximately $177,796 after deducting estimated offering expenses payable by the Company.
During the third quarter of 2016, the Company consummated the AMTG Merger and issued 13,398,586 shares of its common stock and 6,900,000 shares of Series C Preferred Stock. As of December 31, 2016, the Company had liquidated all of the assets of AMTG and realized proceeds of approximately $421,000 (net of expenses).
Other Potential Sources of Financing
The Company’sOur primary sources of cash currently consist of cash available, which was $140,229$438.2 million as of September 30, 2017,2020, principal and interest payments the Company receiveswe receive on itsour portfolio of assets, and available borrowings under its repurchase agreements. The Company expects itsour secured debt arrangements. We expect our other sources of cash to consist of cash generated from operations and prepayments of principal received on the Company’sour portfolio of assets. Such prepayments are difficult to estimate in advance. Depending on market conditions, the Companywe may utilize additional borrowings as a source of cash, which may also include additional repurchase agreementssecured debt arrangements as well as other borrowings such as credit facilities, or conduct additional public and private debt and equity offerings. As of September 30, 2020 we also held $1.0 billion of unencumbered assets, consisting of $42.9 million of senior mortgages and $1.0 billion of mezzanine loans.
The Company maintainsWe maintain policies relating to itsour borrowings and use of leverage. See “—Leverage Policies”"Leverage Policies" below. In the future, the Companywe may seek to raise further equity or debt capital or engage in other forms of borrowings in order to fund future investments or to refinance expiring indebtedness.
The CompanyWe generally intendsintend to hold itsour target assets as long-term investments, although itwe may sell certain of itsour investments in order to manage itsour interest rate risk and liquidity needs, meet other operating objectives and adapt to market conditions.
To maintain itsour qualification as a REIT under the Internal Revenue Code, of 1986, as amended, the Companywe must distribute annually at least 90% of itsour REIT taxable income.income, determined without regard to the deduction for dividends paid and excluding net capital gain. These distribution requirements limit the Company’sour ability to retain earnings and thereby replenish or increase capital for operations.
Leverage Policies
The Company usesWe use leverage for the sole purpose of financing itsour portfolio and not for the purpose of speculating on changes in interest rates. In addition to its repurchase agreements, in the future the Company mayour secured debt arrangements and senior secured term loan, we access additional sources of borrowings. The Company’sOur charter and bylaws do not limit the amount of indebtedness the Companywe can incur; however, we are subject to and carefully monitor the Company is limitedlimits placed on us by certain financial covenants under its repurchase agreements. Consistentour credit providers and those that assign ratings on our Company.
At September 30, 2020, our debt-to-equity ratio was 1.7 and our portfolio was comprised of $5.4 billion of commercial mortgage loans and $1.0 billion of subordinate loans and other lending assets. In order to achieve our return on equity, we generally finance our mortgage loans with the Company’s strategy2.0 to 3.0 turns of keeping leverage within a conservative range, the Company expects that its total borrowingsand generally do not finance our subordinate loan portfolio given built-in inherent structural leverage. Consequently, depending on loans will be in an amount that is approximately 35% of the value of its total loan portfolio.
our portfolio mix, our debt-to-equity ratio may exceed our previously disclosed thresholds. Investment Guidelines
The Company'sOur current investment guidelines, approved by the Company'sour board of directors, are comprised of the following:
•no investment will be made that would cause the Companyus to fail to qualify as a REIT for U.S. federal income tax purposes;
•no investment will be made that would cause the Companyus to register as an investment company under the Investment Company Act of 1940;1940 Act;
•investments will be predominantly in the Company’sour target assets;
•no more than 20% of the Company’sour cash equity (on a consolidated basis) will be invested in any single investment at the time of the investment; and
•until appropriate investments can be identified, the Manager may invest the proceeds of any offering in interest bearing, short-term investments, including money market accounts and/or funds, that are consistent with the Company’sour intention to qualify as a REIT.
The board of directors must approve any change in or waiver to these investment guidelines.
Contractual Obligations and Commitments
The Company’sOur contractual obligations including expected interest payments as of September 30, 20172020 are summarized as follows:follows ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Less than 1 year (1) | | 1 to 2 years(1) | | 2 to 3 years (1) | | 3 to 5 years (1) | | More than 5 years (1) | | Total |
Secured debt arrangements(1)(2) | $ | 575,514 | | | $ | 924,928 | | | $ | 904,842 | | | $ | 1,248,750 | | | $ | — | | | $ | 3,654,034 | |
Senior secured term loan(2) | 19,465 | | | 19,317 | | | 19,170 | | | 37,938 | | | 477,267 | | | 573,157 | |
Convertible senior notes | 28,750 | | | 372,172 | | | 12,363 | | | 231,030 | | | — | | | 644,315 | |
Unfunded loan commitments (3) | 573,344 | | | 429,516 | | | 302,134 | | | 66,328 | | | — | | | 1,371,322 | |
Total | $ | 1,197,073 | | | $ | 1,745,933 | | | $ | 1,238,509 | | | $ | 1,584,046 | | | $ | 477,267 | | | $ | 6,242,828 | |
|
| | | | | | | | | | | | | | | | | | | |
| Less than 1 year (3) | | 1 to 3 years (3) | | 3 to 5 years (3) | | More than 5 years | | Total |
JPMorgan Facility (1) | $ | 194,500 |
| | $ | 700,426 |
| | $ | — |
| | $ | — |
| | $ | 894,926 |
|
DB Repurchase Facility (1) | 10,174 |
| | 214,400 |
| | — |
| | — |
| | 224,574 |
|
Goldman Loan (1) | 6,291 |
| | 30,123 |
| | — |
| | — |
| | 36,414 |
|
DB Facility | 151,946 |
| | — |
| | — |
| | — |
| | 151,946 |
|
Convertible Senior Notes | 22,858 |
| | 285,100 |
| | 250,727 |
| | — |
| | 558,685 |
|
Unfunded loan commitments (2) | 75,164 |
| | 5,000 |
| | — |
| | — |
| | 80,164 |
|
Total | $ | 460,933 |
| | $ | 1,235,049 |
| | $ | 250,727 |
| | $ | — |
| | $ | 1,946,709 |
|
-————————
(1) Assumes current LIBORunderlying assets are financed through the fully extended maturity date of 1.23% for interest payments due under the JPMorgan Facility, the DB Repurchase Facility and the Goldman Loan.secured debt arrangement.
