美国
证券交易委员会
华盛顿特区20549
表格
(标记一个)
根据证券交易法案第13或15(d)条条文提交的季度报告 |
融资活动产生的净现金流入额为 季度结束于
或
根据证券交易法案第13或15(d)条条文提交的过渡报告 |
过渡期从 到
委员会档案编号：
（依凭章程所载的完整登记名称）
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(依据所在地或其他管辖区) 的注册地或组织地点) |
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(国税局雇主识别号码) 识别号码) |
阿波罗商业房地产金融有限公司。
c/o 阿波罗全球管理公司。
(主要行政办公室的地址)（邮政编码）
(
(注册公司之电话号码，包括区号)
根据法案第12(b)条规定注册的证券：
每个班级的标题 |
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交易标的（s） |
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注册的每个交易所的名称 |
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请勾选以下选项以表示申报人（1）已提交证券交易法1934年第13条或15(d)条所要求提交的所有报告，且在过去12个月中（或申报人需要提交此类报告的较短期间）已提交；（2）已受到过去90天内此类提交要求的限制。
请打勾号表明注册人是否根据《S-t条例405条规定（本章节232.405号）的规定，在过去12个月内（或注册人需要提交此类文件的更短期限内），已提交每个交互数据文件。
请勾选相应的选项，以指示申报人是大型快速申报人、快速申报人、非快速申报人、较小型报告公司，还是新兴成长型公司。详细定义请参阅《交易所法》第1202条中的“大型快速申报人”、“快速申报人”、“较小型报告公司”和“新兴成长型公司”定义。
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☒ |
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加速归档人 |
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☐ |
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非加速归档人 |
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☐ |
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小型报告公司 |
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新兴成长型企业 |
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如果一家新兴成长型公司，请用勾选标记表示该申报人已选择不使用根据证交所法案13(a)条款提供的任何新的或修订过的财务会计准则的延长过渡期。 ☐
请打勾表示该登记者是否为外壳公司（依交易所法规第120亿2条定义）。 是 ☐ 否
截至2024年10月29日，已发行并流通的登记公司普通股为
目录
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页面 |
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3 |
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40 |
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61 |
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62 |
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63 |
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63 |
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63 |
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63 |
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63 |
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63 |
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64 |
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请参阅未经审计的简明合并基本报表的附注。
2
第一部分 - 财务资讯L INFORMATION
项目1. 基本报表
阿波罗商业房地产金融公司及其附属公司
缩编合并贷方账户余额表（未经审计）
(以千为单位—股票资料除外)
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2024年9月30日 |
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2023年12月31日 |
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资产： |
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现金及现金等价物 |
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$ |
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$ |
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商业按揭贷款净额(1)(3) |
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次贷款净额(2)(3) |
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持有以投资为目的的房地产净额(4)（扣除$还款）截至2021年9月30日的年度总额为 |
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其他资产 |
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衍生资产净额 |
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持有待售之房地产相关资产 |
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总资产 |
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$ |
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$ |
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负债及股东权益 |
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负债： |
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担保债务安排，净额 |
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$ |
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$ |
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优先担保期限贷款，净额 |
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优先担保票据净额 |
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拥有投资房地产相关债务，净额 |
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应付帐款、应计费用及其他负债(5) |
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衍生工具负债，净额 |
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应付其他关联方 |
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持有待售房地产相关负债 |
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总负债 |
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股东权益: |
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优先股，面额$0.01，授权股数为5,000,000股，发行且流通股数为截至2024年6月30日和2023年12月31日之184,668,188股和181,364,180股。 |
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0.01 |
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资本公积金额外 |
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累积亏损 |
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( |
) |
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( |
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股东权益合计 |
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负债合计及股东权益合计 |
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$ |
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$ |
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See notes to unaudited condensed consolidated financial statements.
3
Apollo Commercial Real Estate Finance, Inc. and Subsidiaries
Condensed Consolidated Statement of Operations (Unaudited)
(in thousands—except share and per share data)
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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Net interest income: |
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Interest income from commercial mortgage loans |
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$ |
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$ |
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$ |
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$ |
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Interest income from subordinate loans and other lending assets |
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Interest expense |
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( |
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( |
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( |
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( |
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Net interest income |
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$ |
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$ |
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$ |
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$ |
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Revenue from real estate owned operations |
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Total net revenue |
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$ |
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$ |
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$ |
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$ |
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Operating expenses: |
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General and administrative expenses (includes equity-based compensation of $ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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Management fees to related party |
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( |
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( |
) |
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( |
) |
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( |
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Operating expenses related to real estate owned |
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( |
) |
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( |
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( |
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( |
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Depreciation and amortization on real estate owned |
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( |
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( |
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( |
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( |
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Total operating expenses |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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Other income, net |
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$ |
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$ |
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$ |
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$ |
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Decrease (increase) in current expected credit loss allowance, net |
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( |
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( |
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Foreign currency translation gain (loss) |
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( |
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( |
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Gain (loss) on foreign currency forward contracts (includes unrealized gains (losses) of ($ |
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( |
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( |
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Gain (loss) on interest rate hedging instruments (includes unrealized gains (losses) of ($ |
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( |
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( |
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( |
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Net realized loss on investments |
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( |
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( |
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( |
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Gain on extinguishment of debt |
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Net income (loss) before taxes |
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$ |
( |
) |
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$ |
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$ |
( |
) |
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$ |
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Income tax provision |
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( |
) |
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( |
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( |
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( |
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Net income (loss) |
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$ |
( |
) |
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$ |
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$ |
( |
) |
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$ |
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Preferred dividends |
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( |
) |
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( |
) |
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( |
) |
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( |
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Net income (loss) available to common stockholders |
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$ |
( |
) |
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$ |
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$ |
( |
) |
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$ |
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Net income (loss) per share of common stock: |
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Basic |
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$ |
( |
) |
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$ |
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$ |
( |
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$ |
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Diluted |
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$ |
( |
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$ |
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$ |
( |
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$ |
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Basic weighted-average shares of common stock outstanding |
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Diluted weighted-average shares of common stock outstanding |
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Dividend declared per share of common stock |
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$ |
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$ |
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$ |
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$ |
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||||
See notes to unaudited condensed consolidated financial statements.
4
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)
|
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Preferred Stock |
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Common Stock |
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Additional |
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Accumulated |
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Shares |
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Par |
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Shares |
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Par |
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Capital |
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Deficit |
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Total |
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Balance at January 1, 2024 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Capital increase (decrease) related to Equity Incentive Plan |
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— |
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— |
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( |
) |
|
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— |
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( |
) |
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Net Loss |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Dividends declared on preferred stock - $ |
|
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— |
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— |
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— |
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— |
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— |
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( |
) |
|
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( |
) |
Dividends declared on common stock and RSUs - $ |
|
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— |
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— |
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— |
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— |
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— |
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|
( |
) |
|
|
( |
) |
Balance at March 31, 2024 |
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|
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$ |
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|
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$ |
|
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$ |
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|
$ |
( |
) |
|
$ |
|
||||||
Capital increase related to Equity Incentive Plan |
|
|
— |
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— |
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|
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|
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— |
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||||
Repurchase of common stock |
|
|
— |
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— |
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( |
) |
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( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Net Income |
|
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— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
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|
|
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||
Dividends declared on preferred stock - $ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Dividends declared on common stock and RSUs - $ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Balance at June 30, 2024 |
|
|
|
|
$ |
|
|
|
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$ |
|
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$ |
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$ |
( |
) |
|
$ |
|
||||||
Capital increase related to Equity Incentive Plan |
|
|
— |
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— |
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— |
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— |
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|||
Repurchase of common stock |
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— |
|
|
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— |
|
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|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Net Loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
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|
( |
) |
|
|
( |
) |
Dividends declared on preferred stock - $ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Dividends declared on common stock and RSUs - $ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Balance at September 30, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||||
See notes to unaudited condensed consolidated financial statements.
5
|
|
Preferred Stock |
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Common Stock |
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Additional |
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Accumulated |
|
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|||||||||||||
|
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Shares |
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Par |
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Shares |
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Par |
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Capital |
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Deficit |
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Total |
|
|||||||
Balance at January 1, 2023 |
|
|
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$ |
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$ |
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$ |
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$ |
( |
) |
|
$ |
|
||||||
Capital increase (decrease) related to Equity Incentive Plan |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
||
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
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||
Dividends declared on preferred stock - $ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Dividends declared on common stock and RSUs - $ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Balance at March 31, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||||
Capital increase related to Equity Incentive Plan |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
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|
|||
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Dividends declared on preferred stock - $ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Dividends declared on common stock and RSUs - $ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Balance at June 30, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||||
Capital increase related to Equity Incentive Plan |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
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|
||||
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Dividends declared on preferred stock - $ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Dividends declared on common stock and RSUs - $ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Balance at September 30, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||||
See notes to unaudited condensed consolidated financial statements.
