UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________________________

FORM 10-Q

__________________________________

(Mark One)



☒	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended ~~September 30, 2019~~March 31, 2020



☐	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File Number: 001-34452

__________________________________

Apollo Commercial Real Estate Finance, Inc.

(Exact name of registrant as specified in its charter)

__________________________________



Maryland		27-0467113
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Apollo Commercial Real Estate Finance, Inc.

c/o Apollo Global Management, Inc.

9 West 57th Street, 43rd Floor,

New York, New York 10019

(Address of principal executive offices) (Zip Code)

(212) 515–3200

(Registrant’s telephone number, including area code)

__________________________________

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



Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, $0.01 par value	ARI	New York Stock Exchange

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

Emerging growth company	☐

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of ~~October 22, 2019,~~May 6, 2020, there were ~~153,537,296~~153,822,782 shares, par value $0.01, of the registrant’s common stock issued and outstanding.

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Apollo Commercial Real Estate Finance, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands—except share data)



	March 31, 2020			December 31, 2019
Assets:
Cash and cash equivalents	$	582,138		$	452,282
Commercial mortgage loans, net⁽¹⁾⁽²⁾	5,413,627			5,326,967
Subordinate loans and other lending assets, net⁽²⁾	1,016,991			1,048,126
Other assets	103,869			52,716
Derivative assets, net	57,561			—
Loan proceeds held by servicer	—			8,272
Total Assets	$	7,174,186		$	6,888,363
Liabilities and Stockholders' Equity
Liabilities:
Secured debt arrangements, net (net of deferred financing costs of $16,917 and $17,190 in 2020 and 2019, respectively)	$	3,539,925		$	3,078,366
Convertible senior notes, net	562,571			561,573
Senior secured term loan, net (net of deferred financing costs of $6,960 and $7,277 in 2020 and 2019, respectively)	487,117			487,961
Accounts payable, accrued expenses and other liabilities⁽³⁾	123,376			100,712
Derivative liabilities	50,018			19,346
Payable to related party	10,268			10,430
Total Liabilities	4,773,275			4,258,388
Commitments and Contingencies (see Note 15)
Stockholders’ Equity:
Preferred stock, $0.01 par value, 50,000,000 shares authorized:
Series B preferred stock, 6,770,393 shares issued and outstanding ($169,260 liquidation preference)	68			68
Common stock, $0.01 par value, 450,000,000 shares authorized, 153,740,547 and 153,537,296 shares issued and outstanding in 2020 and 2019, respectively	1,537			1,535
Additional paid-in-capital	2,820,643			2,825,317
Accumulated deficit	(421,337		)	(196,945		)
Total Stockholders’ Equity	2,400,911			2,629,975
Total Liabilities and Stockholders’ Equity	$	7,174,186		$	6,888,363

———————

September 30, 2019 December 31, 2018
Assets:
Cash and cash equivalents $ 160,934
$ 109,806
Commercial mortgage loans, net (includes $4,118,926 and $3,197,900 pledged as collateral under secured debt arrangements in 2019 and 2018, respectively) 4,779,501
3,878,981
Subordinate loans and other lending assets, net 1,335,073
1,048,612
Other assets 37,858
33,720
Derivative assets, net 35,729
23,700
Loan proceeds held by servicer 3,323
1,000
Total Assets $ 6,352,418
$ 5,095,819
Liabilities and Stockholders' Equity
Liabilities:
Secured debt arrangements, net (net of deferred financing costs of $18,031 and $17,555 in 2019 and 2018, respectively) $ 2,541,287
$ 1,879,522
Convertible senior notes, net 560,589
592,000
Senior secured term loan, net (net of deferred financing costs of $7,452 and $0 in 2019 and 2018, respectively) 488,947
—
Accounts payable, accrued expenses and other liabilities 98,231
104,746
Derivative liabilities 23,420
—
Payable to related party 10,434
9,804
Total Liabilities 3,722,908
2,586,072
Commitments and Contingencies (see Note 15)

Stockholders’ Equity:
Preferred stock, $0.01 par value, 50,000,000 shares authorized:
Series B preferred stock, 6,770,393 shares issued and outstanding ($169,260 liquidation preference) 68
68
Series C preferred stock, 0 and 6,900,000 issued and outstanding ($0 and $172,500 liquidation preference in 2019 and 2018), respectively —
69
Common stock, $0.01 par value, 450,000,000 shares authorized, 153,531,756 and 133,853,565 shares issued and outstanding in 2019 and 2018, respectively 1,535
1,339
Additional paid-in-capital 2,821,419
2,638,441
Accumulated deficit (193,512 ) (130,170 )
Total Stockholders’ Equity 2,629,510
2,509,747
Total Liabilities and Stockholders’ Equity $ 6,352,418
$ 5,095,819
(1) Includes $5,282,741 and $4,852,087 pledged as collateral under secured debt arrangements in 2020 and 2019, respectively

(2) Net of $265,254 CECL Allowances in 2020, comprised of $206,981 Specific CECL Allowance and $58,273 General CECL Allowance. Net of $56,981 provision for loan loss in 2019.

(3) Includes $6,059 of General CECL Allowance related to unfunded commitments on our loans in 2020.

See notes to unaudited condensed consolidated financial statements.

Apollo Commercial Real Estate Finance, Inc. and Subsidiaries

Condensed Consolidated Statement of Operations (Unaudited)

(in thousands—except share and per share data)


	Three months ended September 30,							Nine months ended September 30,						Three months ended March 31,
	2019			2018				2019			2018			2020			2019
Net interest income:
Interest income from commercial mortgage loans	$	81,136		$	71,179			$	236,880		$	188,434		$	81,855		$	78,286
Interest income from subordinate loans and other lending assets	43,421			37,308				125,303			105,236			34,018			40,839
Interest expense	(39,341		)	(31,007		)		(109,147		)	(82,184		)	(41,205		)	(36,295		)
Net interest income	85,216			77,480				253,036			211,486			74,668			82,830
Operating expenses:
General and administrative expenses (includes equity-based compensation of $3,889 and $12,084 in 2019 and $4,048 and $11,404 in 2018, respectively)	(5,839		)	(5,843		)		(18,564		)	(16,493		)
General and administrative expenses (includes equity-based compensation of $4,263 and $3,901 in 2020 and 2019, respectively)														(6,531		)	(6,151		)
Management fees to related party	(10,434		)	(9,515		)		(30,306		)	(26,620		)	(10,268		)	(9,613		)
Total operating expenses	(16,273		)	(15,358		)		(48,870		)	(43,113		)	(16,799		)	(15,764		)
Other income	429			427				1,431			973			760			518
Provision for loan losses and impairments, net of reversals	(35,000		)	—				(20,000		)	(5,000		)
Realized loss on investments	—			—				(12,513		)	—
Foreign currency loss	(19,129		)	(4,050		)		(20,012		)	(23,574		)
Loss on early extinguishment of debt	—			(2,573		)		—			(2,573		)
Gain on foreign currency forwards (includes unrealized gains of $16,227 and $12,029 in 2019 and $5,045 and $20,986 in 2018, respectively)	24,153			6,291				28,619			28,797
Provision for loan losses⁽¹⁾														(183,465		)	—
Foreign currency gain (loss)														(37,949		)	6,894
Gain (loss) on foreign currency forward contracts (includes unrealized gains (losses) of $62,436 and ($14,985) in 2020 and 2019, respectively)														70,491			(6,720		)
Unrealized loss on interest rate swap	(10,307		)	—				(23,420		)	—			(35,548		)	—
Net income	$	29,089		$	62,217			$	158,271		$	166,996
Net income (loss)														$	(127,842	)	$	67,758
Preferred dividends	(3,385		)	(6,836		)	��	(15,139		)	(20,505		)	(3,385		)	(6,835		)
Net income available to common stockholders	$	25,704		$	55,381			$	143,132		$	146,491
Net income per share of common stock:
Net income (loss) available to common stockholders														$	(131,227	)	$	60,923
Net income (loss) per share of common stock:
Basic	$	0.16		$	0.42			$	0.97		$	1.19		$	(0.86	)	$	0.45
Diluted	$	0.16		$	0.40			$	0.97		$	1.14		$	(0.86	)	$	0.43
Basic weighted-average shares of common stock outstanding	153,531,678			129,188,343				144,638,237			120,876,240			153,948,191			134,607,107
Diluted weighted-average shares of common stock outstanding	153,531,678			153,918,435				144,638,237			150,424,889			153,948,191			164,683,086
Dividend declared per share of common stock	$	0.46		$	0.46			$	1.38		$	1.38		$	0.40		$	0.46

———————

(1) Comprised of $150,000 Specific CECL Allowance and $33,465 General CECL Allowance.

See notes to unaudited condensed consolidated financial statements.

Apollo Commercial Real Estate Finance, Inc. and 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 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
Offering costs —
—
—
—
(12 ) —
(12 )
Net income —
—
—
—
—
29,089
29,089
Dividends declared on preferred stock —
—
—
—
—
(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



	Preferred Stock			Common Stock					Additional Paid-In-Capital			Accumulated Deficit			Total
	Shares	Par		Shares		Par			Additional Paid-In-Capital			Accumulated Deficit			Total
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

Preferred Stock Common Stock
Additional
Paid-In-Capital

Accumulated
Deficit
Total
Shares Par Shares Par
Balance at June 30, 2018 13,670,393 $ 137
123,020,301 $ 1,230
$ 2,447,973
$ (106,687 ) $ 2,342,653
Capital increase related to Equity Incentive Plan —
—
514
1
4,048
—
4,049
Exchange of convertible senior notes for common stock —
—
10,744,577
107
178,459
—
178,566
Offering Costs —
—
—
—
(12 ) —
(12 )
Net income —
—
—
—
—
62,217
62,217
Dividends declared on preferred stock —
—
—
—
—
(6,836 ) (6,836 )
Dividends declared on common stock - $0.46 per share —
—
—
—
—
(62,266 ) (62,266 )
Balance at September 30, 2018 13,670,393 $ 137
133,765,392 $ 1,338
$ 2,630,468
$ (113,572 ) $ 2,518,371

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 related to Equity Incentive Plan —
—
460,830
4
7,084
$ —
7,088
Issuance of common stock —
—
17,250,000
172
314,985
—
315,157
Redemption of preferred stock (6,900,000 ) (69 ) —
—
(172,431 ) —
(172,500 )
Conversions of convertible senior notes for common stock —
—
1,967,361
20
33,758
—
33,778
Offering costs —
—
—
—
(418 ) —
(418 )
Net income —
—
—
—
—
158,271
158,271
Dividends declared on preferred stock —
—
—
—
—
(15,139 ) (15,139 )
Dividends declared on common stock - $0.46 per share —
—
—
—
—
(206,474 ) (206,474 )
Balance at September 30, 2019 6,770,393
$ 68
153,531,756
$ 1,535
$ 2,821,419
$ (193,512 ) $ 2,629,510

Preferred Stock Common Stock Additional
Paid-In-Capital Accumulated
Deficit Total
Shares Par Shares Par
Balance at January 1, 2018 13,670,393 $ 137
107,121,235 $ 1,071
$ 2,170,078
$ (83,143 ) $ 2,088,143
Capital increase related to Equity Incentive Plan —
—
374,580
5
6,672
—
6,677
Issuance of Common Stock —
—
15,525,000
155
275,724
—
275,879
Exchange of Convertible senior notes for common stock —
—
10,744,577
107
178,459
—
178,566
Offering Costs —
—
—
—
(465 ) —
(465 )
Net income —
—
—
—
—
166,996
166,996
Dividends declared on preferred stock —
—
—
—
—
(20,505 ) (20,505 )
Dividends declared on common stock - $0.46 per share —
—
—
—
—
(176,920 ) (176,920 )
Balance at September 30, 2018 13,670,393 $ 137
133,765,392 $ 1,338
$ 2,630,468
$ (113,572 ) $ 2,518,371



	Preferred Stock			Common Stock			Additional Paid-In-Capital			Accumulated Deficit			Total
	Shares	Par		Shares	Par		Additional Paid-In-Capital			Accumulated Deficit			Total
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		)
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

See notes to unaudited condensed consolidated financial statements.

Apollo Commercial Real Estate Finance, Inc. and Subsidiaries

Condensed Consolidated Statement of Cash Flows (Unaudited)

(in thousands)

For the nine months ended September 30,
2019 2018
Cash flows (used in) provided by operating activities:
     Net income $ 158,271
$ 166,996
Adjustments to reconcile net income to net cash provided by operating activities:
     Amortization of discount/premium and PIK (61,949 ) (46,103 )
     Amortization of deferred financing costs 8,535
8,204
     Equity-based compensation 7,084
6,672
     Provision for loan losses and impairments, net of reversal 20,000
5,000
     Realized loss on investments 12,513
—
     Foreign currency loss 22,111
22,162
     Unrealized (gain) loss on derivative instruments 11,391
(20,986 )
     Loss on early extinguishment of debt —
2,573
     Changes in operating assets and liabilities:
          Proceeds received from PIK 11,469
75,652
          Other assets (4,216 ) (8,476 )
          Accounts payable, accrued expenses and other liabilities 2,462
8,087
          Payable to related party 630
1,347
Net cash (used in) provided by operating activities 188,301
221,128
Cash flows used in investing activities:
     New funding of commercial mortgage loans (1,277,606 ) (1,382,440 )
     Add-on funding of commercial mortgage loans (271,720 ) (90,201 )
     New funding of subordinate loans and other lending assets (493,017 ) (207,683 )
     Add-on funding of subordinate loans and other lending assets (18,323 ) (84,852 )
     Proceeds and payments received on commercial mortgage loans 570,305
356,865
     Proceeds and payments received on subordinate loans and other lending assets, net 254,019
463,524
     Origination and exit fees received on commercial mortgage loans, and subordinate loans
and other lending assets, net 24,524
32,473
     (Decrease) Increase in collateral held related to derivative contracts (19,830 ) 4,930
Net cash (used in) provided by investing activities (1,231,648 ) (907,384 )
Cash flows from financing activities:
     Proceeds from issuance of common stock 315,157
275,879
     Redemption of preferred stock (172,500 ) —
     Payment of offering costs (153 ) (199 )
     Proceeds from secured debt arrangements 1,948,037
1,623,186
     Repayments of secured debt arrangements (1,264,223 ) (941,662 )
     Repayments of senior secured term loan principal (1,250 ) —
     Proceeds from issuance of senior secured term loan 497,500
—
     Exchanges of convertible senior notes (704 ) (40,461 )
     Payment of deferred financing costs (11,043 ) (11,545 )
     Dividends on common stock (197,757 ) (176,920 )
     Dividends on preferred stock (18,589 ) (20,505 )
Net cash (used in) provided by financing activities 1,094,475
707,773
Net increase in cash and cash equivalents 51,128
21,517
Cash and cash equivalents, beginning of period 109,806
77,671
Cash and cash equivalents, end of period $ 160,934
$ 99,188
Supplemental disclosure of cash flow information:
     Interest paid $ 96,201
$ 77,219
Supplemental disclosure of non-cash financing activities:
     Exchange of convertible senior notes for common stock $ 33,778
$ 178,567
     Dividend declared, not yet paid $ 74,855
$ 68,536
     Offering costs payable $ 200
$ 265
     Loan proceeds held by servicer $ 3,323
$ —
     Deferred financing costs, not yet paid $ 5,420
$ —



	For the three months ended March 31,
	2020			2019
Cash flows provided by operating activities:
Net income (loss)	$	(127,842	)	$	67,758
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Amortization of discount/premium and PIK	(18,270		)	(19,611		)
Amortization of deferred financing costs	3,312			3,461
Equity-based compensation	4,263			(1,095		)
Provision for loan losses	183,465			—
Foreign currency (gain) loss	42,108			(5,828		)
Unrealized (gain) loss on derivative instruments	(26,888		)	14,985
Changes in operating assets and liabilities:
Other assets	(6,696		)	(2,898		)
Accounts payable, accrued expenses and other liabilities	807			620
Payable to related party	(162		)	(191		)
Net cash provided by operating activities	54,097			57,201
Cash flows used in investing activities:
New funding of commercial mortgage loans	(439,936		)	(197,000		)
Add-on funding of commercial mortgage loans	(99,768		)	(105,452		)
New funding of subordinate loans and other lending assets	—			(244,844		)
Add-on funding of subordinate loans and other lending assets	(18,753		)	(4,879		)
Proceeds received from the repayment and sale of commercial mortgage loans	221,972			191,317
Proceeds received from the repayment of subordinate loans and other lending assets	842			130,010
Origination and exit fees received on commercial mortgage loans, and subordinate loans and other lending assets, net	5,445			6,069
Increase (Decrease) in collateral held related to derivative contracts, net	7,070			(18,180		)
Net cash (used in) provided by investing activities	(323,128		)	(242,959		)
Cash flows from financing activities:
Repurchase of common stock	(2,441		)	—
Proceeds from secured debt arrangements	1,357,442			412,434
Repayments of secured debt arrangements	(844,051		)	(156,747		)
Repayments of senior secured term loan principal	(1,250		)	—
Exchanges of convertible senior notes	—			(704		)
Payment of deferred financing costs	(2,722		)	(91		)
Collateral deposited under secured debt arrangements	(26,262		)	—
Other financing activities	(6,494		)	—
Dividends on common stock	(71,950		)	(62,762		)
Dividends on preferred stock	(3,385		)	(6,835		)
Net cash (used in) provided by financing activities	398,887			185,295
Net increase in cash and cash equivalents	129,856			(463		)
Cash and cash equivalents, beginning of period	452,282			109,806
Cash and cash equivalents, end of period	$	582,138		$	109,343
Supplemental disclosure of cash flow information:
Interest paid	$	36,979		$	32,428
Supplemental disclosure of non-cash financing activities:
Exchange of convertible senior notes for common stock	$	—		$	33,778
Dividend declared, not yet paid	$	65,684		$	70,364
Deferred financing costs, not yet paid	$	5,193		$	3,643

See notes to unaudited condensed consolidated financial statements.

Apollo Commercial Real Estate Finance, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

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" and "our") is a corporation that has elected to be taxed as a real estate investment trust ("REIT") for U.S. federal income tax purposes and primarily originates, acquires, invests in and manages performing commercial first mortgage loans, subordinate financings, and other commercial real estate-related debt investments. These asset classes are referred to as our target assets.

We were formed in Maryland on June 29, 2009, commenced operations on September 29, 2009 and are externally managed and advised by ACREFI Management, LLC (the "Manager"), an indirect subsidiary of Apollo Global Management, Inc. (together with its subsidiaries, "Apollo").

We 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 our tax qualification as a REIT, we are required to distribute at least 90% of our 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 our accounts and those of our 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") 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. Our most significant estimates include 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 our Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019 ("Annual Report"), as filed with the Securities and Exchange Commission (the "SEC"). In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary to present fairly our financial position, results of operations and cash flows have been included. Our results of operations for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 are not necessarily indicative of the results to be expected for the full year or any other future period.

We currently operate in 1 reporting segment.

~~Interest Income Recognition~~Risks and Uncertainties

Interest income on our lending assets is accrued based on the actual coupon rate adjusted for accretion of any purchase discounts, the amortization of any purchase premiums and the accretion of any deferred fees, in accordance with GAAP.

Loans that have been assigned a risk rating of 4 or 5, discussed in "Note 4 - Commercial Mortgage, Subordinate Loans and Other Lending Assets, Net," may be placed on non-accrual. When a loan is placed on non-accrual, interest is only recorded as interest income when it's received. Under certain circumstances, we may apply cost recovery under which interest collected on a loan is a reduction to its amortized cost. The cost recovery method will no longer apply if collection of all principal and interest is reasonably assured.

~~Recent Accounting Pronouncements~~

In June 2018, the Financial Accounting Standards Board ("FASB") issued ASU 2018-07 "Compensation - Stock Compensation (Topic 718): Improvements to Nonemployees Share-Based Payment Accounting" ("ASU 2018-07"). The intention of ASU 2018-07 is to expand the scope of Topic 718 to include share-based payment transactions in exchange for goods and services from nonemployees. These share-based payments will now be measured at grant-date fair value of the equity instrument issued. Upon adoption, only liability-classified awards that have not been settled and equity-classified awards for which a measurement date has not been established should be remeasured through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. ASU 2018-07 is effective for fiscal years beginning after December 15, 2018 and is applied retrospectively. We adopted ASU 2018-07 inDuring the first quarter of ~~2019~~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 United States and ~~it did~~numerous 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 COVID-19 pandemic we are not in a position to estimate the ultimate impact this will have ~~any impact~~ on our ~~condensed consolidated~~business and the economy as a whole. We believe the estimates used in preparing our financial ~~statements.~~statements and related footnotes are reasonable and supportable based on the best information available to us as of March 31, 2020. The uncertainty surrounding COVID-19 may materially impact the accuracy of the estimates and assumptions used in the financial statements and related footnotes and, as a result, actual results may vary significantly from estimates.