(2) Based on the Company'sapplicable benchmark rates as of September 30, 2020 on the floating rate debt for interest payments due.
(3) Based on fully extended maturity and our expected funding schedule, which is based upon the Manager’s estimates based upon the best information available to the Manager at the time. There is no assurance that the payments will occur in accordance with these estimates or at all, which could affect the Company’sour operating results. Refer to "Note 15– Commitments and Contingencies" for further detail regarding unfunded loan commitments.
(3) Assumes underlying assets are financed through the fully extended maturity date of the facility.
Loan Commitments.At As of September 30, 2017, the Company2020, we had $80,164$1.4 billion of unfunded loan commitments, comprised of $1.4 billion related to itsour commercial mortgage loan portfolio, and $32.9 million related to our subordinate loan portfolio.
Management Agreement. On September 23, 2009, the Companywe entered into the Management Agreement with the Manager pursuant to which the Manager is entitled to receive a management fee and the reimbursement of certain expenses. The table above does not include amounts due under the Management Agreement as those obligations do not have fixed and determinable payments. Pursuant to the Management Agreement, the Manager is entitled to a base management fee calculated and payable quarterly in arrears in an amount equal to 1.5% of the Company’sour stockholders’ equity (as defined in the Management Agreement), per annum. The Manager will use the proceeds from its management fee in part to pay
compensation to its officers and personnel. The Company doesWe do not reimburse itsthe Manager or its affiliates for the salaries and other compensation of their personnel, except for the allocable share of the compensation of (1) the Company’sour Chief Financial Officer based on the percentage of time spent on the Company’sour affairs and (2) other corporate finance, tax, accounting, internal audit, legal, risk management, operations, compliance and other non-investment professional personnel of the Manager or its affiliates who spend all or a portion of their time managing the Company’sour affairs based on the percentage of time devoted by such personnel to the Company’sour affairs. The Company isWe are also required to reimburse itsthe Manager for operating expenses related to the Companyus incurred by itsthe Manager, including expenses relating to legal, accounting, due diligence and other services. Expense reimbursements to the Manager are made in cash on a monthly basis following the end of each month. The Company’sOur reimbursement obligation is not subject to any dollar limitation.
The current term of the Management Agreement currently runs throughwill expire on September 29, 2018.2021. Absent certain action by the independent directors of the Company’sour board of directors, as described below, the Management Agreement will automatically renew on each anniversary for a one yearone-year term. The Management Agreement may be terminated upon expiration of the one-year term only upon the affirmative vote of at least two-thirds of the Company’sour independent directors, based upon (1) unsatisfactory performance by the Manager that is materially detrimental to the Companyus or (2) a determination that the management fee payable to the Manager is not fair, subject to the Manager’s right to prevent such a termination based on unfair fees by accepting a mutually acceptable reduction of management fees agreed to by at least two-thirds of the Company’sour independent directors. The Manager must be provided with written notice of any such termination at least 180 days prior to the expiration of the then existing term and will be paid a termination fee equal to three times the sum of the average annual base management fee during the 24-month period immediately preceding the date of termination, calculated as of the end of the most recently completed fiscal quarter prior to the date of termination. Amounts payable under the Company’s Management Agreement are not fixed and determinable. Following a meeting by the Company’sour independent directors in February 2017,2020, which included a discussion of the Manager’s performance and the level of the management fees thereunder, the Companywe determined not to terminate the Management Agreement.
Forward Currency Contracts. We use forward currency contracts to economically hedge interest and principal payments due under our loans denominated in currencies other than U.S. dollars. We have entered into a series of forward contracts to sell an amount of foreign currency (GBP and EUR) for an agreed upon amount of USD at various dates through December 2024. These forward contracts were executed to economically fix the USD amounts of foreign denominated cash flows expected to be received by us related to foreign denominated loan investments. Refer to "Note 10- Derivatives, Net" to the accompanying condensed consolidated financial statements for details regarding our forward currency contracts.
Interest Rate Swap and Cap. In connection with the senior secured term loan, we previously entered into an interest rate swap to fix LIBOR at 2.12%, effectively fixing our all-in coupon on the senior secured term loan at 4.87%. During the second quarter of 2020 we terminated our interest rate swap due to significant decrease in LIBOR and recognized a realized loss on the accompanying condensed consolidated statement of operations. Subsequently, in June 2020, we entered into an interest rate cap for approximately $1.1 million. We use our interest rate cap to manage exposure to variable cash flows on our borrowings under our senior secured term loan by effectively limiting LIBOR from exceeding 0.75%. Refer to "Note 10- Derivatives, Net" to the accompanying condensed consolidated financial statements for details regarding our interest rate cap.
Off-balance Sheet Arrangements
As disclosed in "Note 6 - Unconsolidated Joint Venture," the Company doesWe do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured investment vehicles, or special purpose or variable interest entities, established to facilitate off-balance sheet arrangements or other contractually narrow or limited purposes. Further, the Company haswe have not guaranteed any obligations of unconsolidated entities or entered into any commitment to provide additional funding to any such entities.
