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, 20192020
or
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)
__________________________________ 
Maryland27-0467113
(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 York10019
(Address of principal executive offices) (Zip Code)
(212) (212) 515–3200
(Registrant’s telephone number, including area code)
__________________________________ 
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Common Stock, $0.01 par valueARINew 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, a 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 filerAccelerated filer
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller 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, 2019,25, 2020, there were 153,537,296140,296,764 shares, par value $0.01, of the registrant’s common stock issued and outstanding.





Table of Contents
 
Page






3





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)
September 30, 2020December 31, 2019
Assets:
Cash and cash equivalents$438,234 $452,282 
Commercial mortgage loans, net(1)(2)
5,427,945 5,326,967 
Subordinate loans and other lending assets, net(2)
1,009,092 1,048,126 
Derivative assets, net13,654 
Other assets43,644 52,716 
Loan proceeds held by servicer8,272 
Total Assets$6,932,569 $6,888,363 
Liabilities and Stockholders' Equity
Liabilities:
Secured debt arrangements, net (net of deferred financing costs of $12,746 and $17,190 in 2020 and 2019, respectively)$3,465,337 $3,078,366 
Convertible senior notes, net564,611 561,573 
Senior secured term loan, net (net of deferred financing costs of $7,565 and $7,277 in 2020 and 2019, respectively)484,191 487,961 
Accounts payable, accrued expenses and other liabilities(3)
89,222 100,712 
Payable to related party9,927 10,430 
Derivative liabilities19,346 
Total Liabilities4,613,288 4,258,388 
Commitments and Contingencies (see Note 15)
Stockholders’ Equity:
Preferred stock, $0.01 par value, 50,000,000 shares authorized, Series B, 6,770,393 shares issued and outstanding ($169,260 liquidation preference)68 68 
Common stock, $0.01 par value, 450,000,000 shares authorized, 143,288,347 and 153,537,296 shares issued and outstanding in 2020 and 2019, respectively1,433 1,535 
Additional paid-in-capital2,739,851 2,825,317 
Accumulated deficit(422,071)(196,945)
Total Stockholders’ Equity2,319,281 2,629,975 
Total Liabilities and Stockholders’ Equity$6,932,569 $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, net1,335,073
 1,048,612
Other assets37,858
 33,720
Derivative assets, net35,729
 23,700
Loan proceeds held by servicer3,323
 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, net560,589
 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 liabilities98,231
 104,746
Derivative liabilities23,420
 
Payable to related party10,434
 9,804
Total Liabilities3,722,908
 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, respectively1,535
 1,339
Additional paid-in-capital2,821,419
 2,638,441
Accumulated deficit(193,512) (130,170)
Total Stockholders’ Equity2,629,510
 2,509,747
Total Liabilities and Stockholders’ Equity$6,352,418
 $5,095,819
———————

(1) Includes $5,405,220 and $4,852,087 pledged as collateral under secured debt arrangements in 2020 and 2019, respectively


(2) Net of $236,207 CECL Allowances in 2020, comprised of $196,931 Specific CECL Allowance and $39,276 General CECL Allowance. Net of $56,981 provision for loan loss in 2019.


(3) Includes $3,595 of General CECL Allowance related to unfunded commitments on commercial mortgage loans, subordinate loans and other lending assets, net in 2020.






See notes to unaudited condensed consolidated financial statements.




4





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,
 2020201920202019
Net interest income:
Interest income from commercial mortgage loans$74,522 $81,136 $232,018 $236,880 
Interest income from subordinate loans and other lending assets28,857 43,421 95,491 125,303 
Interest expense(34,824)(39,341)(113,527)(109,147)
Net interest income68,555 85,216 213,982 253,036 
Operating expenses:
General and administrative expenses (includes equity-based compensation of $4,212 and $12,727 in 2020 and $3,889 and $12,084 in 2019, respectively)(6,624)(5,839)(19,580)(18,564)
Management fees to related party(9,927)(10,434)(30,152)(30,306)
Total operating expenses(16,551)(16,273)(49,732)(48,870)
Other income128 429 1,479 1,431 
Realized loss on investments(1,037)(17,442)(12,513)
Reversal of (provision for) loan losses(1)
6,342 (35,000)(151,954)(20,000)
Foreign currency translation gain (loss)27,002 (19,129)(8,388)(20,012)
Gain (loss) on foreign currency forward contracts (includes unrealized gains (losses) of $(35,076) and $18,356 in 2020 and $16,227 and $12,029 in 2019, respectively)(34,537)24,153 32,959 28,619 
Loss on interest rate hedging instruments (includes unrealized gains (losses) of $(564) and $14,644 in 2020 and $(10,307) and $(23,420) in 2019, respectively)(564)(10,307)(39,207)(23,420)
Net income (loss)$49,338 $29,089 $(18,303)$158,271 
Preferred dividends(3,385)(3,385)(10,155)(15,139)
Net income (loss) available to common stockholders$45,953 $25,704 $(28,458)$143,132 
Net income (loss) per share of common stock:
Basic$0.31 $0.16 $(0.20)$0.97 
Diluted$0.31 $0.16 $(0.20)$0.97 
Basic weighted-average shares of common stock outstanding146,612,313 153,531,678 150,679,773 144,638,237 
Diluted weighted-average shares of common stock outstanding146,612,313 153,531,678 150,679,773 144,638,237 
Dividend declared per share of common stock$0.35 $0.46 $1.10 $1.38 
 Three months ended September 30, Nine months ended September 30,
 2019 2018 2019 2018
Net interest income:       
Interest income from commercial mortgage loans$81,136
 $71,179
 $236,880
 $188,434
Interest income from subordinate loans and other lending assets43,421
 37,308
 125,303
 105,236
Interest expense(39,341) (31,007) (109,147) (82,184)
Net interest income85,216
 77,480
 253,036
 211,486
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)
Management fees to related party(10,434) (9,515) (30,306) (26,620)
Total operating expenses(16,273) (15,358) (48,870) (43,113)
Other income429
 427
 1,431
 973
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
Unrealized loss on interest rate swap(10,307) 
 (23,420) 
Net income$29,089
 $62,217
 $158,271
 $166,996
Preferred dividends(3,385) (6,836)��
(15,139) (20,505)
Net income available to common stockholders$25,704
 $55,381
 $143,132
 $146,491
Net income per share of common stock:       
Basic$0.16
 $0.42
 $0.97
 $1.19
Diluted$0.16
 $0.40
 $0.97
 $1.14
Basic weighted-average shares of common stock outstanding153,531,678
 129,188,343
 144,638,237
 120,876,240
Diluted weighted-average shares of common stock outstanding153,531,678
 153,918,435
 144,638,237
 150,424,889
Dividend declared per share of common stock$0.46
 $0.46
 $1.38
 $1.38
———————

(1) Comprised of $550 and $(139,950) of Specific CECL Reversal (Allowance) and $5,792 and $(12,004) of General CECL Reversal (Allowance) for the three and nine months ended September 30, 2020, respectively.














See notes to unaudited condensed consolidated financial statements.




5





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, 20196,770,393
 $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, 20196,770,393
 $68
 153,531,756
 $1,535
 $2,821,419
 $(193,512) $2,629,510


 Preferred StockCommon StockAdditional
Paid-In-Capital
Accumulated
Deficit
Total
SharesParSharesPar
Balance at January 1, 20206,770,393 $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 (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, 20206,770,393 $68 153,740,547 $1,537 $2,820,643 $(421,337)$2,400,911 
Capital increase related to Equity Incentive Plan— — 82,235 4,251 — 4,252 
Repurchase of common stock— — (5,495,976)(55)(43,783)— (43,838)
Net income— — — — — 60,201 60,201 
Dividends declared on preferred stock - $0.50 per share— — — — — (3,385)(3,385)
Dividends declared on common stock - $0.35 per share— — — — — (52,635)(52,635)
Balance at June 30, 20206,770,393 $68 148,326,806 $1,483 $2,781,111 $(417,156)$2,365,506 
Capital increase related to Equity Incentive Plan— — 160 — 4,212 — 4,212 
Repurchase of common stock— — (5,038,619)(50)(45,472)— (45,522)
Net income— — — — — 49,338 49,338 
Dividends declared on preferred stock - $0.50 per share— — — — — (3,385)(3,385)
Dividends declared on common stock - $0.35 per share— — — — — (50,868)(50,868)
Balance at September 30, 20206,770,393 $68 143,288,347 $1,433 $2,739,851 $(422,071)$2,319,281 

 Preferred StockCommon StockAdditional
Paid-In-Capital
Accumulated
Deficit
Total
SharesParSharesPar
Balance at January 1, 201913,670,393 $137 133,853,565 $1,339 $2,638,441 $(130,170)$2,509,747 
Capital increase (decrease) related to Equity Incentive Plan— — 433,426 (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, 201913,670,393 $137 136,254,352 $1,363 $2,671,100 $(132,776)$2,539,824 
Capital increase related to Equity Incentive Plan— — 27,245 — 4,294 — 4,294 
Issuance of common stock— — 17,250,000 172 314,985 — 315,157 
Redemption of preferred stock(6,900,000)(69)— — (172,431)— (172,500)
Offering costs— — — — (406)— (406)
Net income— — — — — 61,424 61,424 
Dividends declared on preferred stock - $0.50 per share— — — — — (4,919)(4,919)
Dividends declared on common stock - $0.46 per share— — — — — (71,475)(71,475)

 Preferred Stock Common Stock 
Additional
Paid-In-Capital
 
Accumulated
Deficit
 Total
 Shares Par Shares Par 
Balance at June 30, 201813,670,393 $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, 201813,670,393 $137
 133,765,392 $1,338
 $2,630,468
 $(113,572) $2,518,371




























6





Balance at June 30, 2019Balance at June 30, 20196,770,393 $68 153,531,597 $1,535 $2,817,542 $(147,746)$2,671,399 
Capital increase related to Equity Incentive PlanCapital increase related to Equity Incentive Plan— — 159 — 3,889 — 3,889 
Preferred Stock Common Stock Additional
Paid-In-Capital
 Accumulated
Deficit
 Total
Shares Par Shares Par 
Balance at January 1, 201913,670,393
 $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)Offering costs— — — — (12)— (12)
Net income
 
 
 
 
 158,271
 158,271
Net income— — — — — 29,089 29,089 
Dividends declared on preferred stock
 
 
 
 
 (15,139) (15,139)
Dividends declared on preferred stock - $0.50 per shareDividends declared on preferred stock - $0.50 per share— — — — — (3,385)(3,385)
Dividends declared on common stock - $0.46 per share
 
 
 
 
 (206,474) (206,474)Dividends declared on common stock - $0.46 per share— — — — — (71,470)(71,470)
Balance at September 30, 20196,770,393
 $68
 153,531,756
 $1,535
 $2,821,419
 $(193,512) $2,629,510
Balance at September 30, 20196,770,393 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, 201813,670,393 $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, 201813,670,393 $137
 133,765,392 $1,338
 $2,630,468
 $(113,572) $2,518,371









































See notes to unaudited condensed consolidated financial statements.




7





Apollo Commercial Real Estate Finance, Inc. and Subsidiaries
Condensed Consolidated Statement of Cash Flows (Unaudited)
(in thousands)
For the nine months ended September 30,
For the nine months ended September 30, 20202019
2019 2018
Cash flows (used in) provided by operating activities:   
Net income$158,271
 $166,996
Adjustments to reconcile net income to net cash provided by operating activities:   
Cash flows provided by operating activities:Cash flows provided by operating activities:
Net income (loss) Net income (loss)$(18,303)$158,271 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Amortization of discount/premium and PIK(61,949) (46,103) Amortization of discount/premium and PIK(53,670)(61,949)
Amortization of deferred financing costs8,535
 8,204
Amortization of deferred financing costs9,652 8,535 
Equity-based compensation7,084
 6,672
Equity-based compensation12,721 7,084 
Provision for loan losses and impairments, net of reversal20,000
 5,000
Realized loss on investments12,513
 
Provision for loan losses Provision for loan losses151,954 20,000 
Foreign currency loss22,111
 22,162
Foreign currency loss34,225 22,111 
Unrealized (gain) loss on derivative instruments11,391
 (20,986) Unrealized (gain) loss on derivative instruments(33,000)11,391 
Loss on early extinguishment of debt
 2,573
Realized loss on investments Realized loss on investments17,442 12,513 
Changes in operating assets and liabilities:    Changes in operating assets and liabilities:
Proceeds received from PIK11,469
 75,652
Proceeds received from PIK11,469 
Other assets(4,216) (8,476) Other assets(6,251)(4,216)
Accounts payable, accrued expenses and other liabilities2,462
 8,087
Accounts payable, accrued expenses and other liabilities(1,233)2,462 
Payable to related party630
 1,347
Payable to related party(503)630 
Net cash (used in) provided by operating activities188,301
 221,128
Net cash provided by operating activitiesNet cash provided by operating activities113,034 188,301 
Cash flows used in investing activities:   Cash flows used in investing activities:
New funding of commercial mortgage loans(1,277,606) (1,382,440) New funding of commercial mortgage loans(457,449)(1,277,606)
Add-on funding of commercial mortgage loans(271,720) (90,201) Add-on funding of commercial mortgage loans(262,193)(271,720)
New funding of subordinate loans and other lending assets(493,017) (207,683) New funding of subordinate loans and other lending assets(493,017)
Add-on funding of subordinate loans and other lending assets(18,323) (84,852) Add-on funding of subordinate loans and other lending assets(47,627)(18,323)
Proceeds and payments received on commercial mortgage loans570,305
 356,865
Proceeds and payments received on subordinate loans and other lending assets, net254,019
 463,524
Proceeds received from the repayment and sale of commercial mortgage loans Proceeds received from the repayment and sale of commercial mortgage loans528,782 570,305 
Proceeds received from the repayment of subordinate loans and other lending assets Proceeds received from the repayment of subordinate loans and other lending assets5,122 254,019 
Origination and exit fees received on commercial mortgage loans, and subordinate loans
and other lending assets, net
24,524
 32,473
Origination and exit fees received on commercial mortgage loans, and subordinate loans
and other lending assets, net
6,420 24,524 
(Decrease) Increase in collateral held related to derivative contracts(19,830) 4,930
Increase (decrease) in collateral held related to derivative contracts, net Increase (decrease) in collateral held related to derivative contracts, net25,130 (19,830)
Net cash (used in) provided by investing activities(1,231,648) (907,384)Net cash (used in) provided by investing activities(201,815)(1,231,648)
Cash flows from financing activities:   Cash flows from financing activities:
Proceeds from issuance of common stock315,157
 275,879
Proceeds from issuance of common stock315,157 
Redemption of preferred stock(172,500) 
Redemption of preferred stock(172,500)
Repurchase of common stock Repurchase of common stock(91,801)
Payment of offering costs(153) (199) Payment of offering costs(153)
Proceeds from secured debt arrangements1,948,037
 1,623,186
Proceeds from secured debt arrangements1,465,757 1,948,037 
Repayments of secured debt arrangements(1,264,223) (941,662) Repayments of secured debt arrangements(1,083,849)(1,264,223)
Repayments of senior secured term loan principal(1,250) 
Repayments of senior secured term loan principal(3,750)(1,250)
Proceeds from issuance of senior secured term loan497,500
 
Proceeds from issuance of senior secured term loan497,500 
Exchanges of convertible senior notes(704) (40,461) Exchanges of convertible senior notes(704)
Payment of deferred financing costs(11,043) (11,545) Payment of deferred financing costs(8,092)(11,043)
Other financing activitiesOther financing activities(6,494)
Dividends on common stock(197,757) (176,920) Dividends on common stock(186,883)(197,757)
Dividends on preferred stock(18,589) (20,505) Dividends on preferred stock(10,155)(18,589)
Net cash (used in) provided by financing activities1,094,475
 707,773
Net cash (used in) provided by financing activities74,733 1,094,475 
Net increase in cash and cash equivalents51,128
 21,517
Net increase in cash and cash equivalents(14,048)51,128 
Cash and cash equivalents, beginning of period109,806
 77,671
Cash and cash equivalents, beginning of period452,282 109,806 
Cash and cash equivalents, end of period$160,934
 $99,188
Cash and cash equivalents, end of period$438,234 $160,934 
Supplemental disclosure of cash flow information:   Supplemental disclosure of cash flow information:
Interest paid$96,201
 $77,219
Interest paid$100,573 $96,201 
Supplemental disclosure of non-cash financing activities:   Supplemental disclosure of non-cash financing activities:
Exchange of convertible senior notes for common stock$33,778
 $178,567
Exchange of convertible senior notes for common stock$$33,778 
Dividend declared, not yet paid$74,855
 $68,536
Dividend declared, not yet paid$54,254 $74,855 
Offering costs payable$200
 $265
Offering costs payable$$200 
Loan proceeds held by servicer$3,323
 $
Loan proceeds held by servicer$$3,323 
Deferred financing costs, not yet paid$5,420
 $
Deferred financing costs, not yet paid$2,596 $5,420 
Transfer of proceeds borrowed under secured credit facilities to Barclays Private SecuritizationTransfer of proceeds borrowed under secured credit facilities to Barclays Private Securitization$782,006 $
Restructuring of subordinate loan to commercial mortgage loanRestructuring of subordinate loan to commercial mortgage loan$68,500 $




















































See notes to unaudited condensed consolidated financial statements.