Current Expected Credit Losses ("CECL")

In June 2016, the FASB issued ASU 2016-13 "Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses on Financial ~~Instruments (Topic 326)"~~Instruments" ("ASU 2016-13")~~. ASU 2016-13 significantly changes~~, 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 replace~~CECL Standard replaced the "incurred loss" approach under existing guidance with an "expected loss" model for instruments measured at amortized ~~cost and require~~cost. The CECL Standard requires entities to record allowances for ~~available-for-sale~~held-to-maturity debt securities ~~rather than reduce~~that 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 today~~a practical expedient under the ~~other-than-temporary impairment model. It also simplifies~~CECL Standard ("Specific CECL Allowance"), which we apply to assets that are collateral dependent and where the ~~accounting model~~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 ~~purchased credit-impaired debt securities and loans. The guidance is effective for fiscal years beginning after December 15, 2019 and is~~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 ason January 1, 2020. Subsequent changes to the General CECL Allowance are recognized through net income (loss) on our 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 ~~beginning~~macroeconomic environment. The FASB recognizes what is known as 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 ~~first reporting period~~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 ~~guidance~~fair value of the underlying collateral is ~~effective. While~~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 ~~currently evaluating~~ the ~~impact ASU 2016-13 will~~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 database with historical losses from 1998 to the first 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. The subordinate loan, by virtue of being the first loss position, is 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 the condensed consolidated ~~financial statements, we expect that~~balance sheet within accounts payable, accrued expenses, and other liabilities. At adoption, the ~~adoption will result~~General CECL Allowance was $30.9 million and was recorded in ~~higher provisions~~the condensed consolidated statement of changes in stockholders’ equity.

Refer to Note 4 - Commercial Mortgage, Subordinate Loans and Other Lending Assets for ~~expected loan losses.~~ further information regarding CECL.

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 based,~~Market-based or observable inputs are the preferred source of values, followed by valuation models using ~~management~~management's assumptions in the absence of ~~market~~market-based or observable inputs. The three levels of the hierarchy as noted in ASC 820 "Fair Value Measurements and 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 we anticipate that our 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. We 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 values of our derivative instruments are determined using a discounted cash flow analysis on the

expected cash flows of each derivative. 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 fair value of the interest rate

swap 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 LIBOR curve. Our derivative instruments are classified as Level II in the fair value hierarchy.

The following table summarizes the levels in the fair value hierarchy into which our ~~financial instruments~~derivative assets were categorized as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 ($ in thousands):

Fair Value as of September 30, 2019 Fair Value as of December 31, 2018
Level I Level II Level III Total Level I Level II Level III Total
Foreign currency forward assets, net $ —
$ 35,729
$ —
$ 35,729
$ —
$ 23,700
$ —
$ 23,700
Interest rate swap liability —
(23,420 ) —
(23,420 ) —
—
—
—



	Fair Value as of March 31, 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	$	—	$	57,561	$	—	$	57,561	$	—	$	—	$	—	$	—

The following table summarizes the levels in the fair value hierarchy into which our derivative liabilities were categorized as of March 31, 2020 and December 31, 2019 ($ in thousands):



	Fair Value as of March 31, 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	$	—	$	—		$	—	$	—		$	—	$	(4,876	)	$	—	$	(4,876	)
Interest rate swap liability	—		(50,018		)	—		(50,018		)	—		(14,470		)	—		(14,470		)
Total financial instrument liabilities	$	—	$	(50,018	)	$	—	$	(50,018	)	$	—	$	(19,346	)	$	—	$	(19,346	)

Note 4 – Commercial Mortgage, Subordinate Loans and Other Lending Assets, Net

Our loan portfolio was comprised of the following at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 ($ in thousands):


Loan Type	September 30, 2019		December 31, 2018		March 31, 2020		December 31, 2019
Commercial mortgage loans, net(1)	$	4,779,501	$	3,878,981	$	5,413,627	$	5,326,967
Subordinate loans and other lending assets, net	1,335,073		1,048,612		1,016,991		1,048,126
Total investments, net	$	6,114,574	$	4,927,593
Total					$	6,430,618	$	6,375,093

———————


(1)	Includes $117.8 million and $126.7 million in 2020 and 2019, respectively, of contiguous financing structured as subordinate loans.

Our loan portfolio consisted of ~~94% and 91%~~95% floating rate loans, based on amortized cost, as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively.

Activity relating to our loan ~~investment~~ portfolio, for the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, was as follows ($ in thousands):

Principal Balance
Deferred Fees/Other Items ⁽¹⁾

Provision for Loan Loss ⁽²⁾
Carrying Value
December 31, 2018 $ 4,982,514
$ (17,940 ) $ (36,981 ) $ 4,927,593
New loan fundings 1,770,623
—
—
1,770,623
Add-on loan fundings ⁽³⁾
290,043
—
—
290,043
Loan repayments (843,417 ) —
—
(843,417 )
Gain (loss) on foreign currency translation (38,505 ) 105
—
(38,400 )
Realized loss on investment, net of provision for loan loss reversal ⁽²⁾
(12,513 ) —
15,000
2,487
Provision for loan losses —
—
(35,000 ) (35,000 )
Deferred fees —
(24,524 ) —
(24,524 )
PIK interest and amortization of fees 43,728
21,441
—
65,169
September 30, 2019 $ 6,192,473
$ (20,918 ) $ (56,981 ) $ 6,114,574



	Principal Balance		Deferred Fees/Other Items ⁽¹⁾			Provision for Loan Loss			Carrying Value
December 31, 2019	$	6,467,842	$	(35,768	)	$	(56,981	)	$	6,375,093
New loan fundings	439,936		—			—			439,936
Add-on loan fundings ⁽²⁾	118,521		—			—			118,521



Loan repayments and sales	(210,745		)	—			—			(210,745		)
Gain (loss) on foreign currency translation	(99,009		)	1,428			—			(97,581		)
Specific CECL Allowance	—			—			(150,000		)	(150,000		)
Deferred fees	—			(5,053		)	—			(5,053		)
PIK interest and amortization of fees	12,008			6,712			—			18,720
March 31, 2020	$	6,728,553		$	(32,681	)	$	(206,981	)	$	6,488,891
General CECL Allowance ⁽³⁾										(58,273		)
Carrying value net, as of March 31, 2020										6,430,618

———————

~~(1) Other items primarily consist of purchase discounts or premiums, exit fees and deferred origination expenses.~~

~~(2)~~In addition to the $57.0 million provision for loan loss, we recorded an impairment of $3.0 million against an investment previously recorded under other assets on our condensed consolidated balance sheet. During the second quarter of 2019, the underlying collateral on a commercial mortgage loan and a contiguous subordinate loan secured by a multifamily property located in Williston, ND was sold resulting in a realized loss of $12.5 million. Consequently, the previously recorded $15.0 million loan loss provision was reversed.

~~(3) Represents fundings for loans closed prior to 2019.~~


(1)	Other items primarily consist of purchase discounts or premiums, exit fees and deferred origination expenses.


(2)	Represents fundings for loans closed prior to 2020.


(3)	$6.1 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 the condensed consolidated balance sheet.

The following table details overall statistics for our loan portfolio at the dates indicated ($ in thousands):


	September 30, 2019			December 31, 2018			March 31, 2020			December 31, 2019
Number of loans	74			69			75			72
Principal balance	$	6,192,473		$	4,982,514		$	6,728,553		$	6,467,842
Carrying value	$	6,114,574		$	4,927,593		$	6,430,618		$	6,375,093
Unfunded loan commitments ⁽¹⁾	$	1,073,423		$	1,095,598		$	1,822,967		$	1,952,887
Weighted-average cash coupon ⁽²⁾	7.5		%	8.4		%	6.0		%	6.5		%
Weighted-average remaining term ⁽³⁾	3.1 years			2.8 years
Weighted-average remaining fully-extended term ⁽³⁾							3.3 years			3.3 years
Weighted-average expected term ⁽⁴⁾							2.2 years			1.8 years

———————


(1)	Unfunded loan commitments are ~~primarily~~ funded to finance ~~property~~construction costs, tenant improvements, leasing commissions, or ~~lease-related expenditures by the borrowers.~~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 March 31, 2020 and December 31, 2019, respectively.

Property Type

The table below details the property type of the properties securing the loans in our portfolio at the dates indicated ($ in thousands):


	September 30, 2019				December 31, 2018				March 31, 2020					December 31, 2019
Property Type	Carrying Value		% of Portfolio		Carrying Value		% of Portfolio		Carrying Value			% of Portfolio⁽¹⁾		Carrying Value		% of Portfolio
Office									$	1,803,605		27.8	%	$	1,401,400	22.0	%
Hotel	$	1,579,667	25.8	%	$	1,286,590	26.1	%	1,537,796			23.7		1,660,162		26.0
Residential-for-sale: construction	629,069		10.3	%	528,510		10.7	%	763,381			11.8		692,816		10.9
Residential-for-sale: inventory	349,259		5.7	%	577,053		11.7	%	283,909			4.4		321,673		5.1
Office	1,406,678		23.0	%	832,620		16.9	%
Urban Retail									623,564			9.6		643,706		10.1
Healthcare									356,215			5.5		371,423		5.8
Urban Predevelopment	602,946		9.9	%	683,886		13.9	%	306,503			4.7		409,864		6.4
Urban Retail	466,343		7.6	%	—		—	%
Multifamily	306,142		5.0	%	448,899		9.1	%
Industrial	227,696		3.7	%	32,000		0.6	%
Retail Center	126,068		2.1	%	156,067		3.2	%
Healthcare	190,832		3.1	%	156,814		3.2	%
Other	127,229		2.1	%	151,197		3.1	%	813,918			12.5		874,049		13.7
Mixed Use	102,645		1.7	%	73,957		1.5	%
Total	$	6,114,574	100.0	%	$	4,927,593	100.0	%	$	6,488,891		100.0	%	$	6,375,093	100.0	%
General CECL Allowance									(58,273		)
Total investments, net									$	6,430,618

———————

(1) Percentage of portfolio calculations are made prior to consideration of General CECL Allowance.

Geography

~~Geography~~

The table below details the geographic distribution of the properties securing the loans in our portfolio at the dates indicated ($ in thousands):


	September 30, 2019				December 31, 2018				March 31, 2020					December 31, 2019
Geographic Location	Carrying Value		% of Portfolio		Carrying Value		% of Portfolio		Carrying Value			% of Portfolio⁽¹⁾		Carrying Value		% of Portfolio
Manhattan, NY	$	2,286,709	37.4	%	$	1,669,145	33.9	%
Brooklyn, NY	443,966		7.3	%	346,056		7.0	%
New York City									$	2,319,325		35.8	%	$	2,167,487	34.0	%
Northeast	19,195		0.3	%	23,479		0.5	%	118,251			1.8		110,771		1.7
United Kingdom									1,347,897			20.8		1,274,390		20.0
West	728,788		11.9	%	614,160		12.5	%	747,515			11.5		728,182		11.4
Midwest	626,867		10.3	%	631,710		12.8	%	557,780			8.6		614,337		9.6
Southeast	568,103		9.3	%	559,043		11.3	%	512,469			7.9		564,166		8.9
Southwest	126,506		2.1	%	96,345		2.0	%
Mid Atlantic	110,895		1.8	%	211,775		4.3	%
United Kingdom	815,168		13.3	%	700,460		14.2	%
Germany	185,208		3.0	%	—		—	%
Italy	129,524		2.1	%	—		—	%
Other International	73,645		1.2	%	75,420		1.5	%
Other									885,654			13.6		915,760		14.4
Total	$	6,114,574	100.0	%	$	4,927,593	100.0	%	$	6,488,891		100.0	%	$	6,375,093	100.0	%
General CECL Allowance									(58,273		)
Total investments, net									$	6,430,618

———————

(1) Percentage of portfolio calculations are made prior to consideration of the General CECL Allowance.

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 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

3. Moderate/average risk

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 ~~impaired~~recorded

The following ~~table allocates~~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):


March 31, 2020											March 31, 2020
	September 30, 2019					December 31, 2018												Year Originated
Risk Rating	Number of Loans	Carrying Value		% of Loan Portfolio		Number of Loans	Carrying Value		% of Loan Portfolio			Number of Loans	Total			% of Portfolio		2020		2019		2018		2017		2016		Prior
1	—	$	—	—	%	—	$	—	—	%		—	—			—	%	$	—	$	—	$	—	$	—	$	—	$	—
2	9	470,409		8	%	3	138,040		3	%		5	130,609			2.0	%	—		—		23,990		—		36,287		70,332
3	63	5,502,402		90	%	63	4,573,930		93	%		63	5,822,078			89.7	%	423,419		2,609,209		1,490,045		779,882		62,580		456,943
4	—	—		—	%	—	—		—	%		—	—			—	%	—		—		—		—		—		—
5	2	141,763		2	%	3	215,623		4	%		7	536,204			8.3	%	—		—		31,372		126,013		117,910		260,909
Total												75	$	6,488,891		100.0	%	$	423,419	$	2,609,209	$1,545,407		$	905,895	$216,777		$	788,184
General CECL Allowance											General CECL Allowance		(58,273		)
Total investments, net											Total investments, net		$	6,430,618
	74	$	6,114,574	100	%	69	$	4,927,593	100	%

Weighted-average risk rating				3.0					3.1
W.A. Risk Rating											W.A. Risk Rating		3.1

~~Provision~~



December 31, 2019
						Year Originated
Risk Rating	Number of Loans	Total		% of Portfolio		2019		2018		2017		2016		2015		Prior
1	—	$	—	—	%	$	—	$	—	$	—	$	—	$	—	$	—
2	8	348,324		5.5	%	—		241,676		—		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	%	—		—		—		182,910		—		—
5	2	136,304		2.1	%	—		—		—		—		—		136,304
Total	72	$	6,375,093	100.0	%	$	2,736,825	$	1,596,690	$	912,636	$	291,700	$	524,246	$	312,996

W.A. Risk Rating		3.0

Current Expected Credit Losses

Refer to the following schedule of the General CECL Allowance as of March 31, 2020, and as of the date of adoption, January 1, 2020 ($ in thousands):



	March 31, 2020		January 1, 2020⁽¹⁾
Commercial mortgage loans, net	$	28,336	$	12,149
Subordinate loans and other lending assets, net	29,937		15,630
Unfunded commitments⁽²⁾	6,059		3,088
Total General CECL Allowance	$	64,332	$	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 the condensed consolidated balance sheet within accounts payable, accrued expenses, and other liabilities

The General CECL Allowance increased by $33.5 million from initial adoption on January 1, 2020, to March 31, 2020. The increase is predominantly related to a change in our view of estimated macroeconomic conditions, including the unemployment rate and the commercial real estate price index, in the backdrop of the global pandemic. Other factors that contributed to the increase include an increase in our view of remaining expected term of our loan portfolio and growth in the portfolio from new investments during the quarter.

The macroeconomic factors considered were the unemployment rate, commercial real estate prices, and market liquidity. We compared the historical data for ~~Loan Losses~~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.

Refer to the following roll forward schedule of the General CECL Allowance for the quarter ended March 31, 2020 ($ in thousands):



	General CECL Allowance
General CECL Allowance as of January 1, 2020	$	30,867
Increase in General CECL Allowance	34,500
Transfer to Specific CECL Allowance	(1,035		)
General CECL Allowance as of March 31, 2020⁽¹⁾	$	64,332

———————

(1) Includes $6.1 million of the General CECL Allowance that relates to unfunded commitments and ~~Impairments~~has been recorded as a liability under Accounts Payable, Accrued Expenses and Other Liabilities in the condensed consolidated balance sheet.

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 ~~evaluate our~~have made an accounting policy election to exclude $41.9 million accrued interest receivable, included in Other assets on the condensed consolidated balance sheet, from the amortized cost basis of the related commercial mortgage loans ~~for possible impairment~~and 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 deemed uncollectible with any 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 ~~quarterly basis.~~ loan is a reduction to its amortized cost. The amortized cost basis for loans on cost recovery was $536.2 million and $136.3 million as of March 31, 2020 and December 31, 2019, respectively. For the three months ended March 31, 2020, we received $0.6 million in interest that reduced amortized cost under the cost recovery method.

The following schedule illustrates the CECL Allowance as percentages of amortized cost and total commitment as of March 31, 2020, and as of the date of adoption, January 1, 2020 ($ in thousands):



CECL Allowances	CECL ($)		% of Amortized Cost
General CECL Allowance⁽¹⁾
January 1, 2020	$	30,867	0.49	%
March 31, 2020⁽²⁾	64,332		1.08	%

Total CECL Allowances⁽³⁾
March 31, 2020	$	271,313	4.05	%

———————

(1) Amortized Cost of the General CECL Allowance excludes amortized cost of loans evaluated for the Specific CECL Allowance

(2) Includes $6.1 million of the General CECL Allowance that relates to unfunded commitments and has been recorded as a liability under Accounts Payable, Accrued Expenses and Other Liabilities in the condensed consolidated balance sheet.

(3) Total CECL Allowances includes the General CECL Allowance and the Specific CECL Allowance

Specific CECL Allowance

We regularly evaluate the extent and impact of any credit ~~deterioration~~migration 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 is 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.~~value of the underlying collateral. We also evaluate the financial wherewithal of any loan guarantors as well as the borrower’s competency in managing and operating the properties. In addition, we consider the overall economic environment, real estate sector and geographic sub-market in which the borrower operates. Such ~~loan loss~~impairment 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 we will not be able to collect all amounts due according to the contractual terms of the loan.~~

We evaluate ~~modifications to~~ our ~~loan portfolio to determine if~~loans on a quarterly basis. For loans where we have deemed the modifications constitute a troubled debt restructuring ("TDR") and/or substantial modification, under ASC 310, "Receivables." During the second quarter of 2018, we determined that a modification of one commercial mortgage loan, secured by a retail center in Cincinnati, OH, with a principal balance of $171.2 million constituted a TDR as the interest rate spread was reduced from 5.5% over LIBOR to 3.0% over LIBOR. The entity in which we own an interest and which owns the underlying property was deemedborrower/sponsor to be experiencing financial difficulty, we have elected to apply a ~~variable interest entity ("VIE") and it was determined that~~practical expedient in accordance with the CECL Standard. In accordance with the practical expedient approach, we ~~are not~~determine the ~~primary beneficiary of that VIE. During the fourth quarter of 2018, we recorded a~~ loan loss provision ~~of $15.0 million and due~~ to factors including continued weakness in the retail sector, we recorded an additional $32.0 million loan loss provision during the third quarter of 2019, bringing the total provision for loan loss to $47.0 million. The carrying value, as a result of the provision, of the loan was $126.1 million and $156.1 million as of September 30, 2019 and December 31, 2018, respectively. The loan loss provision was based onbe the difference between the fair value of the underlying collateral and the carrying value of the loan (prior to the loan loss provision). ~~Fair~~The fair value of the underlying collateral ~~was~~is determined by using ~~the~~method(s) including a discounted cash flow (DCF) or direct capitalization ~~method.~~approach. The ~~significant~~key unobservable ~~input~~inputs used ~~in determining~~to determine the collateral value was the capitalization rate which was 7.75% and 6.75% as of September 30, 2019 and December 31, 2018, respectively. Effective September 30, 2019, we ceased accruing all interest associated with the loan and account for the loan on a cost-recovery basis (all proceeds are applied towards the carryingfair value of the underlying collateral may vary depending on the information available to us and market conditions as of the valuation date.

The following table summarizes the specific provision for loan ~~for accounting purposes). As~~losses that has been recorded on our portfolio as of ~~September 30, 2019 and December~~March 31, ~~2018, this loan was assigned a risk rating of 5.~~2020 ($ in thousands):

1314

We recorded a $13.0 million loan loss provision and impairment against a commercial mortgage loan secured by fully-built, for-sale residential condominium units located in Bethesda, MD. Each of the loan loss provisions were due to factors including slower than expected sales pace of the underlying condominium units and were comprised of (i) $3.0 million loan loss recorded during the third quarter of 2019, (ii) $5.0 million loan loss recorded during the second quarter of 2018, and (iii) $2.0 million loan loss provision and $3.0 million of impairment recorded during the second quarter of 2017. The impairment was recorded on an investment previously recorded under other assets on our condensed consolidated balance sheet. After the loan loss provisions and related impairment, the amortized cost balance of the loan was $15.7 million and $27.2 million as of September 30, 2019 and December 31, 2018, respectively. 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 to 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 $597 and $662 per square foot across properties and 10% and 15% as of September 30, 2019 and December 31, 2018, respectively. Effective April 1, 2017, we ceased accruing all interest associated with the loan and account for the loan on a cost-recovery basis. As of September 30, 2019 and December 31, 2018, this loan was assigned a risk rating of 5.