Dividends
The Company intendsWe intend to continue to make regular quarterly distributions to holders of itsour common stock. U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of itsour REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains, and that itwe pay tax at regular corporate rates to the extent that itwe annually distributesdistribute less than 100% of itsour net taxable income. The CompanyWe generally intendsintend over time to pay dividends to itsour stockholders in an amount equal to itsour net taxable income, if and to the extent authorized by itsour board of directors. Any distributions the Company makes will bewe make are at the discretion of itsour board of directors and will depend upon, among other things, itsour actual results of operations. These results and the Company’sour ability to pay distributions will beare affected by various factors, including the net interest and other income from itsour portfolio, itsour operating expenses and any other expenditures. If the Company’sour cash available for distribution is less than itsour net taxable income, the Companywe could be required to sell assets or borrow funds to make cash distributions or the Companywe may make a portion of the required distribution in the form of a taxable stock distribution or
distribution of debt securities.
Prior to August 2, 2017, the Company had 3,450,000 sharesAs of Series A Preferred Stock outstanding, which entitled holders to receive dividends at the rate of 8.625% per annum of the $25.00 per share liquidation preference equivalent to $2.16 per annum, per share. The dividends on the Series A Preferred Stock were cumulative and payable quarterly in arrears.
On August 2, 2017, the Company redeemed all 3,450,000 shares of 8.625% Series A Cumulative Redeemable Perpetual Preferred Stock ("Series A Preferred Stock"). The Series A Preferred Stockholders received the redemption price of $25.00 plus accumulated but unpaid dividends to the redemption date of $0.1079 per share.
At September 30, 2017, the Company2020, we had 8,000,0006,770,393 shares of Series B Preferred Stock outstanding, which entitles holders to receive dividends that are payable quarterly in arrears. The Series B Preferred Stock pay cumulative cash dividends:dividends, which are payable quarterly in equal amounts in arrears on the 15th day of each January, April, July and October: (i) from, and including, the original date of issuance of the Series B Preferred Stock to, but excluding, September 20, 2020, at an initial rate of 8.00% per annum of the $25.00 per share liquidation preference; and (ii) from, and including, September 20, 2020, at the rate per annum equal to the greater of (a) 8.00% and (b) a floating rate equal to the 3-month LIBOR rate as calculated on each applicable date of determination plus 6.46% of the $25.00 liquidation preference. Except under certain limited circumstances, the Series B Preferred Stock is generally not convertible into or exchangeable for any other property or any other securities of the Companyour securities at the election of the holders. On or after September 21, 2020, the CompanyWe may, at itsour option, redeem the shares at a redemption price of $25.00, plus any accrued unpaid distribution through the date of the redemption.
The Company hasIn June 2019, we redeemed all 6,900,000 shares of Series C Preferred Stock outstanding, which entitles holders to receive dividends that are payable quarterly in arrears. The Series C Preferred Stock pay cumulative cash dividends at the rateoutstanding. Holders of 8.00% per annum of the $25.00 per share liquidation preference (equivalent to $2.00 per annum per share) from, and including July 29, 2016 (the “Series C Initial Dividend Date”) and shall be payable (i) for the period from the Series C Initial Dividend Date to, but excluding, October 31, 2016, on October 31, 2016, and (ii) for each subsequent quarterly dividend period commencing on the last day of each of January, April, July and October and ending on, and including, the day before the first day of the next succeeding dividend period, quarterly in equal amounts in arrears on the last day of each April, July, October and January, commencing on January 31, 2017 at the then applicable annual rate. Except under certain limited circumstances, the Series C Preferred Stock is generally not convertible into or exchangeable for any other property or any other securities ofreceived the Company at the election of the holders. On or after September 20, 2017, the Company may, at its option, redeem the shares at a redemption price of $25.00 plus any accruedaccumulated but unpaid distribution throughdividends to the redemption date of the redemption.$0.2223.
Non-GAAP Financial Measures
Operating Earnings
For the three and nine months ended September 30, 2017, the Company’s2020, our Operating Earnings were $49,771,$52.9 million, or $0.36 per share, and $104.3 million, or $0.68 per share, respectively, as compared to $72.6 million, or $0.47 per share, and $132,988,$197.6 million, or $1.34$1.35 per share, respectively. Forrespectively, for the three and nine months ended September 30, 2016,same periods in the Company’s Operating Earnings were $32,744, or $0.45 per share, and $96,002, or $1.38 per share, respectively.prior year. Operating Earnings is a non-GAAP financial measure that is defined by the Companywe define as net income available to common stockholders, computed in accordance with GAAP, adjusted for (i) equity-based compensation expense (a portion of which may become cash-based upon final vesting and settlement of awards should the holder elect net share settlement to satisfy income tax withholding), (ii) any unrealized gains or losses or other non-cash items included in net income available to common stockholders, (iii) unrealized income from unconsolidated joint ventures, (iv) foreign currency gains (losses), other than (a) realized gains/(losses) related to interest income, and (b) forward point gains/(losses) realized on our foreign currency hedges, (v) the non-cash amortization expense related to the reclassification of a portion of the convertible senior notesNotes to stockholders’ equity in accordance with GAAP, and (vi) provision for loan losses and impairments.losses. Operating Earnings may also be adjusted to exclude certain other non-cash items, as determined by the Manager and approved by a majority of the Company'sour independent directors.