8





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, 20192020 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 RecognitionRisks and Uncertainties
Interest incomeDuring the first quarter of 2020, there was a global outbreak of a novel coronavirus ("COVID-19"), which was declared by the World Health Organization as a pandemic. In response to COVID-19, the United States and 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 on our lending assets is accruedbusiness and the economy as a whole. We believe the estimates used in preparing our financial statements and related footnotes are reasonable and supportable based on the best information available to us as of September 30, 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 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.results may vary significantly from estimates.
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 PronouncementsCurrent Expected Credit Losses ("CECL")
In June 2018,2016, 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 in the first quarter of 2019 and it did not have any impact on our condensed consolidated financial statements.

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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 replaceCECL Standard replaced the "incurred loss" approach under existing guidance with an "expected loss" model for instruments measured at amortized cost and requirecost. The CECL Standard requires entities to record allowances for available-for-saleheld-to-maturity debt securities rather than reducethat are deducted from the carrying amount of the assets to present the net carrying value at the amounts expected to be collected on the assets. We continue to record loan specific allowances as they do todaya practical expedient under the other-than-temporary impairment model. It also simplifiesCECL Standard ("Specific CECL Allowance"), which we apply to assets that are collateral




9


dependent and where the borrower or sponsor is experiencing financial difficulty. In addition, we now record a general allowance in accordance with the CECL Standard on the remainder of the loan portfolio ("General CECL Allowance", and together with the Specific CECL Allowance, "CECL Allowances") on a collective basis by assets with similar risk characteristics.
The CECL Standard requires us to record an allowance for credit losses that are deducted from the carrying amount of our loan portfolio to present the net carrying value at the amounts expected to be collected on the assets. We adopted the CECL Standard through a cumulative-effect adjustment to retained earnings on January 1, 2020. Subsequent changes to the General CECL Allowance are recognized through net income (loss) on our condensed consolidated statement of operations.
The CECL Standard requires an entity to consider historical loss experience, current conditions, and a reasonable and supportable forecast of the macroeconomic environment. The FASB recognizes the weighted average remaining maturity ("WARM") method as an acceptable approach for computing current expected credit losses. We have adopted the WARM method to comply with the CECL Standard in determining a General CECL Allowance for a majority of our portfolio. In the future, we may use other acceptable methods, such as a probability-of-default/loss-given-default method. For loans where we have deemed the borrower/sponsor to be experiencing financial difficulty, we have elected to apply a practical expedient in which the fair value of the underlying collateral is compared to the amortized cost of the loan in determining a Specific CECL Allowance.
In accordance with the WARM method, an annual historical loss rate is applied to the amortized cost of an asset or pool of assets over the remaining expected life. The WARM method requires consideration of the timing of expected future fundings of existing commitments and repayments over each asset’s remaining life. An annual loss factor, adjusted for macroeconomic estimates, is applied over each subsequent period and aggregated to arrive at the General CECL Allowance.
In determining the General CECL Allowance, we considered various factors including (i) historical loss experience in the commercial real estate lending market, (ii) timing of expected repayments and satisfactions, (iii) expected future funding, (iv) capital subordinate to us when we are the senior lender, (v) capital senior to us when we are the subordinate lender, and (vi) our current and future view of the macroeconomic environment. The standard requires the use of significant judgment to arrive at an estimated credit loss. There is significant uncertainty related to future macroeconomic conditions as the result of COVID-19.
We derived an annual historical loss rate based on a commercial mortgage backed securities ("CMBS") database with historical losses from 1998 through the third quarter of 2020 provided by a third party, Trepp LLC. We applied various filters to arrive at a CMBS dataset most analogous to our current portfolio from which to determine an appropriate historical loss rate. The annual historical loss rate was further adjusted to reflect our expectations of the macroeconomic environment for a reasonable and supportable forecast period which we have determined to be one year.
The General CECL Allowance on subordinate loans is calculated by incorporating both the loan balance of the position(s) of the structurally senior third-party lender(s) and the balance of our subordinate loan(s). The subordinate loans, by virtue of being the first loss position, are required to absorb losses prior to the senior position(s) being impacted, resulting in a higher percentage allowance attributable to the subordinate loan. The General CECL Allowance on unfunded loan commitments is time-weighted based on our expected commitment to fund such obligations. The General CECL Allowance on unfunded commitments is recorded as a liability on our condensed consolidated balance sheet within accounts payable, accrued expenses and other liabilities. At adoption, the General CECL Allowance was $30.9 million and was recorded in our condensed consolidated statement of changes in stockholders’ equity.
Refer to "Note 4 - Commercial Mortgage, Subordinate Loans and Other Lending Assets, Net" for further information regarding CECL.

Secured Debt Arrangements
Secured debt arrangements are accounted for as financing transactions, unless they meet the criteria for sale accounting. Loans financed through a secured debt arrangement remain on our balance sheet as an asset and cash received from the purchaser is recorded on our condensed consolidated balance sheet as a liability. Interest incurred in accordance with secured debt arrangements is recorded as interest expense.
During the second quarter of 2020, we entered into a private securitization with Barclays Bank, plc (the "Barclays Private Securitization"). We have determined that the issuer of this securitization, ACRE Debt 2 PLC, is a Variable Interest Entity ("VIE") of which we were deemed to be the primary beneficiary and therefore, we consolidated the operations of this entity for GAAP. The collateral assets of the securitization are included in commercial mortgage loans, net on our condensed consolidated balance sheet. The liabilities of the securitization to the senior noteholders, excluding the notes held by us, are included in secured debt arrangements, net on our condensed consolidated balance sheet.




10


Recent Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06 "Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity" ("ASU 2020-06"). The intention of ASU 2020-06 is to address the complexities in accounting model for purchased credit-impairedcertain financial instruments with a debt securities and loans. The guidanceequity component. Under ASU 2020-06, the number of accounting models for convertible notes will be reduced and entities that issue convertible debt will be required to use the if-converted method for the computation of diluted "Earnings per share" under ASC 260. ASC 2020-06 is effective for fiscal years beginning after December 15, 20192021 and is tomay be adopted through either a cumulative-effect adjustment to retained earnings asmodified retrospective method of the beginningtransition or a fully retrospective method of the first reporting period in which the guidance is effective. While wetransition. We are currently evaluatingassessing the impact ASU 2016-13this guidance will have on our condensed consolidated financial statements, we expectstatements.
In March 2020, the FASB issued ASU 2020-04 “Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”). ASU 2020-04 provides optional expedients and exceptions for applying GAAP to debt instruments, derivatives, and other contracts that reference LIBOR or other reference rates expected to be discontinued as a result of reference rate reform. This guidance is optional and may be elected through December 31, 2022 using a prospective application on all eligible contract modifications. We have loan agreements, debt agreements, and an interest rate cap that incorporate LIBOR as a referenced interest rate. It is difficult to predict what effect, if any, the phase-out of LIBOR and the use of alternative benchmarks may have on our business or on the overall financial markets. We have not adopted any of the optional expedients or exceptions through September 30, 2020, but will continue to evaluate the possible adoption will result in higher provisions for expected loan losses.    of any such expedients or exceptions.
Note 3 – Fair Value Disclosure
GAAP establishes a hierarchy of valuation techniques based on the observability of the inputs utilized in measuring financial instruments at fair values. Market based,Market-based or observable inputs are the preferred source of values, followed by valuation models using managementmanagement's assumptions in the absence of marketmarket-based or observable inputs. The three levels of the hierarchy as noted in ASC 820 "Fair Value Measurements and Disclosures" 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. instrument. Our derivative instruments are classified as Level II in the fair value hierarchy.
The fair values of foreign exchange forwards are determined by comparing the contracted forward exchange rate to the current market exchange rate. The current market exchange rates are determined by using market spot rates, forward rates and interest rate curves for the underlying countries.
The fair value of the interest rate swapswaps 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 LIBORLondon Inter-bank Offered Rate ("LIBOR") curve. Our derivative instruments are classified as Level IIAs of September 30, 2020, we had 0 interest rate swaps on our condensed consolidated balance sheet.
The fair value of our interest rate cap is determined by using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rise above the strike rate of the interest rate cap. The variable interest rates used in the fair value hierarchy.calculation of projected receipts on the interest rate cap are based on a third party expert's expectation of future interest rates derived from observable market interest rate curves and volatilities.




11


The following table summarizes the levels in the fair value hierarchy into which our financial instrumentsderivative assets were categorized as of September 30, 20192020 and December 31, 20182019 ($ in thousands): 
 Fair Value as of September 30, 2020Fair Value as of December 31, 2019
 Level ILevel IILevel IIITotalLevel ILevel IILevel IIITotal
Foreign currency forward, net$$13,481 $$13,481 $$$$
Interest rate cap173 173 
Total financial instruments assets$$13,654 $$13,654 $$$$
 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) 
 
 
 
The following table summarizes the levels in the fair value hierarchy into which our derivative liabilities were categorized as of September 30, 2020 and December 31, 2019 ($ in thousands): 
 Fair Value as of September 30, 2020Fair Value as of December 31, 2019
 Level ILevel IILevel IIITotalLevel ILevel IILevel IIITotal
Foreign currency forward, net$$$$$$4,876 $$4,876 
Interest rate swap liability14,470 14,470 
Total financial instrument liabilities$$$$$$19,346 $$19,346 


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Note 4 – Commercial Mortgage, Subordinate Loans and Other Lending Assets, Net
Our loan portfolio was comprised of the following at September 30, 20192020 and December 31, 20182019 ($ in thousands):
Loan TypeSeptember 30, 2020December 31, 2019
Commercial mortgage loans, net (1)
$5,427,945 $5,326,967 
Subordinate loans and other lending assets, net1,009,092 1,048,126 
Carrying value, net$6,437,037 $6,375,093 
Loan Type September 30, 2019 December 31, 2018
Commercial mortgage loans, net $4,779,501
 $3,878,981
Subordinate loans and other lending assets, net 1,335,073
 1,048,612
Total investments, net $6,114,574
 $4,927,593
———————
(1)Includes $156.4 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, 20192020 and December 31, 2018,2019, respectively.

Activity relating to our loan investment portfolio, for the nine months ended September 30, 2019,2020, 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)
Specific Provision for Loan LossCarrying Value, Net
December 31, 2019$6,467,842 $(35,768)$(56,981)$6,375,093 
New loan fundings457,449 — — 457,449 
Add-on loan fundings (2)
309,820 — — 309,820 
Loan repayments and sales(543,535)— — (543,535)
Gain (loss) on foreign currency translation(15,060)543 — (14,517)
Specific CECL Allowance— — (139,950)(139,950)
Realized loss on investment(20,569)3,127 — (17,442)
Deferred fees— (6,027)— (6,027)
PIK interest and amortization of fees38,197 17,225 — 55,422 
September 30, 2020$6,694,144 $(20,900)$(196,931)$6,476,313 
General CECL Allowance (3)
(39,276)
Carrying value, net$6,437,037 
———————
(1)Other items primarily consist of purchase discounts or premiums, cost recovery interest, 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 2019.2020.

(3)$3.6 million of the General CECL Allowance is excluded from this table because it relates to unfunded commitments and has been recorded as a liability under accounts payable, accrued expenses and other liabilities in our condensed consolidated balance sheet.

The following table details overall statistics for our loan portfolio at the dates indicated ($ in thousands):
September 30, 2020December 31, 2019
Number of loans70 72 
Principal balance$6,694,144 $6,467,842 
Carrying value, net$6,437,037 $6,375,093 
Unfunded loan commitments (1)
$1,426,404 $1,952,887 
Weighted-average cash coupon (2)
5.6 %6.5 %
Weighted-average remaining fully-extended term (3)
2.9 years3.3 years
Weighted-average expected term (4)
2.0 years1.8 years
  September 30, 2019 December 31, 2018
Number of loans 74
 69
Principal balance $6,192,473
 $4,982,514
Carrying value $6,114,574
 $4,927,593
Unfunded loan commitments (1)
 $1,073,423
 $1,095,598
Weighted-average cash coupon (2)
 7.5% 8.4%
Weighted-average remaining term (3)
 3.1 years
 2.8 years
———————
(1)Unfunded loan commitments are funded to finance construction costs, tenant improvements, leasing commissions, or carrying costs. These future commitments are funded over the term of each loan, subject in certain cases to an expiration date.
(1)Unfunded loan commitments are primarily funded to finance property improvements or lease-related expenditures by the borrowers. These future commitments are funded over the term of each loan, subject in certain cases to an expiration date.
(2)For floating rate loans, based on applicable benchmark rates as of the specified dates.
(3)Assumes all extension options are exercised.

(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.
11




13


(4)Expected term represents our estimated timing of repayments as of September 30, 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, 2020December 31, 2019
Property TypeCarrying
Value
% of
Portfolio
(1)
Carrying
Value
% of
Portfolio
Office$1,832,607 28.3 %$1,401,400 22.0 %
Hotel1,578,614 24.4 1,660,162 26.0 
Residential-for-sale: construction894,610 13.8 692,816 10.9 
Residential-for-sale: inventory150,015 2.3 321,673 5.1 
Urban Retail636,308 9.8 643,706 10.1 
Urban Predevelopment295,728 4.6 409,864 6.4 
Healthcare363,170 5.6 371,423 5.8 
Industrial228,674 3.5 227,940 3.6 
Other496,587 7.7 646,109 10.1 
Total$6,476,313 100.0 %$6,375,093 100.0 %
General CECL Allowance (2)
(39,276)
Carrying value, net$6,437,037 
  September 30, 2019 December 31, 2018
Property Type Carrying
Value
 % of
Portfolio
 Carrying
Value
 % of
Portfolio
Hotel $1,579,667
 25.8% $1,286,590
 26.1%
Residential-for-sale: construction 629,069
 10.3% 528,510
 10.7%
Residential-for-sale: inventory 349,259
 5.7% 577,053
 11.7%
Office 1,406,678
 23.0% 832,620
 16.9%
Urban Predevelopment 602,946
 9.9% 683,886
 13.9%
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%
Mixed Use 102,645
 1.7% 73,957
 1.5%
Total $6,114,574
 100.0% $4,927,593
 100.0%
———————
(1)Percentage of portfolio calculations are made prior to consideration of General CECL Allowance.
(2)$3.6 million of the General CECL Allowance is excluded from this table because it relates to unfunded commitments and has been recorded as a liability under accounts payable, accrued expenses and other liabilities in our condensed consolidated balance sheet.



Geography

The table below details the geographic distribution of the properties securing the loans in our portfolio at the dates indicated ($ in thousands):
September 30, 2020December 31, 2019
Geographic LocationCarrying
Value
% of
Portfolio
(1)
Carrying
Value
% of
Portfolio
New York City$2,393,012 37.0 %$2,167,487 34.0 %
Northeast138,448 2.1 110,771 1.7 
United Kingdom1,179,761 18.2 1,274,390 20.0 
West741,971 11.5 728,182 11.4 
Midwest556,011 8.6 614,337 9.6 
Southeast576,420 8.9 564,166 8.9 
Other890,690 13.7 915,760 14.4 
Total$6,476,313 100.0 %$6,375,093 100.0 %
General CECL Allowance (2)
(39,276)
Carrying value, net$6,437,037 
  September 30, 2019 December 31, 2018
Geographic Location Carrying
Value
 % of
Portfolio
 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%
Northeast 19,195
 0.3% 23,479
 0.5%
West 728,788
 11.9% 614,160
 12.5%
Midwest 626,867
 10.3% 631,710
 12.8%
Southeast 568,103
 9.3% 559,043
 11.3%
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%
Total $6,114,574
 100.0% $4,927,593
 100.0%
———————
(1)Percentage of portfolio calculations are made prior to consideration of General CECL Allowance.
(2)$3.6 million of the General CECL Allowance is excluded from this table because it relates to unfunded commitments and has been recorded as a liability under accounts payable, accrued expenses and other liabilities in our condensed consolidated balance sheet.