During 2016, we recorded a loan loss provision of $10.0 million on a commercial mortgage loan and $5.0 million on a contiguous subordinate loan secured by a multifamily property located in Williston, ND. The loan loss provision was based on the difference between fair value of the underlying collateral, and the carrying value of the loan (prior to the loan loss provision). Fair value of the collateral was determined using a discounted cash flow analysis. The significant unobservable inputs used in determining the collateral value were terminal capitalization rate and discount rate which were 11% and 10%, respectively. We ceased accruing interest associated with the loan and only recognized interest income upon receipt of cash. As of December 31, 2018, the amortized cost of the loan, net of the loan loss provision, was $32.4 million and was assigned a risk rating of 5. During the second quarter of 2019, the underlying collateral was sold resulting in a realized loss of $12.5 million. Consequently, the previously recorded $15.0 million loan loss provision was reversed.



Type	Property type	Location	Amortized cost⁽¹⁾		Interest recognition status/ as of date
Mortgage
	Hotel⁽²⁾	Manhattan, NY	$	144,295	Cost Recovery/ 3/31/2020
	Urban Predevelopment⁽³⁾	Brooklyn, NY	126,013		Cost Recovery/ 3/1/2020
	Urban Predevelopment⁽³⁾	Miami, FL	117,910		Cost Recovery/ 3/1/2020
	Retail Center⁽⁴⁾⁽⁵⁾	Cincinnati, OH	103,921		Cost Recovery/ 10/1/2019
	Hotel⁽²⁾	Pittsburgh, PA	31,372		Cost Recovery/ 3/31/2020
	Residential-for-sale: inventory⁽⁶⁾⁽⁷⁾	Bethesda, MD	2,695		Cost Recovery/ 1/1/2018
Mortgage total:			$	526,206
Mezzanine
	Hotel⁽²⁾	Washington, DC	$	10,000	Cost Recovery/ 3/31/2020
Mezzanine total:			$	10,000
Grand total:			$	536,206

~~As of September 30, 2019 and December 31, 2018, the aggregate loan loss provision was $57.0 million and $37.0 million for commercial mortgage loans and subordinate loans, respectively.~~———————


(1)	Amortized cost is shown net of $207 million of provisions, $150 million of which were taken during the three months ended March 31, 2020 due to factors including COVID-19. See Note 2 for additional information regarding COVID-19.


(2)	The fair value of hotel collateral was determined by applying a discount and capitalization rate ranging from 8.3% to 11.0% and 6.6% to 9.0%, respectively.


(3)	The fair value of urban predevelopment collateral was determined by assuming rent per square foot and capitalization rate ranging from $48 to $225 and 5.0% to 5.5%, respectively.


(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 Variable Interest Entity ("VIE") and we determined that we are not the primary beneficiary of that VIE. During the three months ended March 31, 2020, $0.6 million of interest paid was applied towards reducing the carrying value of the loan.


(6)	The fair value of residential-for-sale: inventory was determined by assuming a sales price per square foot of $371.


(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.

Other Loan and Lending Assets Activity

During the year ended December 31, 2018, we sold a $75.0 million ($17.7 million funded) subordinate position of our $265.0 million loans for the construction of an office campus in Renton, Washington. As of September 30, 2019, our exposure to the property is limited to a $190.0 million ($121.8 million funded) mortgage loan. This transaction was evaluated under ASC 860 "Transfers and Servicing" and we determined that it qualifies as a sale and accounted for as such.

We recognized payment-in-kind ("PIK") interest of ~~$13.7~~$12.4 million and ~~$42.8~~$14.5 million for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, ~~respectively, and $10.2 million and $29.9 million for the three and nine months ended September 30, 2018,~~ respectively.

We recognized ~~$0.3~~$0.2 million and ~~$4.0~~$3.7 million in pre-payment penalties and accelerated fees for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, ~~respectively and $0.2 million and $1.8 million for the three and nine months ended September 30, 2018,~~ 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 ~~$68.3~~$68.1 million as of ~~September 30, 2019.~~March 31, 2020. These interests have a weighted average maturity of ~~7.07~~6.57 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 the 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 as such. We ~~did not hold any collateral securing our subordinate risk retention interests as of December 31, 2018.~~recorded no gain or loss related to this sale.

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 March 31, 2020. Loan proceeds held by servicer were ~~$3.3 million~~ ~~and~~$~~1.0~~8.3 million as of ~~September 30, 2019 and~~ December 31, ~~2018, respectively.~~2019.

Note 6 – Other Assets

The following table details the components of our other assets at the dates indicated ($ in thousands):


	September 30, 2019		December 31, 2018		March 31, 2020		December 31, 2019
Interest receivable	$	36,908	$	33,399	$	41,860	$	35,581
Collateral deposited under derivative agreements					35,540		17,090
Collateral deposited under secured debt arrangements⁽¹⁾					26,262		—
Other	950		321		207		45
Total	$	37,858	$	33,720	$	103,869	$	52,716

———————


(1)	Subsequent to March 31, 2020, this amount was applied to reduce the related outstanding secured debt arrangement

Note 7 – Secured Debt Arrangements, Net

At ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, our borrowings had the following secured debt arrangements, maturities and weighted-average interest rates ($ in thousands):

September 30, 2019 ⁽²⁾

December 31, 2018 ⁽²⁾
Maximum Amount of Borrowings Borrowings Outstanding
Maturity ⁽¹⁾
Maximum Amount of Borrowings Borrowings Outstanding
Maturity ⁽¹⁾
JPMorgan Facility (USD) $ 1,253,271
$ 1,067,635
June 2024 $ 1,333,503
$ 680,141
June 2021
JPMorgan Facility (GBP) 46,729
46,729
June 2024 48,497
48,497
June 2021
DB Repurchase Facility (USD) 1,116,993
558,905
March 2021 904,181
419,823
March 2021
DB Repurchase Facility (GBP) 133,007
133,007
March 2021 150,819
150,819
March 2021
Goldman Facility 500,000
267,711
November 2021 300,000
210,072
November 2020
CS Facility - USD 174,279
174,279
March 2020 187,117
187,117
June 2019
CS Facility - GBP 124,707
124,707
March 2020 151,773
151,773
June 2019
HSBC Facility - GBP 36,621
36,621
December 2019 48,835
48,835
December 2019
HSBC Facility - EUR 149,724
149,724
January 2021 —
—
N/A
Sub-total 3,535,331
2,559,318

3,124,725
1,897,077

less: deferred financing costs N/A
(18,031 ) N/A
(17,555 )
Total / Weighted-Average $ 3,535,331
$ 2,541,287

$ 3,124,725
$ 1,879,522



	March 31, 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)	$	1,139,932	$	1,024,617		June 2024	$	1,154,109	$	1,090,160		June 2024
JPMorgan (GBP)	93,882		93,882			June 2024	51,702		50,410			June 2024
JPMorgan (EUR)	66,186		66,186			June 2024	94,189		94,189			June 2024
DB (USD)	1,000,000		506,977			March 2023	1,250,000		513,876			March 2021
Goldman (USD)	500,000		359,540			November 2021	500,000		322,170			November 2021
CS - USD	328,141		325,868			January 2023⁽³⁾	226,068		218,644			June 2020
CS - GBP	84,748		84,748			September 2020	93,915		93,915			June 2020
HSBC - USD	50,625		50,625			January 2021	50,625		50,625			October 2020
HSBC - GBP	32,230		32,230			June 2020	34,634		34,634			June 2020
HSBC - EUR	151,537		151,537			July 2021	154,037		154,037			January 2021
Barclays (USD)	200,000		35,192			March 2024	N/A		N/A			N/A
Barclays (GBP)	645,854		645,854			November 2023⁽⁴⁾	538,916		290,347			February 2024⁽⁴⁾
Barclays (EUR)	179,586		179,586			August 2024⁽³⁾	182,549		182,549			November 2020
Sub-total^(5)(6)(7)	4,472,721		3,556,842				4,330,744		3,095,556
less: deferred financing costs	N/A		(16,917		)		N/A		(17,190		)
Total	$	4,472,721	$	3,539,925			$	4,330,744	$	3,078,366
Total	$	4,472,721	$	3,539,925			$	4,330,744	$	3,078,366

———————

(1) As of March 31, 2020, GBP and EUR borrowings were converted at a rate of 1.24 and 1.10, respectively. As of December 31, 2019, GBP and EUR borrowings were converted at a rate of 1.33 and 1.12, respectively.

(2) Maturity date assumes extensions at our option are ~~exercised.~~exercised with consent of financing providers, where applicable.

~~(2)~~(3) Assumes financings are extended in line with the underlying loans.

(4) Represents weighted average maturity across various financings with the counterparty. See below for additional details.

(5) Weighted-average ~~rates~~borrowing costs as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 were USD L + ~~2.09%~~2.05% / GBP L + ~~2.31%~~1.66% / EUR L + 1.35% and USD L + ~~2.17%~~2.07% / GBP L + ~~2.28%~~1.75% / EUR L + 1.36%, respectively.

(6) Weighted average advance rates based on cost as of March 31, 2020 and December 31, 2019 were 67.3% (65.6% (USD) / 70.6% (GBP) / 70.7% (EUR)) and 63.8% (66.7% (USD) / 47.1% (GBP) / 76.1% (EUR)).

(7) As of March 31, 2020 and December 31, 2019, approximately 54% of the outstanding 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 facilities 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 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. The lender under the applicable repurchase facility sets the valuation and any revaluation of the collateral assets in its sole, good faith discretion. Generally, if the lender determines (subject to certain conditions) that the market value of the collateral in a repurchase transaction 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 March 31, 2020 and December 31, 2019, the weighted average haircut under our repurchase agreements was approximately 33% and 36%, 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 ~~May 2017,~~November 2019, through 23 indirect wholly-owned subsidiaries, we entered into a ~~Fifth~~Sixth Amended and Restated Master Repurchase Agreement with JPMorgan Chase Bank, National Association (as amended, the "JPMorgan Facility"). ~~During the third quarter of 2019, we amended the~~The JPMorgan Facility ~~to allow~~allows for $1.3 billion of maximum borrowings (with amounts borrowed in British pounds and ~~maturity~~Euros converted to U.S. dollars for purposes of calculating availability based on the greater of the spot rate as of the initial financing under the corresponding mortgage loan and the then-current spot rate) and matures in June 2022 ~~plus~~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 U.S. dollars ("USD"), British pounds ("GBP"), or Euros ("EUR"). Margin calls may occur any time at specified aggregate margin deficit thresholds. ~~We have agreed to provide a limited guarantee of the obligations of our indirect wholly-owned subsidiaries under the JPMorgan Facility.~~

As of ~~September 30, 2019,~~March 31, 2020, we had ~~$1.1~~$1.2 billion (including ~~£38.0~~£75.6 million and €60.0 million assuming conversion into USD) of borrowings outstanding under the JPMorgan Facility secured by certain of our commercial mortgage loans.

DB ~~Repurchase~~ Facility

In ~~April 2018,~~March 2020, through an indirect wholly-owned subsidiary, we entered into a ~~Second~~Third Amended and Restated Master Repurchase Agreement with Deutsche Bank AG, Cayman Islands Branch, ~~and Deutsche Bank AG,~~ London Branch (as amended, the "DB ~~Repurchase~~ Facility"), which ~~was upsized in September 2019, and~~ provides for advances of up to ~~$1.25~~$1.0 billion for the sale and repurchase 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 ~~2020, plus a~~2021, and has 2 one-year ~~extension~~extensions available at our option, subject to certain conditions. Margin calls may occur any time at specified aggregate margin deficit thresholds. ~~We have agreed to provide a limited guarantee of the obligations of our indirect wholly-owned subsidiaries under this facility.~~

As of ~~September 30, 2019,~~March 31, 2020, we had ~~$691.9~~$507.0 million ~~(including £108.2 million assuming conversion into USD)~~ of borrowings outstanding under the DB ~~Repurchase~~ Facility secured by certain 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 (the "Goldman Facility"), which ~~was upsized in March 2019 from $300.0 million~~provides advances up to $500.0 million and matures in November ~~2019, plus 2~~2020, and has 1 one-year ~~extensions~~extension available at our option, subject to certain conditions. Margin calls may occur any time at specified margin deficit thresholds. ~~We have agreed to provide a limited guarantee of the obligations of our indirect wholly-owned subsidiaries under this facility.~~

As of ~~September 30, 2019,~~March 31, 2020, we had ~~$267.7~~$359.5 million of borrowings outstanding under the Goldman ~~Facility.~~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 ~~matures~~has an "evergreen" feature such that the facility continues unless terminated at any time by Credit Suisse with six ~~months after either party notifies the other party of intention to terminate.~~months' notice. Margin calls may occur any time at specified aggregate margin deficit thresholds. ~~We have agreed to provide a guarantee of the obligations of our indirect wholly-owned subsidiary under this facility.~~

As of ~~September 30, 2019,~~March 31, 2020, we had ~~$174.3~~$325.9 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 ~~AG, acting through its Cayman Islands Branch and Alpine Securitization Ltd~~Securities (Europe) Limited (the "CS Facility - GBP"), which provides for advances for the sale and repurchase of eligible commercial mortgage loans secured by real estate. The CS Facility - GBP matures ~~six months after either party notifies the other party of intention to terminate.~~in September 2020. Margin calls may occur any time at specified aggregate margin deficit thresholds. ~~We have agreed to provide a guarantee of the obligations of our indirect wholly-owned subsidiary under this facility.~~

As of ~~September 30, 2019,~~March 31, 2020, we had ~~$124.7~~$84.7 million (£~~101.5~~68.2 million assuming conversion into USD) of borrowings outstanding under the CS Facility - GBP secured by one ~~of our~~ commercial mortgage ~~loans.~~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 March 31, 2020, we had $50.6 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 provides for a single asset financing. The facility ~~matures~~is scheduled to mature in ~~December 2019.~~June 2020. Margin calls may occur any time at specified aggregate margin deficit thresholds. ~~We have agreed to provide a guarantee of the obligations of our indirect wholly-owned subsidiary under this facility.~~

As of ~~September 30, 2019,~~March 31, 2020, we had ~~$36.6~~$32.2 million (£~~29.8~~26.0 million assuming conversion into USD) of borrowings outstanding under the HSBC Facility - GBP secured by one ~~of our~~ commercial mortgage ~~loans.~~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 ~~January~~July 2021. Margin calls may occur any time at specified aggregate margin deficit thresholds. ~~We have agreed to provide a guarantee of the obligations of our indirect wholly-owned subsidiary under this facility.~~

As of ~~September 30, 2019,~~March 31, 2020, we had ~~$149.7~~$151.5 million (€137.4 million assuming conversion into USD) of borrowings outstanding under the HSBC Facility - EUR secured by one of our commercial mortgage loans.

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.

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"). Margin calls may occur any time at specified aggregate margin deficit thresholds.

The table below provides the currency, outstanding balance, stated maturity, and extended maturity for each of the five secured debt arrangements under the Barclays Facility - GBP/EUR:



Local Currency	Borrowings outstanding (in $)	Fully-Extended Maturity⁽¹⁾
GBP	$217,350	December 2023
GBP	156,958	February 2023
GBP	149,830	October 2024
GBP	121,716	September 2023
Sub-total/Weighted-Average	$645,854	November 2023
EUR	179,586	see below⁽²⁾
Total/Weighted-Average	$825,440

———————

(1) Assumes underlying loans extend to fully extended maturity and extensions at our option are exercised.

(2) The Barclays Facility - EUR 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 month notice.

As of March 31, 2020, we had $825.4 million (£520.0 million and €162.8 million assuming conversion into U.S.

dollars) of borrowings outstanding under the Barclays Facility - GBP/EUR secured by five of our commercial mortgage loans.

At ~~September 30, 2019,~~March 31, 2020, our borrowings had the following remaining maturities ($ in thousands):

Less than
1 year⁽¹⁾

1 to 3
years⁽¹⁾

3 to 5
years ⁽¹⁾
More than
5 years Total
JPMorgan Facility $ 60,500
$ 311,219
$ 742,645

$ —
$ 1,114,364
DB Repurchase Facility 102,896
589,016
—

—
691,912
Goldman Facility —
267,711
—
—
267,711
CS Facility - USD 174,279
—
—
—
174,279
CS Facility - GBP 124,707
—
—
—
124,707
HSBC Facility - GBP 36,621
—
—
—
36,621
HSBC Facility - EUR —
149,724
—
—
149,724
Total $ 499,003
$ 1,317,670
$ 742,645
$ —
$ 2,559,318



	Less than 1 year		1 to 3 years		3 to 5 years		More than 5 years		Total
JPMorgan	$	61,836	$	289,842	$	833,007	$	—	$	1,184,685
DB	27,900		196,477		282,600		—		506,977
Goldman	—		359,540		—		—		359,540
CS - USD	—		200,307		125,561		—		325,868
CS - GBP	84,748		—		—		—		84,748
HSBC - USD	50,625		—		—		—		50,625
HSBC - GBP	32,230		—		—		—		32,230
HSBC - EUR	—		151,537		—		—		151,537
Barclays (GBP)	—		—		645,854		—		645,854
Barclays (EUR)	—		—		179,586		—		179,586
Barclays (USD)	—		—		35,192		—		35,192
Total	$	257,339	$	1,197,703	$	2,101,800	$	—	$	3,556,842

———————

(1)~~Assumes underlying assets are financed through~~ The table above reflects the fully extended maturity date of the ~~facility.~~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 March 31, 2020, as well as the maximum and average month-end balances for the three months ended March 31, 2020 for our borrowings under secured debt arrangements ($ in thousands).



	As of March 31, 2020				For the three months ended March 31, 2020
	Balance		Amortized Cost of Collateral		Maximum Month-End Balance		Average Month-End Balance
JPMorgan	$	1,184,685	$	1,912,345	$	1,184,685	$	989,915
DB	506,977		778,607		506,977		470,077
Goldman	359,540		537,249		359,540		319,369
CS - USD	325,868		439,725		336,448		326,684
CS - GBP	84,748		121,286		90,111		87,452
HSBC - USD	50,625		67,041		50,625		50,625
HSBC - GBP	32,230		46,565		34,501		33,336
HSBC - EUR	151,537		191,565		152,389		151,798
Barclays (USD)	35,192		49,800		35,192		11,731
Barclays (GBP)	645,854		899,075		666,810		610,833
Barclays (EUR)	179,586		239,483		180,595		179,895
Total	$	3,556,842	$	5,282,741

The table below summarizes the outstanding balances at ~~September 30,~~December 31, 2019, as well as the maximum and average month-end balances for the ~~nine months~~year ended ~~September 30,~~December 31, 2019 for our borrowings under secured debt arrangements ($ in thousands).

As of September 30, 2019 For the nine months ended September 30, 2019
Balance Amortized Cost of Collateral Maximum Month-End
Balance Average Month-End
Balance
JPMorgan Facility $ 1,114,364
$ 1,809,170
$ 1,150,317
$ 875,895
DB Repurchase Facility 691,912
1,205,456
691,912
598,285
Goldman Facility 267,711
445,898
312,507
220,631
CS Facility - USD 174,279
241,989
188,037
180,792
CS Facility - GBP 124,707
178,612
150,811
139,991
HSBC Facility - GBP 36,621
52,593
50,784
44,007
HSBC Facility - EUR 149,724
185,208
152,155
150,914
Total $ 2,559,318
$ 4,118,926

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, 2019~~March 31, 2020 and December 31, ~~2018.~~2019.

Note 8 – Senior Secured Term Loan, Net

In May 2019, we entered into a $500.0 million senior secured term loan. The senior secured term loan bears interest at 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 liens, asset sales, indebtedness, and investments in non-wholly owned entities.

During the three months ended ~~September 30, 2019,~~March 31, 2020, we repaid $1.3 million of principal related to the senior secured term loan. The outstanding principal balance as of March 31, 2020 and December 31, 2019 was $496.3 million and $497.5 million, respectively. As of March 31, 2020, the senior secured term loan had a carrying value of $487.1 million net of deferred financing costs of $7.0 million and an unamortized discount of $2.2 million. As of December 31, 2019, the senior secured term loan had a carrying value of $488.0 million net of deferred financing costs of $7.3 million and an unamortized discount of $2.2 million.

Covenants

The senior secured term loan includes the following financial covenants: (i) our ratio of total ~~non-recourse~~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.

We were in compliance with the covenants under the senior secured term loan at ~~September 30,~~March 31, 2020 and December 31, 2019.

Interest Rate Swap

In connection with the senior secured term loan, we 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%.

Note 9 – Convertible Senior Notes, Net

In 2 separate offerings during 2014, we issued an aggregate principal amount of $254.8 million of 5.50% Convertible Senior Notes due 2019 (the "2019 Notes"), for which we received $248.6 million, after deducting the underwriting discount and offering expenses. The 2019 Notes were exchanged or converted for shares of our common stock and cash as follows:

(i) On August 2, 2018, we entered into privately negotiated exchange agreements with a limited number of holders of the 2019 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 the 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 paid-in-capital in the 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 ~~were~~was repaid at maturity on March 15, ~~2019.~~

During the year ended December 31, 2018, we recorded a loss on early extinguishment of debt of $2.6 million, in connection with the exchanges and conversions of the 2019 Notes. This includes fees and accelerated amortization of capitalized costs. There was 0 such loss related to the 2019 Notes during the three and nine months ended September 30, 2019.