The table below summarizes the reconciliation from weighted-average basic and diluted shares under GAAP to the weighted-average diluted shares used for Operating Earnings ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Three months ended September 30, | | | | Nine months ended September 30, | | |
| | | | | 2020 | | 2019 | | 2020 | | 2019 |
Weighted-Averages | | | | | Shares | | Shares | | Shares | | Shares |
Weighted-average basic and diluted shares - GAAP | | | | | 146,612,313 | | | 153,531,678 | | | 150,679,773 | | | 144,638,237 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Unvested RSUs | | | | | 2,051,311 | | | 1,839,631 | | | 2,028,573 | | | 1,845,086 | |
Weighted-average diluted shares - Operating Earnings | | | | | 148,663,624 | | | 155,371,309 | | | 152,708,346 | | | 146,483,323 | |
In order to evaluate the effective yield of the portfolio, the Company useswe use Operating Earnings to reflect the net investment income of the Company’sour portfolio as adjusted to include the net interest income or expense related to the Company’sour derivative instruments. Forward points effectively convert our foreign rate exposure to USD LIBOR, which we believe is a better reflection of our operating results and we believe the inclusion of the resulting gain or loss in Operating Earnings is useful to our investors. Operating Earnings allows the Companyus to isolate the net interest income or expense associated with the Company’sour swaps and caps in order to monitor and project the Company’sour full cost of borrowings. The Company
As discussed in “Note 10 - Derivatives” we terminated our interest rate swap, which we used to manage exposure to variable cash flows on our borrowings under our senior secured term loan, in the second quarter of 2020 and recorded a realized loss in our condensed consolidated statement of operations. As of September 30, 2020, there are no interest rate swaps on our condensed consolidated balance sheet. In addition, as discussed in “Note 4 - Commercial Mortgage, Subordinate Loans and Other Lending Assets, Net,” we recorded a net realized loss on the sale of a residential-for-sale: inventory loan, three construction loans and, in connection with a troubled debt restructuring, on one hotel loan.
We believe it is useful to our investors to also believespresent Operating Earnings excluding realized loss on investments and realized loss on interest rate swap to reflect our operating results because our operating results are primarily comprised of earning interest income on our investments net of borrowing and administrative costs, which are our ongoing operations. We believe that itsour investors use Operating Earnings and Operating Earnings excluding realized loss on investments and realized loss on interest rate swap, or a comparable supplemental performance measure, to evaluate and compare the performance of the Companyour company and itsour peers and, as such, the Company believeswe believe that the disclosure of Operating Earnings and Operating Earnings excluding realized loss on investments and realized loss on interest rate swap is useful to itsour investors.
A significant limitation associated with Operating Earnings as a measure of the Company’sour financial performance over any period is that it excludes unrealized gains (losses) from investments. In addition, the Company’sour presentation of Operating Earnings may not be comparable to similarly-titled measures of other companies, who maythat use different calculations. As a result, Operating Earnings should not be considered as a substitute for the Company’sour GAAP net income as a measure of itsour financial performance or any measure of itsour liquidity under GAAP.
Beginning with the quarter ended September 30, 2016, the Company slightly modified its definition of Operating Earnings to include realized gains/(losses) on currency swaps related to interest income on investments denominated in a currency other than U.S. dollars. The Company believes that including the effects of realized gains/(losses) on currency swaps related to interest income more accurately reflects the Company's investment income for a particular period and will allow investors to more easily compare its operating results over various periods. The effects of such unrealized gains/(losses) in prior periods were not material to the Company's financial results.
The table below summarizes the reconciliation from net income (loss) available to common stockholders to Operating Earnings:Earnings and Operating Earnings excluding realized loss on investments and realized loss on interest rate swap ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | | | Nine months ended September 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
Net income (loss) available to common stockholders | $ | 45,953 | | | $ | 25,704 | | | $ | (28,458) | | | $ | 143,132 | |
Adjustments: | | | | | | | |
Equity-based compensation expense | 4,212 | | | 3,889 | | | 12,726 | | | 12,084 | |
Unrealized (gain) loss on interest rate swap | — | | | 10,307 | | | (14,470) | | | 23,420 | |
(Gain) loss on currency forwards | 34,537 | | | (24,153) | | | (32,959) | | | (28,619) | |
Foreign currency (gain) loss, net | (27,002) | | | 19,129 | | | 8,388 | | | 20,012 | |
Unrealized (gain) loss on interest rate cap | 564 | | | — | | | (174) | | | — | |
Realized gains (losses) relating to interest income on foreign currency hedges, net | (90) | | | 870 | | | 1,254 | | | 1,614 | |
Realized gains relating to forward points on foreign currency hedges, net | 244 | | | 1,076 | | | 3,733 | | | 3,552 | |
Amortization of the convertible senior notes related to equity reclassification | 777 | | | 732 | | | 2,296 | | | 2,362 | |
Provision for (reversal of) loan losses | (6,342) | | | 35,000 | | | 151,954 | | | 20,000 | |
Total adjustments: | 6,900 | | | 46,850 | | | 132,748 | | | 54,425 | |
Operating Earnings | $ | 52,853 | | | $ | 72,554 | | | $ | 104,290 | | | $ | 197,557 | |
| | | | | | | |
Realized loss on investments | 1,037 | | | — | | | 17,442 | | | 12,513 | |
Realized loss on interest rate swap | — | | | — | | | 53,851 | | | — | |
Operating Earnings excluding realized loss on investments and realized loss on interest rate swap | $ | 53,890 | | | $ | 72,554 | | | $ | 175,583 | | | $ | 210,070 | |
Diluted Operating Earnings per share of common stock | $ | 0.36 | | | $ | 0.47 | | | $ | 0.68 | | | $ | 1.35 | |
Diluted Operating Earnings excluding realized loss on investments and realized loss on interest rate swap | $ | 0.36 | | | $ | 0.47 | | | $ | 1.15 | | | $ | 1.43 | |