Risk Rating

We assess the risk factors of each loan and assign a risk rating based on a variety of factors, including, without limitation, loan-to-value ratio ("LTV"), debt yield, property type, geographic and local market dynamics, physical




14


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

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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 impairedrecorded

The following table allocatestables allocate the carrying value of our loan portfolio based on our internal risk ratings and date of origination at the dates indicated ($ in thousands):
September 30, 2020
Year Originated
Risk RatingNumber of LoansTotal% of Portfolio20202019201820172016Prior
1$%$$$$$$
232,000 0.5 %32,000 
362 6,035,647 93.2 %450,119 2,685,060 1,350,949 815,789 88,685 645,045 
4%
5408,666 6.3 %28,872 137,798 114,910 127,086 
Total70 $6,476,313 100.0 %$450,119 $2,685,060 $1,379,821 $953,587 $203,595 $804,131 
General CECL Allowance(39,276)
Total carrying value, net$6,437,037 
Weighted Average Risk Rating3.1
December 31, 2019December 31, 2019
 September 30, 2019 December 31, 2018Year Originated
Risk Rating Number of Loans Carrying Value % of Loan Portfolio Number of Loans Carrying Value % of Loan PortfolioRisk RatingNumber of LoansTotal% of Portfolio20192018201720162015Prior
1  $
 %  $
 %1$%$$$$$$
2 9 470,409
 8% 3 138,040
 3%2348,324 5.5 %241,676 36,250 24,546 45,852 
3 63 5,502,402
 90% 63 4,573,930
 93%361 5,707,555 89.5 %2,736,825 1,355,014 912,636 72,540 499,700 130,840 
4  
 %  
 %4182,910 2.9 %182,910 
5 2 141,763
 2% 3 215,623
 4%5136,304 2.1 %136,304 
TotalTotal72 $6,375,093 100.0 %$2,736,825 $1,596,690 $912,636 $291,700 $524,246 $312,996 
 74 $6,114,574
 100% 69 $4,927,593
 100%
        
Weighted-average risk rating   3.0
   3.1
Weighted Average Risk RatingWeighted Average Risk Rating3.0


Current Expected Credit Losses
Provision
Refer to the following schedule of the General CECL Allowance as of September 30, 2020, and as of the date of adoption, January 1, 2020 ($ in thousands):
September 30, 2020
January 1, 2020(1)
Commercial mortgage loans, net$20,161 $12,149 
Subordinate loans and other lending assets, net19,115 15,630 
Unfunded commitments(2)
3,595 3,088 
Total General CECL Allowance$42,871 $30,867 




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———————
(1)As of January 1, 2020, we adopted the CECL Standard through a cumulative-effect adjustment to retained earnings
(2)The General CECL Allowance on unfunded commitments is recorded as a liability on our condensed consolidated balance sheet within accounts payable, accrued expenses and other liabilities

In assessing the General CECL Allowance, we consider macroeconomic factors, including unemployment rate, commercial real estate prices, and market liquidity. We compared the historical data for Loan Losseseach metric to historical commercial real estate losses in order to determine the correlation of the data. We used projections, obtained from third-party service providers, of each factor to approximate the impact the macroeconomic outlook may have on our loss rate.
The General CECL Allowance increased by $12.0 million from initial adoption on January 1, 2020, to September 30, 2020. The increase is primarily related to a change in our view of estimated future macroeconomic conditions in the backdrop of the global COVID-19 pandemic and Impairmentsan increase in our view of the remaining expected term of our loan portfolio as of September 30, 2020.
The General CECL Allowance decreased by $5.8 million in the quarter ended September 30, 2020. The decrease is primarily related to an improved view of estimated future macroeconomic conditions since the prior quarter end.
Although our secured debt obligations and senior secured term loan financing have a minimum tangible net worth maintenance covenant, the General CECL Allowance has no impact on these covenants as we are permitted to add back the General CECL Allowance for the computation of tangible net worth as defined in the respective agreements.

We evaluatehave made an accounting policy election to exclude $38.4 million accrued interest receivable, included in Other Assets on our condensed consolidated balance sheet, from the amortized cost basis of the related commercial mortgage loans for possible impairmentand subordinate loans and other lending assets in determining the General CECL Allowance as any uncollected accrued interest receivable is written off in a timely manner. We discontinue accruing interest on loans if we deem the interest to be uncollectible with any previously accrued uncollected interest on the loan charged to interest income in the same period. Under certain circumstances, we may apply the cost recovery method under which interest collected on a loan is a reduction to its amortized cost. The amortized cost basis for loans on cost recovery was $408.7 million and $136.3 million as of September 30, 2020 and December 31, 2019, respectively. For the three and nine months ended September 30, 2020, we received $0.3 million and $1.6 million, respectively, in interest that reduced amortized cost under the cost recovery method. Accrued interest is past due for 90 or more days for loans with an amortized cost basis of $408.7 million and $136.3 million as of September 30, 2020 and December 31, 2019, respectively.

The following schedule illustrates the quarterly basis. changes in the CECL Allowance since we adopted the CECL Standard on January 1, 2020 ($ in thousands):
Specific CECL Allowance(1)
General CECL AllowanceTotal CECL AllowanceCECL Allowance as % of Amortized Cost
FundedUnfundedTotalGeneralTotal
December 31, 2019$56,981$$$$56,981 %%
Changes:
January 1, 2020 - Adoption of CECL Standard27,779 3,088 30,867 30,867 
Q1 Allowances150,000 30,494 2,971 33,465 183,465 
March 31, 2020$206,981 $58,273 $6,059 $64,332 $271,313 1.08 %4.05 %
Changes:
Q2 Allowances (Reversals)5,500 (13,729)(1,940)(15,669)(10,169)
Realized Loss(15,000)(15,000)
June 30, 2020$197,481 $44,544 $4,119 $48,663 $246,144 0.81 %3.71 %
Changes:
Q3 Reversals(550)(5,268)(524)(5,792)(6,342)
September 30, 2020$196,931 $39,276 $3,595 $42,871 $239,802 0.71 %3.59 %
———————
(1)As of December 31, 2019, amount represents specific loan loss provisions recorded on assets before the adoption of the CECL Standard. After the adoption of the CECL Standard on January 1, 2020, amounts represent Specific CECL Allowances.






16


Specific CECL Allowance

We regularly evaluate the extent and impact of any credit deteriorationmigration associated with the performance and/or value of the underlying collateral property as well as the financial and operating capability of the borrower/sponsor on a loan by loan basis. Specifically, a property’s operating results and any cash reserves are analyzed and used to assess (i) whether cash from operations 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 lossimpairment 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

We evaluate our loans on a quarterly basis. For loans where we have deemed the borrower/sponsor to be experiencing financial difficulty, we have elected to apply a practical expedient in accordance with the CECL Standard. In accordance with the practical expedient approach, we determine the loan loss is established when it is deemed probable that we will notprovision to be able to collect all amounts due accordingthe difference between the fair value of the underlying collateral and the carrying value of the loan (prior to the contractual termsloan loss provision). When the repayment or satisfaction of a loan is dependent on a sale, rather than operations, of the loan.collateral, the fair value is adjusted for the estimated cost to sell the collateral. The fair value of the underlying collateral is determined by using method(s) such as discounted cash flow, the market approach, or direct capitalization approach. The key unobservable inputs used to determine the fair value of the underlying collateral may vary depending on the information available to us and market conditions as of the valuation date.

We evaluate modifications to our loan portfolio to determine if the modifications constitute a troubled debt restructuring ("TDR") and/or substantial modification, under ASC Topic 310 "Receivables.""Receivables". During the second quarter of 2018, we determined that a modification of2020, one commercial mortgage loan, secured by a retail centerhotel in Cincinnati, OH,New York City, was restructured and was deemed to be a TDR. In connection with this restructuring, the borrower contributed additional equity of $15.0 million and concurrently we wrote down our principal on this loan by $15.0 million, which had been previously recorded as a Specific CECL Allowance. As of September 30, 2020, the loan had a principal balance and amortized cost of $171.2$142.8 million constitutedand $144.5 million, respectively, has a TDRrisk rating of 3, and is on accrual status. During the three months ended June 30, 2020, the CECL Allowance of $15.0 million was reversed through reversal of loan losses, while the write-down was recorded in realized loss on investments in our condensed consolidated statement of operations.

The following table summarizes the specific provision for loan losses that has been recorded on our portfolio as of September 30, 2020 ($ in thousands):
TypeProperty typeLocation
Amortized cost(1)
Interest recognition status/ as of date
Mortgage
Urban Predevelopment(3)
Brooklyn, NY128,418 Cost Recovery/ 3/1/2020
Urban Predevelopment(3)
Miami, FL114,910 Cost Recovery/ 3/1/2020
Retail Center(4)(5)
Cincinnati, OH105,561  Cost Recovery/ 10/1/2019
Hotel(2)
Pittsburgh, PA28,872 Cost Recovery/ 3/31/2020
Residential-for-sale: inventory(6)(7)
Bethesda, MD3,095 Cost Recovery/ 1/1/2018
Mortgage total:$380,856 
Mezzanine
Hotel(2)
Washington, DC18,430  Cost Recovery/ 3/31/2020
Hotel(8)
Anaheim, CA9,380 Cost Recovery/ 9/30/2020
Mezzanine total:$27,810 
Grand total:$408,666 
———————
(1)Amortized cost is shown net of $196.9 million of net loan loss provisions. During the three and nine months ended September 30, 2020, there was $(0.6) million and $140.0 million in (reversals)/provisions taken 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 rate ranging from 8.5% to 11.0% and a capitalization rate ranging from 7.0% to 9.0%. For the hotel located in Washington, DC, during the three and nine months ended September 30, 2020, there was $0 and $0.2 million of interest paid applied towards reducing the carrying value of the loan, respectively.
(3)The fair value of urban predevelopment collateral was determined by assuming rent per square foot ranging from $48 to $225 and a capitalization rate spreadranging from 5.0% to 5.5%.




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(4)The fair value of retail collateral was reduced from 5.5% over LIBOR to 3.0% over LIBOR. 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")VIE and it waswe determined that we are not the primary beneficiary of that VIE. During the fourth quarter of 2018, we recorded a loan loss provision of $15.0three and nine months ended September 30, 2020, $0.4 million and due to factors including continued weakness in the retail sector, we recorded an additional $32.0$1.1 million, loan loss provision during the third quarterrespectively, of 2019, bringing the total provision for loan loss to $47.0 million. The carrying value, as a result of the provision, of the loaninterest paid was $126.1 million and $156.1 million as of September 30, 2019 and December 31, 2018, respectively. The loan loss provision was based on the difference between fair value of the underlying collateral, andapplied towards reducing the carrying value of the loan (priorloan.
(6)Subsequent to the loan loss provision). Fair value of the collateral was determined using the direct capitalization method. The significant unobservable input used in determining 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 with2020, the loan and account for the loanremaining collateral on a cost-recovery basis (all proceeds are applied towards the carrying value of the loan for accounting purposes). As of September 30, 2019 and December 31, 2018, this loan was assigned a risk rating of 5.

13




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 ofsold. In connection with the loan loss provisions were due to factors including slower than expected sales pacesale of the underlying condominium units and were comprisedcollateral, a $1.9 million reversal of (i) $3.0 million loan lossthe previously recognized specific CECL Allowance was 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 andthree months ended September 30, 2020. Refer to "Note 18 - Subsequent Events" for more information.
(7)A $3.0 million portion of impairment recorded during the second quarter of 2017. The impairmentthis provision 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
(8)The fair value of the loanhotel, located in Anaheim, California, 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 ondetermined using the difference betweenmarket approach where the fair market value of the underlying collateral, and the carrying value of the loan (priorless projected closing costs, was compared 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.
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.

loan.
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 $12.5 million and $37.3 million for the three and nine months ended September 30, 2020, respectively, and $13.7 million and $42.8 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$0 and $0.2 million and $4.0 millionin pre-payment penalties and accelerated fees for the three and nine months ended September 30, 2019,2020, respectively, and $0.2$0.3 million and $1.8$4.0 million for the three and nine months ended September 30, 2018,2019, respectively.
Our portfolio includes two other lending assets, which are subordinate risk retention interests in securitization vehicles. The underlying mortgages related to our subordinate risk retention interests are secured by a portfolio of properties located throughout the United States. Our maximum exposure to loss from the subordinate risk retention interests is limited to the book value of such interests of $68.3$68.1 million as of September 30, 2019.2020. These interests have a weighted average maturity of 7.076.07 years. We are not obligated to provide, and do not intend to provide financial support to these subordinate risk retention interests.
Both interests are accounted for as held-to-maturity and recorded at amortized cost on theour condensed consolidated balance sheet.
In January 2020, we sold £62.2 million ($81.3 million assuming conversion into U.S. dollars) in a mezzanine loan and £50.0 million ($65.3 million assuming conversion into U.S. dollars) unfunded commitment of a senior mortgage secured by a mixed-use property in London, UK to a fund managed by an affiliate of the Manager, that was originated by us in December 2019. This transaction was evaluated under ASC 860 - Transfers and Servicing, and we determined that it qualifies as a sale and accounted for it as such. We didrecorded no gain or loss related to this sale.
In the second quarter of 2020, we sold interests in three construction loans, with aggregate commitments of $376.9 million (of which approximately $127 million was funded at the time of sale). The sales were to entities managed by affiliates of the Manager. In connection with these sales, we agreed to indemnify each buyer on a limited basis for realized losses of up to 10% of the committed amount on each of the loans provided that; (i) the loan is in default on or prior to December 15, 2020 and (ii) the buyer realized a loss from an enforcement action pursuant to the underlying loan agreement on or prior to June 15, 2021. The limited indemnity does not hold any collateral securingcover a loss on sale of the loan or an unrealized mark-to-market loss. We recorded a loss of approximately $1.4 million in connection with these sales. These transactions were evaluated under ASC 860 - Transfers and Servicing, and we determined that they qualify as sales and accounted for them as such.
In July 2020, we sold our subordinate risk retention interestsinterest in a foreign residential-for-sale inventory loan, with outstanding principal of £97.5 million ($124.2 million assuming conversion into USD). We recorded a loss of approximately $1.0 million in connection with this sale. This transaction was evaluated under ASC 860 - Transfers and Servicing, and we determined that it qualifies as of December 31, 2018.a sale and accounted for it as such.




18


Note 5 – Loan Proceeds Held by Servicer
Loan proceeds held by servicer represents principal payments held by our third-party loan servicer as ofthe balance sheet date which were remitted to us subsequent to the balance sheet date. There were 0 loan proceeds held by servicer as of September 30, 2020. Loan proceeds held by servicerwere $3.3$8.3 million and$1.0 millionas of September 30, 2019 and December 31, 2018, respectively.2019.

14




Note 6 – Other Assets
The following table details the components of our other assets at the dates indicated ($ in thousands):
September 30, 2020December 31, 2019
Interest receivable$38,401 $35,581 
Collateral deposited under derivative agreements1,810 17,090 
Other3,433 45 
Total$43,644 $52,716 
 September 30, 2019 December 31, 2018
Interest receivable$36,908
 $33,399
Other950
 321
Total$37,858
 $33,720



Note 7 – Secured Debt Arrangements, Net
At September 30, 20192020 and December 31, 2018,2019, our borrowings hadincluded 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 Facility500,000
 267,711
 November 2021 300,000
 210,072
 November 2020
 CS Facility - USD174,279
 174,279
 March 2020 187,117
 187,117
 June 2019
 CS Facility - GBP124,707
 124,707
 March 2020 151,773
 151,773
 June 2019
 HSBC Facility - GBP36,621
 36,621
 December 2019 48,835
 48,835
 December 2019
 HSBC Facility - EUR149,724
 149,724
 January 2021 
 
 N/A
 Sub-total3,535,331
 2,559,318
 
 3,124,725
 1,897,077
  
 less: deferred financing costsN/A
 (18,031)   N/A
 (17,555)  
 Total / Weighted-Average$3,535,331
 $2,541,287
  
$3,124,725
 $1,879,522
 
 
September 30, 2020December 31, 2019
 
Maximum Amount of Borrowings(1)
Borrowings Outstanding(1)
Maturity (2)
Maximum Amount of Borrowings(1)
Borrowings Outstanding(1)
Maturity (2)
JPMorgan (USD)$1,132,013 $989,278 June 2024$1,154,109 $1,090,160 June 2024
JPMorgan (GBP)97,661 97,661 June 202451,702 50,410 June 2024
JPMorgan (EUR)70,326 70,326 June 202494,189 94,189 June 2024
DB (USD)1,000,000 526,743 March 20231,250,000 513,876 March 2021
Goldman (USD)500,000 362,139 November 2021500,000 322,170 November 2021
CS - USD378,903 378,781 
January 2023(3)
226,068 218,644 June 2020
CS - GBP— — 
N/A(4)
93,915 93,915 June 2020
HSBC - USD47,223 47,223 January 202150,625 50,625 October 2020
HSBC - GBPN/A34,634 34,634 June 2020
HSBC - EUR157,148 157,148 July 2021154,037 154,037 January 2021
Barclays (USD)200,000 35,192 March 2024N/AN/AN/A
Barclays (GBP)— — 
N/A(4)
538,916 290,347 
February 2024(5)
Barclays (EUR)— — 
N/A(4)
182,549 182,549 November 2020
Total Secured Credit Facilities3,583,274 2,664,491 4,330,744 3,095,556 
Barclays Private Securitization813,592 813,592 
March 2024(5)
N/AN/AN/A
Total Secured Debt Arrangements4,396,866 3,478,083 4,330,744 3,095,556 
less: deferred financing costsN/A(12,746)N/A(17,190)
Total Secured Debt Arrangements, net(6)(7)(8)
$4,396,866 $3,465,337 $4,330,744 $3,078,366  
———————
(1)As of September 30, 2020, British Pound Sterling ("GBP") and Euros ("EUR") borrowings were converted to U.S. Dollars ("USD") at a rate of 1.29 and 1.17, respectively. As of December 31, 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.