6
Apollo Commercial Real Estate Finance, Inc. and Subsidiaries
Condensed Consolidated Statement of Cash Flows (Unaudited)
(in thousands)
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Cash flows from operating activities: |
|
|
|
|
|
|
||
Net income (loss) |
|
$ |
( |
) |
|
$ |
|
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
|
|
||
Amortization of discount/premium and payment-in-kind interest |
|
|
( |
) |
|
|
( |
) |
Amortization of deferred financing costs |
|
|
|
|
|
|
||
Equity-based compensation |
|
|
|
|
|
|
||
Increase in current expected credit loss allowance, net |
|
|
|
|
|
|
||
Foreign currency loss (gain) |
|
|
( |
) |
|
|
|
|
Unrealized loss on foreign currency contracts |
|
|
|
|
|
|
||
Unrealized loss on interest rate hedging instruments |
|
|
|
|
|
|
||
Depreciation and amortization on real estate owned |
|
|
|
|
|
|
||
Gain on extinguishment of debt |
|
|
|
|
|
( |
) |
|
Net realized loss on investment |
|
|
|
|
|
|
||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
||
Proceeds received from payment-in-kind interest |
|
|
|
|
|
|
||
Other assets |
|
|
( |
) |
|
|
( |
) |
Payment for interest rate cap |
|
|
( |
) |
|
|
( |
) |
Accounts payable, accrued expenses and other liabilities |
|
|
|
|
|
|
||
Payable to related party |
|
|
( |
) |
|
|
( |
) |
Net cash provided by operating activities |
|
$ |
|
|
$ |
|
||
Cash flows from investing activities: |
|
|
|
|
|
|
||
New funding of commercial mortgage loans |
|
|
( |
) |
|
|
( |
) |
Add-on funding of commercial mortgage loans |
|
|
( |
) |
|
|
( |
) |
Add-on funding of subordinate loans |
|
|
( |
) |
|
|
( |
) |
Proceeds received from the repayment and sale of commercial mortgage loans |
|
|
|
|
|
|
||
Proceeds received from the repayment of subordinate loans and other lending assets |
|
|
|
|
|
|
||
Origination fees, other fees, and cost recovery proceeds received on commercial mortgage loans, and subordinate loans, net |
|
|
|
|
|
|
||
Decrease in collateral related to derivative contracts, net |
|
|
( |
) |
|
|
( |
) |
Capital expenditures on real estate assets |
|
|
( |
) |
|
|
( |
) |
Cash received from hotel title assumption |
|
|
|
|
|
|
||
Net cash provided by (used in) investing activities |
|
$ |
( |
) |
|
$ |
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
||
Proceeds from secured debt arrangements |
|
|
|
|
|
|
||
Proceeds related to financing on real estate owned |
|
|
|
|
|
|
||
Repayments of secured debt arrangements |
|
|
( |
) |
|
|
( |
) |
Repayments of senior secured term loan principal |
|
|
( |
) |
|
|
( |
) |
Repayments and repurchases of convertible notes |
|
|
|
|
|
( |
) |
|
Payment of deferred financing costs |
|
|
( |
) |
|
|
( |
) |
Payment of withholding tax on RSU delivery |
|
|
( |
) |
|
|
( |
) |
Repurchase of common stock |
|
|
( |
) |
|
|
|
|
Dividends on common stock |
|
|
( |
) |
|
|
( |
) |
Dividends on preferred stock |
|
|
( |
) |
|
|
( |
) |
Net cash used in financing activities |
|
$ |
( |
) |
|
$ |
( |
) |
See notes to unaudited condensed consolidated financial statements.
7
Apollo Commercial Real Estate Finance, Inc. and Subsidiaries
Condensed Consolidated Statement of Cash Flows (Unaudited) (Continued)
(in thousands)
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Net increase (decrease) in cash and cash equivalents, including cash classified within assets related to real estate owned, held for sale |
|
$ |
( |
) |
|
$ |
|
|
Decrease in cash classified within assets related to real estate owned, held for sale |
|
|
|
|
|
|
||
Net increase (decrease) in cash and cash equivalents |
|
$ |
( |
) |
|
$ |
|
|
Cash and cash equivalents beginning of period |
|
|
|
|
|
|
||
Effects of foreign currency translation on cash and cash equivalents |
|
|
|
|
|
|
||
Cash and cash equivalents end of period |
|
$ |
|
|
$ |
|
||
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
||
Interest paid |
|
$ |
|
|
$ |
|
||
Income tax paid |
|
|
|
|
|
|
||
Change in secured debt repayments pending servicer remittance |
|
|
|
|
|
|
||
Change in loan proceeds held by servicer |
|
|
|
|
|
|
||
Supplemental disclosure of non-cash investing and financing activities: |
|
|
|
|
. |
|
||
Dividend declared, not yet paid |
|
$ |
|
|
$ |
|
||
Change in participation sold |
|
|
|
|
|
( |
) |
|
Assumption of real estate |
|
|
|
|
|
|
||
Assumption of other assets related to real estate owned |
|
|
|
|
|
|
||
Assumption of accounts payable, accrued expenses and other liabilities related to real estate owned |
|
|
|
|
|
( |
) |
|
Transfer of assets to assets related to real estate owned, held for sale |
|
|
|
|
|
|
||
Transfer of assets related to real estate owned, held for sale to assets related to real estate owned held for investment, net |
|
|
|
|
|
|
||
Transfer of assets related to real estate owned, held for sale to other assets |
|
|
|
|
|
|
||
Transfer of liabilities to liabilities related to real estate owned, held for sale |
|
|
|
|
|
|
||
Transfer of liabilities related to real estate owned, held for sale to accounts payable, accrued expenses and other liabilities |
|
|
|
|
|
|
||
Transfer of commercial mortgage loan to other assets |
|
|
|
|
|
|
||
Restructuring of commercial mortgage loan to subordinate loan |
|
|
|
|
|
|
||
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 current expected credit loss ("CECL") allowances. Actual results may differ from 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, 2023, 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, 2024 are not necessarily indicative of the results to be expected for the full year or any other future period.
We currently operate in
Equity Method Investments
We account for investments in entities under the equity method of accounting where we exercise significant influence over the entity but do not meet the requirements for consolidation. Equity method investments, for which we have not elected a fair value option, are initially recorded at cost and subsequently adjusted for our share of net income or loss and cash contributions and distributions each period. We classify distributions received from equity method investees using the cumulative earnings approach. Distributions received up to the cumulative earnings from each equity method investee, including distributions of operating profits, are considered returns on investment and are presented within "Cash flows from operating activities" in our condensed consolidated statement of cash flows. Distributions in excess of cumulative earnings, including those in excess of operating profits, are considered returns of investment and are presented within "Cash flows from investing activities" in our condensed consolidated statement of cash flows.
9
Recent Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board ("FASB") issued ASU 2023-07 "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures" ("ASU 2023-07"). ASU 2023-07 intends to improve reportable segment disclosure requirements, enhance interim disclosure requirements and provide new segment disclosure requirements for entities with a single reportable segment. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and for interim periods with fiscal years beginning after December 15, 2024. ASU 2023-07 is to be adopted retrospectively to all prior periods presented. We do not expect a material impact upon adoption.
In December 2023, the FASB issued ASU 2023-09 "Improvements to Income Tax Disclosures" ("ASU 2023-09"). ASU 2023-09 intends to improve the transparency of income tax disclosures. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024 and is to be adopted on a prospective basis with the option to apply retrospectively. We are currently assessing the impact of this guidance; however, we do not expect a material impact to our consolidated financial statements.
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 value. Market-based or observable inputs are the preferred source of values, followed by valuation models using management's assumptions in the absence of market-based or observable inputs. The three levels of the hierarchy as noted in Accounting Standards Codification ("ASC") Topic 820, "Fair Value Measurements and Disclosures" ("ASC 820") 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 are 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 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 fair values of foreign exchange ("Fx") 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. Our Fx forwards are classified as Level II in the fair value hierarchy.
The fair values of our interest rate caps are determined by using the market standard methodology of discounting the future expected cash receipts that occur when variable interest rates rise above the strike rates of the interest rate caps. The variable interest rates used in the calculation of projected receipts on the interest rate caps are based on a third-party expert's expectation of future interest rates derived from observable market interest rate curves and volatility. Our interest rate caps are classified as Level II in the fair value hierarchy and manage our exposure to variable cash flows on certain of our borrowings. As of September 30, 2024, we held
10
The following table summarizes the levels in the fair value hierarchy into which our assets and liabilities with recurring fair value measurements were categorized as of September 30, 2024 and December 31, 2023 ($ in thousands):
|
|
Fair Value as of September 30, 2024 |
|
|
Fair Value as of December 31, 2023 |
|
||||||||||||||||||||||||||
|
|
Level I |
|
|
Level II |
|
|
Level III |
|
|
Total |
|
|
Level I |
|
|
Level II |
|
|
Level III |
|
|
Total |
|
||||||||
Recurring fair value measurements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Foreign currency forward, net |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Interest rate cap assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total financial instruments |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Non-recurring Fair Value Measurements
Loans Held for Sale
Loans are classified as held for sale if there is an intent to sell them in the short-term following the reporting date. These loans are recorded at the lower of amortized cost or fair value, less selling costs, unless the fair value option was elected at the time of origination. If the loan's fair value, less selling costs, is determined to be less than its amortized cost, a nonrecurring fair value adjustment may be recorded through a valuation allowance.
The fair value of loans held for sale may be estimated using sales of comparable loans as supported by independent market data, or a contractually negotiated sales price. We consider the inputs used to calculate the fair value of loans held for sale as unobservable inputs. Accordingly, we classify the fair value of loans held for sale within Level III of the fair value hierarchy.
In April 2024, we sold a commercial mortgage loan collateralized by a hotel property located in Honolulu, HI. The loan was previously classified as held for sale during the first quarter of 2024, and sold at a price of
Real Estate Owned
Property acquired through foreclosure or deed-in-lieu of foreclosure is classified as real estate owned and recognized at fair value on our condensed consolidated balance sheet upon acquisition in accordance with ASC Topic 805, "Business Combinations" ("ASC 805"). We are required to record real estate owned, a nonfinancial asset, at fair value on a non-recurring basis in accordance with ASC 820. Under ASC 820, we may utilize the income, market or cost approach (or combination thereof) to determine the fair value of real estate owned. We deem the inputs used in these approaches to be significant unobservable inputs. Therefore, we classify the fair value of real estate owned within Level III of the fair value hierarchy.
On March 31, 2023, we acquired legal title of a hotel property in Atlanta, GA ("Atlanta Hotel") through a deed-in-lieu of foreclosure. At the time of acquisition, we determined the fair value of the net real estate assets to be $
On August 3, 2022, we acquired legal title of a multifamily development property located in downtown Brooklyn, NY ("Brooklyn Development") through a deed-in-lieu of foreclosure. We determined the fair value of the real estate assumed to be $
11
On May 24, 2021, we acquired legal title to the D.C. Hotel through a deed-in-lieu of foreclosure. We assumed the D.C. Hotel's assets and liabilities, including a $
Refer to "Note 5 – Real Estate Owned" for additional discussions.