Basic weighted-average shares of common stock outstanding | 146,612,313 | | | 153,531,678 | | | 150,679,773 | | | 144,638,237 | |
Weighted-average diluted shares - Operating Earnings | 148,663,624 | | | 155,371,309 | | | 152,708,346 | | | 146,483,323 | |
|
| | | | | | | | | | | | | | | |
| For the three months ended September 30, | | For the nine months ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Net income available to common stockholders | $ | 57,208 |
| | $ | 60,583 |
| | $ | 121,946 |
| | $ | 77,864 |
|
Adjustments: | | | | | | | |
Equity-based compensation expense | 2,635 |
| | 1,828 |
| | 9,887 |
| | 5,434 |
|
Unrealized (gain) loss on securities | (13,488 | ) | | 9,798 |
| | (11,830 | ) | | 36,601 |
|
Unrealized (gain) loss on derivative instruments
| 7,481 |
| | (4,815 | ) | | 17,916 |
| | (22,831 | ) |
Foreign Currency (gain) loss, net | (7,850 | ) | | 4,861 |
| | (18,135 | ) | | 22,417 |
|
Amortization of the Notes related to equity reclassification | 769 |
| | 590 |
| | 1,995 |
| | 1,745 |
|
Income (loss) from unconsolidated joint venture | — |
| | (80 | ) | | 2,847 |
| | (207 | ) |
Provision for loan losses and impairments | — |
| | — |
| | 5,000 |
| | 15,000 |
|
Series A preferred stock redemption charge | 3,016 |
| | — |
| | 3,016 |
| | — |
|
Bargain Purchase Gain | — |
| | (40,021 | ) | | — |
| | (40,021 | ) |
Realized gain from unconsolidated joint venture
| — |
| | | | 346 |
| | — |
|
Total adjustments: | (7,437 | ) | | (27,839 | ) | | 11,042 |
| | 18,138 |
|
Operating Earnings | $ | 49,771 |
| | $ | 32,744 |
| | $ | 132,988 |
| | $ | 96,002 |
|
Basic and diluted Operating Earnings per share of common stock | $ | 0.47 |
| | $ | 0.45 |
| | $ | 1.34 |
| | $ | 1.38 |
|
Basic weighted average shares of common stock outstanding | 105,446,704 |
| | 71,919,549 |
| | 97,546,437 |
| | 68,913,362 |
|
Diluted weighted average shares of common stock outstanding | 106,812,721 |
| | 72,861,611 |
| | 98,919,689 |
| | 69,865,603 |
|
Book Value Per Share
The table below calculates our book value per share ($ in thousands, except per share data):
| | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
Stockholders' Equity | $ | 2,319,281 | | | $ | 2,629,975 | |
Series B Preferred Stock (Liquidation Preference) | (169,260) | | | (169,260) | |
Common Stockholders' Equity | $ | 2,150,021 | | | $ | 2,460,715 | |
Common Stock | 143,288,347 | | | 153,537,296 | |
Book value per share | $ | 15.00 | | | $ | 16.03 | |
The table below shows the changes in our book value per share:
| | | | | |
| Book value per share |
Book value per share at December 31, 2019 | $ | 16.03 | |
Net unrealized gain on currency hedges | 0.15 | |
Repurchase of common stock | 0.45 | |
Decrease in fair value on interest rate swap | (0.27) | |
Vesting and delivery of RSUs | (0.07) | |
Other | (0.01) | |
Book value per share at September 30, 2020 prior to CECL Allowances | $ | 16.28 | |
Specific CECL Allowance | $ | (0.98) | |
Book value per share at September 30, 2020 prior to General CECL Allowance | $ | 15.30 | |
General CECL Allowance | $ | (0.30) | |
Book value per share at September 30, 2020 | $ | 15.00 | |
We believe that presenting book value per share with sub-totals prior to the CECL Allowances is useful for investors for various reasons, including, among other things, analyzing our compliance with financial covenants related to tangible net worth and debt-to-equity under our secured debt arrangements and senior secured term loan permit us to add the General CECL Allowance to our GAAP stockholders' equity. Given that our lenders consider book value per share prior to the General CECL Allowance as an important metric related to our debt covenants, we believe disclosing book value per share prior to the General CECL Allowance is important to investors such that they have the same visibility.
ITEMItem 3. Quantitative and Qualitative Disclosures aboutAbout Market Risk
The Company seeksWe seek to manage itsour risks related to the credit quality of itsour assets, interest rates, liquidity, prepayment speeds and market value, while, at the same time, seeking to provide an opportunity to stockholders to realize attractive risk-adjusted returns through ownership of itsour capital stock. While risks are inherent in any business enterprise, the Company seekswe seek to quantify and justify risks in light of available returns and to maintain capital levels consistent with the risks the Company undertakes.we undertake.
Credit Risk
One of the Company’sour strategic focuses is acquiring assets that it believeswe believe to be of high credit quality. The Company believesWe believe this strategy will generally keep itsour credit losses and financing costs low. However, the Company iswe are subject to varying degrees of credit risk in connection with itsour other target assets. The Company seeksWe seek to mitigate this risk by seeking to acquire high quality assets, at appropriate prices given anticipated and unanticipated losses, and by deploying a value-driven approach to underwriting and diligence, consistent with the Manager’s historical investment strategy, with a focus on current cash flows and potential risks to cash flow. The Manager seeks to enhance its due diligence and underwriting efforts by accessing the Manager’s knowledge base and industry contacts. Nevertheless, unanticipated credit losses could occur, which could adversely impact the Company’sour operating results.
Interest Rate Risk
Interest rates are highly sensitive to many factors, including fiscal and monetary policies and domestic and international economic and political considerations, as well as other factors beyond the Company’sour control. The Company isWe are subject to interest rate risk in connection with itsour target assets and itsour related financing obligations.
To the extent consistent with maintaining the Company’sour REIT qualification, the Company seekswe seek to manage risk exposure to protect itsour portfolio of financial assets against the effects of major interest rate changes. The CompanyWe generally seeksseek to manage this risk by:
•attempting to structure itsour financing agreements to have a range of different maturities, terms, amortizations and interest rate adjustment periods;
•using hedging instruments, interest rate swapsswaps; and interest rate caps; and
•to the extent available, using securitization financing to better match the maturity of the Company’sour financing with the duration of itsour assets.