19


(4)As of September 30, 2020, there are no loans pledged to this facility.
(5)Represents weighted average maturity across various financings with the counterparty. See below for additional details.
(6)Weighted-average ratesborrowing costs as of September 30, 20192020 and December 31, 20182019 were USD L + 2.09%2.15% / GBP L + 2.31%1.82% / EUR L + 1.35%1.46% and USD L + 2.17%2.07% / GBP L + 2.28%1.75% / EUR L + 1.36%, respectively.
(7)Weighted average advance rates based on cost as of September 30, 2020 and December 31, 2019 were 64.3% (63.8% (USD) / 67.9% (GBP) / 61.3% (EUR)) and 63.8% (66.7% (USD) / 47.1% (GBP) / 76.1% (EUR)).
(8)As of September 30, 2020 and December 31, 2019, approximately 55% and 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 of the underlying collateral value decreases, the amount of leverage available to us will be reduced as our assets are marked-to-market, which would reduce our liquidity. Generally, the lender under the applicable secured debt arrangement calls for and/or sets the valuation and any revaluation of the collateral assets in its sole, good faith discretion. If it is determined (subject to certain conditions) that the market value of the underlying collateral has decreased by more than a defined minimum amount, the lender may require us to provide additional collateral or may make margin calls, which may require us to repay all or a portion of the funds advanced. We closely monitor our liquidity and intend to maintain sufficient liquidity on our balance sheet in order to meet any margin calls in the event of any significant decreases in asset values. As of September 30, 2020 and December 31, 2019, the weighted average haircut under our secured debt arrangements was approximately 35.7% and 36.2%, respectively. In addition, our existing secured debt arrangements are not entirely term-matched financings and may mature before our commercial real estate debt investments that represent underlying collateral to those financings. We are in frequent dialogue with the lenders under our secured debt arrangements regarding our management of their collateral assets and as we negotiate renewals and extensions of these liabilities, we may experience lower advance rates and higher pricing under the renewed or extended agreements.
JPMorgan Facility
In May 2017,November 2019, through 23 indirect wholly-owned subsidiaries, we entered into a FifthSixth 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 theThe JPMorgan Facility to allowallows for $1.3 billion of maximum borrowings (with amounts borrowed in British pounds and maturityEuros converted to USD 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 plusand 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"),USD, GBP, or Euros ("EUR").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, 2019,2020, 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 SecondThird 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.

15




The repurchase facility matures in March 2020, plus a2021, and has 2 one-year extensionextensions 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, 2019,2020, we had $691.9$526.7 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 millionprovides advances up to $500.0 million and matures in November 2019, plus 22020, and has 1 one-year extensionsextension 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, 2019,2020, we had $267.7$362.1 million of borrowings outstanding under the Goldman Facility.Facility secured by certain of our commercial mortgage loans.






20


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 matureshas 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, 2019,2020, we had $174.3$378.8 million of borrowings outstanding under the CS Facility - USD secured by certain of our commercial mortgage loans.
CS Facility - GBP
In June 2018, through an indirect wholly-owned subsidiary, we entered into a Global Master Repurchase Agreement with Credit Suisse AG, acting through its Cayman Islands Branch and Alpine Securitization LtdSecurities (Europe) Limited (the "CS Facility - GBP"). During the third quarter of 2020, the facility was repaid in connection with the sale of the underlying loan.
HSBC Facility - USD    
In October 2019, through an indirect wholly-owned subsidiary, we entered into a secured debt arrangement with HSBC Bank plc (the "HSBC Facility - USD"), which provides for advances for the sale and repurchase of eligible commercial mortgage loans secured by real estate.a single asset financing. The CS Facility - GBP matures six months after either party notifies the other party of intentionfacility is scheduled to terminate.mature in January 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, 2019,2020, we had $124.7$47.2 million (£101.5 million assuming conversion into USD) of borrowings outstanding under the CSHSBC Facility - GBPUSD secured by one of our commercial mortgage loans.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 providesprovided for a single asset financing. The facility maturesmatured and was repaid in December 2019. Margin calls may occur any time at specified aggregate margin deficit thresholds. We have agreed to provide a guaranteeJune 2020 in connection with the repayment of the obligations of our indirect wholly-owned subsidiary under this facility.
As of September 30, 2019, we had $36.6 million (£29.8 million assuming conversion into USD) of borrowings outstanding under the HSBC Facility - GBP secured by one of our commercial mortgage loans.underlying loan.
HSBC Facility - EUR
In July 2019, through an indirect wholly-owned subsidiary, we entered into a secured debt arrangement with HSBC Bank plc (the "HSBC Facility - EUR"), which provides for a single asset financing. The facility matures in JanuaryJuly 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, 2019,2020, we had $149.7$157.1 million (€137.4134.1 million assuming conversion into USD) of borrowings outstanding under the HSBC Facility - EUR secured by one commercial mortgage loan.
Barclays Facility - USD
In March 2020, through an indirect wholly-owned subsidiary, we entered into a secured debt arrangement pursuant to a Master Repurchase Agreement with Barclays Bank plc ("Barclays Facility - USD"). The Barclays Facility - USD allows for $200.0 million of maximum borrowings and initially matures in March 2023 with extensions available at our option, subject to certain conditions. Margin calls may occur any time at specified aggregate margin deficit thresholds.
As of September 30, 2020, we had $35.2 million of borrowings outstanding under the Barclays Facility - USD secured by one commercial mortgage loan.
Barclays Facility - GBP/EUR
Beginning in October 2019, through an indirect wholly-owned subsidiary, we entered into five secured debt arrangements pursuant to a Global Master Repurchase Agreement with Barclays Bank plc (the "Barclays Facility - GBP/EUR"). In June 2020, all assets previously financed pursuant to this facility were refinanced under the Barclays Private Securitization.








21


Barclays Private Securitization
In June 2020, through a newly formed entity, we entered into a private securitization with Barclays Bank plc, of which Barclays Bank plc retained $782.0 million of senior notes. This Barclays Private Securitization finances the loans that were previously financed under the Barclays Facility - GBP/EUR. In addition, we pledged an additional commercial mortgage loan with an outstanding principal balance of £26.0 million and pledged additional collateral of a financed loan of €5.3 million as of June 30, 2020.
The securitization eliminates daily margining provisions and grants us significant discretion to modify certain terms of the underlying collateral including waiving certain loan-level covenant breaches and deferring or waiving of debt service payments for up to 18 months. The securitization includes LTV based covenants with significant headroom to existing levels that are also subject to a six-month holiday through December 2020. These deleveraging requirements are based on significant declines in the value of the collateral as determined by an annual third-party (engaged by us) appraisal process tied to the provisions of the underlying loan agreements. We believe this provides us with both cushion and predictability to avoid sudden unexpected outcomes and material repayment requirements. In addition to the pledge of the additional collateral noted above, we paid down the previous financing by €16.5 million (totaling $18.5 million in USD) and agreed to increase the financing spreads by 0.25%.
The table below provides the borrowings outstanding (on an as converted basis) and weighted-average fully-extended maturities by currency for the assets financed under the Barclays Private Securitization as of September 30, 2020 ($ in thousands):
Borrowings outstanding
Fully-Extended Maturity(1)
Total/Weighted-Average GBP$670,024January 2024
Total/Weighted-Average EUR143,568
August 2021(2)
Total/Weighted-Average Securitization$813,592March 2024
———————
(1)Assumes underlying loans extend to fully extended maturity and extensions at our option are exercised.
(2)The EUR portion of the Barclays Private Securitization has an "evergreen" feature such that the facility continues for one year and can be terminated by either party on certain dates with, depending on the date of notice, a minimum of nine to twelve months' notice.

    The table below provides the assets and liabilities of the Barclays Private Securitization VIE included in our condensed consolidated balance sheet ($ in thousands):
September 30, 2020
Assets:
Cash$921 
Commercial mortgage loans, net(1)
1,224,154 
Other Assets9,401 
Total Assets$1,234,476 
Liabilities:
Secured debt arrangements, net (net of deferred financing costs of $0.2 million)$813,431 
Accounts payable, accrued expenses and other liabilities(2)
1,084 
Total Liabilities$814,515 
———————
(1)Net of the General CECL Allowance of $6.1 million.
(2)Represents General CECL Allowance related to unfunded commitments on commercial mortgage loans, net of $0.3 million.






22


Three months ended
September 30, 2020
Net Interest Income:
Interest income from commercial mortgage loans$15,075 
Interest expense(4,278)
Net interest income$10,797 
Provision for loan losses and impairments$(2,318)
Foreign currency gain17,078
Net Income$25,557 

As of September 30, 2020, we had $813.6 million (£518.6 million and €122.5 million assuming conversion into USD) of borrowings outstanding under the Barclays Private Securitization secured by certain of our commercial mortgage loans.
At September 30, 2019,2020, our borrowings had the following remaining maturities ($ in thousands):

16




 
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 Facility102,896
 589,016
 


 691,912
Goldman Facility
 267,711
 
 
 267,711
CS Facility - USD174,279
 
 
 
 174,279
CS Facility - GBP124,707
 
 
 
 124,707
HSBC Facility - GBP36,621
 
 
 
 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$45,918 $432,440 $678,907 $$1,157,265 
DB15,594 511,149 526,743 
Goldman362,139 362,139 
CS - USD94,299 146,994 137,488 378,781 
HSBC - USD47,223 47,223 
HSBC - EUR157,148 157,148 
Barclays - USD35,192 35,192 
Barclays Private Securitization143,568 289,769 380,255 813,592 
Total$503,750 $1,742,491 $1,231,842 $$3,478,083 
(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 September 30, 2019,2020, as well as the maximum and average month-end balances for the nine months ended September 30, 2020 for our borrowings under secured debt arrangements ($ in thousands).
As of September 30, 2020For the nine months ended September 30, 2020
 BalanceAmortized Cost of CollateralMaximum Month-End
Balance
Average Month-End
Balance
JPMorgan$1,157,265 $1,976,965 $1,192,288 $1,106,461 
DB526,743 804,835 526,743 501,470 
Goldman362,139 548,671 362,139 343,882 
CS - USD378,781 523,272 378,781 339,425 
CS - GBP— 90,111 57,459 
HSBC - USD47,223 67,203 50,625 48,357 
HSBC - GBP34,500 32,900 
HSBC - EUR157,148 204,040 160,034 152,982 
Barclays - USD35,192 49,929 35,193 27,372 
Barclays - GBP666,810 347,590 




23


Barclays - EUR180,595 94,028 
Barclays Private Securitization813,592 1,230,305 839,563 814,844 
Total$3,478,083 $5,405,220 
The table below summarizes the outstanding balances at December 31, 2019, as well as the maximum and average month-end balances for the year ended December 31, 2019 for our borrowings under secured debt arrangements ($ 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 Facility691,912
 1,205,456
 691,912
 598,285
Goldman Facility267,711
 445,898
 312,507
 220,631
CS Facility - USD174,279
 241,989
 188,037
 180,792
CS Facility - GBP124,707
 178,612
 150,811
 139,991
HSBC Facility - GBP36,621
 52,593
 50,784
 44,007
HSBC Facility - EUR149,724
 185,208
 152,155
 150,914
Total$2,559,318
 $4,118,926
    

As of December 31, 2019For the year ended December 31, 2019
 BalanceAmortized Cost of CollateralMaximum Month-End
Balance
Average Month-End
Balance
JPMorgan$1,234,759 $1,845,400 $1,234,759 $947,400 
DB513,876 766,676 757,117 604,067 
Goldman322,170 513,559 324,821 246,318 
CS - USD218,644 308,884 218,644 182,646 
CS - GBP93,915 129,723 150,811 134,694 
HSBC - USD50,625 66,960 50,625 50,625 
HSBC - GBP34,634 49,976 50,784 42,296 
HSBC - EUR154,037 190,780 154,037 151,889 
Barclays - GBP290,347 738,455 290,347 139,004 
Barclays - EUR182,549 241,674 182,549 181,159 
Total$3,095,556 $4,852,087 
We were in compliance with the covenants under each of our secured debt arrangements at September 30, 20192020 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 and nine months ended September 30, 2019,2020, we repaid $1.3 million and $3.8 million of principal related to the senior secured term loan.loan, respectively. The outstanding principal balance as of September 30, 2020 and December 31, 2019 was $493.8 million and $497.5 million, respectively. As of September 30, 2020, the senior secured term loan had a carrying value of $484.2 million net of deferred financing costs of $7.6 million and an unamortized discount of $2.0 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 $2.3 million.
Covenants
The senior secured term loan includes the following financial covenants: (i) our ratio of total non-recourserecourse 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, 2020 and December 31, 2019.
Interest Rate Swap
In connection with the senior secured term loan, we previously entered into an interest rate swap to fix LIBOR at 2.12% effectively fixing our all-in coupon on the senior secured term loan at 4.87%. During the second quarter of 2020 we terminated the interest rate swap and recognized a realized loss of $53.9 million.

Interest Rate Cap

During the second quarter of 2020, we entered into a three-year interest rate cap to cap LIBOR at 0.75%. This effectively limits the maximum all-in coupon on our senior secured term loan to 3.50%. In connection with the interest rate cap, we incurred up-front fees of $1.1 million, which we recorded as a deferred financing cost on our condensed consolidated balance
17




24



sheet and interest expense will be recognized over the duration of the interest rate cap in our condensed consolidated statement of operations.
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 theour 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 theour 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 werewas 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, 2019,2020, the 2022 Notes had a carrying value of $337.1$339.7 million and an unamortized discount of $7.9$5.3 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, 2019,2020, the 2023 Notes had a carrying value of $223.5$224.9 million and an unamortized discount of $6.5$5.1 million.
The following table summarizes the terms of the Notes ($ in thousands):
Principal AmountCoupon Rate
Effective Rate (1)
Conversion Rate (2)
Maturity DateRemaining Period of AmortizationPrincipal AmountCoupon Rate
Effective Rate (1)
Conversion Rate (2)
Maturity DateRemaining Period of Amortization
2022 Notes$345,000
4.75%5.60%50.2260
8/23/20222.902022 Notes$345,000 4.75 %5.60 %50.2260 8/23/20221.90
2023 Notes230,000
5.38%6.16%48.7187
10/15/20234.042023 Notes230,000 5.38 %6.16 %48.7187 10/15/20233.04
Total$575,000
  Total$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.
(1)Effective rate includes the effect of the adjustment for the conversion option (See footnote (2) below), the value of which reduced the initial liability and was recorded in additional paid-in-capital.
(2)We have the option to settle any conversions in cash, shares of common stock or a combination thereof. The conversion rate represents the number of shares of common stock issuable per 1 thousand principal amount of the Notes converted, and includes adjustments relating to cash dividend payments made by us to stockholders that have been deferred and carried-forward in accordance with, and are not yet required to be made pursuant to, the terms of the applicable supplemental indenture.