Note 4 – Commercial Mortgage Loans, Subordinate Loans and Other Lending Assets, Net
Our loan portfolio was comprised of the following at September 30, 2024 and December 31, 2023 ($ in thousands):
Loan Type |
|
September 30, 2024 |
|
|
December 31, 2023 |
|
||
Commercial mortgage loans, net(1) |
|
$ |
|
|
$ |
|
||
Subordinate loans, net |
|
|
|
|
|
|
||
Carrying value, net |
|
$ |
|
|
$ |
|
||
Our loan portfolio consisted of
Activity relating to our loan portfolio for the nine months ended September 30, 2024 was as follows ($ in thousands):
|
|
Principal |
|
|
Deferred Fees/Other Items |
|
|
Specific CECL Allowance |
|
|
Carrying Value, Net |
|
||||
December 31, 2023 |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||
New loan fundings |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Add-on loan fundings(1) |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Loan repayments and sale |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Gain (loss) on foreign currency translation |
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
|
||
Increase in Specific CECL Allowance, net |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Transfer to Other Assets(2) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Realized loss on investment(3) |
|
|
( |
) |
|
|
|
|
|
— |
|
|
|
( |
) |
|
Deferred fees and other items(4) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Amortization of fees |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
September 30, 2024 |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||
General CECL Allowance(5) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|||
Carrying value, net |
|
|
|
|
|
|
|
|
|
|
$ |
|
||||
The following table details overall statistics for our loan portfolio at the dates indicated ($ in thousands):
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
||
Number of loans |
|
|
|
|
|
|
||
Principal balance |
|
$ |
|
|
$ |
|
||
Carrying value, net |
|
$ |
|
|
$ |
|
||
Unfunded loan commitments(1) |
|
$ |
|
|
$ |
|
||
Weighted-average cash coupon(2) |
|
|
% |
|
|
% |
||
Weighted-average remaining fully-extended term(3) |
|
|
|
|
||||
Weighted-average expected term(4) |
|
|
|
|
||||
12
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, 2024 |
|
December 31, 2023 |
|
|||||||||
Property Type |
|
Carrying |
|
|
% of |
|
Carrying |
|
|
% of |
|
|||
Office |
|
$ |
|
|
|
$ |
|
|
|
% |
||||
Hotel |
|
|
|
|
|
|
|
|
|
|
||||
Retail |
|
|
|
|
|
|
|
|
|
|
||||
Residential |
|
|
|
|
|
|
|
|
|
|
||||
Mixed Use |
|
|
|
|
|
|
|
|
|
|
||||
Industrial |
|
|
|
|
|
|
|
|
|
|
||||
Healthcare |
|
|
|
|
|
|
|
|
|
|
||||
Other(2) |
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
|
$ |
|
|
|
% |
||||
General CECL Allowance(3) |
|
|
( |
) |
|
|
|
|
( |
) |
|
|
|
|
Carrying value, net |
|
$ |
|
|
|
|
$ |
|
|
|
|
|||
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, 2024 |
|
December 31, 2023 |
|
|||||||||
Geographic Location |
|
Carrying |
|
|
% of |
|
Carrying |
|
|
% of |
|
|||
United Kingdom |
|
$ |
|
|
|
$ |
|
|
|
% |
||||
New York City |
|
|
|
|
|
|
|
|
|
|
||||
Other Europe(2) |
|
|
|
|
|
|
|
|
|
|
||||
Southeast |
|
|
|
|
|
|
|
|
|
|
||||
West |
|
|
|
|
|
|
|
|
|
|
||||
Midwest |
|
|
|
|
|
|
|
|
|
|
||||
Other(3) |
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
|
$ |
|
|
|
% |
||||
General CECL Allowance(4) |
|
|
( |
) |
|
|
|
|
( |
) |
|
|
|
|
Carrying value, net |
|
$ |
|
|
|
|
$ |
|
|
|
|
|||
13
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 ("LTV") ratio, debt yield, property type, geographic and local market dynamics, physical condition, cash flow volatility, leasing and tenant profile, loan structure and exit plan, and project sponsorship. We apply these various factors on a case-by-case basis depending on the facts and circumstances for each loan, and the different factors may be given different weightings in different situations. This review is performed quarterly. Based on a 5-point scale, our loans are rated "1" through "5," from less risk to greater risk, which ratings are defined as follows:
1. Very low risk
2. Low risk
3. Moderate/average risk
4. High risk/potential for loss: a loan that has a risk of realizing a principal loss
5. Impaired/loss likely: a loan that has a high risk of realizing principal loss, has incurred principal loss, or an impairment has been recorded
The following tables present the carrying value of our loan portfolio by year of origination and internal risk rating and gross write-offs by year of origination as of September 30, 2024 and December 31, 2023, respectively ($ in thousands):
September 30, 2024 |
|
||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
Amortized Cost(1) by Year Originated |
|
|||||||||||||||||||||||
Risk Rating |
|
Number of Loans |
|
|
Total |
|
|
% of Portfolio |
|
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
Prior |
|
||||||||
1 |
|
|
|
|
$ |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||||
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Total |
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
General CECL Allowance(2) |
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Total carrying value, net |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Weighted-Average Risk Rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Gross write-offs |
|
|
$ |
|
|
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|||||
December 31, 2023 |
|
||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Amortized Cost(1) by Year Originated |
|
||||||||||||||||||||||||
Risk Rating |
|
Number of Loans |
|
|
Total |
|
|
% of Portfolio |
|
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|
Prior |
|
|||||||||
1 |
|
|
|
|
$ |
|
|
|
% |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||||
2 |
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
3 |
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
4 |
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
5 |
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Total |
|
|
|
|
$ |
|
|
|
% |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||||
General CECL Allowance(2) |
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Total carrying value, net |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Weighted-Average Risk Rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gross write-offs |
|
|
$ |
|
|
|
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||||||
14
CECL
In accordance with ASC Topic 326 "Financial Instruments – Credit Losses" ("ASC 326"), which we refer to as the "CECL Standard," we record allowances for loans and held-to-maturity debt securities that are deducted from the carrying amount of the assets to present the net carrying value of the amounts expected to be collected on the assets. We record loan specific allowances as a practical expedient under the CECL Standard ("Specific CECL Allowance"), which we apply to assets that are collateral dependent and where the borrower or sponsor is experiencing financial difficulty. For the remainder of the portfolio, we record a general allowance ("General CECL Allowance," and together with the Specific CECL Allowance, "CECL Allowances") on a collective basis by assets with similar risk characteristics. We have elected to use the weighted-average remaining maturity ("WARM") method 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.
The following schedule illustrates changes in CECL Allowances for the nine months ended September 30, 2024 ($ in thousands):
|
|
Specific CECL |
|
|
General CECL Allowance |
|
|
Total CECL |
|
|
CECL Allowance as % of Amortized Cost |
|
||||||||||||||||
|
|
Allowance(1) |
|
|
Funded |
|
|
Unfunded |
|
|
Total |
|
|
Allowance |
|
|
General(1) |
|
|
Total |
|
|||||||
December 31, 2023 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
% |
|
|
% |
|||||||
Changes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Allowances (Reversals), net(2) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
||||||
March 31, 2024 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
% |
|
|
% |
|||||||
Changes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Allowances (Reversals), net(3) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
||||||
June 30, 2024 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
% |
|
|
% |
|||||||
Changes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Allowances (Reversals), net(4)(5) |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||||
Write-offs(5) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||||
September 30, 2024 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
% |
|
|
% |
|||||||
The following schedule illustrates changes in CECL Allowances for the nine months ended September 30, 2023 ($ in thousands):
15
|
|
Specific CECL |
|
|
General CECL Allowance |
|
|
Total CECL |
|
|
CECL Allowance as % of Amortized Cost |
|
||||||||||||||||
|
|
Allowance(1) |
|
|
Funded |
|
|
Unfunded |
|
|
Total |
|
|
Allowance |
|
|
General(1) |
|
|
Total |
|
|||||||
December 31, 2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
% |
|
|
% |
|||||||
Changes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Allowances(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
March 31, 2023 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
% |
|
|
% |
|||||||
Changes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Allowances(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Write-offs(4) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||||
June 30, 2023 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
% |
|
|
% |
|||||||
Changes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Reversals(5) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|||
September 30, 2023 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
% |
|
|
% |
|||||||
General CECL Allowance
In determining the General CECL Allowance using the WARM method, an annual historical loss rate, adjusted for macroeconomic estimates, is applied to the amortized cost of an asset, or pool of assets, over each subsequent period for the assets' remaining expected life. 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 for a reasonable and supportable forecast period. The CECL Standard requires the use of significant judgment to arrive at an estimated credit loss. There is significant uncertainty related to future macroeconomic conditions, including inflation, labor shortages and interest rates.
We derive an annual historical loss rate based on a commercial mortgage-backed securities ("CMBS") database with historical losses from 1998 through the third quarter of 2024 provided by a third party, Trepp LLC ("Trepp"). We apply 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 is further adjusted to reflect our expectations of the macroeconomic environment for a reasonable and supportable forecast period of eight quarters. In assessing the macroeconomic environment, we consider macroeconomic factors, including unemployment rate, commercial real estate prices, and market liquidity. We compare the historical data for each metric to historical commercial real estate losses in order to determine the correlation of the data. We use 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 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 sheets within accounts payable, accrued expenses and other liabilities.
16
Additionally, we have made an accounting policy election to exclude accrued interest from the amortized cost basis of the related commercial mortgage loans and subordinate loans and other lending assets in determining the General CECL Allowance, as any uncollectible accrued interest receivable is written off in a timely manner. As of September 30, 2024 and December 31, 2023, accrued interest receivable was $
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.
The following schedule sets forth our General CECL Allowance as of September 30, 2024 and December 31, 2023 ($ in thousands):
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
||
Commercial mortgage loans, net |
|
$ |
|
|
$ |
|
||
Subordinate loans, net |
|
|
|
|
|
|
||
Unfunded commitments(1) |
|
|
|
|
|
|
||
Total General CECL Allowance |
|
$ |
|
|
$ |
|
||
Specific CECL Allowance
For collateral-dependent loans where we have deemed the borrower/sponsor to be experiencing financial difficulty and a more than moderate/average risk of realizing a principal loss, we have elected to apply a practical expedient in accordance with the CECL Standard in which the fair value of the underlying collateral is compared to the amortized cost of the loan in determining a Specific CECL Allowance. The Specific CECL Allowance is determined as the difference between the fair value of the underlying collateral and the carrying value of the loan (prior to the Specific CECL Allowance). When the repayment or satisfaction of a loan is dependent on a sale, rather than operations, of the collateral, the fair value is adjusted for the estimated cost to sell the collateral. Collateral-dependent loans evaluated for a Specific CECL Allowance are removed from the General CECL Allowance pool. 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 regularly evaluate the extent and impact of any credit migration associated with the performance and/or value of the underlying collateral property as well as the financial and operating capability of the borrower/sponsor on a loan-by-loan basis. The Specific CECL Allowance is evaluated on a quarterly 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 liquidation 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 impairment analysis is completed and reviewed by asset management and finance personnel who utilize various data sources, including (i) periodic financial data such as debt service coverage ratio, property occupancy, tenant profile, rental rates, operating expenses, the borrower's exit plan, and capitalization and discount rates, (ii) site inspections and (iii) current credit spreads and discussions with market participants.