At September 30, 2017, all of
The following table estimates the Company’s borrowings outstanding under the Goldman Loan, the JPM Facility and the DB Repurchase Facility were floating-rate borrowings. At September 30, 2017, the Company also had floating rate assets with a face amount of $3,168,843 resulting in net variable rate exposure of $2,028,645. A 100 basis point increase in LIBOR would increase the quarterlyhypothetical impact on our net interest income related to this variablefor the twelve-month period following September 30, 2020, assuming an immediate increase or decrease of 50 basis points in the applicable interest rate exposurebenchmark by approximately $20,242 or $0.19currency ($ in thousands, except per share. share data):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 50 basis point increase | | | | 50 basis point decrease | | |
Currency | | Net floating rate assets subject to interest rate sensitivity | | Increase (Decrease) to net interest income (1)(2) | | Decrease to net interest income (per share) (1)(2) | | Increase (Decrease) to net interest income (1)(2) | | Increase to net interest income (per share) (1)(2) |
USD | | $ | 1,036,853 | | | $ | (10,867) | | | $ | (0.08) | | | $ | 3,127 | | | $ | 0.02 | |
GBP | | 428,213 | | | (58) | | | — | | | 69 | | | — | |
EUR | | 307,899 | | | — | | | — | | | — | | | — | |
Total: | | $ | 1,772,965 | | | $ | (10,925) | | | $ | (0.08) | | | $ | 3,196 | | | $ | 0.02 | |
———————
(1)Any such hypothetical impact on interest rates on the Company’sour variable rate borrowings does not consider the effect of any change in overall economic activity that could occur in a rising or falling interest rate environment. Further, in the event of a change in interest rates of that magnitude, the Companywe may take actions to further mitigate the Company’sour exposure to such a change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, this analysis assumes no changes in the Company’sour financial structure.
(2)Certain of our floating rate loans are subject to a LIBOR floor.
Prepayment Risk
Prepayment risk is the risk that principal will be repaid at a different rate than anticipated, causing the return on an asset to be less than expected. The Company does not anticipate facingIn certain cases, we adapt to prepayment risk on most of its portfolio of assets since most of the commercial loans held directly by the Company or securing the Company’s CMBS assets contain provisions preventing prepayment or imposingstating prepayment penalties in the event of loan prepayments.agreements.
Market Risk
Market value risk. The Company’s available-for-sale securities and securities at estimated fair value are reflected at their estimated fair value. The change in estimated fair value of securities available-for-sale is reflected in accumulated other comprehensive income while the change in estimated fair value of securities at estimated fair value is reflected as a component of net income. The estimated fair value of these securities fluctuates primarily due to changes in interest rates and other factors. Generally, in a rising interest rate environment, the estimated fair value of these securities would be expected to decrease;
conversely, in a decreasing interest rate environment, the estimated fair value of these securities would be expected to increase. As market volatility increases or liquidity decreases, the fair value of the Company’s assets may be adversely impacted.
Real estate risk.Commercial mortgage assets are subject to volatility and may be affected adversely by a number of factors, including, but not limited to, national, regional and local economic conditions (which may be adversely affected by industry slowdowns and other factors); local real estate conditions; changes or continued weakness in specific industry segments; construction quality, age and design; demographic factors; and retroactive changes to building or similar codes.codes; pandemics; natural disasters and other acts of god. In addition, decreases in property values reduce the value of the collateral and the potential proceeds available to a borrower to repay the underlying loans or loans, as the case may be, which could also cause the Companyus to suffer losses. Market volatility has been particularly heightened due to the COVID-19 global pandemic. COVID-19 has disrupted economic activities and could have a continued significant adverse effect on economic and market conditions including limited lending from financial institutions, depressed asset values, and limited market liquidity.
Inflation
Virtually all of the Company’sour assets and liabilities are interest rate sensitive in nature. As a result, interest rates and other factors influence the Company’sour performance far more so than does inflation. Changes in interest rates do not necessarily correlate with inflation rates or changes in inflation rates. The Company’sOur financial statements are prepared in accordance with GAAP and distributions are determined by the Company'sour board of directors consistent with the Company'sour obligation to distribute to itsour stockholders at least 90% of itsour REIT taxable income, excluding net capital gains and determined without regard to the dividends paid deduction, on an annual basis in order to maintain the Company’sour REIT qualification. In each case, the Company’sour activities and balance sheet are measured with reference to historical cost and/or fair market value without considering inflation.
Currency Risk
Some of our loans and secured debt arrangements are denominated in a foreign currency and subject to risks related to fluctuations in currency rates. We seek to mitigate this exposure through foreign currency forward contracts, which match the net principal and interest of our foreign currency loans and secured debt arrangements.
ITEMItem 4. Controls and ProceduresProcedures.
The Company’s
Our Chief Executive Officer and Chief Financial Officer, based on their evaluation of the Company’sour disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) required by paragraph (b) of Rule 13a-15 or Rule 15d-15, have concluded that as of the end of the period covered by this report, the Company’sour disclosure controls and procedures were effective to give reasonable assurances to the timely collection, evaluation and disclosure of information relating to the CompanyARI that would potentially be subject to disclosure under the Exchange Act, and the rules and regulations promulgated thereunder.
During the period ended September 30, 2017,2020, there was no change in the Company’sour internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’sour internal control over financial reporting.
Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within the CompanyARI to disclose material information otherwise required to be set forth in the Company’sour periodic reports.