We may not redeem the Notes prior to maturity except in limited circumstances. The closing price of our common
stock on September 30, 2020 of $9.01 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) isare to be separately accounted for in a manner that reflects the issuer’s nonconvertible debt borrowing rate. GAAP requires that the initial proceeds from the sale of the Notes be allocated between a liability component and an equity component in a manner that reflects interest expense at the interest rate of similar nonconvertible debt that could have been issued by 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 theour condensed consolidated balance sheet




25


as of September 30, 2019.2020. The resulting debt discount is being amortized over the period during which the Notes are expected

18




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 $21.6 million for the three and nine months ended September 30, 2020, respectively, as compared to $7.2 million and $21.9 million for the three and nine months ended September 30, 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 $4.5 million for the three and nine months ended September 30, 2020, respectively, as compared to $1.5 million and $4.6 million for the three and nine months ended September 30, 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 swapcap as of September 30, 2019:2020:
September 30, 2020
Number of ContractsAggregate Notional Amount (in thousands)Notional CurrencyMaturityWeighted-Average Years to Maturity
Fx contracts - GBP106422,585GBPOctober 2020 - December 20242.16
Fx contracts - EUR70238,817EURNovember 2020 - August 20242.79
Interest rate cap1500,000USDJune 20232.71

September 30, 2019
 Number of Contracts Aggregate Notional Amount (in thousands) Notional Currency Maturity Weighted-Average Years to Maturity
Fx Contracts - GBP97 431,334 GBP October 2019 - April 2022 0.75
Fx Contracts - EUR27 178,922 EUR October 2019 - February 2023 1.47
Interest Rate Swap1 500,000 USD May 2026 6.62

The following table summarizes our non-designated Fx forwards and our interest rate swap as of December 31, 2018:2019:
December 31, 2019
Number of ContractsAggregate Notional Amount (in thousands)Notional CurrencyMaturityWeighted-Average Years to Maturity
Fx contracts - GBP156735,349GBPJanuary 2020 - December 20241.49
Fx contracts - EUR44168,879EURFebruary 2020 - August 20243.22
Interest rate swap1500,000USDMay 20266.37
 December 31, 2018
 Number of Contracts Aggregate Notional Amount (in thousands) Notional Currency Maturity Weighted-Average Years to Maturity
Fx Contracts - GBP43 270,161 GBP January 2019 - November 2020 0.69


We have not designated any of our derivative instruments as hedges as defined in ASC 815 "- Derivatives and Hedging"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 theour condensed consolidated statements of operations related to our derivatives for the three and nine months ended September 30, 20192020 and 20182019 ($ in thousands):
 

19


26


   
Amount of gain (loss)
recognized in income
 Amount of gain (loss)
recognized in income
   Three months ended September 30, Nine months ended September 30,
 Location of Gain (Loss) Recognized in Income 2019 2018 2019 2018
Forward currency contractsGain on derivative instruments - unrealized $16,227
 $5,046
 $12,029
 $20,987
Forward currency contractsGain on derivative instruments - realized 7,926
 1,246
 16,590
 7,811
Interest rate caps(1)
Loss on derivative instruments - unrealized 
 (1) 
 (1)
 Gain on derivative instruments 24,153
 6,291
 28,619
 28,797

  Amount of gain (loss)
recognized in income
Three months ended September 30,Nine months ended September 30,
Location of Gain (Loss) Recognized in Income2020201920202019
Forward currency contractsUnrealized gain (loss) on derivative instruments$(35,076)$16,227 $18,356 $12,029 
Forward currency contractsRealized gain on derivative instruments539 7,926 14,603 16,590 
Total$(34,537)$24,153 $32,959 $28,619 
In connection with our senior secured term loan, in May 2019, we entered into an interest rate swap to fix LIBOR at 2.12% or an all-in interest rate of 4.87%. We used our interest rate swap to manage exposure to variable cash flows on our borrowings under our senior secured term loan. Our interest rate swap allowed us to receive a variable rate cash flow based on LIBOR and pay a fixed rate cash flow, mitigating the impact of this exposure. However during the second quarter of 2020, we terminated our interest rate swap due to a significant decrease in LIBOR and recognized a realized loss on the accompanying condensed consolidated statement of operations.
In June 2020, we entered into an interest rate cap for approximately $1.1 million. We use our interest rate cap to manage exposure to variable cash flows on our borrowings under our senior secured term loan by effectively limiting LIBOR from exceeding 0.75%. This effectively limits the maximum all-in coupon on our senior secured term loan to 3.50%. Unrealized gains or losses related to the interest rate swap and cap were recorded net under interest expense in our condensed consolidated statement of operations.
Amount of loss
recognized in income
Three months ended September 30,Nine months ended September 30,
Location of Loss Recognized in Income2020201920202019
Interest rate cap(1)
Unrealized gain (loss) on interest rate cap$(564)$$174 $
Interest rate swap(2)
Unrealized gain (loss) on interest rate swap(10,307)14,470 (23,420)
Interest rate swap(2)
Realized loss on interest rate swap(53,851)
Total$(564)$(10,307)$(39,207)$(23,420)
———————
(1)With a notional amount of $0.0 million and $36.2 million at September 30, 2019, and 2018, respectively.

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

The following table summarizestables summarize the gross asset and liability amounts related to our derivatives at September 30, 20192020 and December 31, 20182019 ($ in thousands).
September 30, 2020December 31, 2019
Gross
Amount of
Recognized
Assets
Gross
Amounts
Offset in our Condensed
Consolidated Balance Sheet
Net Amounts
of Assets
Presented in
our Condensed Consolidated Balance Sheet
Gross
Amount of
Recognized
Assets
Gross
Amounts
Offset in our Condensed
Consolidated Balance Sheet
Net Amounts
of Assets
Presented in
our Condensed Consolidated Balance Sheet
Forward currency contracts$20,788 $(7,307)$13,481 $$$
Interest rate cap173 173 
Total$20,961 $(7,307)$13,654 $$$
 September 30, 2019 December 31, 2018

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
Forward currency contracts$35,811
 $(82) $35,729
 $23,753
 $(53) $23,700
Interest rate swap(23,420) 
 (23,420) 
 
 




27


September 30, 2020December 31, 2019
Gross
Amount of
Recognized
Liability
Gross
Amounts
Offset in our Condensed
Consolidated Balance Sheet
Net Amounts
of Liability
Presented in
our Condensed Consolidated Balance Sheet
Gross Amount of Recognized LiabilitiesGross
Amounts
Offset in our Condensed
Consolidated Balance Sheet
Net Amounts of Liabilities Presented in our Condensed Consolidated Balance Sheet
Interest rate swap$$$$14,470 $$14,470 
Forward currency contracts12,687 (7,811)4,876 
Total derivative liabilities$$$$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, 2020December 31, 2019
Accrued dividends payable$53,689 $74,771 
Collateral deposited under derivative agreements12,780 2,930 
Accrued interest payable13,013 16,089 
Accounts payable and other liabilities6,145 6,922 
General CECL Allowance on unfunded commitments(1)
3,595 
Total$89,222 $100,712 
 September 30, 2019 December 31, 2018
Accrued dividends payable$74,290
 $69,033
Collateral deposited under derivative agreements170
 20,000
Accrued interest payable13,908
 14,208
Accounts payable and other liabilities9,863
 1,505
Total$98,231
 $104,746

———————

(1)Refer to Note 4 - Commercial Mortgage, Subordinate Loans and Other Lending Assets, Net for additional disclosure related to the General CECL Allowance on unfunded commitments for the quarter ended September 30, 2020.



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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 expireswill expire on September 29, 20202021, 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$9.9 million and $30.3$30.2 million in base management fees under the Management Agreement for the three and nine months ended September 30, 2019,2020, respectively, as compared to approximately $9.5$10.4 million and $26.6$30.3 million for the three and nine months ended September 30, 2018,2019, respectively.




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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, 2019,2020 we paid expenses totaling $0.5$0.6 million and $2.0$1.7 million, respectively, related to reimbursements for certain expenses paid by the Manager on our behalf under the Management Agreement as compared to $0.6$0.5 million and $1.8$2.0 million, forrespectively Expenses incurred by the same periodsManager and reimbursed by us are reflected in the prior year. These expenses are included in the general and administrative expenses line item of therespective condensed consolidated statement of operations.operations expense category or our condensed consolidated balance sheet based on the nature of the item.
Included in payable to related party on theour condensed consolidated balance sheet at September 30, 20192020 and December 31, 20182019 are approximately $10.4$9.9 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 outstandingsold £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 interestsa senior mortgage secured by a mixed-use property in an existing subordinate loan fromLondon, UK to a fund managed by an affiliate of the Manager, increasingthat was originated by us in December 2019. This transaction was evaluated under ASC 860 - Transfers and Servicing, and we determined that it qualifies as a sale and accounted for as such.
In the second quarter of 2020, we sold our total outstanding loan commitmentinterests in three construction loans to $100.0 million. Furthermore, in September 2017 we funded an additional $25.0 million to acquire a portion of the same pre-development subordinate loan from a fundentities 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 affiliateaffiliates of the Manager. The pre-development subordinate loan isRefer to "Note 4 - Commercial Mortgage, Subordinate Loans and Other Lending Assets, Net" for the construction of a residential condominium building in New York, New York and is part of a $300.0 million subordinate loan.additional information related to these sales.
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.


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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 $4.2 million and $12.7 million for the three and nine months ended September 30, 2020, respectively, related to restricted stock and RSU vesting, as compared to $3.9 million and $12.1 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, 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 $16.66 on December 31, 2018, which was the last business day before we adopted ASU 2018-07. Refer to "Note 2 - Summary of Significant Accounting Policies" for further discussion on our adoption of ASU 2018-07.respectively.
The following table summarizes the grants, vesting and forfeitures of restricted common stock and RSUs during the nine months ended September 30, 2019:2020:
TypeRestricted StockRSUsGrant Date Fair Value ($ in thousands)
Outstanding at December 31, 201925,356 2,007,355 
Granted82,235 54,867 906 
Vested(25,356)(264)N/A
Forfeiture(13,587)N/A
Outstanding at September 30, 202082,235 2,048,371 




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 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
  

Below is a summary of restricted stock and RSU vesting dates as of September 30, 20192020
Vesting YearRestricted StockRSUTotal Awards
2020956,738 956,738 
202182,235 699,903 782,138 
2022373,441 373,441 
202318,289 18,289 
Total82,235 2,048,371 2,130,606 
Vesting Year Restricted Stock RSU Total Awards
2019 20,000
 881,403
 901,403
2020 25,356
 621,515
 646,871
2021 
 333,325
 333,325
Total 45,356
 1,836,243
 1,881,599


At September 30, 2019,2020, we had unrecognized compensation expense of approximately $0.3 million and $19.5$22.9 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, 2020 and 2019, we delivered 159503,411 and 433,585 shares of common stock for 263868,421 and 730,980 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 theour 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 months ended September 30, 20192020 and 2018,2019, 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 theour condensed consolidated statement of changes in stockholders' equity.

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Note 14 – Stockholders’ Equity
Our authorized capital stock consists of 450,000,000 shares of common stock, $0.01$0.01 par value per share and 50,000,000 shares of preferred stock, $0.01$0.01 par value per share. As of September 30, 2019, 153,531,7562020, 143,288,347 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 2019, we declared theThe following dividends:table details our dividend activity:
 Three months ended
Dividend declared per share of:September 30, 2019June 30, 2019March 31, 2019
Common Stock$0.46$0.46$0.46
Series B Preferred Stock0.500.500.50
Series C Preferred StockN/A0.220.50

Three months endedNine months ended
Dividend declared per share of:September 30, 2020September 30, 2019September 30, 2020September 30, 2019
Common Stock$0.35$0.46$1.10$1.38
Series B Preferred Stock0.500.501.501.50
Series C Preferred StockN/AN/AN/A0.7223
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 theour 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. The following table details our common stock repurchase activity during the nine months ended September 30, 2020:




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Three months ended
March 31, 2020June 30, 2020September 30, 2020Total
Shares Repurchased300,000 5,495,976 5,038,619 10,834,595 
Weighted Average Price$8.12$7.96$9.01$8.45 
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, whowhich 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 isin its entirety on November 8, 2019. Plaintiffs filed a timely notice of appeal on December 6, 2019 and, as of September 28, 2020, the parties have now dismissed, subject tofully briefed the appeal. We are awaiting scheduling of oral argument. We believe the claims are without merit and plan to vigorously defend the case on appeal as necessary. 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, 2019,2020, we had $1.1$1.4 billion of unfunded commitments related to our commercial mortgage and subordinate loans. The timings and amounts of fundings are uncertain as these commitments relate to loans for construction costs, capital expenditures, leasing costs, interest and carry costs, among others. As such, the timings and amounts of future fundings depend on the progress and performance of the underlying assets of our loans. Certain of our lenders are contractually obligated to fund their ratable portion of these loan portfolios.commitments over time, while other lenders have some degree of discretion over future loan funding obligations. The total unfunded commitment is expected to be funded over the remaining expected 4.1 years weighted average tenor of these loans.
COVID-19. The COVID-19 global pandemic has brought forth uncertainty and disruption to the global economy. The magnitude and duration of the COVID-19 pandemic and its impact on our borrowers and their tenants, cash flows and future results of operations could be significant and will largely depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the COVID-19 pandemic, the success of actions taken to contain or treat the pandemic, and reactions by consumers, companies, governmental entities and capital markets. The prolonged duration and impact of the COVID-19 pandemic could materially disrupt our business operations and impact our financial performance.
As of September 30, 2020, we have not recorded any contingencies on our condensed consolidated balance sheet related to COVID-19. To the extent COVID-19 continues to cause dislocations in the global economy, our financial condition, results of operations, and cash flows may continue to be adversely impacted. Refer to “Note 2 - Summary of Significant Accounting Policies” for further discussion regarding COVID-19.
Note 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 theour condensed consolidated balance sheet at September 30, 20192020 and December 31, 20182019 ($ in thousands):

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31


 September 30, 2019 December 31, 2018
 Carrying
Value
 Estimated
Fair Value
 Carrying
Value
 Estimated
Fair Value
Cash and cash equivalents$160,934
 $160,934
 $109,806
 $109,806
Commercial mortgage loans, net4,779,501
 4,828,398
 3,878,981
 3,894,947
Subordinate loans and other lending assets, net (1)
1,335,073
 1,344,035
 1,048,612
 1,047,854
Secured debt arrangements, net(2,541,287) (2,541,287) (1,897,077) (1,897,077)
Senior secured term loan, net(488,947) (499,375) 
 
2019 Notes
 
 (34,278) (35,276)
2022 Notes(337,126) (352,331) (335,291) (326,025)
2023 Notes(223,463) (234,313) (222,431) (221,964)

September 30, 2020December 31, 2019
 Carrying
Value
Estimated
Fair Value
Carrying
Value
Estimated
Fair Value
Cash and cash equivalents$438,234 $438,234 $452,282 $452,282 
Commercial mortgage loans, net5,427,945 5,337,301 5,326,967 5,380,693 
Subordinate loans and other lending assets, net(1)
1,009,092 982,961 1,048,126 1,050,961 
Secured debt arrangements, net(3,465,337)(3,465,337)(3,078,366)(3,078,366)
Senior secured term loan, net(484,191)(471,531)(487,961)(499,988)
2022 Notes(339,695)(326,867)(337,755)(348,060)
2023 Notes(224,916)(206,126)(223,818)(234,600)
———————
(1) As of September 30, 2019 includesIncludes subordinate risk retention interests in securitization vehicles with an estimated fair value that approximates their carrying valuevalue.
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, 20192020 and 20182019 ($ in thousands except per share data): 
 For the three months ended September 30, For the nine months ended September 30,
 2019 2018 2019 2018
Basic 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
Less: Dividends on participating securities(847) (733) (2,547) (2,215)
Basic Earnings$24,857
 $54,648
 $140,585
 $144,276
        
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
Add: Interest expense on Notes
 6,746
 
 25,607
Diluted Earnings$25,704
 $62,127
 $143,132
 $172,098
        
Number of Shares:       
Basic weighted-average shares of common stock outstanding153,531,678
 129,188,343
 144,638,237
 120,876,240
Diluted weighted-average shares of common stock outstanding153,531,678
 153,918,435
 144,638,237
 150,424,889
   

 

  
Earnings Per Share Attributable to Common Stockholders       
Basic$0.16
 $0.42
 $0.97
 $1.19
Diluted$0.16
 $0.40
 $0.97
 $1.14

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, the
For the three months ended September 30,For the nine months ended September 30,
2020201920202019
Basic Earnings
Net income (loss)$49,338 $29,089 $(18,303)$158,271 
Less: Preferred dividends(3,385)(3,385)(10,155)(15,139)
Net income (loss) available to common stockholders$45,953 $25,704 $(28,458)$143,132 
Less: Dividends on participating securities(717)(847)(2,238)(2,547)
Basic Earnings$45,236 $24,857 $(30,696)$140,585 
Diluted Earnings
Net income (loss) available to common stockholders$45,953 $25,704 $(28,458)$143,132 
Less: Dividends on participating securities(717)(2,238)
Add: Interest expense on Notes
Diluted Earnings$45,236 $25,704 $(30,696)$143,132 




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Number of Shares:
Basic weighted-average shares of common stock outstanding146,612,313 153,531,678 150,679,773 144,638,237 
Diluted weighted-average shares of common stock outstanding146,612,313 153,531,678 150,679,773 144,638,237 
Earnings Per Share Attributable to Common Stockholders
Basic$0.31 $0.16 $(0.20)$0.97 
Diluted$0.31 $0.16 $(0.20)$0.97 
The dilutive effect to earnings per share 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, 2020, 28,533,271 weighted-average potentially issuable shares with respect to the Notes were excluded from the calculation of diluted net income per share because the effect was anti-dilutive. For the three and nine months ended September 30, 2019, 28,533,271 and 29,041,856 weighted-average potentially issuable shares with respect to the Notes, respectively, were excluded from the calculation of diluted net income per share because the effect was anti-dilutive.
For the nine months ended September 30, 2019 and 2018, 29,041,856 and 29,548,649 weighted-average potentially issuable shares with respect to the Notes were included in the dilutive earnings per share denominator, respectively. Refer to "Note 9 - Convertible Senior Notes, Net" for further discussion.
For the three and nine months ended September 30, 2019, 1,839,6312020, 2,051,311 and 1,845,0862,028,573 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 1,593,070anti-dilutive. For the three and 1,617,398 fornine months ended September 30, 2019, 1,839,631 and 1,845,086 of weighted-average unvested RSUs, respectively, were excluded from the same periods incalculation of diluted net income per share because the prior year.effect was 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.2020, the following events took place:
In addition, weInvestment activity: We funded approximately $26.7$33.0 million for previously closed loans.
Loan Repayments. Subsequent to the end of the quarter, weWe received approximately $60.2$1.3 million from loan repayments.
In addition, the remaining collateral of for-sale residential condominium units located in Bethesda, MD, was sold for net proceeds approximately equal to the carrying value of the loan.
Loan Sales: We sold, at par, a $25.0 million subordinate position of a residential-for-sale: construction loan with a total commitment of $110.0 million.
Unconsolidated Joint Venture: We entered into a joint venture which owns the underlying properties that secure our $180.0 million first mortgage predevelopment loan located in Miami, FL. The entity in which we own an interest, and which owns the underlying properties was deemed to be a VIE and we determined that we are not the primary beneficiary of that VIE.