17
The following table summarizes our risk rated five loans as of September 30, 2024, which were analyzed for Specific CECL Allowances ($ in thousands):
Type |
Property type |
|
Location |
|
Amortized cost prior to Specific CECL Allowance |
|
|
Specific CECL Allowance |
|
|
Amortized cost |
|
|
Interest recognition status/ as of date |
|
Risk Rating |
|||
Mortgage |
Retail(1)(2) |
|
Cincinnati, OH |
|
$ |
|
|
$ |
|
|
$ |
|
|
Non-Accrual/ 10/1/2019 |
|
5 |
|||
Mezzanine |
Residential(3) |
|
Manhattan, NY |
|
|
|
|
|
|
|
|
|
|
Non-Accrual/ 7/1/2021 |
|
5 |
|||
Mezzanine |
Office(4) |
|
Troy, MI |
|
|
|
|
|
|
|
|
|
|
Non-Accrual/ 6/30/2024 |
|
5 |
|||
Total |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
||||
For the nine months ended September 30, 2024, we recorded a net increase in our Specific CECL Allowance of $
Massachusetts Healthcare
In March 2022, we and other Apollo-managed entities co-originated a
During the three months ended September 30, 2024, we ceased accruing interest on our loan and debt service payments received in July through September 2024 reduced the carrying value of our loan. During the three months ended September 30, 2024, we recorded a $
18
As of September 30, 2024, we recorded $
Subsequently, on October 1, 2024, five of the seven hospitals were sold to third parties, and the proceeds were allocated among us and other Apollo Co-Lenders based on our pro-rata interests in the commercial mortgage loan. Refer to "Note 21 – Subsequent Events".
Michigan Office
During the three months ended June 30, 2024, we recorded a Specific CECL Allowance of $
As discussed further below, we recorded an additional $
Loan Modifications Pursuant to ASC 326
During the twelve months ended September 30, 2024, we provided the following loan modifications that require disclosure pursuant to ASC 326.
Cleveland Multifamily
In May 2021, we originated a first mortgage loan secured by a multifamily property in Cleveland, OH. In April 2024, we modified our loan to convert from a floating rate of Secured Overnight Financing Rate ("") +
Manhattan Office
In March 2022, we originated a first mortgage loan secured by an office property in Manhattan, NY. In April 2024, we modified our loan to convert from a floating rate of +
Manhattan Residential
In August 2022, we refinanced three of our mezzanine loans (a senior mezzanine loan ("Senior Mezzanine Loan") and two junior mezzanine loans ("Junior Mezzanine A Loan" and "Junior Mezzanine B Loan" collectively referred to as "Junior Mezzanine Loan")), and originated a commercial mortgage loan ("Senior Loan") as part of an overall recapitalization. All of the loans are secured by an ultra-luxury residential property in Manhattan, NY.
In refinancing the Senior Mezzanine Loan and Junior Mezzanine Loan, we modified the loan terms with the borrower to include an interest rate reduction and two year extension of the term on all three loans. Based on our analysis under ASC Topic 310-20 "Receivables – Nonrefundable Fees and Other Costs" ("ASC 310-20"), we have deemed this refinance to be a continuation of our existing loans.
During 2022, sales velocity on the underlying property lagged behind the borrower's business plan and management's expectations. Based on this information and broader uncertainty across the ultra-luxury residential property market, we recorded a total loan Specific CECL Allowance of $
19
As property sales continued to trail behind the borrower's business plan during the first half of 2023, we ceased accruing interest on the Senior Loan and the Senior Mezzanine Loan as of May 1, 2023. During the second quarter of 2023, we deemed the $
During the three months ended March 31, 2024, we recorded an additional $
During the three months ended June 30, 2024, our Senior Loan was refinanced by a third party lender, which resulted in a repayment of $
The modified loan terms as discussed above have been reflected in our calculation of CECL for the three months ended September 30, 2024. Refer to the "CECL" section above for additional information regarding our calculation of CECL Allowances.
As of September 30, 2024 and December 31, 2023, the aggregate amortized cost basis, net of Specific CECL Allowance, of these modified receivables was $
Other Loan Activity
We cease 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. The amortized cost basis, net of Specific CECL Allowance, for loans on non-accrual was $
Under certain circumstances, we may apply the cost recovery method under which interest collected on a loan reduces the loan's amortized cost. For the three and nine months ended September 30, 2024, we received $
As of September 30, 2024 and December 31, 2023, the amortized cost basis, net of Specific CECL Allowance, for loans with accrued interest past due 90 or more days was $
We recognized $
During the three and nine months ended September 30, 2023, we recorded $
During the three months ended March 31, 2023, we received £
20
including all default interest accrued to date, which was approximately $
Loan Sales
From time to time, we may enter into sale transactions with other parties. All sale transactions are evaluated in accordance with ASC Topic 860, "Transfers and Servicing" ("ASC 860").
In April 2024, we sold a commercial mortgage loan collateralized by a hotel property located in Honolulu, HI. The loan was previously classified as held for sale during the first quarter of 2024, and sold at a price of
During the first quarter of 2023, we sold our entire interests in
Note 5 – Real Estate Owned
Real Estate Owned, Held for Investment
As of September 30, 2024, assets and liabilities related to real estate owned, held for investment consisted of
D.C. Hotel
On May 24, 2021, we acquired legal title to the D.C. hotel, which previously secured two subordinate loans, through a deed-in-lieu of foreclosure. In accordance with ASC 805, we consolidated the hotel's assets and liabilities at their respective fair values. Refer to "Note 3 – Fair Value Disclosure" for full discussion of non-recurring fair value measurements.
As of March 1, 2022, the hotel assets, comprised of land, building, furniture, fixtures, and equipment ("FF&E"), and accumulated depreciation (collectively "REO Fixed Assets"), and liabilities met the criteria to be classified as held for sale under ASC Topic 360, "Property, Plant, and Equipment" ("ASC 360"). Accordingly, as of March 1, 2022, we ceased recording depreciation on the building and FF&E on the condensed consolidated statement of operations.
As of March 1, 2023, due to market conditions, we curtailed active marketing efforts, and reclassified the REO Fixed Assets and liabilities from real estate owned, held for sale to real estate owned, held for investment, net. In accordance with ASC 360, the REO Fixed Assets were reclassified to their carrying value before they were initially classified as held for sale in March of 2022, and all other assets and liabilities were reclassified to the corresponding line items on the condensed consolidated balance sheet. Upon reclassification, we recorded $
As of September 30, 2024 and December 31, 2023, the value of net real estate assets related to the D.C. Hotel was $
21
accumulated depreciation, attributable to FF&E. As of December 31, 2023, our net real estate assets included depreciable assets of $
During the three months ended June 30, 2024, we obtained a $
The carrying value of the mortgage included within debt related to real estate owned, held for investment, net on our condensed consolidated balance sheet was $
We recorded net profit from hotel operations of $
Brooklyn Development
In 2015, we originated a $
On August 3, 2022, we acquired legal title of the property through a deed-in-lieu of foreclosure and accounted for the asset acquisition in accordance with ASC 805. At that time, our amortized cost basis in the commercial mortgage loan was $
Upon taking title, we concurrently contributed the property to a joint venture with a third-party real estate developer. The entity was deemed to be a VIE, of which we were determined to be the primary beneficiary. Through our wholly owned subsidiaries, we hold a
The construction financing includes a maximum commitment of $
22
our net worth be greater than $
To manage our exposure to variable cash flows on our borrowings under this construction financing, we entered into an interest rate cap on September 26, 2023, and extended on September 30, 2024 for an additional year. As of September 30, 2024 and December 31, 2023, the fair value of the interest rate cap was $
Atlanta Hotel
In March 2017, we originated a first mortgage loan secured by the Atlanta Hotel. During the second quarter of 2022, due to slower than expected recovery from the COVID-19 pandemic, we deemed the borrower to be experiencing financial difficulty. Accordingly, we ceased accruing interest on the loan and recorded a $
During the fourth quarter of 2022, we wrote off the $
On March 31, 2023, we acquired legal title of the Atlanta Hotel through a deed-in-lieu of foreclosure and determined the fair value of net real estate assets to be $
During the three months ended June 30, 2023, we received an unsolicited offer from a third party to purchase the Atlanta Hotel. As of June 30, 2023, the hotel's assets and liabilities met the criteria to be classified as held for sale under ASC 360. In accordance with ASC 360, we ceased recording depreciation on the building and FF&E on the condensed consolidated statement of operations and we have reclassified assets and liabilities from their respective condensed consolidated balance sheet line items to Assets related to real estate owned, held for sale and Liabilities related to real estate owned, held for sale.
As of March 31, 2024, we determined the sale of the Atlanta Hotel to a third party, from whom we received an unsolicited offer, to be no longer probable, and we are not actively marketing the property for sale to other potential buyers. As such, the Atlanta Hotel no longer met the criteria to be classified as held for sale under ASC 360. In accordance with ASC 360, the REO Fixed Assets were reclassified to their carrying value before classifying as held for sale in June of 2023. On the date of reclassification, March 31, 2024, we recorded $
As of September 30, 2024, the value of net real estate assets related to the Atlanta Hotel was $
As of December 31, 2023, the hotel's assets and liabilities were classified as held for sale, and the value of net real estate assets related to the Atlanta Hotel was $
Note 6 – Other Assets
The following table details the components of our other assets at the dates indicated ($ in thousands):
23
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
||
Interest receivable |
|
$ |
|
|
$ |
|
||
Collateral deposited under derivative agreements |
|
|
|
|
|
|
||
Loan proceeds held by servicer(1) |
|
|
|
|
|
|
||
Other(2)(3) |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
Note 7 – Secured Debt Arrangements, Net
We utilize secured debt arrangements to finance the origination activity in our loan portfolio. Our secured debt arrangements are comprised of secured credit facilities, a private securitization, and a revolving credit facility.