In 2 separate offerings during 2017, we issued an aggregate principal amount of $345.0 million of 4.75% Convertible Senior Notes due 2022 (the "2022 Notes"), for which we received $337.5 million, after deducting the underwriting discount and offering expenses. At ~~September 30, 2019,~~March 31, 2020, the 2022 Notes had a carrying value of ~~$337.1~~$338.4 million and an unamortized discount of ~~$7.9~~$6.6 million.

During the fourth quarter of 2018, we issued $230.0 million of 5.375% Convertible Senior Notes due 2023 ~~("2023 Notes,"~~(the "2023 Notes" and, together with the ~~2019 Notes and~~ 2022 Notes, the "Notes"), for which we received $223.7 million after deducting the underwriting discount and offering expenses. At ~~September 30, 2019,~~March 31, 2020, the 2023 Notes had a carrying value of ~~$223.5~~$224.2 million and an unamortized discount of ~~$6.5~~$5.8 million.

The following table summarizes the terms of the Notes ($ in thousands):


	Principal Amount		Coupon Rate		Effective Rate ⁽¹⁾		Conversion Rate ⁽²⁾	Maturity Date	Remaining Period of Amortization	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	2.90	$	345,000	4.75	%	5.60	%	50.2260	8/23/2022	2.40
2023 Notes	230,000		5.38	%	6.16	%	48.7187	10/15/2023	4.04	230,000		5.38	%	6.16	%	48.7187	10/15/2023	3.54
Total	$	575,000								$	575,000

———————


(1)	Effective rate includes the effect of the adjustment for the conversion option (See endnote (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 1000 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 except in limited circumstances. The closing price of our common

stock on March 31, 2020 of $7.42 was less than the per share conversion price of the Notes.

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) is 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 us at such time. We measured the fair value of the debt components of the Notes as of their issuance date based on effective interest rates. As a result, we attributed approximately $15.4 million of the proceeds to the equity component of the Notes ($11.0 million to the 2022 Notes and $4.4 million to the 2023 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 the condensed consolidated balance sheet as of ~~September 30, 2019.~~March 31, 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 $7.2 million and ~~$21.9~~$7.6 million for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, ~~respectively, as compared to approximately $5.5 million and $20.7 million for the three and nine months ended September 30, 2018,~~ 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, we reported additional non-cash interest expense of approximately $1.5 million and ~~$4.6~~$1.7 million for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, ~~respectively, as compared to $1.2 million and $4.9 million for the three and nine months ended September 30, 2018,~~ respectively.

Note 10 – Derivatives

We use forward currency contracts to economically hedge interest and principal payments due under our loans denominated in currencies other than USD.

We have entered into a series of forward contracts to sell an amount of foreign currency ~~(British pound~~(GBP and ~~Euro)~~EUR) for an agreed

upon amount of USD at various dates through ~~February 2023.~~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.

In connection with the senior secured term loan, we entered into an interest rate swap to fix LIBOR at 2.12% or an all-in interest rate of 4.87%. We use interest rate swaps and caps to manage exposure to variable cash flows on portions of our borrowings under term loan debt. Interest rate swap and cap agreements allow us to receive a variable rate cash flow based on LIBOR and pay a fixed rate cash flow, mitigating the impact of this exposure. Gains or losses related to the interest rate swap are recorded net under interest expense in our condensed consolidated statement of operations.

The following table summarizes our non-designated foreign exchange ("Fx") forwards and our interest rate swap as of ~~September 30, 2019:~~March 31, 2020:


	September 30, 2019					March 31, 2020
	Number of Contracts	Aggregate Notional Amount (in thousands)	Notional Currency	Maturity	Weighted-Average Years to Maturity	Number of Contracts	Aggregate Notional Amount (in thousands)	Notional Currency	Maturity	Weighted-Average Years to Maturity
Fx Contracts - GBP	97	431,334	GBP	October 2019 - April 2022	0.75	157	526,613	GBP	April 2020 - December 2024	2.26
Fx Contracts - EUR	27	178,922	EUR	October 2019 - February 2023	1.47	63	219,130	EUR	May 2020 - August 2024	3.11
Interest Rate Swap	1	500,000	USD	May 2026	6.62	1	500,000	USD	May 2026	6.12

The following table summarizes our non-designated Fx forwards and our interest rate swap as of December 31, ~~2018:~~2019:

December 31, 2018
Number of Contracts Aggregate Notional Amount (in thousands) Notional Currency Maturity Weighted-Average Years to Maturity
Fx Contracts - GBP 43 270,161 GBP January 2019 - November 2020 0.69



	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

We have not designated any of our derivative instruments as hedges as defined in ASC 815 "Derivatives and Hedging" and, therefore, changes in the fair value of our derivative instruments are recorded directly in earnings. The following table summarizes the amounts recognized on the condensed consolidated statements of operations related to our derivatives for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ ($ in thousands):


		Amount of gain (loss) recognized in income					Amount of gain (loss) recognized in income						Amount of gain (loss) recognized in income
		Three months ended September 30,					Nine months ended September 30,						Three months ended March 31,
	Location of Gain (Loss) Recognized in Income	2019		2018			2019		2018			Location of Gain (Loss) Recognized in Income	2020		2019
Forward currency contracts	Gain on derivative instruments - unrealized	$	16,227	$	5,046		$	12,029	$	20,987		Gain (loss) on derivative instruments - unrealized	$	62,436	$	(14,985	)
Forward currency contracts	Gain on derivative instruments - realized	7,926		1,246			16,590		7,811			Gain on derivative instruments - realized	8,055		8,265
Interest rate caps⁽¹⁾	Loss on derivative instruments - unrealized	—		(1		)	—		(1		)
	Gain on derivative instruments	24,153		6,291			28,619		28,797
Total													$	70,491	$	(6,720	)

~~———————~~


~~(1)~~	~~With a notional amount of $0.0 million and $36.2 million at September 30, 2019, and 2018, respectively.~~

In connection with our senior secured term loan, we entered into an interest rate swap to fix LIBOR at 2.12% or an all-in interest rate of 4.87%. We use our interest rate swap to manage exposure to variable cash flows on our borrowings under our senior secured term loan. Our interest rate swap allows us to receive a variable rate cash flow based on LIBOR and pay a fixed rate cash flow, mitigating the impact of this exposure. Gains or losses related to the interest rate swap are recorded net under interest expense in our condensed consolidated statement of operations.

Amount of loss
recognized in income Amount of loss
recognized in income
Three months ended September 30, Nine months ended September 30,
Location of Loss Recognized in Income 2019 2018 2019 2018
Interest rate swap⁽¹⁾
Unrealized loss on interest rate swap (10,307 ) —
(23,420 ) —



		Amount of loss recognized in income
		Three months ended March 31,
	Location of Loss Recognized in Income	2020		2019
Interest rate swap⁽¹⁾	Unrealized loss on interest rate swap	(35,548	)	—

———————


(1)	With a notional amount of $500.0 million and ~~$0.0 million~~$0 at ~~September 30,~~March 31, 2020, and 2019, ~~and 2018,~~ respectively.

The following ~~table summarizes~~tables summarize the gross asset and liability amounts related to our derivatives at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 ($ in thousands).



	March 31, 2020							December 31, 2019
	Gross Amount of Recognized Assets		Gross Amounts Offset in the Condensed Consolidated Balance Sheet			Net Amounts of Assets Presented in the Condensed Consolidated Balance Sheet		Gross Amount of Recognized Assets		Gross Amounts Offset in the Condensed Consolidated Balance Sheet		Net Amounts of Assets Presented in the Condensed Consolidated Balance Sheet
Forward currency contracts	$	58,759	$	(1,198	)	$	57,561	$	—	$	—	$	—


	September 30, 2019									December 31, 2018							March 31, 2020								December 31, 2019
	Gross Amount of Recognized Assets (Liabilities)			Gross Amounts Offset in the Condensed Consolidated Balance Sheet			Net Amounts of Assets (Liabilities) Presented in the Condensed Consolidated Balance Sheet			Gross Amount of Recognized Assets		Gross Amounts Offset in the Condensed Consolidated Balance Sheet			Net Amounts of Assets Presented in the Condensed Consolidated Balance Sheet		Gross Amount of Recognized Liability			Gross Amounts Offset in the Condensed Consolidated Balance Sheet		Net Amounts of Liability Presented in the Condensed Consolidated Balance Sheet			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
Interest rate swap																	$	(50,018	)	$	—	$	(50,018	)	$	(14,470	)	$	—	$	(14,470	)
Forward currency contracts	$	35,811		$	(82	)	$	35,729		$	23,753	$	(53	)	$	23,700	—			—		—			(12,687		)	7,811		(4,876		)
Interest rate swap	(23,420		)	—			(23,420		)	—		—			—
Total derivative liabilities																	$	(50,018	)	$	—	$	(50,018	)	$	(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, 2019		December 31, 2018		March 31, 2020		December 31, 2019
Accrued dividends payable	$	74,290	$	69,033	$	65,119	$	74,771
Collateral deposited under derivative agreements	170		20,000		28,450		2,930
Accrued interest payable	13,908		14,208		15,930		16,089
Accounts payable and other liabilities	9,863		1,505		7,818		6,922
General CECL Allowance on unfunded commitments⁽¹⁾					6,059		—
Total	$	98,231	$	104,746	$	123,376	$	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 March 31, 2020.

Note 12 – Related Party Transactions

Management Agreement

In connection with our initial public offering in September 2009, we entered into a management agreement (the "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 our day-to-day operations, subject to the direction and oversight of our 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 our stockholders’ equity (as defined in the Management Agreement), calculated and payable (in cash) quarterly in arrears.

The current term of the Management Agreement ~~was renewed during the period and expires~~will expire on September 29, 2020, 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 our independent directors, based upon (1) unsatisfactory performance by the Manager that is materially detrimental to ARI 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 our 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. Following a meeting by our independent directors in February ~~2019,~~2020, which included a discussion of the Manager’s performance and the level of the management fees thereunder, we determined not to seek termination of the Management Agreement.

We incurred approximately ~~$10.4~~$10.3 million and ~~$30.3~~$9.6 million in base management fees under the Management Agreement for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, ~~respectively, as compared to approximately $9.5 million and $26.6 million for the three and nine months ended September 30, 2018,~~ respectively.

In addition to the base management fee, we are also responsible for reimbursing the Manager for certain expenses paid by the Manager on our behalf or for certain services provided by the Manager to us.

For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, we paid expenses totaling ~~$0.5~~$0.6 million and ~~$2.0~~$0.7 million, respectively, related to reimbursements for certain expenses paid by the Manager on our behalf under the Management ~~Agreement as compared to $0.6 million~~Agreement. Expenses incurred by the Manager and ~~$1.8 million for the same periods~~reimbursed by us are reflected in the ~~prior year. These expenses are included in the general and administrative expenses line item of the~~respective condensed consolidated statement of ~~operations.~~operations expense category or the condensed consolidated balance sheet based on the nature of the item.

Included in payable to related party on the condensed consolidated balance sheet at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 are approximately ~~$10.4~~$10.3 million and ~~$9.8~~$10.4 million, respectively, for base management fees incurred but not yet paid under the Management Agreement.

Loans receivable

In ~~June 2017,~~January 2020, we ~~increased our outstanding~~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 ~~through the acquisition~~ of ~~an additional $25.0 million of interests~~a senior mortgage secured by a mixed-use property in ~~an existing subordinate loan from~~London, UK to a fund managed by an affiliate of the Manager, ~~increasing our total outstanding loan commitment to $100.0 million. Furthermore,~~that was originated by us in ~~September 2017~~December 2019. This transaction was evaluated under ASC 860 - Transfers and Servicing, and we ~~funded an additional $25.0 million to acquire~~determined that it qualifies as a portion of the same pre-development subordinate loan from a fund managed by an affiliate of the Manager, increasing our total outstanding loan commitment to $125.0 million. In May 2018, we increased our outstanding principal balance through the acquisition of an additional $28.2 million interest in the same subordinate loan from a fund managed by an affiliate of the Manager. The pre-development subordinate loan issale and accounted for ~~the construction of a residential condominium building in New York, New York and is part of a $300.0 million subordinate loan.~~as such.

In June 2018, we increased our outstanding loan commitment through the acquisition of £4.8 million ($6.4 million assuming conversion into USD) pari-passu interest in an existing subordinate loan from a fund managed by an affiliate of the Manager. The subordinate loan is secured by a healthcare portfolio located in the United Kingdom.

~~Senior Secured~~ Term Loan

In May 2019, Apollo Global Funding, LLC, an affiliate of the Manager, served as one of the five arrangers for the issuance of our senior secured term loan and received $0.6 million of arrangement fees.

Note 13 – Share-Based Payments

On September 23, 2009, our board of directors approved the Apollo Commercial Real Estate Finance, Inc. 2009 Equity Incentive Plan ("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 and restated the 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 7,000,000 shares of our common stock. The LTIPs are administered by the compensation committee of our board of directors (the "Compensation Committee") and all grants under the LTIPs must be approved by the Compensation Committee.

We recognized stock-based compensation expense of ~~$3.9~~$4.3 million and ~~$12.1~~$3.9 million ~~for the three and nine months ended September 30, 2019, respectively,~~ related to restricted stock and RSU vesting ~~as compared to $4.0 million and $11.4 million~~ for the three ~~and nine~~ months ended ~~September 30, 2018. We adopted ASU 2018-07 on January 1,~~March 31, 2020 and 2019, and the stock-based compensation expense for grants before the adoption of ASU 2018-07 is based on the closing price of our common stock of $16.66 on December 31, 2018, which was the last business day before we adopted ASU 2018-07. Refer to "Note 2 - Summary of Significant Accounting Policies" for further discussion on our adoption of ASU 2018-07.respectively.

The following table summarizes the grants, vesting and forfeitures of restricted common stock and RSUs during the ~~nine~~three months ended ~~September 30, 2019:~~March 31, 2020:

Type Restricted Stock RSUs Grant Date Fair Value ($ in thousands)
Outstanding at December 31, 2018 65,697
1,852,957

Granted 27,245
—
500
Vested (47,586 ) (263 ) N/A
Forfeiture —
(16,451 ) N/A
Outstanding at September 30, 2019 45,356
1,836,243



	Type	Restricted Stock	RSUs		Grant Date Fair Value ($ in thousands)
Outstanding at December 31, 2019		25,356	2,007,355
	Granted	—	—		—
	Vested	—	—		N/A
	Forfeiture	—	(2,064	)	N/A
Outstanding at March 31, 2020		25,356	2,005,291

Below is a summary of restricted stock and RSU vesting dates as of ~~September 30, 2019~~March 31, 2020:


Vesting Year	Restricted Stock	RSU	Total Awards	Restricted Stock	RSU	Total Awards
2019	20,000	881,403	901,403
2020	25,356	621,515	646,871	25,356	963,927	989,283
2021	—	333,325	333,325	—	685,410	685,410
2022				—	355,954	355,954
Total	45,356	1,836,243	1,881,599	25,356	2,005,291	2,030,647

At ~~September 30, 2019~~March 31, 2020, we had unrecognized compensation expense of approximately ~~$0.3~~$0.1 million and ~~$19.5~~$35.0 million, respectively, related to the vesting of restricted stock awards and RSUs noted in the table above.

RSU Deliveries

During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, we delivered ~~159~~503,251 and 433,585 shares of common stock for ~~263~~868,157 and ~~730,980~~730,717 vested RSUs, respectively. ~~We delivered 514 and 346,510 shares of common stock for 807 and 604,484 vested RSUs for the same periods in the prior year.~~ 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 capital on the condensed consolidated statement of changes in stockholders' equity. The adjustment was ~~$5.0~~$6.5 million and ~~$4.7~~$5.0 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively. The adjustment is a reduction of capital related to our equity incentive plan and is presented net of increases of capital related to our equity incentive plan in the condensed consolidated statement of changes in stockholders' equity.

Note 14 – Stockholders’ Equity

Our 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, 2019~~March 31, 2020, ~~153,531,756~~153,740,547 shares of common stock were issued and outstanding, and 6,770,393 shares of 8.00% Fixed-to-Floating Series B Cumulative Redeemable Perpetual Preferred Stock ("Series B Preferred Stock") were issued and outstanding.

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") outstanding. Holders of the Series C Preferred Stock received the redemption price of $25.00 plus accumulated but unpaid dividends to the redemption date of $0.2223 per share.

Dividends. During~~During~~ the three months ended 2020 and 2019, we declared the following dividends:


	Three months ended			Three months ended
Dividend declared per share of:	September 30, 2019	June 30, 2019	March 31, 2019	March 31, 2020	March 31, 2019
Common Stock	$0.46			$0.40	$0.46
Series B Preferred Stock	0.50			0.50	0.50
Series C Preferred Stock	N/A	0.22	0.50	N/A	0.50

Common Stock Offerings. During the first quarter of 2018, we completed a follow-on public offering of 15,525,000 shares of our common stock, including shares issued pursuant to the underwriters' option to purchase additional shares, at a price of $17.77 per share. The aggregate net proceeds from the offering were $275.9 million after deducting offering expenses.

~~During the third quarter of 2018, we issued 10,744,577 shares of our common stock related to exchanges and conversions~~

~~of the 2019 Notes. Refer to "Note 9 - Convertible Senior Notes, Net" for a further discussion on the exchanges and conversions~~

~~of the 2019 Notes.~~

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 the 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 2019, we completed a follow-on public offering of 17,250,000 shares of our common stock, including shares issued pursuant to the underwriters' option to purchase additional shares, at a price of $18.27 per share. The aggregate net proceeds from the offering were $314.8 million after deducting offering expenses.

Common Stock Repurchases. During the first quarter of 2020, we repurchased 300,000 shares of our common stock at an average price of $8.11 per share.

Note 15 – Commitments and Contingencies

Legal Proceedings. From time to time, we may be involved in various claims and legal actions arising in the ordinary course of business. On June 28, 2018, AmBase Corporation, 111 West 57th Street Manager Funding LLC and 111 West 57th Investment LLC commenced an action captioned AmBase Corporation et al v. ACREFI Mortgage Lending, LLC et al ~~(No.~~(No 653251/2018) in New York Supreme Court. The complaint names as defendants (i) ACREFI Mortgage Lending, LLC, a subsidiary of the Company, (ii) the Company, and (iii) certain funds managed by Apollo, ~~who~~which are co-lenders on a mezzanine loan against the development of a residential condominium building in Manhattan, New York. The plaintiffs allege that the defendants tortiously interfered with the contractual equity put right in the plaintiffs’ joint venture agreement with the developers of the project, and that the defendants aided and abetted breaches of fiduciary duty by the developers of the project. 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 the Court entered judgment dismissing the complaint ~~is now dismissed, subject to appeal.~~in its entirety on November 8, 2019. Plaintiffs filed a timely notice of appeal on December 6, 2019 but have not yet filed their appellate brief. We believe the claims are without merit and plan to vigorously defend the case on ~~appeal as necessary.~~appeal. We do not believe this will have a material adverse effect on our condensed consolidated financial statements.

Loan Commitments. As described in "Note 4 - Commercial Mortgage, Subordinate Loans and Other Lending Assets, Net" at ~~September 30, 2019,~~March 31, 2020, we had ~~$1.1~~$1.8 billion of unfunded commitments related to our commercial mortgage and subordinate loan portfolios. 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 will rely on 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 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 4.3 year 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 March 31, 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 16 – Fair Value of Financial Instruments

The following table presents the carrying value and estimated fair value of our financial instruments not carried at fair value on the condensed consolidated balance sheet at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 ($ in thousands):

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	September 30, 2019						December 31, 2018						March 31, 2020						December 31, 2019
	Carrying Value			Estimated Fair Value			Carrying Value			Estimated Fair Value			Carrying Value			Estimated Fair Value			Carrying Value			Estimated Fair Value
Cash and cash equivalents	$	160,934		$	160,934		$	109,806		$	109,806		$	582,138		$	582,138		$	452,282		$	452,282
Commercial mortgage loans, net	4,779,501			4,828,398			3,878,981			3,894,947			5,413,627			5,382,796			5,326,967			5,380,693
Subordinate loans and other lending assets, net ⁽¹⁾	1,335,073			1,344,035			1,048,612			1,047,854			1,016,991			1,013,646			1,048,126			1,050,961
Secured debt arrangements, net	(2,541,287		)	(2,541,287		)	(1,897,077		)	(1,897,077		)	(3,539,925		)	(3,539,925		)	(3,078,366		)	(3,078,366		)
Senior secured term loan, net	(488,947		)	(499,375		)	—			—			(487,117		)	(389,556		)	(487,961		)	(499,988		)
2019 Notes	—			—			(34,278		)	(35,276		)
2022 Notes	(337,126		)	(352,331		)	(335,291		)	(326,025		)	(338,393		)	(239,775		)	(337,755		)	(348,060		)
2023 Notes	(223,463		)	(234,313		)	(222,431		)	(221,964		)	(224,178		)	(151,800		)	(223,818		)	(234,600		)

———————

(1) ~~As of September 30, 2019 includes~~Includes subordinate risk retention interests in securitization vehicles with an estimated fair value that approximates their carrying ~~value~~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 we 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, 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 17 – Net Income (Loss) per Share

ASC 260 "Earnings per 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.