PART II —- OTHER INFORMATION
ITEMItem 1. Legal Proceedings
From time to time, the Companywe may be involved in various claims and legal actions arising in the ordinary course of business. After the announcement of the execution of the AMTG Merger Agreement, two putative classOn June 28, 2018, AmBase Corporation, 111 West 57th Street Manager Funding LLC and 111 West 57th Investment LLC commenced an action lawsuits challenging the proposed First Merger (as definedcaptioned AmBase Corporation et al v. ACREFI Mortgage Lending, LLC et al (No 653251/2018) in the AMTG Merger Agreement), captioned Aivasian v. Apollo Residential Mortgage, Inc., et al., No. 24-C-16-001532 and Wiener v. Apollo Residential Mortgage, Inc., et al., No. 24-C-16-001837, were filed in the Circuit Court for Baltimore City. A putative class and derivative lawsuit was later filed in the Court captioned Crago v. Apollo Residential Mortgage, Inc., No. 24-C-16-002610. Following a hearing on May 6, 2016, the Court entered orders among other things, consolidating the three actions under the caption In Re Apollo Residential Mortgage, Inc. Shareholder Litigation, Case No.: 24-C-16-002610.New York Supreme Court. The plaintiffs have designated the Crago complaint as the operative complaint. The operative complaint includes both direct and derivative claims, names as defendants AMTG,(i) ACREFI Mortgage Lending, LLC, a subsidiary of the boardCompany, (ii) the Company, and (iii) certain funds managed by Apollo, which are co-lenders on a mezzanine loan against the development of directors of AMTG, ARI, Arrow Merger Sub Inc., Apollo and Athene Holding Ltd. and alleges, among other things,a residential condominium building in Manhattan, New York. The plaintiffs allege that the membersdefendants tortiously interfered with the contractual equity put right in the plaintiffs’ joint venture agreement with the developers of the AMTG Board breached their fiduciary duties to the AMTG stockholdersproject, and that the other corporate defendants aided and abetted suchbreaches of fiduciary breaches. The operative complaint further alleges, among other things, thatduty by the proposed First Merger involves inadequate consideration, was the result of an inadequate and conflicted sales process, and includes unreasonable deal protection devices that purportedly preclude competing offers. It also alleges that the transactions with Athene Holding Ltd. are unfair and that the registration statement on Form S-4 filed with the SEC on April 6, 2016 contains materially misleading disclosures and omits certain material information. The operative complaint seeks, among other things, certificationdevelopers of the proposed class, declaratory relief, preliminaryproject. The plaintiffs allege the loss of a $70.0 million investment as part of total damages of $700.0 million, which includes punitive damages. The defendants' motion to dismiss was granted on October 23, 2019 and permanent injunctive relief, including enjoining or rescinding the First Merger, unspecified damages, and an award of other unspecified attorneys’ and other fees and costs. On May 6, 2016, counsel for the plaintiffs filed with the Court a stipulation seeking the appointment of interim co-lead counsel, which stipulation was approved by the Court on June 9, 2016. Defendants’ motions to dismiss have been fully briefed, and oral argument was held on December 8, 2016. On August 14, 2017, the Court issued an opinionentered judgment dismissing the operative complaint in its entirety with prejudice. The time toon November 8, 2019. Plaintiffs filed a timely notice of appeal on December 6, 2019 and, as of September 28, 2020, the order dismissingparties have now fully briefed the lawsuit has expired,appeal. We are awaiting scheduling of oral argument. We believe the claims are without merit and no appealsdo not believe this will have been filed.a material adverse effect on our condensed consolidated financial statements.
On January 4, 2017, the United States Department of Justice served a Request for Information and Documents on the Company, in connection with a preliminary investigation into certain aspects of the Company's former residential real estate portfolio, which the Company acquired in connection with the AMTG Merger and subsequently sold in 2016. The Request seeks a range of information in connection with the residential real estate portfolio, including, among other things, information concerning policies, procedures, and practices related to advertising, marketing, identifying, or acquiring residential properties for sale or rent, and various data for all rental and sales contracts executed since January 1, 2012. The Company is cooperating with the Department of Justice and fully complying with the Request.
ITEMItem 1A. Risk Factors
SeeFor information regarding factors that could affect our results of operations, financial condition and liquidity, see the Company’srisk factors discussed in "Item 1A. Risk Factors" in our Annual Report.
In light of developments relating to the COVID-19 pandemic occurring subsequent to the filing of our Annual Report, we are supplementing the risk factors discussed in our Annual Report with the following risk factor, which should be read in conjunction with the risk factors contained in our Annual Report.
Major public health issues, including the current outbreak of COVID-19, and related disruptions in the U.S. and global economy and financial markets have and continue to adversely impact or disrupt our financial condition and results of operations.
The recent outbreak of COVID-19 in many countries continues to adversely impact global economic activity and has contributed to significant volatility in financial markets. On March 11, 2020, the World Health Organization publicly characterized COVID-19 as a pandemic. On March 13, 2020, the President of the United States declared the COVID-19 outbreak a national emergency. The global impact of the outbreak has been rapidly evolving, and as cases of the virus increased around the world, governments and organizations have implemented a variety of actions to mobilize efforts to mitigate the ongoing and expected impact. Many governments, including where real estate is located that secures or underlies a significant portion of our mortgage and other real estate-related loans, have reacted by instituting quarantines, restrictions on Form 10-Ktravel, school closures, bans on public events and on public gatherings, “shelter in place”, “stay at home” and "safer-at-home" rules, restrictions on types of business that may continue to operate, with exceptions, in certain cases, available for certain essential operations and businesses, and/or restrictions on types of construction projects that may continue. Further, such actions have created, and expect to continue to create disruption in real estate financing transactions and the commercial real estate market and adversely impact a number of industries. The outbreak could have a continued adverse impact on economic and market conditions and continue to cause regional, national and global economic slowdowns and potentially trigger recessions in any or all of these areas.
In the United States, there have been a number of federal, state and local government initiatives applicable to a significant number of mortgage loans, to manage the spread of the virus and its impact on the economy, financial markets and continuity of businesses of all sizes and industries. On March 27, 2020, the U.S. Congress approved the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), and President Trump signed it into law. The CARES Act provides approximately $2 trillion in financial assistance to individuals and businesses resulting from the outbreak of COVID-19. The CARES Act, among other things, provides certain measures to support individuals and businesses in maintaining solvency through monetary relief, including in the form of financing and loan forgiveness and/or forbearance. Although this action by the federal government, together with other actions taken at the federal, regional and local levels are intended to support these economies, there is no guarantee that such measures will provide sufficient relief to avoid continued adverse effects on the economy and potentially a recession. Similar actions have been taken by governments around the globe but as is the case in the United States there is no assurance that such measures will prevent further economic disruptions, which may be significant, around the world.