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33



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 Annualthis 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$413.6 billion as of June 30, 2019.2020.
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.




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Current Market OverviewConditions

BasedDuring the first quarter of 2020, there was a global outbreak of COVID-19, which was declared by 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 current market dynamics, including significant upcoming commercial real estate debt maturities,midst of the COVID-19 pandemic we believe there remains compelling opportunities for usare not in a position to invest capital inestimate the ultimate impact this will have on our targetbusiness and the economy as a whole. The effects of COVID-19 have adversely impacted the value of our assets, at attractive risk adjusted returns. We continue to focus on underlying real estate value,business, financial condition, results of operations and transactions that benefit fromcash flows, and our ability to execute complexoperate successfully. Some of the factors that impacted us to date and

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sophisticated transactions.
We believe 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 challenges faced by conduit lenders and the general uncertainty around value and pricing could create attractive risk adjusted investment opportunities for us. As a result,ongoing impact we expect to continue to see opportunities to originate first mortgageCOVID-19 will have on our liquidity and subordinate financings in transactions which benefit from our ability to source, structure and execute complex transactions.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 withother 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, 20192020 ($ 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)
 
DescriptionAmortized
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
Commercial mortgage loans, net$5,427,945 4.7 %5.2 %$3,478,083 2.2 %$1,949,862 
Subordinate loans and other lending assets, net 1,335,073
 12.0% 13.2% 
 
 1,335,073
Subordinate loans and other lending assets, net1,009,092 10.5 %11.4 %— — 1,009,092 
Total/Weighted-Average $6,114,574

7.5%
8.2%
$2,559,318

3.9%
$3,555,256
Total/Weighted-Average$6,437,037 5.6 %6.2 %$3,478,083 2.2 %$2,958,954 
———————    
(1)Weighted-Average Coupon and Weighted-Average All-in Yield are based on the applicable benchmark rates as of September 30, 2019 on the floating rate loans.
(1)    Weighted-Average Coupon and Weighted-Average All-in Yield are based on the applicable benchmark rates as of September 30, 2020 on the floating rate loans.
(2)Weighted-Average All-in Yield includes the amortization of deferred origination fees, loan origination costs and accrual of both extension and exit fees. Weighted-Average All-in Yield excludes the benefit of forward points on currency hedges relating to loans denominated in currencies other than USD.
(3)    Gross of deferred financing costs of $12.7 million.
(4)    Represents loan portfolio at amortized cost less secured debt outstanding.
Weighted-Average All-in Yield includes the amortization of deferred origination fees, loan origination costs and accrual of both extension and exit fees.
(3)Gross of deferred financing costs of $18.0 million.
(4)Represents loan portfolio at amortized cost less secured debt arrangements outstanding.
The following table provides details of our commercial mortgage loan portfolio and subordinate loan and other lending asset portfolios,assets portfolio, on a loan-by-loan basis, as of September 30, 20192020 ($ in millions):
Commercial Mortgage Loan Portfolio
Property TypeRisk RatingOrigination DateAmortized CostUnfunded Commitment
Construction Loan(4)
Fully-extended MaturityLocation
Urban Retail308/2019$315 09/2024Manhattan, NY
Hotel309/2016210 01/2022Manhattan, NY
Urban Predevelopment304/2017197 10/2019London, UK
Industrial301/20191967 02/2024Brooklyn, NY
Office211/201718960Y12/2022Manhattan, NY
Office310/201818514 10/2021Manhattan, NY
Office306/201918531 11/2026Berlin, Germany
Urban Predevelopment301/2016183 09/2021Miami, FL
Residential-for-sale: inventory303/2018178 03/2021London, UK
Office309/2019170 09/2023London, UK
Office311/2017164 01/2023Chicago, IL
Hotel304/20181512 04/2023Honolulu, HI

Commercial Mortgage Loan Portfolio
#Property TypeRisk RatingOrigination DateAmortized CostUnfunded CommitmentConstruction
Loan
Fully-extended MaturityLocation
1Urban Retail308/2019$317$—09/2024Manhattan, NY
2Urban Retail312/201932012/2023London, UK
3Hotel310/20192615008/2024Various
4Healthcare310/20192202910/2024Various
5Office302/202021602/2025London, UK
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35


6Industrial301/2019197702/2024Brooklyn, NY
7Office306/20192042911/2026Berlin, Germany
8Office310/2018197301/2022Manhattan, NY
9
Urban Predevelopment (1)
501/201611509/2021Miami, FL
10Office309/201917909/2023London, UK
11Office301/202018410302/2025Long Island City, NY
12Office311/201715101/2023Chicago, IL
13
Urban Predevelopment(1)
503/201712812/2020Brooklyn, NY
14Hotel304/201815204/2023Honolulu, HI
15Hotel309/201514506/2024Manhattan, NY
16Hotel305/201814006/2023Miami, FL
17Hotel308/201913908/2024Puglia, Italy
18Office301/20181355601/2022Renton, WA
19
Retail center(1)
511/201410509/2021Cincinnati, OH
20Office310/201813551Y10/2023Manhattan, NY
21Residential-for-sale: construction312/201913515Y01/2023Boston, MA
22Hotel303/201710503/2022Atlanta, GA
23Hotel311/201810012/2023Vail, CO
24Hotel312/20179112/2022Manhattan, NY
25Office303/20189204/2023Chicago, IL
26Residential-for-sale: inventory312/20197307/2021Manhattan, NY
27Office304/20199762Y09/2025Culver City, CA
28Office312/2017873707/2022London, UK
29Mixed Use312/201975112/2024London, UK
30Residential-for-sale: construction312/201871107Y12/2023Manhattan, NY
31Residential-for-sale: construction310/20156908/2021Manhattan, NY
32Multifamily304/20146607/2023Various
33Hotel308/20196709/2022Manhattan, NY
34Hotel304/20186405/2023Scottsdale, AZ
35Urban Predevelopment312/20165206/2022Los Angeles, CA
36Hotel309/20196010/2024Miami, FL
37Residential-for-sale: construction301/20186812Y01/2023Manhattan, NY
38Hotel312/20195901/2025Tucson, AZ
39Multifamily311/20145411/2021Various
40Hotel305/20195206/2024Chicago, IL
41Multifamily302/202050103/2024Cleveland, OH
42Hotel312/20154208/2024St. Thomas, USVI
43Residential-for-sale: construction312/20186538Y01/2024Hallandale Beach, FL
44
Hotel(1)
502/20182903/2023Pittsburgh, PA
45Office312/201934312/2022Edinburgh, Scotland
46Residential-for-sale: inventory305/20182403/2021Manhattan, NY
47Residential-for-sale: inventory306/20181307/2021Manhattan, NY
48
Residential-for-sale: inventory(1)
502/2014304/2021Bethesda, MD
49Mixed Use312/201911789Y06/2025London, UK
General CECL Allowance(20)
Sub total / Weighted-Average Subordinate Loans and Other Lending Assets3.1$5,428$1,3933.0 Years

Subordinate Loan and Other Lending Asset Portfolio
#Property TypeRisk RatingOrigination DateAmortized CostUnfunded CommitmentConstruction LoanFully-extended MaturityLocation
1
Residential-for-sale: construction (2)
306/2015$224Y12/2020Manhattan, NY
2Residential-for-sale: construction312/201710811Y06/2022Manhattan, NY

Urban Predevelopment303/201715114 12/2020Brooklyn, NY
Hotel (1)
309/2015140 06/2023Manhattan, NY
Hotel305/2018139 06/2023Miami, FL
Hotel308/2019130 08/2024Puglia, Italy
Retail Center (3)
511/2014126 09/2020Cincinnati, OH
Office301/201812068 01/2022Renton, WA
Office310/201810779Y10/2023Manhattan, NY
Hotel303/2017105 03/2022Atlanta, GA
Hotel311/201899 12/2023Vail, CO
Hotel312/201789 12/2022Manhattan, NY
Hotel307/201887 08/2021Detroit, MI
Residential-for-sale: construction305/2018794Y06/2020Brooklyn, NY
Office312/20177344 07/2022London, UK
Urban Predevelopment312/201673 12/2020Los Angeles, CA
Multifamily304/201471 07/2023Various
Office303/20187117 04/2023Chicago, IL
Residential-for-sale: construction312/201870107Y12/2023Manhattan, NY
Hotel308/201967 09/2022Manhattan, NY
Hotel304/201863 05/2023Scottsdale, AZ
Hotel309/201960 10/2024Miami, FL
Residential-for-sale: inventory306/201857 06/2020Manhattan, NY
Other304/201955104Y09/2025Culver City, CA
Multifamily311/201454 11/2021Various
Multifamily306/201853 06/2020London, UK
Hotel305/201952 06/2024Chicago, IL
Residential-for-sale: construction301/20184831Y01/2023Manhattan, NY
Hotel312/201542 08/2024St. Thomas, USVI
Multifamily310/201740 10/2022London, UK
Hotel302/201838 03/2023Pittsburgh, PA
Residential-for-sale: inventory205/201837 04/2021Manhattan, NY
Office304/20192249Y08/2022Birmingham, UK
Residential-for-sale: construction312/20181884Y01/2024Hallandale Beach, FL
Residential-for-sale: inventory (3)
502/201416 04/2020Bethesda, MD
Residential-for-sale: construction303/20185109Y03/2023San Francisco, CA
Office308/2018188Y12/2022London, UK
Sub total / Weighted-Average Commercial Mortgage Loans3.0 $4,780$1,01212%3.1 Years 



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Subordinate Loan and Other Lending Asset Portfolio
Property TypeRisk RatingOrigination DateAmortized CostUnfunded Commitment
Construction Loan(4)
Fully-extended MaturityLocation
Residential-for-sale: construction (2)
306/2015$203Y02/2021Manhattan, NY
Urban Retail308/2019121 09/2024Manhattan, NY
Office301/201999 12/2025Manhattan, NY
Residential-for-sale: construction312/20179319Y06/2022Manhattan, NY
Healthcare301/201993 01/2024Various

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Other209/201772 09/2022Various
Multifamily310/201568 11/2019Manhattan, NY
Residential-for-sale: construction312/201765Y04/2023Los Angeles, CA
Healthcare307/201951 06/2024Various
Residential-for-sale: construction (2)
311/201748Y02/2021Manhattan, NY
Healthcare201/201546 12/2019Various
Mixed Use301/201742 02/2027Cleveland, OH
Residential-for-sale: inventory210/201636 10/2020Manhattan, NY
Mixed Use302/201936Y12/2022London, UK
Industrial205/201332 05/2023Various
Urban Retail308/201930 09/2024Manhattan, NY
Residential-for-sale: inventory306/201725 12/2020Manhattan, NY
Hotel206/201525 07/2025Phoenix, AZ
Hotel306/201520 12/2022Washington, DC
Hotel306/201820 06/2023Las Vegas, NV
Multifamily305/201820 05/2028Cleveland, OH
Hotel202/201520 01/2020Burbank, CA
Mixed Use312/20181833Y12/2023Brooklyn, NY
Hotel (1)
309/2015159 06/2023Manhattan, NY
Office207/201314 07/2022Manhattan, NY
Hotel305/20178 06/2027Anaheim, CA
Office308/20178 09/2024Troy, MI
Mixed Use307/20127 08/2022Chapel Hill, NC
Sub total / Weighted-Average Subordinate Loans and Other Lending Assets2.8 $1,335$6135%3.3 Years 
        
Total / Weighted-Average
Loan Portfolio
3.0 $6,115$1,07317%3.1 Years 
3Office301/201910012/2025Manhattan, NY
4
Healthcare(3)
301/20197601/2024Various
5
Residential-for-sale: construction (2)
311/201785Y12/2020Manhattan, NY
6Residential-for-sale: construction312/201772Y04/2023Los Angeles, CA
7
Healthcare(4)
307/20195106/2024Various
8Mixed Use301/20174202/2027Cleveland, OH
9Residential-for-sale: inventory310/20163610/2020Manhattan, NY
10Mixed Use302/201938Y12/2022London, UK
11Industrial205/20133205/2023Various
12Mixed Use312/20182922Y12/2023Brooklyn, NY
13Hotel306/20152407/2025Phoenix, AZ
14Hotel306/20182006/2023Las Vegas, NV
15Multifamily305/20181905/2028Cleveland, OH
16
Healthcare(3)(4)
302/20191701/2034Various
17Office307/20131407/2022Manhattan, NY
18
Hotel(1)
506/20151812/2022Washington, DC
19
Hotel(1)
505/2017906/2027Anaheim, CA
20Office308/2017709/2024Troy, MI
21Mixed Use307/2012708/2022Chapel Hill, NC
General CECL Allowance(19)
Sub total / Weighted-Average Subordinate Loans and Other Lending Assets3.0$1,009$332.5 Years
Total / Weighted-Average
Loan Portfolio
3.1$6,437$1,4262.9 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 losseslosses.
(2)Both loans are secured by the same property.
(3)Loan and impairments.Single Asset, Single Borrower CMBS are secured by the same properties.
(4) Weighted-average construction loan % is based on the amortized cost of the loans.Single Asset, Single Borrower CMBS.

The follow table shows information on realized and unrealized loan losses:
Property TypeSecurityLocationDate of OriginationFirst Date of LossMaximum Principal FundedAmortized CostLossType
Retail CenterMortgageCincinnati, OH11/201412/2018$171,215
$126,068
$47,000
Unrealized
Residential-for-sale: inventoryMortgageBethesda, MD2/20146/201780,000
15,695
13,000
Unrealized
MultifamilyMortgageWilliston, ND11/20146/201658,000

12,513
Realized
Total    $309,215
$141,763
$72,513
 

Realized and Unrealized Loan Losses:$72,513
     as a % of total assets1.14%
     as a % of commitments since inception0.57%



29




Our average asset and debt balances for the nine months ended September 30, 2019,2020 were ($ in thousands):
Average month-end balances for the nine months ended September 30, 2020
DescriptionAssetsRelated debt
Commercial mortgage loans, net$5,635,603 $3,399,455 
Subordinate loans and other lending assets, net1,048,555 — 
  Average month-end balances for the nine months ended September 30, 2019
Description Assets Related debt
Commercial mortgage loans, net $4,227,591
 $2,109,904
Subordinate loans and other lending assets, net 1,251,608
 
Portfolio Management
Due to the impact of COVID-19, some of our borrowers have experienced consequences which are preventing the execution of their business plans and in some cases temporary closures. As a result, we have worked with borrowers to execute loan modifications which are typically coupled with additional equity contributions from borrowers. Loan modifications to date have included repurposing of reserves, temporary deferrals of interest or principal, and partial deferral of coupon interest as payment-in-kind interest. None of these modifications are troubled debt restructurings.
Investment Activity
During the nine months ended September 30, 2019,2020, we committed $2.0 billion$562.0 million of capital to loans ($1.8 billion457.4 million of which was funded during the nine months ended September 30, 2019)2020). In addition, during the nine months ended September 30, 2019,2020, we received $543.5 million in repayments and sales and funded $290.0$309.8 million for loans closed prior to 2019, and received $843.4 million in repayments.2020.