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The table below presents the computation of basic and diluted net income (loss) per share of common stock for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ ($ in thousands except per share data):


	For the three months ended September 30,						For the nine months ended September 30,						For the three months ended March 31,
	2019			2018			2019			2018			2020			2019
Basic Earnings
Net Income	$	29,089		$	62,217		$	158,271		$	166,996
Net income (loss)													$	(127,842	)	$	67,758
Less: Preferred dividends	(3,385		)	(6,836		)	(15,139		)	(20,505		)	(3,385		)	(6,835		)
Net income available to common stockholders	$	25,704		$	55,381		$	143,132		$	146,491
Net income (loss) available to common stockholders													$	(131,227	)	$	60,923
Less: Dividends on participating securities	(847		)	(733		)	(2,547		)	(2,215		)	(802		)	(851		)
Basic Earnings	$	24,857		$	54,648		$	140,585		$	144,276		$	(132,029	)	$	60,072

Diluted Earnings
Net Income	$	29,089		$	62,217		$	158,271		$	166,996
Less: Preferred dividends	(3,385		)	(6,836		)	(15,139		)	(20,505		)
Net income available to common stockholders	$	25,704		$	55,381		$	143,132		$	146,491
Basic Earnings													$	(132,029	)	$	60,072
Add: Dividends on participating securities													—			851
Add: Interest expense on Notes	—			6,746			—			25,607			—			9,262
Diluted Earnings	$	25,704		$	62,127		$	143,132		$	172,098		$	(132,029	)	$	70,185

Number of Shares:
Basic weighted-average shares of common stock outstanding	153,531,678			129,188,343			144,638,237			120,876,240			153,948,191			134,607,107
Diluted weighted-average shares of common stock outstanding	153,531,678			153,918,435			144,638,237			150,424,889			153,948,191			164,683,086

Earnings Per Share Attributable to Common Stockholders
Basic	$	0.16		$	0.42		$	0.97		$	1.19		$	(0.86	)	$	0.45
Diluted	$	0.16		$	0.40		$	0.97		$	1.14		$	(0.86	)	$	0.43

Prior to the three months ended September 30, 2018, we asserted our intent and ability to settle the principal amount of the Notes in cash and, as a result, the Notes did not have any impact on our diluted earnings per share. As of September 30, 2018, we no longer asserted our intent to fully settle the principal amount of the Notes in cash upon conversion. Accordingly, theThe dilutive effect to earnings per share ~~for the current year periods~~ 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, 2019,~~March 31, 2020, 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.

For the ~~nine~~three months ended ~~September 30,~~March 31, 2019, ~~and 2018, 29,041,856 and 29,548,649~~30,093,312 weighted-average potentially issuable shares with respect to the Notes were included in the ~~dilutive earnings~~calculation of diluted net income per ~~share denominator, respectively.~~share. Refer to "Note 9 - Convertible Senior Notes, Net" for further discussion.

For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, ~~1,839,631~~2,007,242 and ~~1,845,086~~1,849,564 weighted-average unvested RSUs, respectively, were excluded from the calculation of diluted net income per share because the effect was ~~anti-dilutive as compared to 1,593,070 and 1,617,398 for the same periods in the prior year.~~anti-dilutive.

Note 18 – Subsequent Events

~~Investment activity.~~Subsequent to the quarter ended ~~September 30, 2019, we committed capital of $548.3 million ($464.3 of which was funded at closing) to first mortgage loans.~~March 31, 2020, the following events took place:

~~In addition, we~~Investment activity. We funded approximately ~~$26.7~~$56.2 million for previously closed loans.

Loan Repayments. S~~ubsequent to the end of the quarter, we~~We received approximately ~~$60.2~~$3.7 million from loan repayments.

Loan Sales. We sold interests in three construction loans, with aggregate commitments of $262 million (of which approximately $90 million was funded at the time of sale) for a realized loss of approximately $0.5 million. The sales are comprised of 100% of our interests in two loans and 40% of our interest in one loan. The sales were to entities managed by an affiliate of the Manager. In connection with these sales, we decreased our future unfunded commitments by $172.6 million.

Interest Rate Swap. Subsequent to quarter end, we terminated our interest rate swap with a notional amount of $500.0 million that fixed LIBOR at 2.12%. The termination resulted in a realized loss of $54.3 million, $50.0 million of which has already been recorded as an unrealized loss as of March 31, 2020. There is no impact on our current liquidity in connection with this termination as we had already posted cash collateral to the counterparty.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING INFORMATION

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"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). For these statements, we 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 our control. These forward-looking statements include information about possible or assumed future results of our business, financial condition, liquidity, results of operations, plans and objectives. When we use the words "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 our industry, interest rates, real estate values, the debt securities markets or the general economy; the demand for commercial real estate loans; our business and investment strategy; our operating results; actions and initiatives of the U.S. government and governments outside of the United States, 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; our ability to obtain and maintain financing arrangements, including secured 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 we participate; changes in the value of our assets; the scope of our target assets; interest rate mismatches between our target assets and any borrowings used to fund such assets; changes in interest rates and the market value of our target assets; changes in prepayment rates on our target assets; effects of hedging instruments on our target assets; rates of default or decreased recovery rates on our target assets; the degree to which hedging strategies may or may not protect us 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; our continued maintenance of our qualification as a REIT for U.S. federal income tax purposes; our 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 our ability to make distributions to our stockholders in the future; our present and potential future competition; and unexpected costs or unexpected liabilities, including those related to litigation.

The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to 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 us. See "Item 1A. Risk Factors" of ~~our Annual~~this Quarterly Report on Form ~~10-K for the year ended December 31, 2018.~~10-Q and our Annual Report. These and other risks, uncertainties and factors, including those described in the annual, quarterly and current reports that we file with the SEC, could cause our actual results to differ materially from those included in any forward-looking statements 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, we are not obligated to, and do not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Overview

We are a Maryland corporation and have elected to be taxed as a REIT for U.S. federal income tax purposes. We primarily originate, acquire, invest in and manage performing commercial first mortgage loans, subordinate financings, and other commercial real estate-related debt investments. These asset classes are referred to as our target assets.

We are externally managed and advised by the Manager, an indirect subsidiary of Apollo, a leading global alternative investment manager with a contrarian and value-oriented investment approach in private equity, credit and real estate with assets under management of approximately ~~$312~~$315.5 billion as of ~~June 30, 2019.~~March 31, 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. We benefit from Apollo’s global infrastructure and operating platform, through which we are able to source, evaluate and manage potential investments in our target ~~assets.~~

~~Market Overview~~

Based on the current market dynamics, including significant upcoming commercial real estate debt maturities, we believe there remains compelling opportunities for us to invest capital in our target assets at attractive risk adjusted returns. We continue to focus on underlying real estate value, and transactions that benefit from our ability to execute complex and

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~~sophisticated transactions.~~assets.

~~We believe~~Current Market Conditions

During the ~~challenges faced~~first quarter of 2020, there was a global outbreak of COVID-19, which was declared by ~~conduit lenders~~the World Health Organization as a pandemic. In response to COVID-19, the United States and 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 in the midst of the COVID-19 pandemic we are not in a position to estimate the ultimate impact this will have on our business and the ~~general uncertainty around~~economy as a whole. The effects of COVID-19 have adversely impacted the value of our assets, business, financial condition, results of operations and ~~pricing could create attractive risk adjusted investment opportunities for us. As a result, we expect to continue to see opportunities to originate first mortgage~~cash flows, and ~~subordinate financings in transactions which benefit from~~ our ability to ~~source, structure~~operate successfully. Some of the factors that impacted us to date and ~~execute complex transactions.~~may continue to affect us are outlined in "Item 1A. Risk Factors" of this Quarterly Report on Form 10-Q. Please see "Liquidity and Capital Resources" below for additional discussion surrounding the ongoing impact we expect COVID-19 will have on our liquidity and capital resources.

Critical Accounting Policies

A summary of our critical accounting policies is set forth in our Annual Report ~~on Form 10-K for the year ended December 31, 2018~~ under "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 our critical accounting policies described in our Annual Report ~~on Form 10-K filed with~~other than the ~~SEC on February 13, 2019.~~adoption of the CECL Standard, as described in "Note 2 - Summary of Significant Accounting Policies."

Results of Operations

All non-USD denominated assets and liabilities are translated to USD 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.

Loan Portfolio Overview

The following table sets forth certain information regarding our commercial real estate debt portfolio as of ~~September 30, 2019~~March 31, 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⁾		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	$	4,779,501	6.2	%	6.8	%	$	2,559,318	3.9	%	$	2,220,183	$	5,413,627	4.8	%	5.3	%	$	3,556,842	2.7	%	$	1,856,785
Subordinate loans and other lending assets, net	1,335,073		12.0	%	13.2	%	—		—		1,335,073		1,016,991		12.4	%	13.9	%	—		—		1,016,991
Total/Weighted-Average	$	6,114,574	7.5	%	8.2	%	$	2,559,318	3.9	%	$	3,555,256	$	6,430,618	6.0	%	6.7	%	$	3,556,842	2.7	%	$	2,873,776

———————


(1)	Weighted-Average Coupon and Weighted-Average All-in Yield are based on the applicable benchmark rates as of ~~September 30, 2019~~March 31, 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 ~~$18.0~~$16.9 million.


(4)	Represents loan portfolio at amortized cost less secured debt ~~arrangements~~ outstanding.

The following table provides details of our commercial mortgage loan portfolio and subordinate ~~loan~~ and other lending ~~asset portfolios,~~assets portfolio, on a loan-by-loan basis, as of ~~September 30, 2019~~March 31, 2020 ($ in millions):

Commercial Mortgage Loan Portfolio
Property Type Risk Rating Origination Date Amortized Cost Unfunded Commitment
Construction Loan⁽⁴⁾
Fully-extended Maturity Location
Urban Retail 3 08/2019 $315 — 09/2024 Manhattan, NY
Hotel 3 09/2016 210 — 01/2022 Manhattan, NY
Urban Predevelopment 3 04/2017 197 — 10/2019 London, UK
Industrial 3 01/2019 196 7 02/2024 Brooklyn, NY
Office 2 11/2017 189 60 Y 12/2022 Manhattan, NY
Office 3 10/2018 185 14 10/2021 Manhattan, NY
Office 3 06/2019 185 31 11/2026 Berlin, Germany
Urban Predevelopment 3 01/2016 183 — 09/2021 Miami, FL
Residential-for-sale: inventory 3 03/2018 178 — 03/2021 London, UK
Office 3 09/2019 170 — 09/2023 London, UK
Office 3 11/2017 164 — 01/2023 Chicago, IL
Hotel 3 04/2018 151 2 04/2023 Honolulu, HI



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	$316	$—		09/2024	Manhattan, NY
2	Urban Retail	3	12/2019	308	—		12/2023	London, UK

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Urban Predevelopment 3 03/2017 151 14 12/2020 Brooklyn, NY
Hotel ⁽¹⁾
3 09/2015 140 — 06/2023 Manhattan, NY
Hotel 3 05/2018 139 — 06/2023 Miami, FL
Hotel 3 08/2019 130 — 08/2024 Puglia, Italy
Retail Center ⁽³⁾
5 11/2014 126 — 09/2020 Cincinnati, OH
Office 3 01/2018 120 68 01/2022 Renton, WA
Office 3 10/2018 107 79 Y 10/2023 Manhattan, NY
Hotel 3 03/2017 105 — 03/2022 Atlanta, GA
Hotel 3 11/2018 99 — 12/2023 Vail, CO
Hotel 3 12/2017 89 — 12/2022 Manhattan, NY
Hotel 3 07/2018 87 — 08/2021 Detroit, MI
Residential-for-sale: construction 3 05/2018 79 4 Y 06/2020 Brooklyn, NY
Office 3 12/2017 73 44 07/2022 London, UK
Urban Predevelopment 3 12/2016 73 — 12/2020 Los Angeles, CA
Multifamily 3 04/2014 71 — 07/2023 Various
Office 3 03/2018 71 17 04/2023 Chicago, IL
Residential-for-sale: construction 3 12/2018 70 107 Y 12/2023 Manhattan, NY
Hotel 3 08/2019 67 — 09/2022 Manhattan, NY
Hotel 3 04/2018 63 — 05/2023 Scottsdale, AZ
Hotel 3 09/2019 60 — 10/2024 Miami, FL
Residential-for-sale: inventory 3 06/2018 57 — 06/2020 Manhattan, NY
Other 3 04/2019 55 104 Y 09/2025 Culver City, CA
Multifamily 3 11/2014 54 — 11/2021 Various
Multifamily 3 06/2018 53 — 06/2020 London, UK
Hotel 3 05/2019 52 — 06/2024 Chicago, IL
Residential-for-sale: construction 3 01/2018 48 31 Y 01/2023 Manhattan, NY
Hotel 3 12/2015 42 — 08/2024 St. Thomas, USVI
Multifamily 3 10/2017 40 — 10/2022 London, UK
Hotel 3 02/2018 38 — 03/2023 Pittsburgh, PA
Residential-for-sale: inventory 2 05/2018 37 — 04/2021 Manhattan, NY
Office 3 04/2019 22 49 Y 08/2022 Birmingham, UK
Residential-for-sale: construction 3 12/2018 18 84 Y 01/2024 Hallandale Beach, FL
Residential-for-sale: inventory ⁽³⁾
5 02/2014 16 — 04/2020 Bethesda, MD
Residential-for-sale: construction 3 03/2018 5 109 Y 03/2023 San Francisco, CA
Office 3 08/2018 — 188 Y 12/2022 London, UK
Sub total / Weighted-Average Commercial Mortgage Loans 3.0 $4,780 $1,012 12% 3.1 Years



3	Hotel	3	10/2019	240	52		08/2024	Various
4	Healthcare	3	10/2019	212	28		10/2024	Various
5	Office	3	02/2020	207	—		02/2025	London, UK
6	Industrial	3	01/2019	196	7		02/2024	Brooklyn, NY
7	Office	3	06/2019	192	27		11/2026	Berlin, Germany
8	Office	3	10/2018	191	8		10/2021	Manhattan, NY
9	Office	3	09/2019	172	—		09/2023	London, UK
10	Office	3	01/2020	166	121		02/2025	Long Island City, NY
11	Office	3	11/2017	158	—		01/2023	Chicago, IL
12	Hotel	3	04/2018	152	2		04/2023	Honolulu, HI
13	Hotel	3	05/2018	140	—		06/2023	Miami, FL
14	Hotel ⁽¹⁾	5	09/2015	144	—		06/2023	Manhattan, NY
15	Hotel	3	08/2019	131	—		08/2024	Puglia, Italy
16	Office	3	01/2018	130	60		01/2022	Renton, WA
17	Urban Predevelopment ⁽¹⁾	5	03/2017	126	9		12/2020	Brooklyn, NY
18	Urban Predevelopment ⁽¹⁾	5	01/2016	118	—		09/2021	Miami, FL
19	Residential-for-sale: inventory	3	03/2018	121	—		03/2021	London, UK
20	Office	3	10/2018	121	65	Y	10/2023	Manhattan, NY
21	Residential-for-sale: construction	3	12/2019	114	35	Y	01/2023	Boston, MA
22	Hotel	3	03/2017	105	—		03/2022	Atlanta, GA
23	Retail center	5	11/2014	104	—		09/2020	Cincinnati, OH
24	Hotel	3	11/2018	99	—		12/2023	Vail, CO
25	Hotel	3	12/2017	89	—		12/2022	Manhattan, NY
26	Office	3	03/2018	89	3		04/2023	Chicago, IL
27	Residential-for-sale: inventory	3	12/2019	82	—		07/2021	Manhattan, NY
28	Office	3	04/2019	76	83	Y	09/2025	Culver City, CA
29	Office	3	12/2017	74	45		07/2022	London, UK
30	Mixed Use	3	12/2019	72	1		12/2024	London, UK
31	Residential-for-sale: construction	3	12/2018	70	107	Y	12/2023	Manhattan, NY
32	Multifamily	3	04/2014	69	—		07/2023	Various
33	Hotel	3	08/2019	67	—		09/2022	Manhattan, NY
34	Hotel	3	04/2018	63	—		05/2023	Scottsdale, AZ
35	Urban Predevelopment	3	12/2016	63	—		06/2020	Los Angeles, CA
36	Hotel	3	09/2019	60	—		10/2024	Miami, FL
37	Residential-for-sale: construction	3	01/2018	60	20	Y	01/2023	Manhattan, NY
38	Hotel	3	12/2019	60	—		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, Ohio
42	Multifamily	3	06/2018	47	—		06/2020	London, UK
43	Office	3	08/2018	42	148	Y	12/2022	London, UK
44	Hotel	3	12/2015	42	—		08/2024	St. Thomas, USVI
45	Residential-for-sale: construction	3	12/2018	40	62	Y	01/2024	Hallandale Beach, FL
46	Office	3	04/2019	35	37	Y	08/2022	Birmingham, UK
47	Hotel ⁽¹⁾	5	02/2018	31	—		03/2023	Pittsburgh, PA
48	Office	3	12/2019	29	6		12/2022	Edinburgh, Scotland
49	Residential-for-sale: construction	3	03/2018	26	88	Y	03/2023	San Francisco, CA
50	Residential-for-sale: inventory	2	05/2018	24	—		04/2021	Manhattan, NY
51	Residential-for-sale: inventory	3	06/2018	18	—		06/2020	Manhattan, NY
52	Residential-for-sale: inventory ⁽¹⁾	5	02/2014	3	—		04/2021	Bethesda, MD
53	Mixed Use	3	12/2019	(8)	777	Y	06/2025	London, UK
	General CECL Allowance	N/A		(28)
	Sub total / Weighted-Average Commercial Mortgage Loans	3.2		$5,414	$1,792		3.3 Years

Subordinate Loan and Other Lending Asset Portfolio
Property Type Risk Rating Origination Date Amortized Cost Unfunded Commitment
Construction Loan⁽⁴⁾
Fully-extended Maturity Location
Residential-for-sale: construction ⁽²⁾
3 06/2015 $203 — Y 02/2021 Manhattan, NY
Urban Retail 3 08/2019 121 — 09/2024 Manhattan, NY
Office 3 01/2019 99 — 12/2025 Manhattan, NY
Residential-for-sale: construction 3 12/2017 93 19 Y 06/2022 Manhattan, NY
Healthcare 3 01/2019 93 — 01/2024 Various

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Other 2 09/2017 72 — 09/2022 Various
Multifamily 3 10/2015 68 — 11/2019 Manhattan, NY
Residential-for-sale: construction 3 12/2017 65 — Y 04/2023 Los Angeles, CA
Healthcare 3 07/2019 51 — 06/2024 Various
Residential-for-sale: construction⁽²⁾
3 11/2017 48 — Y 02/2021 Manhattan, NY
Healthcare 2 01/2015 46 — 12/2019 Various
Mixed Use 3 01/2017 42 — 02/2027 Cleveland, OH
Residential-for-sale: inventory 2 10/2016 36 — 10/2020 Manhattan, NY
Mixed Use 3 02/2019 36 — Y 12/2022 London, UK
Industrial 2 05/2013 32 — 05/2023 Various
Urban Retail 3 08/2019 30 — 09/2024 Manhattan, NY
Residential-for-sale: inventory 3 06/2017 25 — 12/2020 Manhattan, NY
Hotel 2 06/2015 25 — 07/2025 Phoenix, AZ
Hotel 3 06/2015 20 — 12/2022 Washington, DC
Hotel 3 06/2018 20 — 06/2023 Las Vegas, NV
Multifamily 3 05/2018 20 — 05/2028 Cleveland, OH
Hotel 2 02/2015 20 — 01/2020 Burbank, CA
Mixed Use 3 12/2018 18 33 Y 12/2023 Brooklyn, NY
Hotel ⁽¹⁾
3 09/2015 15 9 06/2023 Manhattan, NY
Office 2 07/2013 14 — 07/2022 Manhattan, NY
Hotel 3 05/2017 8 — 06/2027 Anaheim, CA
Office 3 08/2017 8 — 09/2024 Troy, MI
Mixed Use 3 07/2012 7 — 08/2022 Chapel Hill, NC
Sub total / Weighted-Average Subordinate Loans and Other Lending Assets 2.8 $1,335 $61 35% 3.3 Years

Total / Weighted-Average
Loan Portfolio
3.0 $6,115 $1,073 17% 3.1 Years



Subordinate Loan and Other Lending Asset Portfolio
#	Property Type	Risk Rating	Origination Date	Amortized Cost	Unfunded Commitment	Construction Loan⁽⁵⁾	Fully-extended Maturity	Location
1	Residential-for-sale: construction ⁽²⁾	3	06/2015	$216	—	Y	02/2021	Manhattan, NY
2	Residential-for-sale: construction	3	12/2017	100	15	Y	06/2022	Manhattan, NY
3	Office	3	01/2019	100	—		12/2025	Manhattan, NY
4	Healthcare	3	01/2019	76	—		01/2024	Various
5	Multifamily	3	10/2015	69	—		11/2020	Manhattan, NY
6	Residential-for-sale: construction	3	12/2017	68	—	Y	04/2023	Los Angeles, CA
7	Residential-for-sale: construction ⁽²⁾	3	11/2017	68	—	Y	02/2021	Manhattan, NY
8	Healthcare ⁽³⁾	3	07/2019	51	—		06/2024	Various
9	Mixed Use	3	01/2017	42	—		02/2027	Cleveland, OH
10	Residential-for-sale: inventory	2	10/2016	36	—		10/2020	Manhattan, NY
11	Mixed Use	3	02/2019	36	—	Y	12/2022	London, UK
12	Industrial	2	05/2013	32	—		05/2023	Various
13	Mixed Use	3	12/2018	26	25	Y	12/2023	Brooklyn, NY
14	Hotel	2	06/2015	24	—		07/2025	Phoenix, AZ
15	Hotel	3	06/2018	20	—		06/2023	Las Vegas, NV
16	Multifamily	3	05/2018	19	—		05/2028	Cleveland, OH
17	Healthcare ⁽³⁾	3	02/2019	17	—		01/2034	Various
18	Office	2	07/2013	14	—		07/2022	Manhattan, NY
19	Hotel ⁽³⁾	5	06/2015	10	—		12/2022	Washington, DC
20	Hotel	3	05/2017	8	—		06/2027	Anaheim, CA
21	Office	3	08/2017	8	—		09/2024	Troy, MI
22	Mixed Use	3	07/2012	7	—		08/2022	Chapel Hill, NC
	General CECL Allowance			(30)
	Sub total / Weighted-Average Subordinate Loans and Other Lending Assets	2.9		$1,017	$40		3.0 Years

	Total / Weighted-Average Loan Portfolio	3.1		$6,431	$1,832		3.3 Years

———————

(1) ~~Both loans are secured by the same property~~.