In January 2024, we entered into a new secured credit facility with Goldman Sachs that provided £
Additionally, during the nine months ended September 30, 2024, we upsized the Barclays facility by $
Our borrowings under secured debt arrangements as of September 30, 2024 and December 31, 2023 are detailed in the following table ($ in thousands):
|
|
September 30, 2024 |
|
December 31, 2023 |
||||||||||||||||
|
|
Maximum |
|
|
Borrowings |
|
|
Maturity (2) |
|
Maximum |
|
|
Borrowings |
|
|
Maturity (2) |
||||
JPMorgan Facility - USD(3)(4) |
|
$ |
|
|
$ |
|
|
September 2026 |
|
$ |
|
|
$ |
|
|
September 2026 |
||||
JPMorgan Facility - GBP(3)(4) |
|
|
|
|
|
|
|
N/A |
|
|
|
|
|
|
|
September 2026 |
||||
Deutsche Bank Facility - USD(3) |
|
|
|
|
|
|
|
March 2026 |
|
|
|
|
|
|
|
March 2026 |
||||
Atlas Facility - USD(5) |
|
|
|
|
|
|
|
March 2027(6) |
|
|
|
|
|
|
|
April 2027(7)(8) |
||||
HSBC Facility - GBP |
|
|
|
|
|
|
|
May 2025 |
|
|
|
|
|
|
|
May 2025 |
||||
HSBC Facility - EUR |
|
|
|
|
|
|
|
January 2026(8) |
|
|
|
|
|
|
|
January 2026 |
||||
Goldman Sachs Facility - USD |
|
|
|
|
|
|
|
N/A(9) |
|
|
|
|
|
|
|
November 2025(9) |
||||
Goldman Sachs Facility - GBP |
|
|
|
|
|
|
|
May 2029 |
|
|
|
|
|
|
|
N/A |
||||
Barclays Facility - USD |
|
|
|
|
|
|
|
March 2027(7) |
|
|
|
|
|
|
|
June 2027(7) |
||||
MUFG Securities Facility - GBP |
|
|
|
|
|
|
|
August 2025(7) |
|
|
|
|
|
|
|
June 2025(7) |
||||
Churchill Facility - USD |
|
|
|
|
|
|
|
April 2026 |
|
|
|
|
|
|
|
March 2026 |
||||
Santander Facility - USD |
|
|
|
|
|
|
|
February 2026(7) |
|
|
|
|
|
|
|
February 2026(7) |
||||
Santander Facility - EUR(10) |
|
|
|
|
|
|
|
N/A |
|
|
|
|
|
|
|
August 2024 |
||||
Total Secured Credit Facilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Barclays Private Securitization - GBP, EUR, SEK |
|
|
|
|
|
|
|
December 2026(8) |
|
|
|
|
|
|
|
June 2026(8) |
||||
Revolving Credit Facility - USD(11)(12) |
|
|
|
|
|
|
|
March 2026 |
|
|
|
|
|
|
|
March 2026 |
||||
Total Secured Debt Arrangements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Less: deferred financing costs |
|
|
N/A |
|
|
|
( |
) |
|
|
|
|
N/A |
|
|
|
( |
) |
|
|
Total Secured Debt Arrangements, net(13)(14)(15) |
|
$ |
|
|
$ |
|
|
|
|
$ |
|
|
$ |
|
|
|
||||
24
Terms of our secured credit facilities are designed to keep each lender's credit exposure generally constant as a percentage of the underlying value of the assets pledged as security to the facility. If the credit of the underlying collateral value decreases, the amount of leverage to us may be reduced. As of September 30, 2024 and December 31, 2023, the weighted-average haircut under our secured debt arrangements was approximately
Atlas Facility
On February 8, 2023, in connection with the acquisition by certain subsidiaries of Atlas, which is a wholly-owned investment of a fund managed by an affiliate of the Manager, the Credit Suisse Facility was acquired by Atlas ("Atlas Facility"). For full discussion of this transaction, refer to "Note 15 – Related Party Transactions."
Revolving Credit Facility
On March 3, 2023, we entered into the revolving credit facility (the "Revolving Credit Facility") administered by Bank of America, N.A. The Revolving Credit Facility provides up to $
Barclays Private Securitization
We are party to a private securitization with Barclays Bank plc ("Barclays") (such securitization, the "Barclays Private Securitization"). Commercial mortgage loans currently financed under the Barclays Securitization are denominated in GBP, EUR and SEK.
The Barclays Private Securitization does not include 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
25
The table below provides principal balances and the carrying value for commercial mortgage loans pledged to the Barclays Private Securitization as of September 30, 2024 and December 31, 2023 ($ in thousands):
|
|
September 30, 2024 |
|
|||||||
Local Currency |
|
Count |
|
Outstanding |
|
|
Carrying Value |
|
||
GBP |
|
|
$ |
|
|
$ |
|
|||
EUR |
|
|
|
|
|
|
|
|||
SEK |
|
|
|
|
|
|
|
|||
Total |
|
|
$ |
|
|
$ |
|
|||
|
|
December 31, 2023 |
|
|||||||
Local Currency |
|
Count |
|
Outstanding |
|
|
Carrying Value |
|
||
GBP |
|
|
$ |
|
|
$ |
|
|||
EUR |
|
|
|
|
|
|
|
|||
SEK |
|
|
|
|
|
|
|
|||
Total |
|
|
$ |
|
|
$ |
|
|||
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, 2024 ($ in thousands):
|
|
Borrowings |
|
|
Fully-Extended |
|
Total/Weighted-Average GBP |
|
$ |
|
|
August 2026 |
|
Total/Weighted-Average EUR |
|
|
|
|
October 2027(3) |
|
Total/Weighted-Average SEK |
|
|
|
|
May 2026 |
|
Total/Weighted-Average Securitization |
|
$ |
|
|
December 2026 |
|
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 December 31, 2023 ($ in thousands):
|
|
Borrowings |
|
|
Fully-Extended |
|
Total/Weighted-Average GBP |
|
|
|
|
June 2026 |
|
Total/Weighted-Average EUR |
|
|
|
|
May 2026(3) |
|
Total/Weighted-Average SEK |
|
|
|
|
May 2026 |
|
Total/Weighted-Average Securitization |
|
$ |
|
|
June 2026 |
|
26
The table below provides the assets and liabilities of the Barclays Private Securitization VIE included in our condensed consolidated balance sheets ($ in thousands):
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
||
Assets: |
|
|
|
|
|
|
||
Cash |
|
$ |
|
|
$ |
|
||
Commercial mortgage loans, net(1) |
|
|
|
|
|
|
||
Other Assets(2) |
|
|
|
|
|
|
||
Total Assets |
|
$ |
|
|
$ |
|
||
Liabilities: |
|
|
|
|
|
|
||
Secured debt arrangements, net (net of deferred financing costs of $ |
|
$ |
|
|
$ |
|
||
Accounts payable, accrued expenses and other liabilities(3)(4) |
|
|
|
|
|
|
||
Total Liabilities |
|
$ |
|
|
$ |
|
||
The table below provides the net income of the Barclays Private Securitization VIE included in our condensed consolidated statement of operations ($ in thousands):
|
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Net interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest income from commercial mortgage loans |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Interest expense |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net interest income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
General and administrative expense |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Decrease (increase) in current expected credit loss allowance, net |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Foreign currency translation gain (loss) |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Net income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
At September 30, 2024, our borrowings had the following remaining maturities ($ in thousands):
|
|
Less than |
|
|
1 to 3 |
|
|
3 to 5 |
|
|
More than |
|
|
Total |
|
|||||
JPMorgan Facility |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Deutsche Bank Facility |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Atlas Facility |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
HSBC Facility |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Goldman Sachs Facility - GBP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Barclays Facility |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
MUFG Securities Facility |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Churchill Facility |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Santander Facility - USD |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Barclays Private Securitization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Revolving Credit Facility |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
The table above reflects the fully extended maturity date of the facility and assumes facilities with an "evergreen" feature continue to extend through the fully-extended maturity of the underlying asset and assumes underlying loans are extended with consent of financing providers.
27
The table below summarizes the outstanding balances at September 30, 2024, as well as the maximum and average month-end balances for the nine months ended September 30, 2024 for our borrowings under secured debt arrangements ($ in thousands).
|
|
As of September 30, 2024 |
|
|
For the nine months ended September 30, 2024 |
|
||||||||||
|
|
Balance |
|
|
Collateral(1) |
|
|
Maximum |
|
|
Average |
|
||||
JPMorgan Facility |
|
$ |
|
|
|
|
|
|
|
|
$ |
|
||||
Deutsche Bank Facility |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Goldman Sachs Facility - USD |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Goldman Sachs Facility - GBP |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Atlas Facility |
|
|
|
|
|
|
|
|
|
|
|
|
||||
HSBC Facility |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Barclays Facility |
|
|
|
|
|
|
|
|
|
|
|
|
||||
MUFG Securities Facility |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Churchill Facility |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Santander Facility - USD |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Santander Facility - EUR |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Barclays Private Securitization |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revolving Credit Facility |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
|
|
|
|
|
||||
The table below summarizes the outstanding balances at December 31, 2023, as well as the maximum and average month-end balances for the year ended December 31, 2023 for our borrowings under secured debt arrangements ($ in thousands).
|
|
As of December 31, 2023 |
|
|
For the year ended December 31, 2023 |
|
||||||||||
|
|
Balance |
|
|
Collateral(1) |
|
|
Maximum |
|
|
Average |
|
||||
JPMorgan Facility |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Deutsche Bank Facility |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Goldman Sachs Facility |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Atlas Facility |
|
|
|
|
|
|
|
|
|
|
|
|
||||
HSBC Facility |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Barclays Facility |
|
|
|
|
|
|
|
|
|
|
|
|
||||
MUFG Securities Facility |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Churchill Facility |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Santander Facility - USD |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Santander Facility - EUR |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Barclays Private Securitization |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revolving Credit Facility |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
|
|
|
|
|
||||
Debt Covenants
The guarantees related to our secured debt arrangements contain the following financial covenants: (i) tangible net worth must be greater than $
28
We were in compliance with the covenants under each of our secured debt arrangements at September 30, 2024 and December 31, 2023. The impact of macroeconomic conditions on the commercial real estate markets and global capital markets, including increased interest rates, foreign currency fluctuations, changes to fiscal and monetary policy, slower economic growth or recession, labor shortages, and recent distress in the banking sector, may make it more difficult to meet or satisfy these covenants in the future.