Net Income (Loss) Available to Common Stockholders
For the three months ended September 30, 20192020 and 2018, respectively,2019 our net income available to common stockholders was $46.0 million, or $0.31 per diluted share of common stock, and $25.7 million, or $0.16 per diluted share of common




37


stock, and $55.4 million, or $0.40 per diluted share of common stock.respectively. For the nine months ended September 30, 20192020 and 2018, respectively,2019, our net income (loss) available to common stockholders was $(28.5) million, or $(0.20) per diluted share of common stock, and $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):

30





 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 assets43,421
 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 income85,216
 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 income429
 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 forwards24,153
 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 30,2020 vs 2019Nine months ended September 30,2020 vs. 2019
2020201920202019
Net interest income:
Interest income from commercial mortgage loans$74,522 $81,136 $(6,614)$232,018 $236,880 $(4,862)
Interest income from subordinate loans and other lending assets28,857 43,421 (14,564)95,491 125,303 (29,812)
Interest expense(34,824)(39,341)4,517 (113,527)(109,147)(4,380)
Net interest income68,555 85,216 (16,661)213,982 253,036 (39,054)
Operating expenses:
General and administrative expenses(6,624)(5,839)(785)(19,580)(18,564)(1,016)
Management fees to related party(9,927)(10,434)507 (30,152)(30,306)154 
Total operating expenses(16,551)(16,273)(278)(49,732)(48,870)(862)
Other income128 429 (301)1,479 1,431 48 
Realized loss on investments(1,037)— (1,037)(17,442)(12,513)(4,929)
Reversal of (provision for) loan losses - Specific CECL Allowance550 (35,000)35,550 (139,950)(20,000)(119,950)
Reversal of (provision for) loan losses - General CECL Allowance5,792 — 5,792 (12,004)— (12,004)
Foreign currency translation gain (loss)27,002 (19,129)46,131 (8,388)(20,012)11,624 
Gain (loss) on foreign currency forwards(34,537)24,153 (58,690)32,959 28,619 4,340 
Loss on interest rate hedging instruments(564)(10,307)9,743 (39,207)(23,420)(15,787)
Net income (loss)$49,338 $29,089 $20,249 $(18,303)$158,271 $(176,574)
Net Interest Income

Net interest income increaseddecreased by $7.7$16.7 million and $41.6$39.1 million during the three and nine months ended September 30, 2019,2020, respectively, as compared to the same periods in 2018.2019. The increasedecrease was primarily due to (i) a net increase in the principal balance of our loan portfolio by $1.3 billion,2.02% and (ii) a 0.40% increase1.73% decrease in average one-month LIBOR, respectively, for the three and nine months ended September 30, 20192020 compared to the same periods in September 30, 2018.2019 and (ii) loans with an aggregate principal balance of $602.2 million being on cost recovery or non-accrual status as of September 30, 2020 compared to $196.4 million as of September 30, 2019. This decrease was offset by (i) ana $0.5 billion increase in interest expense due to an increase in our net debtloan principal balance of $1.2 billion as of September 30, 20192020 compared to September 30, 2018,the same date in 2019 and (ii) in the increase in average one-monthmoney LIBOR discussed above.floors on several of our loans.
We recognized PIK interest of $12.5 million and $37.3 million for the three and nine months ended September 30, 2020, respectively, and $13.7 million and $42.8 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$0 and $0.2 million and $4.0 millionin pre-payment penalties and accelerated fees for the three and nine months ended September 30, 2019,2020, respectively, and $0.2$0.3 million and $1.8$4.0 million for the three and nine months ended September 30, 2018,




38


2019, respectively.
Operating Expenses
General and administrative expenses
General and administrative expenses decreasedincreased by $4.0 thousand$0.8 million for the three months ended September 30, 20192020 compared to the same period in 2018.2019. The decreaseincrease was primarily driven by a decrease$0.5 million increase in general operating expenses and $0.3 million increase in non-cash restricted stock and RSU amortization related to shares of $159.0 thousand ofstock awarded under the LTIPs.
General and administrative expenses increased by $1.0 million for the nine months ended September 30, 2020 compared to the same period in 2019. The increase was primarily due to a $0.6 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$0.4 million increase in general operating expenses.

31




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.
Management fees to related party
Management fee expense increaseddecreased by $0.9 million and $3.7$0.5 million during the three and nine months ended September 30, 2019, respectively,2020 as compared to the same periods in 2018.2019. The increasedecrease is primarily attributable to an increasea decrease 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 conversionsrepurchase of 10,834,595 shares during 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 and the follow-on public offering of 17,250,000 shares in May 2019nine months ended September 30, 2020 (as described in "Note 14 - Stockholders' Equity").
Management fees decreased by $0.2 million during the nine months ended September 30, 2020 as compared to the same period in 2019. The decrease is primarily attributable to the decrease in our stockholders' equity as noted above and was partially offset by the redemptionan increase in our management fee as a result of the Series C Preferred Stocka decrease in June 2019 (as described in "Note 14 - Stockholders' Equity").our quarterly dividend during 2020.
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 forReversal of (provision for) loan losses - General CECL Allowance
The General CECL Allowance decreased by $5.8 million during the three months ended September 30, 2020 and impairments, netincreased by $12.0 million during the nine months ended September 30, 2020. For the three months ended September 30, 2020, the decrease is primarily related to an improvement in our view of reversals,estimated future market conditions since prior quarter end; for the nine months ended September 30, 2020, the increase is primarily related to a more negative view of estimated future macroeconomic conditions in the backdrop of the global COVID-19 pandemic and realized loss on investments

Duringan increase in our view of the third quarterremaining expected term of 2019, we recorded a $32.0 millionour loan loss against a commercial mortgage loan secured by a retail center in Cincinnati, OHportfolio. Refer to "Note 2 - Summary of 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.
Reversal of (provision for) loan losses - Specific CECL Allowance
During the second quarterthree months ended September 30, 2020, we recorded a net reversal of 2019, the collateral underlying an impaired loan was sold resulting in$0.6 million of Specific CECL Allowances predominately due to a realized lossreversal of $12.5 million. Consequently, thea previously recorded $15.0allowance. During the nine months ended September 30, 2020, we recorded Specific CECL Allowances on eight loans, totaling $156.9 million, two of which had existing loan loss provision was reversed.provisions, partially offset by $16.9 million in reversals of previously recorded allowances. 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, 2019 were $5.02020 was $(7.5) million and $8.6$24.6 million, respectively, and the net impact for the three and nine months ended September 30, 2018 were $2.22019 was $5.0 million and $5.2$8.6 million, respectively.
Unrealized lossLoss on interest rate swaphedges
We useIn connection with the senior secured term loan, we had previously entered into an interest rate swap to manage exposure to variable cash flowsfix LIBOR at 2.12% effectively fixing our all-in coupon on portions of our borrowings underthe senior secured term loan debt. Theat 4.87%. During the second quarter of 2020 we terminated the interest rate swap agreement allows usand recognized a realized loss of $53.9 million. Subsequent to receivethe termination of the




39


interest rate swap in the second quarter of 2020, we entered into a variablethree-year interest rate cash flow basedcap to cap LIBOR at 0.75%. This effectively limits the maximum all-in coupon on LIBORour senior secured term loan to 3.50%. During the three and pay a fixednine months ended September 30, 2020, the interest rate cash flow, mitigating the impactcap had an unrealized loss of this exposure.$0.6 million and an unrealized gain of $0.2 million, respectively.

Dividends
We have declared theThe following dividends in 2019:table details our dividend activity:
 
Three months endedThree months endedNine months ended
Dividend declared per share of:September 30, 2019 June 30, 2019 March 31, 2019Dividend declared per share of:September 30, 2020September 30, 2019September 30, 2020September 30, 2019
Common Stock$0.46 $0.46 $0.46Common Stock$0.35$0.46$1.10$1.38
Series B Preferred Stock0.50 0.50 0.50Series B Preferred Stock0.500.501.501.50
Series C Preferred StockN/A 0.22 0.50Series C Preferred StockN/AN/AN/A0.7223
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, 2019.2020.
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

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needs. OurAs of September 30, 2020, we had $1.1 billion of corporate debt and $3.5 billion of asset specific financings. We have no corporate debt maturities until August 2022. As of September 30, 2020, we had $438 million of cash is usedon hand and $11.9 million of approved and undrawn capacity from our secured debt arrangements. In addition, we have a significant amount of unencumbered loan assets. In light of COVID-19 and its severe impact on the economy we have taken steps to purchase or originate target assets, repay principalincrease our cash balances in order to maintain an adequate level of liquidity to meet future outflows. As the duration and interestseverity of COVID-19 remain unknown, so does the impact it will have on borrowings, make distributionsour borrowers, lenders, and the economy as a whole. We will continue to stockholders and fund operations. We closely monitor developments related to COVID-19 as it relates to our liquidity position and financial 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, 2019December 31, 2018
Debt to Equity Ratio (1)
1.3x0.9x
September 30, 2020December 31, 2019
Debt to Equity Ratio (1)
1.71.4
———————
(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, 2019.2020.

Borrowings Under Various Financing Arrangements
JPMorgan Facility
In May 2017,November 2019, through twothree indirect wholly-owned subsidiaries, we entered into a FifthSixth Amended and Restated Master Repurchase Agreement with JPMorgan Chase Bank, National Association. During the third quarter of 2019, we amended theThe JPMorgan Facility to allowallows for $1.3 billion of maximum borrowings (with amounts borrowed in British pounds and maturityEuros converted to USD for




40


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 plusand has two one-year extensions available at our option, which are subject to certain conditions. The JPMorgan Facility enables us to elect to receive advances in USD, GBP, or EUR. Margin calls may occur any time at specified aggregate margin deficit thresholds. 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, 2019,2020, 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 SecondThird 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 a2021, and has two one-year extensionextensions 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, 2019,2020, we had $691.9$526.7 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, which was upsized in March 2019 from $300.0 millionprovides advances up to $500.0 million and matures in November 2019, plus two2020, and has one one-year extensionsextension 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, 2019,2020, we had $267.7$362.1 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 matureshas 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, 2019,2020, we had $174.3$378.8 million of borrowings outstanding under the CS Facility - USD secured by certain of our commercial mortgage loans.
CS Facility - GBP
In June 2018, through an indirect wholly-owned subsidiary, we entered into a Global Master Repurchase Agreement with Credit Suisse AG, actingSecurities (Europe) Limited. During the third quarter of 2020, the facility was repaid in connection with the sale of the underlying loan.
HSBC Facility - USD    
In October 2019, through its Cayman Islands Branch and Alpine Securitization Ltd,an indirect wholly-owned subsidiary, we entered into a secured debt arrangement with HSBC Bank plc, which provides for advances for the sale and repurchase of eligible commercial mortgage loans secured by real estate.a single asset financing. The CS Facility - GBP matures six months after either party notifies the other party of intentionfacility is scheduled to terminate.mature in January 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, 2019,2020, we had $124.7$47.2 million (£101.5 million assuming conversion into USD) of borrowings outstanding under the CSHSBC Facility - GBPUSD secured by one of our commercial mortgage loans.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 providesprovided for a single asset financing. The facility maturesmatured and was repaid in December 2019. Margin calls may occur any time at specified aggregate margin deficit thresholds. We have agreed to provide a guaranteeJune 2020 in connection with the repayment of the obligations of our indirect wholly-owned subsidiary under this facility.
As of September 30, 2019, we had $36.6 million (£29.8 million assuming conversion into USD) of borrowings outstanding under the HSBC Facility - GBP secured by one of our commercial mortgage loans.underlying loan.
HSBC Facility - EUR




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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 JanuaryJuly 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, 2019,2020, we had $149.7$157.1 million (€137.4134.1 million assuming conversion into USD) of borrowings outstanding under the HSBC Facility - EUR secured by one commercial mortgage loan.
Barclays Facility - USD
In March 2020, through an indirect wholly-owned subsidiary, we entered into a secured debt arrangement pursuant to a Master Repurchase Agreement with Barclays Bank plc. The Barclays Facility - USD allows for $200.0 million of maximum borrowings and initially matures in March 2023 with extensions available at our option, subject to certain conditions. Margin calls may occur any time at specified aggregate margin deficit thresholds.
As of September 30, 2020, we had $35.2 million of borrowings outstanding under the Barclays Facility - USD secured by one commercial mortgage loan.
Barclays Facility - GBP/EUR
Beginning in October 2019, through an indirect wholly-owned subsidiary, we entered into five secured debt arrangements pursuant to a Global Master Repurchase Agreement with Barclays Bank plc. In June 2020, all assets previously financed pursuant to this facility were refinanced under the Barclays Private Securitization.
Barclays Private Securitization
In June 2020, through a newly formed entity, we entered into a private securitization with Barclays Bank plc, of which Barclays Bank plc retained $813.6 million of senior notes. This Barclays Private Securitization finances the loans that were previously financed under the Barclays Facility - GBP/EUR. In addition, we pledged an additional commercial mortgage loan with an outstanding principal balance of £26.0 million and pledged additional collateral of a financed loan of €5.3 million as of June 30, 2020.
The securitization eliminates daily margining provisions and grants us significant discretion to modify certain terms of the underlying collateral including waiving certain loan-level covenant breaches and deferring or waiving of debt service payments for up to 18 months. The securitization includes LTV based covenants with significant headroom to existing levels that are also subject to a six-month holiday through December 2020. These deleveraging requirements are based on significant declines in the value of the collateral as determined by an annual third-party (engaged by us) appraisal process tied to the provisions of the underlying loan agreements. We believe this provides us with both cushion and predictability to avoid sudden unexpected outcomes and material repayment requirements. In addition to the pledge of the additional collateral noted above, we paid down the previous financing by €16.5 million (totaling $18.5 million in USD) and agreed to increase the financing spreads by 0.25%.
The table below provides the borrowings outstanding (on an as converted basis) and weighted-average fully-extended maturities by currency for the assets financed under the Barclays Private Securitization as of September 30, 2020 ($ in thousands):
Borrowings outstanding
Fully-Extended Maturity(1)
Total/Weighted-Average GBP$670,024January 2024
Total/Weighted-Average EUR143,568
August 2021(2)
Total/Weighted-Average Securitization$813,592March 2024
———————
(1)Assumes underlying loans extend to fully extended maturity and extensions at our option are exercised.
(2)The EUR portion of the Barclays Private Securitization has an "evergreen" feature such that the facility continues for one year and can be terminated by either party on certain dates with, depending on the date of notice, a minimum of nine to twelve months' notice.


As of September 30, 2020, we had $813.6 million (£518.6 million and €122.5 million assuming conversion into USD) of borrowings outstanding under the Barclays Private Securitization secured by certain of our commercial mortgage loans.
Secured




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Debt Arrangements Covenants
Each of theThe 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. Under these covenants, our General CECL Allowance is added back to our tangible net worth calculation.
Senior Secured Term Loan
In May 2019, we entered into the $500.0 million senior secured term loan. During the nine months ended September 30, 2020, we repaid $3.8 million of principal related to the senior secured term loan. The senior secured term loan bears interest at LIBOR plus 2.75% and was issued at a price of 99.5%. The outstanding balance as of September 30, 2020 was $493.8 million. The senior secured term loan matures in May 2026 and contains restrictions relating to liens, asset sales, indebtedness, and investments in non-wholly owned entities.
The senior secured term loan includes the following financial covenants: (i) our ratio of total non-recourserecourse debt to tangible net worth cannot be greater than 3:1; and (ii) our ratio of total unencumbered assets to total pari-passu indebtedness must be at least 1.25:1.
Convertible Senior Notes
In 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.

34




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 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, 2019,2020, the 2022 Notes had a carrying value of $337.1$339.7 million and an unamortized discount of $7.9$5.3 million.
During the fourth quarter of 2018, we issued $230.0 million of 5.375% Convertible Senior Notes due 2023, for which we received $223.7 million after deducting the underwriting discount and offering expenses. At September 30, 2019,2020, the 2023 Notes had a carrying value of $223.5$224.9 million and an unamortized discount of $6.5$5.1 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.
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.
In March 2020, our board of directors approved a stock repurchase program for up to an aggregate of $150.0 million of our common stock. During the nine months ended September 30, 2020, we repurchased 10,834,595 shares of our common stock under this program at a weighted-average price of $8.45 per share.
Other Potential Sources of Financing
Our primary sources of cash currently consist of cash available, which was $160.9$438.2 million as of September 30, 2019,2020, 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 September 30, 2020 we also held $1.0 billion of unencumbered assets, consisting of $42.9 million of senior mortgages and $1.0 billion of mezzanine loans.
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.