~~(2) Both loans are secured by the same property.~~

~~(3)~~ Amortized cost for these loans is net of the recorded provisions for loan ~~losses and impairments.~~losses.

~~(4) Weighted-average construction loan % is based on~~(2) Both loans are secured by the ~~amortized cost of the loans.~~same property.

(3) Single Asset, Single Borrower CMBS.

~~The follow table shows information on realized and unrealized loan losses:~~

Property Type Security Location Date of Origination First Date of Loss Maximum Principal Funded Amortized Cost Loss Type
Retail Center Mortgage Cincinnati, OH 11/2014 12/2018 $ 171,215
$ 126,068
$ 47,000
Unrealized
Residential-for-sale: inventory Mortgage Bethesda, MD 2/2014 6/2017 80,000
15,695
13,000
Unrealized
Multifamily Mortgage Williston, ND 11/2014 6/2016 58,000
—
12,513
Realized
Total $ 309,215
$ 141,763
$ 72,513

Realized and Unrealized Loan Losses: $ 72,513
as a % of total assets 1.14 %
as a % of commitments since inception 0.57 %

Our average asset and debt balances for the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020 were ($ in thousands):


	Average month-end balances for the nine months ended September 30, 2019				Average month-end balances for the three months ended March 31, 2020
Description	Assets		Related debt		Assets		Related debt
Commercial mortgage loans, net	$	4,227,591	$	2,109,904	$	5,579,719	$	3,231,713
Subordinate loans and other lending assets, net	1,251,608		—		1,063,453		—

Investment Activity

During the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, we committed ~~$2.0 billion~~$562.0 million of capital to loans ($~~1.8 billion~~439.9 million of which was funded during the ~~nine~~three months ended ~~September 30, 2019)~~March 31, 2020). In addition, during the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, we funded ~~$290.0~~$118.5 million for loans closed prior to ~~2019,~~2020, and received ~~$843.4~~$210.7 million in ~~repayments.~~repayments and sales.

Net Income (Loss) Available to Common Stockholders

For the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively, our net income (loss) available to common stockholders was ~~$25.7~~$(131.2) million, or ~~$0.16~~$(0.86) per diluted share of common stock, and ~~$55.4~~$60.9 million, or ~~$0.40~~$0.43 per diluted ~~share of common stock. For the nine months ended September 30, 2019 and 2018, respectively, our net income available to common stockholders was $143.1 million, or $0.97 per diluted~~

share of common stock, ~~and $146.5 million, or $1.14 per 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 ($ in thousands):

Three months ended September 30, 2019 vs 2018 Nine months ended September 30, 2019 vs. 2018
2019 2018 2019 2018
Net interest income:
Interest income from commercial mortgage loans $ 81,136
$ 71,179
$ 9,957
$ 236,880
$ 188,434
$ 48,446
Interest income from subordinate loans and other lending assets 43,421
37,308
6,113
125,303
105,236
20,067
Interest expense (39,341 ) (31,007 ) (8,334 ) (109,147 ) (82,184 ) (26,963 )
Net interest income 85,216
77,480
7,736
253,036
211,486
41,550
Operating expenses:
General and administrative expenses (5,839 ) (5,843 ) 4
(18,564 ) (16,493 ) (2,071 )
Management fees to related party (10,434 ) (9,515 ) (919 ) (30,306 ) (26,620 ) (3,686 )
Total operating expenses (16,273 ) (15,358 ) (915 ) (48,870 ) (43,113 ) (5,757 )
Other income 429
427
2
1,431
973
458
Provision for loan losses and impairments, net of reversals (35,000 ) —
(35,000 ) (20,000 ) (5,000 ) (15,000 )
Realized loss on investments —
—
—
(12,513 ) —
(12,513 )
Foreign currency loss (19,129 ) (4,050 ) (15,079 ) (20,012 ) (23,574 ) 3,562
Loss on early extinguishment of debt —
(2,573 ) 2,573
—
(2,573 ) 2,573
Gain on foreign currency forwards 24,153
6,291
17,862
28,619
28,797
(178 )
Unrealized loss on interest rate swap (10,307 ) —
(10,307 ) (23,420 ) —
(23,420 )
Net income $ 29,089
$ 62,217
$ (33,128 ) $ 158,271
$ 166,996
$ (8,725 )



	Three months ended March 31,						2020 vs 2019
	2020			2019
Net interest income:
Interest income from commercial mortgage loans	$	81,855		$	78,286		$	3,569
Interest income from subordinate loans and other lending assets	34,018			40,839			(6,821		)
Interest expense	(41,205		)	(36,295		)	(4,910		)
Net interest income	74,668			82,830			(8,162		)
Operating expenses:
General and administrative expenses	(6,531		)	(6,151		)	(380		)
Management fees to related party	(10,268		)	(9,613		)	(655		)
Total operating expenses	(16,799		)	(15,764		)	(1,035		)
Other income	760			518			242
Provision for loan losses - Specific CECL Allowance	(150,000		)	—			(150,000		)
Provision for loan losses - General CECL Allowance	(33,465		)	—			(33,465		)
Foreign currency gain (loss)	(37,949		)	6,894			(44,843		)
Gain (loss) on foreign currency forwards	70,491			(6,720		)	77,211
Unrealized loss on interest rate swap	(35,548		)	—			(35,548		)
Net income (loss)	$	(127,842	)	$	67,758		$	(195,600	)

Net Interest Income

Net interest income ~~increased~~decreased by ~~$7.7 million and $41.6~~$8.2 million during the three ~~and nine~~ months ended ~~September 30, 2019, respectively,~~March 31, 2020 as compared to the same ~~periods~~period in ~~2018.~~2019. The ~~increase~~decrease was primarily due to (i) a ~~net increase in the principal balance of our loan portfolio by $1.3 billion, and (ii) a 0.40% increase~~1.09% decrease in average one-month LIBOR for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 compared to ~~September 30, 2018. This was offset by (i)~~March 31, 2019 and (ii) an increase in interest expense due to an increase in our net debt balance of ~~$1.2~~$1.9 billion as of ~~September 30, 2019~~March 31, 2020 compared to ~~September 30, 2018,~~March 31, 2019. This decrease was offset by (i) a $1.5 billion increase in loan principal balance as of March 31, 2020 compared to March 31, 2019 and (ii) in the ~~increase in average one-month~~money LIBOR ~~discussed above.~~floors on several of our loans.

We recognized ~~PIK interest of $13.7~~$0.2 million and ~~$42.8~~$3.7 million ~~for the three and nine months ended September 30, 2019, respectively, and $10.2 million and $29.9 million for the three and nine months ended September 30, 2018, respectively.~~

~~We recognized $0.3 million and $4.0 million~~in pre-payment penalties and accelerated fees for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, ~~respectively, and $0.2~~respectively.

We recognized PIK interest of $12.4 million and ~~$1.8~~$14.5 million for the three ~~and nine~~ months ended ~~September 30, 2018,~~March 31, 2020 and 2019, respectively.

Operating Expenses

General and administrative expenses

General and administrative expenses ~~decreased~~increased by ~~$4.0 thousand~~$0.4 million for the three months ended ~~September 30, 2019~~March 31, 2020 compared to the same period in ~~2018.~~2019. The ~~decrease~~increase was primarily driven by a ~~decrease of $159.0 thousand of~~$0.4 million increase in non-cash restricted stock and RSU amortization related to shares of common stock awarded under the ~~LTIPs and a $155.0 thousand increase in general operating expenses.~~

General and administrative expenses increased by $2.1 million for the nine months ended September 30, 2019 compared to the same period in 2018. The increase was primarily driven by an increase of $0.7 million of non-cash restricted stock and RSU amortization related to shares of common stock awarded under the LTIPs, a $0.7 million increase in general operating expenses, and $0.7 million in broken deal related costs incurred during the first six months of 2019.LTIPs.

Management fees to related party

Management fee expense increased by ~~$0.9 million and $3.7~~$0.7 million during the three ~~and nine~~ months ended ~~September 30, 2019, respectively,~~March 31, 2020 as compared to the same periods in ~~2018.~~2019. The increase is primarily attributable to an increase in our stockholders’ equity (as defined in the Management Agreement) as a result of the issuance of 2,775,509 shares of our common stock related to exchanges and conversions of the 2019 Notes (as described in "Note 9 - Convertible Senior Notes, Net" to the accompanying condensed consolidated financial statements) from August 2018 through March 2019 andus completing the follow-on public offering of 17,250,000 shares ~~in May~~during the second quarter of 2019 (as described in "Note 14 - Stockholders' Equity") ~~partially offset by the redemption of the Series C Preferred Stock in June 2019 (as described in "Note 14 - Stockholders' Equity")~~.

Management fees and the relationship between us and the Manager under the Management Agreement are discussed further in the accompanying condensed consolidated financial statements, in "Note 12 - Related Party Transactions."

Provision for loan losses - General CECL Allowance

The General CECL Allowance increased by $33.5 million during the three months ended March 31, 2020. The increase is predominantly related to a change in our view of estimated macro-economic conditions, including unemployment rate and ~~impairments, net~~commercial real estate price index, in the backdrop of ~~reversals,~~the COVID-19 global pandemic. Other factors that contributed to the increase include an increase in our view of remaining expected term of our loan portfolio and ~~realized loss on~~growth in the portfolio from new investments

~~During~~ during the ~~third quarter~~quarter. Refer to "Note 2 - Summary of ~~2019, we recorded a $32.0 million loan loss against a commercial mortgage loan secured by a retail center in Cincinnati, OH~~Significant Accounting Policies" and ~~a $3.0 million loan loss against a commercial mortgage loan secured by fully-built, for-sale residential condominium units located in Bethesda, MD (as described in “Note~~"Note 4 - Commercial ~~Mortgages,~~Mortgage, Subordinate Loans and Other Lending Assets, ~~Net”).~~ Net" for additional information related to our General CECL Allowance.

Provision for loan losses - Specific CECL Allowance

During the ~~second quarter of 2019,~~three months ended March 31, 2020, we recorded impairments on five new loans and increased the ~~collateral underlying an impaired loan was sold resulting in a realized loss of $12.5 million. Consequently, the~~Specific CECL Allowance on two loans that previously ~~recorded $15.0 million~~had loan loss ~~provision was reversed.~~provisions, primarily due to the impact from COVID-19. Refer to "Note 4 - Commercial Mortgage, Subordinate Loans and Other Lending Assets, Net" for additional information related to our Specific CECL Allowance.

Foreign currency gain and (loss) on derivative instruments

We use forward currency contracts to economically hedge interest and principal payments due under our loans denominated in currencies other than USD. When foreign currency gain and (loss) on derivative instruments are evaluated on a combined basis, the net impact for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 ~~were $5.0~~was $32.5 million and ~~$8.6 million, respectively, and the net impact for the three and nine months ended September 30, 2018 were $2.2 million and $5.2~~$0.2 million, respectively.

Unrealized loss on interest rate swap

We use an interest rate swap to manage exposure to variable cash flows on portions of our borrowings under our senior secured term ~~loan debt.~~loan. The interest rate swap agreement allows us to receive a variable rate cash flow based on LIBOR and pay a fixed rate cash flow, mitigating the impact of this exposure. For the three months ended March 31, 2020, we had an unrealized loss on the interest rate swap of $35.5 million. We did not have the interest rate swap at any point during the three months ended March 31, 2019.

Dividends

We have declared the following dividends in ~~2019:~~2020:

Three months ended
Dividend declared per share of: September 30, 2019 June 30, 2019 March 31, 2019
Common Stock $0.46 $0.46 $0.46
Series B Preferred Stock 0.50 0.50 0.50
Series C Preferred Stock N/A 0.22 0.50




Dividend declared per share of:	March 31, 2020
Common Stock	$0.40
Series B Preferred Stock	0.50

Subsequent Events

Refer to "Note 18 - Subsequent Events" to the accompanying condensed consolidated financial statements for disclosure regarding significant transactions that occurred subsequent to ~~September 30, 2019.~~March 31, 2020.

Liquidity and Capital Resources

Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain our assets and operations, make distributions to our stockholders and other general business needs. As of March 31, 2020, we had $1.1 billion of corporate debt and $3.6 billion of asset specific financings. We have no corporate debt maturities until August 2022. As of March 31, 2020, we had $582 million of cash on hand and $8 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 increase our cash balances in order to maintain an adequate level of liquidity to meet future outflows. As the duration and severity of COVID-19 remain unknown, so does the impact it will have on our borrowers, lenders, and the economy as a whole. We will continue to closely monitor developments related to COVID-19 as it relates to our liquidity position and

3234

needs. Our cash is used to purchase or originate target assets, repay principal and interest on borrowings, make distributions to stockholders and fund operations. We closely monitor our liquidity position andfinancial 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 following table presents our debt-to-equity ratio:



	~~September 30, 2019~~	~~December 31, 2018~~
~~Debt to Equity Ratio~~ ⁽¹⁾	~~1.3x~~	~~0.9x~~



	March 31, 2020	December 31, 2019
Debt to Equity Ratio ⁽¹⁾	1.6	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 our investments, net of any associated financing expense, principal repayments from our investments, net of associated financing repayments, proceeds from the sale of investments, and changes in working capital balances. See "Results of Operations – ~~Investments"~~Loan Portfolio Overview" above for a summary of interest rates related to our investment portfolio as of ~~September 30, 2019.~~March 31, 2020.

Borrowings Under Various Financing Arrangements

JPMorgan Facility

In ~~May 2017,~~November 2019, through ~~two~~three indirect wholly-owned subsidiaries, we entered into a ~~Fifth~~Sixth Amended and Restated Master Repurchase Agreement with JPMorgan Chase Bank, National Association. ~~During the third quarter of 2019, we amended the~~The JPMorgan Facility ~~to allow~~allows for $1.3 billion of maximum borrowings (with amounts borrowed in British pounds and ~~maturity~~Euros converted to U.S. dollars for purposes of calculating availability based on the greater of the spot rate as of the initial financing under the corresponding mortgage loan and the then-current spot rate) and matures in June 2022 ~~plus~~and has two one-year extensions available at our option, which are subject to the approval of JPMorgan and certain other conditions. The JPMorgan Facility enables us to elect to receive advances in ~~USD, GBP,~~U.S. dollars, British pounds, or ~~EUR.~~Euros. Margin calls may occur any time at specified aggregate margin deficit thresholds. ~~We have agreed to provide a limited guarantee of the obligations of our indirect wholly-owned subsidiaries under the JPMorgan Facility.~~

DB ~~Repurchase~~ Facility

In ~~April 2018,~~March 2020, through an indirect wholly-owned subsidiary, we entered into a ~~Second~~Third Amended and Restated Master Repurchase Agreement with Deutsche Bank AG, Cayman Islands Branch, ~~and Deutsche Bank AG,~~ London Branch, which ~~was upsized in September 2019, and~~ provides for advances of up to ~~$1.25~~$1.0 billion for the sale and repurchase 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 ~~2020, plus a~~2021, and has two one-year ~~extension~~extensions available at our option, subject to certain conditions. Margin calls may occur any time at specified aggregate margin deficit thresholds. ~~We have agreed to provide a limited guarantee of the obligations of our indirect wholly-owned subsidiaries under this facility.~~

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 ~~was upsized in March 2019 from $300.0 million~~provides advances up to $500.0 million and matures in November ~~2019, plus two~~2020, and has one one-year ~~extensions~~extension available at our option, subject to certain conditions. Margin calls may occur any time at specified margin deficit thresholds. ~~We have agreed to provide a limited guarantee of the obligations of our indirect wholly-owned subsidiaries under this facility.~~

As of ~~September 30, 2019,~~March 31, 2020, we had ~~$267.7~~$359.5 million of borrowings outstanding under the Goldman ~~Facility.~~Facility secured by certain of our commercial mortgage loans.

CS Facility - USD

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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 sale and repurchase of eligible commercial mortgage loans secured by real estate. The CS Facility - USD ~~matures~~has an "evergreen" feature such that the facility continues unless terminated at any time by Credit Suisse with six ~~months after either party notifies the other party of intention to terminate.~~months' notice. Margin calls may occur any time at specified aggregate margin deficit thresholds. ~~We have agreed to provide a guarantee of the obligations of our indirect wholly-owned subsidiary under this facility.~~

As of ~~September 30, 2019,~~March 31, 2020, we had ~~$174.3~~$325.9 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 ~~AG, acting through its Cayman Islands Branch and Alpine Securitization Ltd,~~Securities (Europe) Limited, which provides for advances for the sale and repurchase of eligible commercial mortgage loans secured by real estate. The CS Facility - GBP matures ~~six months after either party notifies the other party of intention to terminate.~~in September 2020. Margin calls may occur any time at specified aggregate margin deficit thresholds. ~~We have agreed to provide a guarantee of the obligations of our indirect wholly-owned subsidiary under this facility.~~

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 March 31, 2020, we had $50.6 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 provides for a single asset financing. The facility ~~matures~~is scheduled to mature in ~~December 2019.~~June 2020. Margin calls may occur any time at specified aggregate margin deficit thresholds. ~~We have agreed to provide a guarantee of the obligations of our indirect wholly-owned subsidiary under this facility.~~

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 ~~January~~July 2021. Margin calls may occur any time at specified aggregate margin deficit thresholds. ~~We have agreed to provide a guarantee of the obligations of our indirect wholly-owned subsidiary under this facility.~~

~~Secured~~ 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.

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. Margin calls may occur any time at specified aggregate margin deficit thresholds.

The table below provides the currency, outstanding balance, stated maturity, and extended maturity for each of the five secured debt arrangements under the Barclays Facility - GBP/EUR:



Local Currency	Borrowings outstanding (in $)	Fully-Extended Maturity⁽¹⁾
GBP	$217,350	December 2023
GBP	156,958	February 2023
GBP	149,830	October 2024
GBP	121,716	September 2023
Sub-total/Weighted-Average	$645,854	November 2023
EUR	179,586	see below
Total/Weighted-Average	$825,440

———————

(1) Assumes underlying loans extend to fully extended maturity and extensions at our option are exercised.

The Barclays Facility - EUR 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 month notice.

As of March 31, 2020, we had $825.4 million (£520.0 million and €162.8 million assuming conversion into U.S.

dollars) of borrowings outstanding under the Barclays Facility - GBP/EUR secured by five of our commercial mortgage loans.