Note 8 – Senior Secured Term Loans, Net
In May 2019, we entered into a $
In March 2021, we entered into an additional $
The Term Loans are amortizing with repayments of
The following table summarizes the terms of the Term Loans as of September 30, 2024 ($ in thousands):
|
|
Principal Amount |
|
|
Unamortized Issuance Discount(1) |
|
|
Deferred Financing Costs(1) |
|
|
Carrying Value |
|
|
Rate |
|
|
Maturity Date |
|||||
2026 Term Loan |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
% |
|
||||
2028 Term Loan |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
% |
|
||||
Total |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|||
The following table summarizes the terms of the Term Loans as of December 31, 2023 ($ in thousands):
|
|
Principal Amount |
|
|
Unamortized Issuance Discount(1) |
|
|
Deferred Financing Costs(1) |
|
|
Carrying Value |
|
|
Rate |
|
|
Maturity Date |
|||||
2026 Term Loan |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
% |
|
||||
2028 Term Loan |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
% |
|
||||
Total |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|||
Covenants
The financial covenants of the Term Loans include the requirements that we maintain: (i) a maximum ratio of total recourse debt to tangible net worth of
Interest Rate Cap
In June 2020, we entered into an interest rate cap to manage our exposure to variable cash flows on our borrowings under our 2026 senior secured term loan by effectively limiting LIBOR from exceeding
29
Subsequent to the interest rate cap maturity on June 15, 2023, the effective all-in coupon on our 2026 Term Loan increased to one month SOFR plus the spread of
Note 9 – Senior Secured Notes, Net
In June 2021, we issued $
Covenants
The 2029 Notes include certain covenants including a requirement that we maintain a ratio of total unencumbered assets to total pari-passu indebtedness of at least
Note 10 – Convertible Senior Notes, Net
During the fourth quarter of 2018, we issued $
During the three and nine months ended September 30, 2023, we repurchased $
The aggregate contractual interest expense was approximately $
Note 11 – 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 (GBP, EUR and SEK) for an agreed upon amount of USD at various dates through August 2027. 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.
The agreements with our derivative counterparties require that we post collateral to secure net liability positions. As of September 30, 2024, we were in a net liability position with our derivative counterparties and posted collateral of $
30
The following table summarizes our non-designated Fx forwards and interest rate cap as of September 30, 2024:
|
|
September 30, 2024 |
|
|||||||||||||
Type of Derivatives |
|
Number of |
|
|
Aggregate |
|
|
Notional |
|
Maturity |
|
Weighted-Average |
|
|||
Fx contracts - GBP |
|
|
|
|
|
|
|
GBP |
|
October 2024 - August 2027 |
|
|
|
|||
Fx contracts - EUR |
|
|
|
|
|
|
|
EUR |
|
October 2024 - August 2026 |
|
|
|
|||
Fx contracts - SEK |
|
|
|
|
|
|
|
SEK |
|
November 2024 - May 2026 |
|
|
|
|||
Interest rate cap |
|
|
|
|
|
|
|
USD |
|
July 2025 - October 2025 |
|
|
|
|||
The following table summarizes our non-designated Fx forwards and interest rate cap as of December 31, 2023:
|
|
December 31, 2023 |
|
|||||||||||||
Type of Derivatives |
|
Number of |
|
|
Aggregate |
|
|
Notional |
|
Maturity |
|
Weighted-Average |
|
|||
Fx contracts - GBP |
|
|
|
|
|
|
|
GBP |
|
January 2024 - February 2027 |
|
|
|
|||
Fx contracts - EUR |
|
|
|
|
|
|
|
EUR |
|
January 2024 - August 2026 |
|
|
|
|||
Fx contracts - SEK |
|
|
|
|
|
|
|
SEK |
|
February 2024 - May 2026 |
|
|
|
|||
Interest rate cap |
|
|
|
|
|
|
|
USD |
|
October 2024 |
|
|
|
|||
We have not designated any of our derivative instruments as hedges as defined in ASC 815, "Derivatives and Hedging" and, therefore, changes in the fair value of our derivative instruments are recorded directly in earnings.
|
|
|
|
Amount of gain (loss) |
|
|
Amount of gain (loss) |
|
||||||||||
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
Location of Gain (Loss) Recognized in Income |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Forward currency contracts |
|
Unrealized gain (loss) on derivative instruments |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Forward currency contracts |
|
Realized gain (loss) on derivative instruments |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Total |
|
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
In June 2020, we entered into an interest rate cap for approximately $
On September 26, 2023, we entered into an interest rate cap with an original maturity of October 1, 2024 and a notional amount of $
31
September 30, 2024, SOFR exceeded the cap rate of
On June 13, 2024, we entered into an interest rate cap that matures on July 1, 2025 with a notional amount of $
The following table summarizes the amounts recognized on our condensed consolidated statements of operations related to our interest rate caps for the three and nine months ended September 30, 2024 and 2023 ($ in thousands):
|
|
|
|
Amount of gain (loss) |
|
|
Amount of gain (loss) |
|
||||||||||
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
Location of Gain (Loss) recognized in Income |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Interest rate caps |
|
Unrealized gain (loss) on interest rate hedging instruments |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Interest rate caps |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
The following tables summarize the gross asset and liability amounts related to our derivatives at September 30, 2024 and December 31, 2023 ($ in thousands):
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
||||||||||||||||||
|
|
Gross |
|
|
Gross |
|
|
Net Amounts |
|
|
Gross |
|
|
Gross |
|
|
Net Amounts |
|
||||||
Forward currency contracts |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Interest rate caps |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total derivative assets (liabilities) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Note 12 – Participations Sold
Participations sold represented the subordinate interests in loans we originated and subsequently partially sold. We account for participations sold as secured borrowings on our condensed consolidated balance sheet with both assets and non-recourse liabilities because the participations do not qualify as a sale under ASC 860. The income earned on the participations sold is recorded as interest income and an identical amount is recorded as interest expense in our condensed consolidated statements of operations.
In December 2020, we sold a £
32
Note 13 – 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, 2024 |
|
|
December 31, 2023 |
|
||
Collateral held under derivative agreements |
|
$ |
|
|
$ |
|
||
Accrued dividends payable |
|
|
|
|
|
|
||
Accrued interest payable |
|
|
|
|
|
|
||
Accounts payable and other liabilities(1) |
|
|
|
|
|
|
||
Secured debt repayments pending servicer remittance(2) |
|
|
|
|
|
|
||
General CECL Allowance on unfunded commitments(3) |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
Note 14 – Income Taxes
We have 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. As a REIT, U.S. federal income tax law generally requires us to 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 are also subject to U.S. federal, state and local income taxes on our domestic taxable REIT subsidiaries ("TRS") based on the tax jurisdictions in which they operate.
During the three and nine months ended September 30, 2024, we recorded a current income tax provision of $
There was a $
As of September 30, 2024, we had net operating losses of $
As of September 30, 2024, tax years 2019 through 2023 remain subject to examination by taxing authorities.
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
The term of the Management Agreement was automatically renewed for a successive
33
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
We incurred approximately $
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, 2024 we paid expenses totaling $
Included in payable to related party on our condensed consolidated balance sheets at September 30, 2024 and December 31, 2023 is approximately $
Loans receivable
During the first quarter of 2023, we transferred interests in, (i)
Term Loan
In March 2021, Apollo Global Funding, LLC, an affiliate of the Manager, served as one of the eight arrangers for the issuance of our 2028 Term Loan and received $
Senior Secured Notes
In June 2021, Apollo Global Securities, LLC, an affiliate of the Manager, served as one of the eight initial purchasers in the issuance of our 2029 Notes and received $
Italian Direct Lending Structure
In the fourth quarter of 2021, we formed an Italian closed-end alternative investment fund (the "AIF"), managed by Apollo Investment Management Europe (Luxembourg) S.A R.L, a regulated alternative investment fund manager (the "AIFM"), an affiliate of the Manager. The management fees incurred during the three and nine months ended September 30, 2024 and 2023, respectively were de minimis. As of September 30, 2024 and December 31, 2023, the fees payable to the AIFM were de minimis.
Atlas Facility
On February 8, 2023, in connection with the acquisition by certain subsidiaries of Atlas, which is a wholly-owned investment of a fund managed by an affiliate of the Manager, the Credit Suisse Facility was acquired by Atlas. In order to effect
34
the assignment of the Credit Suisse Facility and related agreements, the Company and one of its subsidiaries, similar to the other sellers and guarantors party to the subject agreements in the transaction, entered into an Omnibus Assignment, Assumption and Amendment Agreement as well as certain related agreements with Credit Suisse AG and Atlas. At the time of acquisition, we had $
As of September 30, 2024 and December 31, 2023, respectively, we had $
Massachusetts Healthcare
On September 4, 2024, we, along with the Apollo Co-Lenders, formed a joint venture of which we held a
On June 17, 2024, our board of directors adopted the Apollo Commercial Real Estate Finance, Inc. 2024 Equity Incentive Plan ("2024 LTIP"). Following the approval of the 2024 LTIP by our stockholders at our 2024 annual meeting of stockholders on June 7, 2024, no additional awards have been or will be granted under the Apollo Commercial Real Estate Finance, Inc. 2019 Equity Incentive Plan ("2019 LTIP," and together with the 2024 LTIP, the "LTIPs" or "Equity Incentive Plans") and all outstanding awards granted under the 2019 LTIP remain in effect in accordance with the terms in the 2019 LTIP.
The 2024 LTIP provides for grants of restricted common stock, restricted stock units ("RSUs") and other equity-based awards up to an aggregate of
We recognized stock-based compensation expense related to restricted stock and RSU vesting of $
The following table summarizes the grants, vesting and forfeitures of restricted common stock and RSUs during the nine months ended September 30, 2024:
Type |
|
Restricted Stock |
|
|
RSUs |
|
|
Grant Date Fair Value ($ in millions) |
||
Outstanding at December 31, 2023 |
|
|
|
|
|
|
|
|
||
Granted |
|
|
|
|
|
|
|
|||
Vested |
|
|
( |
) |
|
|
( |
) |
|
N/A |
Forfeiture |
|
|
|
|
|
( |
) |
|
N/A |
|
Outstanding at September 30, 2024 |
|
|
|
|
|
|
|
|
||
Below is a summary of restricted stock and RSU vesting dates as of September 30, 2024:
Vesting Year |
|
Restricted Stock |
|
|
RSUs |
|
|
Total Awards |
|
|||
2024 |
|
|
|
|
|
|
|
|
|
|||
2025 |
|
|
|
|
|
|
|
|
|
|||
2026 |
|
|
|
|
|
|
|
|
|
|||
Total |
|
|
|
|
|
|
|
|
|
|||
At September 30, 2024, we had unrecognized compensation expense of approximately $
35
expense related to the vesting of restricted awards and RSUs are expected to be recognized over a weighted-average period of
RSU Deliveries
During the nine months ended September 30, 2024 and 2023, we delivered
Note 17 – Stockholders' Equity
Our authorized capital stock consists of
Dividends.