We believe that our and the Manager's ability to operate, our level of business activity and the profitability of our business, as well as the values of, and the cash flows from, the assets we own have been, and will continue to be impacted by the effects of COVID-19 and could in the future be impacted by another pandemic or other major public health issues. While we have implemented risk management and contingency plans and taken preventive measures and other precautions, no predictions of specific scenarios can be made with respect to the COVID-19 pandemic and such measures may not adequately predict the impact on our business from such events.
The effects of COVID-19 have adversely impacted the value of our assets, business, financial condition, results of operations and cash flows, and our ability to operate successfully. Some of the factors that impacted us to date and may continue to affect us include the following:
•difficulty accessing debt and equity capital on attractive terms, or at all, and a severe disruption and instability in the financial markets or deteriorations in credit and financing conditions may affect our ability and our borrowers’ ability to make regular payments of principal and interest (whether due to an inability to make such payments, an unwillingness to make such payments, or a waiver of the requirement to make such payments on a timely basis or at all);
•the extent the value of commercial real estate declines, which would also likely negatively impact the value of the loans we own, which could lead to additional margin calls;
•our ability to continue to satisfy any additional margin calls from our lenders and to the extent we are unable to satisfy any such margin calls, any acceleration of our indebtedness, increase in the interest rate on advanced funds, termination of our ability to borrow funds from them, or foreclosure by our lenders on our assets;
•our ability to remain in compliance with the financial covenants in our financing agreements with our lenders in the event of impairments in the value of the loans we own;
•disruptions to the efficient function of our operations because of, among other factors, any inability to access short-term or long-term financing for the year ended December 31, 2016. There have been no material changes mortgage loans and other real estate-related loans we make;
•our need to sell assets, including at a loss;
•to the Company’sextent we elect or are forced to reduce our loan origination activities;
•inability of borrowers under our construction loans to continue or complete construction as planned for their operations, which may affect their ability to complete construction and collect rent and, consequently, their ability to pay principal or interest on our construction loans;
•inability by loan servicers to operate in affected areas or at all, including due to the bankruptcy of one or more servicers, or the inability of the Manager to effectively oversee servicers in certain of their activities or perform certain loan administration functions;
•inability of other third-party vendors we rely on to conduct our business to operate effectively and continue to support our business and operations, including vendors that provide IT services, legal and accounting services, or other operational support services;
•decreases in observable market activity or unavailability of information, resulting in restricted access to key inputs used to derive certain estimates and assumptions made in connection with financial reporting or otherwise, including valuing the loans we own, including estimated impairments, and estimates and changes in long term macro-economic assumptions relating to accounting for CECL Allowances;
•effects of legal and regulatory responses to concerns about the COVID-19 pandemic and related public health issues, which could result in additional regulation or restrictions affecting the conduct of our business; and
•our ability to ensure operational continuity in the event our business continuity plan is not effective or ineffectually implemented or deployed during a disruption.
The rapid development and fluidity of the circumstances resulting from this pandemic precludes any prediction as to the ultimate adverse impact of COVID-19. There are no comparable recent events which provide guidance as to the effect of the spread of COVID-19 and a pandemic on our business. Nevertheless, COVID-19 and the current financial, economic and capital
markets environment, and future developments in these and other areas present material uncertainty and risk with respect to our performance, financial condition, volume of business, results of operations and cash flows. Moreover, many risk factors duringset forth in our Annual Report should be interpreted as heightened risks as a result of the three and nine months ended September 30, 2017.impact of the COVID-19 pandemic.
ITEMItem 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.Issuer Purchases of Equity Securities
The following table sets forth the Company's repurchases of common stock during the three months ended September 30, 2020 ($ in thousands, except per share data): | | | | | | | | | | | | | | | | | | | | | | | |
Period | Total Number of Shares Purchased(1) | | Weighted Average Price Paid per Share | | Total Number of Shares of Common Stock Purchased as Part of Publicly Announced Plans or Programs | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs |
July 2020 | 688,762 | | | $ | 8.93 | | | 688,762 | | | $ | 97,557 | |
August 2020 | 1,529,015 | | | 9.21 | | | 1,529,015 | | | 83,443 | |
September 2020 | 2,820,842 | | | 8.93 | | | 2,820,842 | | | 58,199 | |
Total | 5,038,619 | | | $ | 9.01 | | | 5,038,619 | | | $ | 58,199 | |
———————
(1)On March 16, 2020, we announced that our board of directors approved a stock repurchase program to authorize the Company to repurchase up to an aggregate of $150.0 million of our common stock. This repurchase program has no expiration date and may be suspended or terminated by us at any time without prior notice. This $150.0 million program replaced the previous program authorized in November 2013, which was terminated.
ITEMItem 3. Defaults Upon Senior Securities
None.
ITEMItem 4. Mine Safety Disclosures
Not applicable.Applicable.
ITEMItem 5. Other Information
None.
ITEMItem 6. Exhibits
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Exhibit No.3.1 | | Description |
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3.1 | |
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31.1*4.5 | | |
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32.1* | | |
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101.INS * | | XBRL Instance Document |
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101.SCH* | | XBRL Taxonomy Extension Schema |
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101.CAL* | | XBRL Taxonomy Extension Calculation Linkbase |
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101.DEF* | | XBRL Taxonomy Extension Definition Linkbase |
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101.LAB* | | XBRL Taxonomy Extension Label Linkbase |
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101.PRE* | | XBRL Taxonomy Extension Presentation Linkbase |
EXHIBIT INDEX
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Exhibit
No.
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3.1 | | |
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101.INS* | | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
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101.SCH* | | Inline XBRL Taxonomy Extension Schema |
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101.CAL* | | Inline XBRL Taxonomy Extension Calculation Linkbase |
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101.DEF* | | Inline XBRL Taxonomy Extension Definition Linkbase |
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101.LAB* | | Inline XBRL Taxonomy Extension Label Linkbase |
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101.PRE* | | Inline XBRL Taxonomy Extension Presentation Linkbase |
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*104* | | Cover Page Interactive Data File (embedded with the Inline XBRL document)
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Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.