Debt ~~Arrangements~~ Covenants

~~Each of the~~The guarantees related to our secured debt arrangements contain the following ~~uniform~~ financial covenants (i) tangible net worth must be greater than $1.25 billion plus 75% of the 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 3:3.75:1; and (iii) our liquidity cannot be less than an amount equal to the greater of 5% of total recourse indebtedness or $30.0 million.

Senior Secured Term Loan

In May 2019, we entered into the $500.0 million senior secured term loan. During the three months ended March 31, 2020, we repaid $1.3 million of principal related to the senior secured term loan. The senior secured term loan bears interest at LIBOR plus 2.75% and was issued at a price of 99.5%. The outstanding balance as of March 31, 2020 was $496.3 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.

Convertible Senior Notes

In two separate offerings during 2014, we issued an aggregate principal amount of $254.8 million of 5.50% Convertible Senior Notes due 2019, for which we received $248.6 million, after deducting the underwriting discount and offering expenses.

~~The 2019 Notes were exchanged or converted for shares of our common stock and cash as follows:~~

~~The remaining $0.7 million in principal amount of the 2019 Notes were repaid at maturity on March 15, 2019.~~

During the year ended December 31, 2018, we recorded a loss on early extinguishment of debt of $2.6 million, in connection with the exchanges and conversions of the 2019 Notes. This includes fees and accelerated amortization of capitalized costs. There was no such loss related to the 2019 Notes during the three months ended September 30, 2019.

In two separate offerings during 2017, we issued an aggregate principal amount of $345.0 million of 4.75% Convertible Senior Notes due 2022, for which we received $337.5 million, after deducting the underwriting discount and offering expenses. At ~~September 30, 2019,~~March 31, 2020, the 2022 Notes had a carrying value of ~~$337.1~~$338.4 million and an unamortized discount of ~~$7.9~~$6.6 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, 2019,~~March 31, 2020, the 2023 Notes had a carrying value of ~~$223.5~~$224.2 million and an unamortized discount of ~~$6.5~~$5.8 million.

Cash Generated from Equity Offerings

During the first quarter of 2018, we completed a follow-on public offering of 15,525,000 shares of our common stock, including shares issued pursuant to the underwriters' option to purchase additional shares, at a price of $17.77 per share. The aggregate net proceeds from the offering were $275.9 million after deducting 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. In March 2020, we repurchased 300,000 shares of common stock under this plan for $2.4 million.

Other Potential Sources of Financing

Our primary sources of cash currently consist of cash available, which was ~~$160.9~~$582.1 million as of ~~September 30, 2019,~~March 31, 2020, principal and interest payments we receive on our portfolio of assets, and available borrowings under our secured debt arrangements. We expect our other sources of cash to consist of cash generated from operations and prepayments of principal received on our portfolio of assets. Such prepayments are difficult to estimate in advance. Depending on market conditions, we may utilize additional borrowings as a source of cash, which may also include additional secured debt arrangements as well as other borrowings such as credit facilities, or conduct additional public and private debt and equity offerings. As of March 31, 2020 we also held $1.2 billion of unencumbered assets, consisting of $0.2 billion of senior mortgages and $1.0 billion of mezzanine loans.

We maintain policies relating to our borrowings and use of leverage. See "Leverage Policies" below. In the future, we 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.

We generally intend to hold our target assets as long-term investments, although we may sell certain of our investments in order to manage our interest rate risk and liquidity needs, meet other operating objectives and adapt to market conditions.

To maintain our qualification as a REIT under the Internal Revenue Code, we must distribute annually at least 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gain. These distribution requirements limit our ability to retain earnings and replenish or increase capital for operations.

Leverage Policies

We use leverage for the sole purpose of financing our portfolio and not for the purpose of speculating on changes in interest rates. In addition to our secured debt arrangements ~~in the future~~and senior secured term loan, we ~~may~~ access additional sources of borrowings. Our charter and bylaws do not limit the amount of indebtedness we can incur; however, we are ~~limited~~subject to and carefully monitor the limits placed on us by ~~certain financial covenants under~~ our ~~secured debt arrangements. Consistent with~~credit providers and those that assign ratings on our ~~strategy of keeping leverage within a prudent range, we~~Company.

~~expect to, depending upon the composition of our portfolio, maintain~~At March 31, 2020, our debt-to-equity ratio ~~at less than 2.0x.~~was 1.6 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 2.0 to 3.0 turns of leverage and generally do not finance our subordinate loan portfolio given built-in inherent structural leverage. Consequently, depending on our portfolio mix, our debt-to-equity ratio may exceed our previously disclosed thresholds.

Investment Guidelines

Our current investment guidelines, approved by our board of directors, are comprised of the following:

no investment will be made that would cause us to fail to qualify as a REIT for U.S. federal income tax purposes;

no investment will be made that would cause us to register as an investment company under the 1940 Act;

investments will be predominantly in our target assets;

no more than 20% of our 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 our 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

Our contractual obligations including expected interest payments as of ~~September 30, 2019~~March 31, 2020 are summarized as follows ($ in thousands):


	Less than 1 year ⁽¹⁾		1 to 3 years ⁽¹⁾		3 to 5 years ⁽¹⁾		More than 5 years ⁽¹⁾		Total		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 ⁽²⁾	$	563,701	$	1,439,162	$	1,604,338	$	—	$	3,607,201
Secured debt arrangements⁽¹⁾⁽²⁾											$	344,787	$	1,117,097	$	205,964	$	2,144,893	$	—	$	3,812,741
Senior secured term loan⁽³⁾⁽²⁾	29,133		57,408		56,502		544,381		687,424		22,316		22,141		21,965		43,451		523,406		633,279
Convertible senior notes	28,750		400,922		243,393		—		673,065		28,750		28,750		363,978		237,211		—		658,689
Unfunded loan commitments ⁽⁴⁾	667,447		385,012		20,964		—		1,073,423
Unfunded loan commitments ⁽³⁾⁽⁴⁾											528,627		729,951		289,918		17,482		11,793		1,577,771
Total	$	1,289,031	$	2,282,504	$	1,925,197	$	544,381	$	6,041,113	$	924,480	$	1,897,939	$	881,825	$	2,443,037	$	535,199	$	6,682,480

———————


(1)	Assumes underlying assets are financed through the fully extended maturity date of the secured debt arrangement.


(2)	Based on the applicable benchmark rates as of ~~September 30, 2019~~March 31, 2020 on the floating rate debt for interest payments due.


(3)	~~In connection with the senior secured term loan, we 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%.~~

~~(4)~~

Based on 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 our operating results. Refer to "Note 15– Commitments and Contingencies" for further detail regarding unfunded loan commitments.


(4)	In connection with the sale of three loans, which sale closed subsequent to March 31, 2020, as discussed in "Note 18 - Subsequent Events," we were relieved of future funding obligations totaling $172.6 million, which is excluded from the above table, all of which was expected to be funded within two years of March 31, 2020.

Loan Commitments. As of ~~September 30, 2019~~,March 31, 2020, we had ~~$1.1~~$1.8 billion of unfunded loan commitments, comprised of ~~$1.0~~$1.8 billion related to our commercial mortgage loan portfolio, and ~~$61.5~~$40.5 million related to our subordinate loan portfolio.

Management Agreement. On September 23, 2009, we 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 our 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. We do not reimburse the Manager or its affiliates for the salaries and other compensation of their personnel, except for the allocable share of the compensation of (1) our Chief Financial Officer based on the percentage of time spent on our 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 our affairs based on the percentage of time devoted by such personnel to our affairs. We are also required to reimburse the Manager for operating expenses related to us incurred by the 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. Our reimbursement obligation is not subject to any dollar limitation.

The current term of the Management Agreement ~~was renewed during the period and expires~~will expire on September 29, 2020. Absent certain action by the independent directors of our board of directors, as described below, the Management Agreement will automatically renew on each anniversary for a one-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 our independent directors, based upon (1) unsatisfactory performance by the Manager that is materially detrimental to us 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 our 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 Management Agreement are not fixed and determinable. Following a meeting by our independent directors in February ~~2019,~~2020, which included a discussion of the Manager’s performance and the level of the management fees thereunder, we 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 ~~USD.~~U.S. dollars. We have entered into a series of forward contracts to sell an amount of foreign currency ~~(British pounds~~(GBP and ~~Euros)~~EUR) for an agreed upon amount of ~~USD~~U.S. dollars at various dates through December ~~2021.~~2024. These forward contracts were executed to economically fix the ~~USD~~U.S. dollar 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.

~~Unrealized loss on interest rate swap.~~Interest Rate Swap. In connection with the senior secured term loan, we 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%. Refer to "Note 10- Derivatives, Net" to the accompanying condensed consolidated financial statements for details regarding our interest rate swap.

Off-balance Sheet Arrangements

We 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, we have not guaranteed any obligations of unconsolidated entities or entered into any commitment to provide additional funding to any such entities.

Dividends

We intend to continue to make regular quarterly distributions to holders of our common stock. U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of our REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains, and that we pay tax at regular corporate rates to the extent that we annually distribute less than 100% of our net taxable income. We generally intend over time to pay dividends to our stockholders in an amount equal to our net taxable income, if and to the extent authorized by our board of directors. Any distributions we make are at the discretion of our board of directors and depend upon, among other things, our actual results of operations. These results and our ability to pay distributions are affected by various factors, including the net interest and other income from our portfolio, our operating expenses and any other expenditures. If our cash available for distribution is less than our net taxable income, we could be required to sell assets or borrow funds to make cash distributions or we may make a portion of the required distribution in the form of a taxable stock distribution or distribution of debt securities.

As of ~~September 30, 2019,~~March 31, 2020, we had 6,770,393 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, 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 of our securities at the election of the holders. On or after September 21, 2020, we may, at our option, redeem the shares at a redemption price of $25.00, plus any accrued unpaid distribution through the date of the redemption.

On June 10, 2019, we redeemed all 6,900,000 shares of Series C Preferred Stock outstanding. Holders of the Series C Preferred Stock received the redemption price of $25.00 plus accumulated but unpaid dividends to the redemption date of $0.2223.

Non-GAAP Financial Measures

Operating Earnings

For the three ~~and nine~~ months ended ~~September 30, 2019,~~March 31, 2020, our Operating Earnings were ~~$72.6~~$62.7 million, or ~~$0.47~~$0.40 per share ~~and $197.6 million, or $1.35 per share, respectively,~~ as compared to ~~$58.6~~$68.4 million, or ~~$0.45 per share, and $160.9 million, or $1.31~~$0.50 per share for the same ~~periods~~period in the prior ~~year, respectively.~~year. Operating Earnings is a non-GAAP financial measure that we 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 Notes to stockholders’ equity in accordance with GAAP, and (vi) provision for loan ~~losses and impairments.~~losses. Beginning with the quarter ended September 30, 2016, we slightly modified our definition of Operating Earnings to include realized gains (losses) on currency swaps related to interest income on investments denominated in a currency other than USD. In addition, beginning with the quarter ended December 31, 2018, we ~~further~~ modified our definition of Operating Earnings to include the impact from forward points on our foreign currency hedges, which reflect the interest rate differentials between the applicable base rate for our foreign currency investments and USD LIBOR. These forward contracts effectively convert the rate exposure to USD LIBOR, resulting in additional interest income earned in ~~USD~~U.S. dollar terms. These amounts ~~are~~may not be included in GAAP net ~~income. In order to conform to~~income in the ~~2018 year-end presentation, which incorporates~~same period as this ~~modification, prior-year Operating Earnings results presented below have been modified accordingly.~~

adjustment. Generally these amounts would be included in prior period GAAP net income as unrealized gains on forward currency contracts. Operating Earnings may also be adjusted to exclude certain other non-cash items, as determined by the Manager and approved by a majority of our independent directors.

The weighted-average diluted shares outstanding used for Operating Earnings per weighted-average diluted share has been adjusted from weighted-average diluted shares under GAAP to exclude shares issued from a potential conversion of the Notes. Consistent with the treatment of other unrealized adjustments to Operating Earnings, these potentially issuable shares are excluded until a conversion occurs, which we believe is a useful presentation for investors. We believe that excluding shares issued in connection with a potential conversion of the Notes from our computation of Operating Earnings per weighted-average diluted share is useful to investors for various reasons, including the following: (i) conversion of Notes to shares requires both the holder of a Note to elect to convert the Note and for us to elect to settle the conversion in the form of shares; (ii) future conversion decisions by Note holders will be based on our stock price in the future, which is presently not determinable; (iii) the exclusion of shares issued in connection with a potential conversion of the Notes from the computation of Operating Earnings per weighted-average diluted share is consistent with how we treat other unrealized items in our computation of Operating Earnings per weighted-average diluted share; and (iv) we believe that when evaluating our operating performance, investors and potential investors consider our Operating Earnings relative to our actual distributions, which are based on shares outstanding and not shares that might be issued in the future. The table below summarizes the reconciliation from weighted-average diluted shares under GAAP to the weighted-average diluted shares used for Operating Earnings ($ in thousands, except Price):


	Three months ended September 30, 2019 ⁽¹⁾	Nine months ended September 30, 2019 ⁽¹⁾	Three months ended March 31,
			2020	2019
Weighted-Averages	Shares	Shares	Shares	Shares
Weighted-average diluted shares - GAAP	153,531,678	144,638,237	153,948,191	134,607,107
Unvested RSUs	1,839,631	1,845,086	2,007,242	1,849,564
Weighted-average diluted shares - Operating Earnings	155,371,309	146,483,323	155,955,433	136,456,671



	Three months ended March 31, 2020				Three months ended March 31, 2019

Weighted-Averages	Face		Price	Shares	Face		Price	Shares
Weighted-average diluted shares - GAAP				153,948,191				164,683,086
2019 Notes⁽¹⁾	N/A		N/A	—	$	26,487	$17.17	(1,542,708	)
2022 Notes	$	345,000	$19.91	—	$	345,000	$19.91	(17,327,970	)
2023 Notes	$	230,000	$20.53	—	$	230,000	$20.53	(11,205,301	)
Unvested RSUs	N/A		N/A	2,007,242	N/A		N/A	1,849,564
Weighted-average diluted shares - Operating Earnings				155,955,433				136,456,671

———————

(1) ~~For~~Face represents the ~~three and nine months ended September 30, 2019 and 2018, 29,041,856 and 29,548,649~~ weighted-average ~~potentially issuable shares with respect to~~balances during the ~~Notes, respectively, were excluded from the calculation of diluted net income per share because the effect was anti-dilutive. Refer to "Note 17 – Net Income per Share" for further discussion.~~period.

Three months ended September 30, 2018 Nine months ended September 30, 2018

Weighted-Averages Face Price Shares Face Price Shares
Weighted-average diluted shares - GAAP 153,918,435
150,424,889
2019 Notes⁽¹⁾
$ 127,925
$17.28 (7,402,122 ) $ 13,170
$17.17 (12,220,679 )
2022 Notes $ 345,000
$19.91 (17,327,970 ) $ 345,000
$19.91 (17,327,970 )
2023 Notes $ —
N/A —
$ —
N/A —
Unvested RSUs —
—
1,593,070
—
—
1,617,398
Weighted-average diluted shares - Operating Earnings 130,781,413
122,493,638

							Computation of Share Count for Operating Earnings
	Three months ended September 30,		Nine months ended September 30,		Three months ended March 31,
	2019	2018	2019	2018	2020	2019
Basic weighted-average shares of common stock outstanding	153,531,678	129,188,343	144,638,237	120,876,240	153,948,191	134,607,107
Weighted-average unvested RSUs	1,839,631	1,593,070	1,845,086	1,617,398	2,007,242	1,849,564
Weighted-average diluted shares - Operating Earnings	155,371,309	130,781,413	146,483,323	122,493,638	155,955,433	136,456,671

In order to evaluate the effective yield of the portfolio, we use Operating Earnings to reflect the net investment income of our portfolio as adjusted to include the net interest expense related to our derivative instruments. Operating Earnings allows us to isolate the net interest expense associated with our swaps in order to monitor and project our full cost of borrowings. We also believe that our investors use Operating Earnings, or a comparable supplemental performance

measure, to evaluate and compare the performance of our company and our peers and, as such, we believe that the disclosure of Operating Earnings is useful to our investors. ~~In addition, as discussed in "Note 9 - Convertible Senior Notes, Net," we recorded a loss on early extinguishment of debt associated with exchanges and conversions of the 2019 Notes.~~ 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. ~~We believe it is useful to our investors to also present Operating Earnings excluding realized loss on investments and loss on early extinguishment of debt to reflect our operating results.~~ Our operating results are primarily comprised of earning interest income on our investments net of borrowing and administrative costs.

A significant limitation associated with Operating Earnings as a measure of our financial performance over any period is that it excludes unrealized gains (losses) from investments. In addition, our presentation of Operating Earnings may not be comparable to similarly-titled measures of other companies, who may use different calculations. As a result, Operating Earnings should not be considered as a substitute for our GAAP net income as a measure of our financial performance or any measure of our liquidity under GAAP.

The table below summarizes the reconciliation from net income (loss) available to common stockholders to Operating Earnings ~~and Operating Earnings excluding realized loss on investments and loss on early extinguishment of debt~~ ($ in thousands):

Three months ended September 30, Nine months ended September 30,
2019 2018 2019 2018
Net income available to common stockholders $ 25,704
$ 55,381
$ 143,132
$ 146,491
Adjustments:

Equity-based compensation expense 3,889
4,048
12,084
11,404
Unrealized loss on interest rate swap 10,307
—
23,420
—
Gain on currency forwards (24,153 ) (6,291 ) (28,619 ) (28,797 )
Foreign currency loss, net 19,129
4,050
20,012
23,574
Net realized gains (losses) relating to interest income on foreign currency hedges, net ⁽¹⁾
870
421
1,614
(89 )
Net realized gains relating to forward points on foreign currency hedges, net 1,076
257
3,552
332
Amortization of the convertible senior notes related to equity reclassification 732
728
2,362
3,024
Provision for loan losses and impairments, net of reversals 35,000
—
20,000
5,000
Total adjustments: 46,850
3,213
54,425
14,448
Operating Earnings $ 72,554
$ 58,594
$ 197,557
$ 160,939

Realized loss on investments —
—
12,513
—
Loss on early extinguishment of debt —
2,573
—
2,573
Operating Earnings excluding realized loss on investments and loss on early extinguishment of debt $ 72,554
$ 61,167
$ 210,070
$ 163,512
Diluted Operating Earnings per share of common stock ⁽²⁾
$ 0.47
$ 0.45
$ 1.35
$ 1.31
Diluted Operating Earnings excluding realized loss on investments and loss on early extinguishment of debt $ 0.47
$ 0.47
$ 1.43
$ 1.33
Basic weighted-average shares of common stock outstanding 153,531,678
129,188,343
144,638,237
120,876,240
Weighted-average diluted shares - Operating Earnings 155,371,309
130,781,413
146,483,323
122,493,638



	Three months ended March 31,
	2020			2019
Net income (loss) available to common stockholders	$	(131,227	)	$	60,923
Adjustments:
Equity-based compensation expense	4,263			3,901
Unrealized loss on interest rate swap	35,548			—
(Gain) loss on currency forwards	(70,491		)	6,720
Foreign currency (gain) loss, net	37,949			(6,894		)
Realized gains relating to interest income on foreign currency hedges, net	256			418
Realized gains relating to forward points on foreign currency hedges, net	2,171			2,431
Amortization of the convertible senior notes related to equity reclassification	754			909
Provision for loan losses	183,465			—
Total adjustments:	193,915			7,485
Operating Earnings	$	62,688		$	68,408
Diluted Operating Earnings per share of common stock ⁽¹⁾	$	0.40		$	0.50
Basic weighted-average shares of common stock outstanding	153,948,191			134,607,107
Weighted-average diluted shares - Operating Earnings	155,955,433			136,456,671

———————

(1) In order to conform to the 2019 presentation of the reconciliation from net income available to common stockholders to Operating Earnings, $0.4 million and $(0.1) million was reclassified from Foreign currency gain, net for the three and nine months ended September 30, 2018, respectively.

~~(2)~~ For the computation of diluted Operating Earnings per share of common stock, for the three ~~and nine~~ months ended ~~September 30, 2018, $6.0~~March 31, 2020 and 2019, $0.0 million and ~~$22.6~~$8.4 million, respectively, of interest expense related to the Notes is not deducted from the numerator and the potentially dilutive shares related to the Notes are excluded from the denominator.