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
Dividends declared per share of: |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Common Stock |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Series B-1 Preferred Stock |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Common Stock Repurchases. During the three and nine months ended September 30, 2024, we repurchased
Note 18 – Commitments and Contingencies
Legal Proceedings
AmBase Corporation: 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 a now-dismissed action captioned AmBase Corporation et al v. ACREFI Mortgage Lending, LLC et al (No 653251/2018) in New York Supreme Court (the "Apollo Action"). The complaint named as defendants (i) a wholly-owned subsidiary of the Company (the "Subsidiary"), (ii) the Company, and (iii) certain funds managed by Apollo, who were co-lenders on a mezzanine loan against the development of a residential condominium building in Manhattan, New York. The plaintiffs alleged that the defendants tortiously interfered with 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 alleged the loss of a $
Plaintiffs amended the complaint in a separate action in 2021, 111 West 57th Investment LLC v. 111W57 Mezz Investor LLC (No. 655031/2017) also in New York Supreme Court (the "April 2021 Action") to name Apollo Global Management, Inc., the Subsidiary, the Company, and certain funds managed by Apollo as defendants. The April 2021 Action concerns overlapping claims and the same condominium development project that the Apollo Action concerned. The defendants filed a motion to
36
dismiss, which was granted in part and denied in part on December 15, 2022. The Court dismissed the claim against Apollo Global Management, Inc. and the Company. Apollo appealed the decision with respect to the remaining claim. On October 5, 2023, the Appellate Division, First Department granted Apollo's appeal, thereby dismissing the remaining claim against the Apollo entities who were co-lenders on the mezzanine loan, including the Subsidiary. Plaintiffs filed a motion for leave with the Court of Appeals on November 3, 2023 which the Court denied on April 23, 2024. On July 12, 2024, Plaintiffs filed new motions for leave to appeal to the Court of Appeals, despite the earlier ruling. No reasonable estimate of possible loss, if any, can be made at this time. The Company believes the new motions are without merit.
Massachusetts Healthcare: On September 4, 2024, Saint Elizabeth LLC, which is indirectly owned by a subsidiary of the Company and certain affiliates of Apollo, filed a lawsuit against the Commonwealth of Massachusetts, as well as Governor Maura Healey and the Massachusetts Secretary of Health and Human Services. The action is pending before the Land Court in Boston, Massachusetts. The lawsuit seeks equitable relief, including declaring that the taking of the real property associated with St. Elizabeth’s Medical Center was void and of no effect. The court has set an expedited schedule, with a trial scheduled to begin on February 18, 2025. The lawsuit is separate from any future action that could be filed over the valuation of the property and any payment received from the Commonwealth in connection with the taking of the property by eminent domain.
Loan Commitments
As described in "Note 4 – Commercial Mortgage Loans, Subordinate Loans and Other Lending Assets, Net" at September 30, 2024, we had $
Note 19 – 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 our condensed consolidated balance sheets at September 30, 2024 and December 31, 2023 ($ in thousands):
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
||||||||||
|
|
Carrying |
|
|
Estimated |
|
|
Carrying |
|
|
Estimated |
|
||||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Commercial mortgage loans, net |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Subordinate loans, net |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Secured debt arrangements, net |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Senior secured term loans, net |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Senior secured notes, net |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Debt related to real estate owned, held for investment, net |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
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, Senior Secured Notes, net, and Term Loans, 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."
ASC Topic 260, "Earnings Per Share" requires the use of the two-class method of computing both basic and diluted earnings (loss) per share for all periods presented for each class of common stock and participating securities. Under the two-class method,
37
all earnings (distributed and undistributed) are allocated to common shares and participating securities according to their respective rights to receive dividends. The unvested RSUs granted under our Equity Incentive Plans to certain employees of the Manager qualify as participating securities as RSUs have non-forfeitable rights to participate in dividends. Therefore, unvested RSUs are included in the calculation of basic earnings per share.
For the three and nine months ended, September 30, 2024, dilutive earnings per share was calculated under the more dilutive computation of the treasury stock method and the if converted method. Under the treasury stock method, the denominator includes the weighted-average outstanding common shares plus the incremental shares related to participating securities. The incremental shares are determined by subtracting the average unrecognized compensation cost for the period divided by the average stock price from the unvested RSUs. For the three and nine months ended, September 30, 2023, dilutive earnings per share was calculated under the if-converted method for periods with convertible interest expense.
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, 2024 and 2023 ($ in thousands except per share data):
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
Basic Earnings |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Net income (loss) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Less: Preferred dividends |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Less: Earnings attributable to participating securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Less: Dividends on participating securities |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Basic Earnings (Loss) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Dilutive Earnings |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic Earnings (Loss) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Add: Dividends on participating securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Diluted Earnings (Loss) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Number of Shares: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic weighted-average shares of common stock outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Diluted weighted-average shares of common stock outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Earnings (Loss) Per Share Attributable to Common Stockholders |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Diluted |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
For the three months ended September 30, 2024,
For the three and nine months ended September 30, 2023,
For the three and nine months ended September 30, 2023,
Note 21 – Subsequent Events
Subsequent to the quarter ended September 30, 2024, the following events took place:
Investment Activity: Funded approximately $
Loan Repayments: We received approximately $
38
Massachusetts Healthcare: October 1, 2024, five of the seven hospitals were sold to third parties, and the total consideration was allocated among us and other Apollo Co-Lenders based on our pro-rata interests in the commercial mortgage loan. We received consideration of approximately $
39
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: higher interest rates and inflation; market trends in our industry, 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 "1940 Act"); 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" and Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our most recent Annual Report on Form 10-K. 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 global, high-growth alternative asset manager with assets under management of approximately $696.3 billion as of June 30, 2024.
40
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.
In March 2024, the SEC adopted amendments to its rules under the Securities Act and the Exchange Act that require disclosure of certain climate-related information in registration statements and annual reports, when material. In April 2024, the SEC chose to stay its newly adopted climate disclosure rules, pending the completion of judicial review. We are currently evaluating the impact of the new rule, if the stay is lifted, on our disclosures.
Current Market Conditions
Certain external events such as public health issues, natural disasters, political and economic instability abroad, concerns regarding the stability of the sovereign debt of certain European countries, and other geopolitical issues, including the ongoing conflicts between Israel and Hamas, as well as further escalation of tensions between Israel and various countries in the Middle East and North Africa, and among Russia, Belarus and Ukraine, and the severe economic sanctions and export controls imposed by the U.S. and other governments against Russia, Belarus and Russian or Belarusian interests, have adversely impacted the global economy and have contributed to significant volatility in financial markets. Due to various uncertainties caused by such external events and recent macroeconomic trends, including inflation and higher interest rates, further business risks could arise. Some of the factors that impacted us to date and may continue to affect us are outlined in Item 1A. "Risk Factors" in our most recent Annual Report on Form 10-K.
Results of Operations
Net Income (Loss) Available to Common Stockholders
For the three months ended September 30, 2024 and 2023, our net income (loss) available to common stockholders was ($94.6) million, or $(0.69) per diluted share of common stock, and $43.0 million, or $0.30 per diluted share of common stock, respectively.
For the nine months ended September 30, 2024 and 2023, our net income (loss) available to common stockholders was ($169.5) million, or ($1.23) per diluted share of common stock, and $2.4 million, or $0.00 per diluted share of common stock, respectively.
41
Operating Results
The following table sets forth information regarding our condensed consolidated results of operations and certain key operating metrics compared to the most recently reported period ($ in thousands):
|
|
Three Months Ended |
|
|
|
|
||||||
|
|
September 30, 2024 |
|
|
June 30, 2024 |
|
|
Change |
|
|||
Net interest income: |
|
|
|
|
|
|
|
|
|
|||
Interest income from commercial mortgage loans |
|
$ |
179,921 |
|
|
$ |
179,388 |
|
|
$ |
533 |
|
Interest income from subordinate loans and other lending assets |
|
|
1,210 |
|
|
|
842 |
|
|
|
368 |
|
Interest expense |
|
|
(134,088 |
) |
|
|
(128,472 |
) |
|
|
(5,616 |
) |
Net interest income |
|
|
47,043 |
|
|
|
51,758 |
|
|
|
(4,715 |
) |
Operations related to real estate owned: |
|
|
|
|
|
|
|
|
|
|||
Revenue from real estate owned operations |
|
|
24,530 |
|
|
|
29,350 |
|
|
|
(4,820 |
) |
Operating expenses related to real estate owned |
|
|
(19,879 |
) |
|
|
(21,767 |
) |
|
|
1,888 |
|
Depreciation and amortization on real estate owned |
|
|
(2,342 |
) |
|
|
(2,287 |
) |
|
|
(55 |
) |
Net income related to real estate owned |
|
|
2,309 |
|
|
|
5,296 |
|
|
|
(2,987 |
) |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|||
General and administrative expenses |
|
|
(7,547 |
) |
|
|
(7,488 |
) |
|
|
(59 |
) |
Management fees to related party |
|
|
(8,801 |
) |
|
|
(9,173 |
) |
|
|
372 |
|
Total operating expenses |
|
|
(16,348 |
) |
|
|
(16,661 |
) |
|
|
313 |
|
Other income, net |
|
|
1,573 |
|
|
|
641 |
|
|
|
932 |
|
(Reversal of) valuation allowance, commercial mortgage loan held for sale |
|
|
— |
|
|
|
679 |
|
|
|
(679 |
) |
Net realized loss on investment |
|
|
(127,512 |
) |
|
|
(679 |
) |
|
|
(126,833 |
) |
Increase in Specific CECL Allowance |
|
|
— |
|
|
|
(7,500 |
) |
|
|
7,500 |
|
Decrease (increase) in General CECL Allowance, net |
|
|
899 |
|
|
|
(2,758 |
) |
|
|
3,657 |
|
Gain (loss) on foreign currency forward contracts |
|
|
(59,535 |
) |
|
|
6,377 |
|
|
|
(65,912 |
) |
Foreign currency translation gain (loss) |
|
|
60,102 |
|
|
|
(1,362 |
) |
|
|
61,464 |
|
Gain (loss) on interest rate hedging instruments |
|
|
(14 |
) |
|
|
94 |
|
|
|
(108 |
) |
Net income (loss) before taxes |
|
$ |
(91,483 |
) |
|
$ |
35,885 |
|
|
$ |
(127,368 |
) |
Income tax provision |
|
|
(66 |
) |
|
|
(100 |
) |
|
|
34 |
|
Net income (loss) |
|
$ |
(91,549 |
) |
|
$ |
35,785 |
|
|
$ |
(127,334 |
) |
Net Interest Income
Net interest income decreased by $4.7 million during the three months ended September 30, 2024 compared to the three months ended June 30, 2024. The decrease was primarily due to placing our Massachusetts Healthcare Loan on non-accrual status as of July 1, 2024. Refer to "Note 4 – Commercial Mortgage Loans, Subordinate Loans and Other Lending Assets, Net" for additional detail.