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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 futureand 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 limitedsubject to and carefully monitor the limits placed on us by certain financial covenants under our secured debt arrangements. Consistent withcredit providers and those that assign ratings on our strategy of keeping leverage within a prudent range, weCompany.

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expect to, depending upon the composition of our portfolio, maintainAt September 30, 2020, our debt-to-equity ratio at less than 2.0x.was 1.7 and our portfolio was comprised of $5.4 billion of commercial mortgage loans and $1.0 billion of subordinate loans and other lending assets. In order to achieve our return on equity, we generally finance our mortgage loans with 2.0 to 3.0 turns of leverage and generally do not finance our subordinate loan portfolio given built-in inherent structural leverage. Consequently, depending on our portfolio mix, our debt-to-equity ratio may exceed our previously disclosed thresholds.
Investment Guidelines
Our current investment guidelines, approved by our board of directors, are comprised of the following:
no investment will be made that would cause us to fail to qualify as a REIT for U.S. federal income tax purposes;
no investment will be made that would cause us to register as an investment company under the 1940 Act;
investments will be predominantly in our target assets;
no more than 20% of our cash equity (on a consolidated basis) will be invested in any single investment at the time of the investment; and
until appropriate investments can be identified, the Manager may invest the proceeds of any offering in interest bearing, short-term investments, including money market accounts and/or funds, that are consistent with our intention to qualify as a REIT.
The board of directors must approve any change in or waiver to these investment guidelines.
Contractual Obligations and Commitments
Our contractual obligations including expected interest payments as of September 30, 20192020 are summarized as follows ($ in thousands):
 
 
Less than 1
year
(1)
 
1 to 3
years
(1)
 
3 to 5
years
(1)
 
More
than 5
years
(1)
 Total
Secured debt arrangements (2)
$563,701
 $1,439,162
 $1,604,338
 $
 $3,607,201
Senior secured term loan(3)
29,133
 57,408
 56,502
 544,381
 687,424
Convertible senior notes28,750
 400,922
 243,393
 
 673,065
Unfunded loan commitments (4)
667,447
 385,012
 20,964
 
 1,073,423
Total$1,289,031
 $2,282,504
 $1,925,197
 $544,381
 $6,041,113
Less than 1
year
(1)
1 to 2 years(1)
2 to 3
years
(1)
3 to 5
years
(1)
More
than 5
years
(1)
Total
Secured debt arrangements(1)(2)
$575,514 $924,928 $904,842 $1,248,750 $— $3,654,034 
Senior secured term loan(2)
19,465 19,317 19,170 37,938 477,267 573,157 
Convertible senior notes28,750 372,172 12,363 231,030 — 644,315 
Unfunded loan commitments (3)
573,344 429,516 302,134 66,328 — 1,371,322 
Total$1,197,073 $1,745,933 $1,238,509 $1,584,046 $477,267 $6,242,828 
———————
(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 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.
(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, 2020 on the floating rate debt for interest payments due.
(3)     Based on fully extended maturity and our expected funding schedule, which is based upon the Manager’s estimates based upon the best information available to the Manager at the time. There is no assurance that the payments will occur in accordance with these estimates or at all, which could affect our operating results. Refer to "Note 15– Commitments and Contingencies" for further detail regarding unfunded loan commitments.

Loan Commitments. As of September 30, 2019,2020, we had $1.1$1.4 billion of unfunded loan commitments, comprised of $1.0$1.4 billion related to our commercial mortgage loan portfolio, and $61.5$32.9 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




44


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 expireswill expire on September 29, 2020.2021. 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

36




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 at various dates through December 2021.2024. These forward contracts were executed to economically fix the USD amounts of foreign denominated cash flows expected to be received by us related to foreign denominated loan investments. Refer to "Note 10- Derivatives, Net" to the accompanying condensed consolidated financial statements for details regarding our forward currency contracts.
Unrealized loss on interest rate swap.Interest Rate Swap and Cap. In connection with the senior secured term loan, we previously entered into an interest rate swap to fix LIBOR at 2.12%, effectively fixing our all-in coupon on the senior secured term loan at 4.87%. During the second quarter of 2020 we terminated our interest rate swap due to significant decrease in LIBOR and recognized a realized loss on the accompanying condensed consolidated statement of operations. Subsequently, in June 2020, we entered into an interest rate cap for approximately $1.1 million. We use our interest rate cap to manage exposure to variable cash flows on our borrowings under our senior secured term loan by effectively limiting LIBOR from exceeding 0.75%. Refer to "Note 10- Derivatives, Net" to the accompanying condensed consolidated financial statements for details regarding our interest rate swap.cap.
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




45


distribution of debt securities.
As of September 30, 2019,2020, 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, weWe 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.
OnIn 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.





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Non-GAAP Financial Measures

Operating Earnings
For the three and nine months ended September 30, 2019,2020, our Operating Earnings were $52.9 million, or $0.36 per share, and $104.3 million, or $0.68 per share, respectively, as compared to $72.6 million, or $0.47 per share, and $197.6 million, or $1.35 per share, respectively, as compared to $58.6 million, or $0.45 per share, and $160.9 million, or $1.31 per share, for the same periods 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. 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 terms. These amounts are not included in GAAP net income. In order to conform to the 2018 year-end presentation, which incorporates this modification, prior-year Operating Earnings results presented below have been modified accordingly.losses. Operating Earnings may also be adjusted to exclude certain other non-cash items, as determined by the Manager and approved by a majority of 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 basic and diluted shares under GAAP to the weighted-average diluted shares used for Operating Earnings ($ in thousands, except Price)thousands):
 
Three months ended September 30, 2019 (1)
 
Nine months ended September 30, 2019 (1)
    
Weighted-AveragesShares Shares
Weighted-average diluted shares - GAAP153,531,678
 144,638,237
Unvested RSUs1,839,631
 1,845,086
Weighted-average diluted shares - Operating Earnings155,371,309
 146,483,323
———————
Three months ended September 30,Nine months ended September 30,
2020201920202019
Weighted-AveragesSharesSharesSharesShares
Weighted-average basic and diluted shares - GAAP146,612,313 153,531,678 150,679,773 144,638,237 
Unvested RSUs2,051,311 1,839,631 2,028,573 1,845,086 
Weighted-average diluted shares - Operating Earnings148,663,624 155,371,309 152,708,346 146,483,323 
(1)
For 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 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.


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 Three months ended September 30, 2018 Nine months ended September 30, 2018
            
Weighted-AveragesFace 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,
  2019 2018 2019 2018
Basic weighted-average shares of common stock outstanding 153,531,678
 129,188,343
 144,638,237
 120,876,240
Weighted-average unvested RSUs 1,839,631
 1,593,070
 1,845,086
 1,617,398
Weighted-average diluted shares - Operating Earnings 155,371,309
 130,781,413
 146,483,323
 122,493,638

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 income or 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. Operating Earnings allows us to isolate the net interest income or expense associated with our swaps and caps in order to monitor and project our full cost of borrowings.
As discussed in “Note 10 - Derivatives” we terminated our interest rate swap, which we used to manage exposure to variable cash flows on our borrowings under our senior secured term loan, in the second quarter of 2020 and recorded a realized loss in our condensed consolidated statement of operations. As of September 30, 2020, there are no interest rate swaps on our condensed consolidated balance sheet. In addition, as discussed in “Note 4 - Commercial Mortgage, Subordinate Loans and Other Lending Assets, Net,” we recorded a net realized loss on the sale of a residential-for-sale: inventory loan, three construction loans and, in connection with a troubled debt restructuring, on one hotel loan.




46


We believe it is useful to our investors to also present Operating Earnings excluding realized loss on investments and realized loss on early extinguishment of debtinterest rate swap to reflect our operating results. Ourresults because our operating results are primarily comprised of earning interest income on our investments net of borrowing and administrative costs.costs, which are our ongoing operations. We believe that our investors use Operating Earnings and Operating Earnings excluding realized loss on investments and realized loss on interest rate swap, or a comparable supplemental performance measure, to evaluate and compare the performance of our company and our peers and, as such, we believe that the disclosure of Operating Earnings and Operating Earnings excluding realized loss on investments and realized loss on interest rate swap is useful to our investors.
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 maythat 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 realized loss on early extinguishment of debtinterest rate swap ($ in thousands):
Three months ended September 30,Nine months ended September 30,
 2020201920202019
Net income (loss) available to common stockholders$45,953 $25,704 $(28,458)$143,132 
Adjustments:
Equity-based compensation expense4,212 3,889 12,726 12,084 
Unrealized (gain) loss on interest rate swap— 10,307 (14,470)23,420 
(Gain) loss on currency forwards34,537 (24,153)(32,959)(28,619)
Foreign currency (gain) loss, net(27,002)19,129 8,388 20,012 
Unrealized (gain) loss on interest rate cap564 — (174)— 
Realized gains (losses) relating to interest income on foreign currency hedges, net(90)870 1,254 1,614 
Realized gains relating to forward points on foreign currency hedges, net244 1,076 3,733 3,552 
Amortization of the convertible senior notes related to equity reclassification777 732 2,296 2,362 
Provision for (reversal of) loan losses(6,342)35,000 151,954 20,000 
Total adjustments:6,900 46,850 132,748 54,425 
Operating Earnings$52,853 $72,554 $104,290 $197,557 
Realized loss on investments1,037 — 17,442 12,513 
Realized loss on interest rate swap— — 53,851 — 
Operating Earnings excluding realized loss on investments and realized loss on interest rate swap$53,890 $72,554 $175,583 $210,070 
Diluted Operating Earnings per share of common stock$0.36 $0.47 $0.68 $1.35 
Diluted Operating Earnings excluding realized loss on investments and realized loss on interest rate swap$0.36 $0.47 $1.15 $1.43 
Basic weighted-average shares of common stock outstanding146,612,313 153,531,678 150,679,773 144,638,237 
Weighted-average diluted shares - Operating Earnings148,663,624 155,371,309 152,708,346 146,483,323 







39




47


 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 expense3,889
 4,048
 12,084
 11,404
Unrealized loss on interest rate swap10,307
 
 23,420
 
Gain on currency forwards(24,153) (6,291) (28,619) (28,797)
Foreign currency loss, net19,129
 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, net1,076
 257
 3,552
 332
Amortization of the convertible senior notes related to equity reclassification732
 728
 2,362
 3,024
Provision for loan losses and impairments, net of reversals35,000
 
 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 outstanding153,531,678
 129,188,343
 144,638,237
 120,876,240
Weighted-average diluted shares - Operating Earnings155,371,309
 130,781,413
 146,483,323
 122,493,638
———————
(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 million and $22.6 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, 2020December 31, 2019
Stockholders' Equity$2,319,281 $2,629,975 
     Series B Preferred Stock (Liquidation Preference)(169,260)(169,260)
Common Stockholders' Equity$2,150,021 $2,460,715 
Common Stock143,288,347 153,537,296 
Book value per share$15.00 $16.03 

 September 30, 2019 December 31, 2018
Stockholders' Equity$2,629,510
 $2,509,747
     Series B Preferred Stock (Liquidation Preference)(169,260) (169,260)
     Series C Preferred Stock (Liquidation Preference)
 (172,500)
Common Stockholders' Equity$2,460,250
 $2,167,987
Common Stock153,531,597
 133,853,565
Book value per share$16.02
 $16.20








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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 hedges0.15 
Repurchase of common stock0.45 
Decrease in fair value on interest rate swap(0.27)
Vesting and delivery of RSUs(0.07)
Other(0.01)
Book value per share at September 30, 2020 prior to CECL Allowances$16.28 
Specific CECL Allowance$(0.98)
Book value per share at September 30, 2020 prior to General CECL Allowance$15.30 
General CECL Allowance$(0.30)
Book value per share at September 30, 2020$15.00 

We believe that presenting book value per share with sub-totals prior to the CECL Allowances is useful for investors for various reasons, including, among other things, analyzing our compliance with financial covenants related to tangible net worth and debt-to-equity under our secured debt arrangements and senior secured term loan permit us to add the General CECL Allowance to our GAAP stockholders' equity. Given that our lenders consider book value per share prior to the General CECL Allowance as an important metric related to our debt covenants, we believe disclosing book value per share prior to the General CECL Allowance is important to investors such that they have the same visibility.




48
 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 Notes0.01
Other0.01
Book value per share at March 31, 2019$16.13
Common stock offering, net of subsequent dividend0.20
Reversal of loan losses and impairments0.02
Gain on foreign currency forwards, net0.02
Unrealized loss on interest rate swap(0.08)
Other0.01
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)
Other0.01
Book value per share at September 30, 2019$16.02


 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 dividend0.20
Other0.03
Gain on foreign currency forwards, net0.02
Shares issued related to the conversion of the 2019 Notes0.01
Book value per share at September 30, 2019$16.02


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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 swapsswaps; and interest rate caps; 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, 2019,2020, 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 decrease50 basis point increase50 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)
CurrencyNet floating rate assets subject to interest rate sensitivity
Increase (Decrease) to net interest income (1)(2)
Decrease to net interest income (per share) (1)(2)
Increase (Decrease) to net interest income (1)(2)
Increase to net interest income (per share) (1)(2)
USD $2,423,929
 $10,337
 $0.07
 $(5,284) $(0.03)USD$1,036,853 $(10,867)$(0.08)$3,127 $0.02 
GBP 479,516
 2,377
 0.01
 (1,521) (0.01)GBP428,213 (58)— 69 — 
EUR 168,219
 100
 
 
 
EUR307,899 — — — — 
Total: $3,071,664
 $12,814
 $0.08
 $(6,805) $(0.04)Total:$1,772,965 $(10,925)$(0.08)$3,196 $0.02 
———————
(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.


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49


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 seek to mitigate this exposure through foreign currency forward contracts, which match the net
principal and interest of our foreign currency loans and secured debt arrangements.


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50



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, 2019,2020, 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, whowhich 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 isin its entirety on November 8, 2019. Plaintiffs filed a timely notice of appeal on December 6, 2019 and, as of September 28, 2020, the parties have now dismissed, subject tofully briefed the appeal. We are awaiting scheduling of oral argument. We believe the claims are without merit and plan to vigorously defend the casedo not believe this will have a material adverse effect on appeal as necessary.our condensed consolidated financial statements.

Item 1A. Risk Factors
SeeFor 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-Ktravel, school closures, bans on public events and on public gatherings, “shelter in place”, “stay at home” and "safer-at-home" rules, restrictions on types of business that may continue to operate, with exceptions, in certain cases, available for certain essential operations and businesses, and/or restrictions on types of construction projects that may continue. Further, such actions have created, and expect to continue to create disruption in real estate financing transactions and the commercial real estate market and adversely impact a number of industries. The outbreak could have a continued adverse impact on economic and market conditions and continue to cause regional, national and global economic slowdowns and potentially trigger recessions in any or all of these areas.




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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 beenare 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




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markets environment, and future developments in these and other areas present material changesuncertainty and risk with respect to our performance, financial condition, volume of business, results of operations and cash flows. Moreover, many risk factors duringset forth in our Annual Report should be interpreted as heightened risks as a result of the 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 September 30, 2020 ($ in thousands, except per share data):
Period
Total Number of Shares Purchased(1)
Weighted Average Price Paid per ShareTotal Number of Shares of Common Stock Purchased as Part of Publicly Announced Plans or ProgramsApproximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
July 2020688,762 $8.93 688,762 $97,557 
August 20201,529,015 9.21 1,529,015 83,443 
September 20202,820,842 8.93 2,820,842 58,199 
Total5,038,619 $9.01 5,038,619 $58,199 
———————
(1)On March 16, 2020, we announced that our board of directors approved a stock repurchase program to authorize the Company to repurchase up to an aggregate of $150.0 million of our common stock. This repurchase program has no expiration date and may be suspended or terminated by us at any time without prior notice. This $150.0 million program replaced the previous program authorized in November 2013, which was terminated.
Item 3. Defaults Upon Senior Securities
None.


Item 4. Mine Safety Disclosures
    
Not Applicable.

Item 5. Other Information
None.

Item 6. Exhibits

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4.3
4.4
4.5
4.64.5
31.1*
31.2*
32.1*
101.INS*Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH*Inline XBRL Taxonomy Extension Schema
101.CAL*Inline XBRL Taxonomy Extension Calculation Linkbase
101.DEF*Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB*Inline XBRL Taxonomy Extension Label Linkbase
101.PRE*Inline XBRL Taxonomy Extension Presentation Linkbase
*104*Filed herewith.Cover Page Interactive Data File (embedded with the Inline XBRL document)

*Filed herewith.
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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 26, 2020
By:APOLLO COMMERCIAL REAL ESTATE FINANCE, INC.
October 23, 2019
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)




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