Book Value Per Share

The table below calculates our book value per share ($ in thousands, except per share data):


	September 30, 2019			December 31, 2018			March 31, 2020			December 31, 2019
Stockholders' Equity	$	2,629,510		$	2,509,747		$	2,400,911		$	2,629,975
Series B Preferred Stock (Liquidation Preference)	(169,260		)	(169,260		)	(169,260		)	(169,260		)
Series C Preferred Stock (Liquidation Preference)	—			(172,500		)
Common Stockholders' Equity	$	2,460,250		$	2,167,987		$	2,231,651		$	2,460,715
Common Stock	153,531,597			133,853,565			153,740,547			153,537,296
Book value per share	$	16.02		$	16.20		$	14.52		$	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	0.20

Book value per share
Book value per share at December 31, 2018 $ 16.20
Vesting and issuance of common stock under the LTIPs (0.09 )
Shares issued related to the conversion of the 2019 Notes 0.01
Other 0.01
Book value per share at March 31, 2019 $ 16.13
Common stock offering, net of subsequent dividend 0.20
Reversal of loan losses and impairments 0.02
Gain on foreign currency forwards, net 0.02
Unrealized loss on interest rate swap (0.08 )
Other 0.01
Book value per share at June 30, 2019 $ 16.30
Provision for loan losses and impairments (0.22 )
Unrealized loss on interest rate swap (0.07 )
Other 0.01
Book value per share at September 30, 2019 $ 16.02
42

Book value per share
Book value per share at December 31, 2018 $ 16.20
Provision for loan losses and impairments, net of reversal (0.20 )
Unrealized loss on interest rate swap (0.15 )
Vesting and issuance of common stock under the LTIPs (0.09 )
Common stock offering, net of subsequent dividend 0.20
Other 0.03
Gain on foreign currency forwards, net 0.02
Shares issued related to the conversion of the 2019 Notes 0.01
Book value per share at September 30, 2019 $ 16.02



Repurchase of common stock	0.01
Decrease in fair value on interest rate swap	(0.24		)
Vesting and delivery of RSUs	(0.07		)
Other	(0.01		)
Book value per share at March 31, 2020 prior to CECL Allowances	$	15.92
Specific CECL Allowance	$	(0.98	)
Book value per share at March 31, 2020 prior to General CECL Allowance	$	14.94
General CECL Allowance	$	(0.42	)
Book value per share at March 31, 2020	$	14.52

We believe that presenting book value per share with sub-totals prior to the CECL Allowances is useful for investors for various reasons. These include, among other things, the calculations for our covenants related to tangible net worth and debt-to-equity under our secured debt arrangements and senior secured term loan B permit us to add the General CECL Allowance to our GAAP stockholders' equity.

4143

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We seek to manage our risks related to the credit quality of our 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 our capital stock. While risks are inherent in any business enterprise, we seek to quantify and justify risks in light of available returns and to maintain capital levels consistent with the risks we undertake.

Credit Risk

One of our strategic focuses is acquiring assets that we believe to be of high credit quality. We believe this strategy will generally keep our credit losses and financing costs low. However, we are subject to varying degrees of credit risk in connection with our other target assets. We 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 our 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 our control. We are subject to interest rate risk in connection with our target assets and our related financing obligations.

To the extent consistent with maintaining our REIT qualification, we seek to manage risk exposure to protect our portfolio of financial assets against the effects of major interest rate changes. We generally seek to manage this risk by:

attempting to structure our financing agreements to have a range of different maturities, terms, amortizations and interest rate adjustment periods;

using hedging instruments, interest rate ~~swaps and interest rate caps;~~swaps; and

to the extent available, using securitization financing to better match the maturity of our financing with the duration of our assets.

The following table estimates the hypothetical impact on our net interest income for the twelve-month period following ~~September 30, 2019,~~March 31, 2020, assuming an immediate increase or decrease of 50 basis points in the applicable interest rate benchmark by currency ($ in thousands, except per share data):


			50 basis point increase				50 basis point decrease								50 basis point increase						50 basis point decrease
Currency	Net floating rate assets subject to interest rate sensitivity		Increase to net interest income ⁽¹⁾⁽²⁾		Increase to net interest income (per share) ⁽¹⁾⁽²⁾		Decrease to net interest income ⁽¹⁾⁽²⁾			Decrease to net interest income (per share) ⁽¹⁾⁽²⁾			Net floating rate assets subject to interest rate sensitivity		Increase (Decrease) to net interest income ⁽¹⁾⁽²⁾			Increase (Decrease) to net interest income (per share) ⁽¹⁾⁽²⁾			Increase to net interest income ⁽¹⁾⁽²⁾		Increase to net interest income (per share) ⁽¹⁾⁽²⁾
USD	$	2,423,929	$	10,337	$	0.07	$	(5,284	)	$	(0.03	)	$	1,407,945	$	(3,888	)	$	(0.02	)	$	7,272	$	0.04
GBP	479,516		2,377		0.01		(1,521		)	(0.01		)	510,947		2,191			0.01			402		0.01
EUR	168,219		100		—		—			—			169,820		417			—			—		—
Total:	$	3,071,664	$	12,814	$	0.08	$	(6,805	)	$	(0.04	)	$	2,088,712	$	(1,280	)	$	(0.01	)	$	7,674	$	0.05

———————

(1) Any such hypothetical impact on interest rates on our 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, we may take actions to further mitigate our 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 our 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. In certain cases, we adapt to prepayment risk by stating prepayment penalties in loan agreements.

4244

Market 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 us 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 our assets and liabilities are interest rate sensitive in nature. As a result, interest rates and other factors influence our performance far more so than does inflation. Changes in interest rates do not necessarily correlate with inflation rates or changes in inflation rates. Our financial statements are prepared in accordance with GAAP and distributions are determined by our board of directors consistent with our obligation to distribute to our stockholders at least 90% of our REIT taxable income, excluding net capital gains and determined without regard to the dividends paid deduction, on an annual basis in order to maintain our REIT qualification. In each case, our 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 mitigate this exposure through foreign currency forward contracts, which match the net

principal and interest of our foreign currency loans and secured debt arrangements.

4345

Item 4. Controls and Procedures.

Our Chief Executive Officer and Chief Financial Officer, based on their evaluation of our 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, our disclosure controls and procedures were effective to give reasonable assurances to the timely collection, evaluation and disclosure of information relating to ARI that would potentially be subject to disclosure under the Exchange Act, and the rules and regulations promulgated thereunder.

During the period ended ~~September 30, 2019,~~March 31, 2020, there was no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our 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 ARI to disclose material information otherwise required to be set forth in our periodic reports.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may be involved in various claims and legal actions arising in the ordinary course of business. On June 28, 2018, AmBase Corporation, 111 West 57th Street Manager Funding LLC and 111 West 57th Investment LLC commenced an action captioned AmBase Corporation et al v. ACREFI Mortgage Lending, LLC et al ~~(No.~~(No 653251/2018) in New York Supreme Court. The complaint names as defendants (i) ACREFI Mortgage Lending, LLC, a subsidiary of the Company, (ii) the Company, and (iii) certain funds managed by Apollo, who are co-lenders on a mezzanine loan against the development of a residential condominium building in Manhattan, New York. The plaintiffs allege that the defendants tortiously interfered with the contractual equity put right in the plaintiffs’ joint venture agreement with the developers of the project, and that the defendants aided and abetted breaches of fiduciary duty by the developers of the project. 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 anand the Court entered judgment dismissing the complaint ~~is now dismissed, subject to appeal.~~in its entirety on November 8, 2019. Plaintiffs filed a timely notice of appeal on December 6, 2019 but have not yet filed their appellate brief. We believe the claims are without merit and plan to vigorously defend the case on ~~appeal as necessary.~~appeal. We do not believe this will have a material adverse effect on our consolidated financial statements.

Item 1A. Risk Factors

~~See~~For information regarding factors that could affect our results of operations, financial condition and liquidity, see the risk 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-K~~travel, school closures, bans on public events and on public gatherings, “shelter in place” or “stay 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, 2018.~~mortgage loans and other real estate-related loans we make;

our need to sell assets, including at a loss;

to the extent 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 ~~have been~~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 ~~changes~~uncertainty and risk with respect to our performance, financial condition, volume of business, results of operations and cash flows. Moreover, many risk factors ~~during~~set forth in our Annual Report should be interpreted as heightened risks as a result of the ~~nine months ended September 30, 2019.~~impact of the COVID-19 pandemic.

Item 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 March 31, 2020 ($ in thousands, except per share data):



Period	Total Number of Shares Purchased⁽¹⁾	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
January 1, 2020 through January 31, 2020	—	—		—	—
February 1, 2020 through February 29, 2020	—	—		—	—
March 1, 2020 through March 31, 2020	300,000	$	8.11	300,000	$	147,564
Total	300,000	$	8.11	300,000	$	147,564

———————

(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 replaces the previous program authorized in November 2013, which has been terminated.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

None.

Item 6. Exhibits



3.1		Articles of Amendment and Restatement of Apollo Commercial Real Estate Finance, Inc., incorporated by reference to Exhibit 3.1 of the Registrant’s Form S-11, as amended (Registration No. 333-160533).



3.2		Articles Supplementary designating Apollo Commercial Real Estate Finance, Inc.’s 8.00% Fixed-to-Floating Series B Cumulative Redeemable Perpetual Preferred Stock, liquidation preference $25.00 per share, par value $0.01 per share, incorporated by reference to Exhibit 3.1 of the Registrant’s Form 8-K filed on September 23, 2015 (File No.: 001-34452).

3.3		By-laws of Apollo Commercial Real Estate Finance, Inc., incorporated by reference to Exhibit 3.2 of the Registrant’s Form S-4 (Registration No. 333-210632).

4.1		Specimen Stock Certificate of Apollo Commercial Real Estate Finance, Inc., incorporated by reference to Exhibit 4.1 of the Registrant’s Form S-11, as amended (Registration No. 333-160533).

4.2		Specimen Stock Certificate of Apollo Commercial Real Estate Finance, Inc.’s 8.00% Fixed-to-Floating Series B Cumulative Redeemable Perpetual Preferred Stock, liquidation preference $25.00 per share, par value $0.01 per share, incorporated by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K filed on September 23, 2015.

4.3		Indenture, dated as of March 17, 2014, between the Registrant and Wells Fargo Bank, National Association, as Trustee, incorporated by reference to Exhibit 4.1 of the Registrant’s Form 8-K filed on March 21, 2014 (File No.: 001-34452).

4.4		First Supplemental Indenture, dated as of March 17, 2014, between the Registrant and Wells Fargo Bank, National Association, as Trustee (including the form of 5.50% Convertible Senior Note due 2019), incorporated by reference to Exhibit 4.2 of the Registrant’s Form 8-K filed on March 21, 2014 (File No.: 001-34452).

~~4.5~~		Second Supplemental Indenture, dated as of August 21, 2017, between the Registrant and Wells Fargo Bank, National Association, as Trustee (including the form of 4.75% Convertible Senior Note due 2022), incorporated by reference to Exhibit 4.2 of the Registrant’s Form 8-K filed on August 21, 2017 (File No.: 001-34452).

~~4.6~~4.5		Third Supplemental Indenture, dated as of October 5, 2018 between the Registrant and Wells Fargo Bank, National Association, as Trustee (including the form of 5.375% Convertible Senior Note due 2023), incorporated by reference to Exhibit 4.2 of the Registrant's Form 8-K filed on October 5, 2018 (File No.: 001-34452).

31.1*		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*		Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of 18 U.S.C. Section 1350 as adopted pursuant to the Sarbanes-Oxley Act of 2002.

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*	Filed herewith.

4549

SIGNATURES

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.



		APOLLO COMMERCIAL REAL ESTATE FINANCE, INC.

~~October 23, 2019~~May 7, 2020

	By:	/s/ Stuart A. Rothstein
		Stuart A. Rothstein
		President and Chief Executive Officer
		(Principal Executive Officer)

	By:	/s/ Jai Agarwal
		Jai Agarwal
		Chief Financial Officer, Treasurer and Secretary
		(Principal Financial Officer and Principal Accounting Officer)

4650



	Page
Part I — Financial Information
Item 1. Financial Statements	4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	2629
Item 3. Quantitative and Qualitative Disclosures about Market Risk	4244
Item 4. Controls and Procedures	4446
Part II — Other Information
Item 1. Legal Proceedings	4446
Item 1A. Risk Factors	4446
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	4448
Item 3. Defaults Upon Senior Securities	4448
Item 4. Mine Safety Disclosures	4448
Item 5. Other Information	4448
Item 6. Exhibits	4448



	Fair Value as of September 30, 2019										Fair Value as of December 31, 2018
	Level I		Level II			Level III		Total			Level I		Level II		Level III		Total
Foreign currency forward assets, net	$	—	$	35,729		$	—	$	35,729		$	—	$	23,700	$	—	$	23,700
Interest rate swap liability	—		(23,420		)	—		(23,420		)	—		—		—		—



	Principal Balance			Deferred Fees/Other Items ⁽¹⁾			Provision for Loan Loss ⁽²⁾			Carrying Value
December 31, 2018	$	4,982,514		$	(17,940	)	$	(36,981	)	$	4,927,593
New loan fundings	1,770,623			—			—			1,770,623
Add-on loan fundings ⁽³⁾	290,043			—			—			290,043
Loan repayments	(843,417		)	—			—			(843,417		)
Gain (loss) on foreign currency translation	(38,505		)	105			—			(38,400		)
Realized loss on investment, net of provision for loan loss reversal ⁽²⁾	(12,513		)	—			15,000			2,487
Provision for loan losses	—			—			(35,000		)	(35,000		)
Deferred fees	—			(24,524		)	—			(24,524		)
PIK interest and amortization of fees	43,728			21,441			—			65,169
September 30, 2019	$	6,192,473		$	(20,918	)	$	(56,981	)	$	6,114,574



	September 30, 2019 ⁽²⁾						December 31, 2018 ⁽²⁾
	Maximum Amount of Borrowings		Borrowings Outstanding			Maturity ⁽¹⁾	Maximum Amount of Borrowings		Borrowings Outstanding			Maturity ⁽¹⁾
JPMorgan Facility (USD)	$	1,253,271	$	1,067,635		June 2024	$	1,333,503	$	680,141		June 2021
JPMorgan Facility (GBP)	46,729		46,729			June 2024	48,497		48,497			June 2021
DB Repurchase Facility (USD)	1,116,993		558,905			March 2021	904,181		419,823			March 2021
DB Repurchase Facility (GBP)	133,007		133,007			March 2021	150,819		150,819			March 2021
Goldman Facility	500,000		267,711			November 2021	300,000		210,072			November 2020
CS Facility - USD	174,279		174,279			March 2020	187,117		187,117			June 2019
CS Facility - GBP	124,707		124,707			March 2020	151,773		151,773			June 2019
HSBC Facility - GBP	36,621		36,621			December 2019	48,835		48,835			December 2019
HSBC Facility - EUR	149,724		149,724			January 2021	—		—			N/A
Sub-total	3,535,331		2,559,318				3,124,725		1,897,077
less: deferred financing costs	N/A		(18,031		)		N/A		(17,555		)
Total / Weighted-Average	$	3,535,331	$	2,541,287			$	3,124,725	$	1,879,522
Total / Weighted-Average	$	3,535,331	$	2,541,287			$	3,124,725	$	1,879,522



	Less than 1 year⁽¹⁾		1 to 3 years⁽¹⁾		3 to 5 years ⁽¹⁾		More than 5 years		Total
JPMorgan Facility	$	60,500	$	311,219	$	742,645	$	—	$	1,114,364
DB Repurchase Facility	102,896		589,016		—		—		691,912
Goldman Facility	—		267,711		—		—		267,711
CS Facility - USD	174,279		—		—		—		174,279
CS Facility - GBP	124,707		—		—		—		124,707
HSBC Facility - GBP	36,621		—		—		—		36,621
HSBC Facility - EUR	—		149,724		—		—		149,724
Total	$	499,003	$	1,317,670	$	742,645	$	—	$	2,559,318



	As of September 30, 2019				For the nine months ended September 30, 2019
	Balance		Amortized Cost of Collateral		Maximum Month-End Balance		Average Month-End Balance
JPMorgan Facility	$	1,114,364	$	1,809,170	$	1,150,317	$	875,895
DB Repurchase Facility	691,912		1,205,456		691,912		598,285
Goldman Facility	267,711		445,898		312,507		220,631
CS Facility - USD	174,279		241,989		188,037		180,792
CS Facility - GBP	124,707		178,612		150,811		139,991
HSBC Facility - GBP	36,621		52,593		50,784		44,007
HSBC Facility - EUR	149,724		185,208		152,155		150,914
Total	$	2,559,318	$	4,118,926



Other	2	09/2017	72	—		09/2022	Various
Multifamily	3	10/2015	68	—		11/2019	Manhattan, NY
Residential-for-sale: construction	3	12/2017	65	—	Y	04/2023	Los Angeles, CA
Healthcare	3	07/2019	51	—		06/2024	Various
Residential-for-sale: construction⁽²⁾	3	11/2017	48	—	Y	02/2021	Manhattan, NY
Healthcare	2	01/2015	46	—		12/2019	Various
Mixed Use	3	01/2017	42	—		02/2027	Cleveland, OH
Residential-for-sale: inventory	2	10/2016	36	—		10/2020	Manhattan, NY
Mixed Use	3	02/2019	36	—	Y	12/2022	London, UK
Industrial	2	05/2013	32	—		05/2023	Various
Urban Retail	3	08/2019	30	—		09/2024	Manhattan, NY
Residential-for-sale: inventory	3	06/2017	25	—		12/2020	Manhattan, NY
Hotel	2	06/2015	25	—		07/2025	Phoenix, AZ
Hotel	3	06/2015	20	—		12/2022	Washington, DC
Hotel	3	06/2018	20	—		06/2023	Las Vegas, NV
Multifamily	3	05/2018	20	—		05/2028	Cleveland, OH
Hotel	2	02/2015	20	—		01/2020	Burbank, CA
Mixed Use	3	12/2018	18	33	Y	12/2023	Brooklyn, NY
Hotel ⁽¹⁾	3	09/2015	15	9		06/2023	Manhattan, NY
Office	2	07/2013	14	—		07/2022	Manhattan, NY
Hotel	3	05/2017	8	—		06/2027	Anaheim, CA
Office	3	08/2017	8	—		09/2024	Troy, MI
Mixed Use	3	07/2012	7	—		08/2022	Chapel Hill, NC
Sub total / Weighted-Average Subordinate Loans and Other Lending Assets	2.8		$1,335	$61	35%	3.3 Years

Total / Weighted-Average Loan Portfolio	3.0		$6,115	$1,073	17%	3.1 Years



Realized and Unrealized Loan Losses:	$	72,513
as a % of total assets	1.14		%
as a % of commitments since inception	0.57		%



	Three months ended September 30,						2019 vs 2018			Nine months ended September 30,						2019 vs. 2018
	2019			2018						2019			2018
Net interest income:
Interest income from commercial mortgage loans	$	81,136		$	71,179		$	9,957		$	236,880		$	188,434		$	48,446
Interest income from subordinate loans and other lending assets	43,421			37,308			6,113			125,303			105,236			20,067
Interest expense	(39,341		)	(31,007		)	(8,334		)	(109,147		)	(82,184		)	(26,963		)
Net interest income	85,216			77,480			7,736			253,036			211,486			41,550
Operating expenses:
General and administrative expenses	(5,839		)	(5,843		)	4			(18,564		)	(16,493		)	(2,071		)
Management fees to related party	(10,434		)	(9,515		)	(919		)	(30,306		)	(26,620		)	(3,686		)
Total operating expenses	(16,273		)	(15,358		)	(915		)	(48,870		)	(43,113		)	(5,757		)
Other income	429			427			2			1,431			973			458
Provision for loan losses and impairments, net of reversals	(35,000		)	—			(35,000		)	(20,000		)	(5,000		)	(15,000		)
Realized loss on investments	—			—			—			(12,513		)	—			(12,513		)
Foreign currency loss	(19,129		)	(4,050		)	(15,079		)	(20,012		)	(23,574		)	3,562
Loss on early extinguishment of debt	—			(2,573		)	2,573			—			(2,573		)	2,573
Gain on foreign currency forwards	24,153			6,291			17,862			28,619			28,797			(178		)
Unrealized loss on interest rate swap	(10,307		)	—			(10,307		)	(23,420		)	—			(23,420		)
Net income	$	29,089		$	62,217		$	(33,128	)	$	158,271		$	166,996		$	(8,725	)



	Three months ended September 30, 2018					Nine months ended September 30, 2018

Weighted-Averages	Face		Price	Shares		Face		Price	Shares
Weighted-average diluted shares - GAAP				153,918,435					150,424,889
2019 Notes⁽¹⁾	$	127,925	$17.28	(7,402,122	)	$	13,170	$17.17	(12,220,679	)
2022 Notes	$	345,000	$19.91	(17,327,970	)	$	345,000	$19.91	(17,327,970	)
2023 Notes	$	—	N/A	—		$	—	N/A	—
Unvested RSUs	—		—	1,593,070		—		—	1,617,398
Weighted-average diluted shares - Operating Earnings				130,781,413					122,493,638