Operations Related to Real Estate Owned
For the three months ended September 30, 2024, we recorded net income related to real estate owned of $2.3 million, compared to net income of $5.3 million for the three months ended June 30, 2024. The decrease in net income was primarily due to the seasonality of the D.C. Hotel's operations which led to $3.2 million lower net income from operations, prior to depreciation, during the three months ended September 30, 2024 as compared to the three months ended June 30, 2024. Refer to "Note 5 – Real Estate Owned" for full discussion of the reclassification and operations related to real estate owned.
42
Operating Expenses
General and administrative expenses and management fees to related party remained generally the same for the three months ended September 30, 2024 compared to the three months ended June 30, 2024.
Other income, net
Other income, net increased by $0.9 million during the three months ended September 30, 2024 compared to the three months ended June 30, 2024. This increase was due to an increase in bank interest earned on our cash balances, money market funds, and cash reserves held by our loan servicer.
Reversal of valuation allowance, commercial mortgage loan held for sale and Net realized loss on investment
During the three months ended June 30, 2024, we sold one of our commercial mortgage loans collateralized by a hotel property in Honolulu, HI. The loan was classified as held for sale during the three months ended March 31, 2024 and a $0.7 million valuation allowance was recorded to carry the loan at its fair value in the first quarter of 2024. At the time of sale, we reversed the full valuation allowance and recorded a $0.7 million realized loss within realized loss on investments on our condensed consolidated statement of operations.
Net realized loss on investment
During the three months ended September 30, 2024, we recognized a $127.5 million realized loss on the extinguishment of the Massachusetts Healthcare Loan. Refer to "Note 4 – Commercial Mortgage Loans, Subordinate Loans and Other Lending Assets, Net" for full discussion.
Increase in Specific CECL Allowance, net
During the three months ended September 30, 2024, there was no net change to our Specific CECL Allowance. We recorded an increase and subsequent write-off of $127.5 million of our Specific CECL Allowance related to the Massachusetts Healthcare Loan. The $127.5 million write-off was recorded as a realized loss within net realized loss on investments on our September 30, 2024 condensed consolidated statement of operations.
Comparatively, during the three months ended June 30, 2024, we recorded a $7.5 million Specific CECL Allowance on a subordinate loan secured by our interest in a Class A office building in Troy, MI. This allowance was attributable to low occupancy and limited leasing activity in the property's submarket. Refer to "Note 4 – Commercial Mortgage Loans, Subordinate Loans and Other Lending Assets, Net" for additional information related to our Specific CECL Allowance and further detail on the mezzanine loan.
Decrease in General CECL Allowance, net
Our General CECL Allowance decreased by $0.9 million during the three months ended September 30, 2024, primarily driven by the favorable impacts of portfolio seasoning, earlier than expected loan repayments, and transfer of the Massachusetts Healthcare Loan to the loans evaluated for Specific CECL Allowances. The decrease was partially offset by the effects of loan originations and a more adverse macroeconomic outlook on our office portfolio. Comparatively, our General CECL Allowance increased by $2.8 million during the three months ended June 30, 2024, which was primarily driven by new loan originations as well as a more adverse outlook on our office portfolio. The increase was partially offset by the favorable impacts of portfolio seasoning.
Refer to "Note 4 – Commercial Mortgage Loans, Subordinate Loans and Other Lending Assets, Net" for additional information related in our General CECL Allowance.
Foreign currency translation gain and loss on derivative instruments
We use forward currency contracts to economically hedge net interest and principal repayments under our loans denominated in currencies other than USD. Foreign currency gains and losses on derivative instruments are evaluated on a combined basis and the net impact for the three months ended September 30, 2024 and the three months ended June 30, 2024
43
were net gains of $0.6 million and $5.0 million, respectively. The change in net gain for the three months ended September 30, 2024 compared to the three months ended June 30, 2024 was predominantly due to higher forward point estimates and losses on forward currency contracts related to our net interest hedges for the three months ended September 30, 2024 compared to the three months ended June 30, 2024.
During the three months ended September 30, 2024, Fx rates increased in relation to USD while Fx rates slightly decreased in relation to USD during the three months ended June 30, 2024. The increase in Fx rates resulted in a loss on our foreign currency forward contracts and a gain related to foreign currency translation. Gains and losses on our forward currency contracts are derived from changes in market spot rates, forward point estimates, and discount factors. Gains and losses related to foreign currency translation are derived only from changes in market spot rates. Forward currency contract gains and losses derived from market spot rates offset the gains and losses related to foreign currency translation except for the gains and losses from forward currency contracts related to our net interest hedges which have no offset in foreign currency translation. A net gain or loss arises each period due to the change in forward point estimates and discount factors as well as gains and losses from forward currency contracts related to our net interest hedges.
Gain (loss) on interest rate hedges
During the three months ended September 30, 2024, we recorded a net loss of $14.0 thousand on our interest rate caps compared to a net gain of $0.1 million recorded during the three months ended June 30, 2024. The net loss was primarily driven by unrealized losses attributable to a decline in fair value of our construction financing interest rate cap as it approached its October 1, 2024 original maturity. These unrealized losses were partially offset by realized gains, attributable to SOFR exceeding the interest rate cap's strike rate.
Income tax provision
Income tax provision remained generally the same for the three months ended September 30, 2024 compared to the three months ended June 30, 2024. Refer to "Note 5 – Real Estate Owned" for additional detail.
44
The following table sets forth information regarding our condensed consolidated results of operations and certain key operating metrics for the nine months ended September 30, 2024 and 2023 ($ in thousands):
|
|
Nine Months Ended |
|
|
|
|
||||||
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
|
Change |
|
|||
Net interest income: |
|
|
|
|
|
|
|
|
|
|||
Interest income from commercial mortgage loans |
|
$ |
543,025 |
|
|
$ |
520,712 |
|
|
$ |
22,313 |
|
Interest income from subordinate loans and other lending assets |
|
|
2,901 |
|
|
|
16,416 |
|
|
|
(13,515 |
) |
Interest expense |
|
|
(390,447 |
) |
|
|
(342,963 |
) |
|
|
(47,484 |
) |
Net interest income |
|
|
155,479 |
|
|
|
194,165 |
|
|
|
(38,686 |
) |
Operations related to real estate owned: |
|
|
|
|
|
|
|
|
|
|||
Revenue from real estate owned operations |
|
|
77,737 |
|
|
|
66,273 |
|
|
|
11,464 |
|
Operating expenses related to real estate owned |
|
|
(61,539 |
) |
|
|
(52,917 |
) |
|
|
(8,622 |
) |
Depreciation and amortization on real estate owned |
|
|
(9,285 |
) |
|
|
(7,208 |
) |
|
|
(2,077 |
) |
Net income related to real estate owned |
|
|
6,913 |
|
|
|
6,148 |
|
|
|
765 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|||
General and administrative expenses |
|
|
(22,408 |
) |
|
|
(22,150 |
) |
|
|
(258 |
) |
Management fees to related party |
|
|
(27,395 |
) |
|
|
(28,425 |
) |
|
|
1,030 |
|
Total operating expenses |
|
|
(49,803 |
) |
|
|
(50,575 |
) |
|
|
772 |
|
Other income, net |
|
|
2,784 |
|
|
|
4,537 |
|
|
|
(1,753 |
) |
Net realized loss on investments |
|
|
(128,191 |
) |
|
|
(86,604 |
) |
|
|
(41,587 |
) |
Realized gain on extinguishment of debt |
|
|
— |
|
|
|
495 |
|
|
|
(495 |
) |
Increase in Specific CECL Allowance |
|
|
(149,500 |
) |
|
|
(59,500 |
) |
|
|
(90,000 |
) |
Increase in General CECL Allowance, net |
|
|
(7,543 |
) |
|
|
(705 |
) |
|
|
(6,838 |
) |
Gain (loss) on foreign currency forward contracts |
|
|
(29,760 |
) |
|
|
8,239 |
|
|
|
(37,999 |
) |
Foreign currency translation gain (loss) |
|
|
39,177 |
|
|
|
(3,974 |
) |
|
|
43,151 |
|
Gain (loss) on interest rate hedging instruments |
|
|
436 |
|
|
|
(122 |
) |
|
|
558 |
|
Net income (loss) before taxes |
|
$ |
(160,008 |
) |
|
$ |
12,104 |
|
|
$ |
(172,112 |
) |
Income tax provision |
|
|
(280 |
) |
|
|
(517 |
) |
|
|
237 |
|
Net income (loss) |
|
$ |
(160,288 |
) |
|
$ |
11,587 |
|
|
$ |
(171,875 |
) |
Net Interest Income
Net interest income decreased by $38.7 million during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The decrease in net interest income was primarily driven by a decrease in interest income from placing a first mortgage loan and subordinate loan collateralized by the same ultra-luxury residential-for-sale property in Manhattan on non-accrual status as of May 1, 2023 and placing the Massachusetts Healthcare Loan on non-accrual status as of July 1, 2024. Additionally, we modified two of our loans to convert from floating rate loans to fixed rate loans, which resulted in a decrease in net interest income earned during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. Refer to "Note 4 – Commercial Mortgage Loans, Subordinate Loans and Other Lending Assets, Net" for additional detail.
Operations Related to Real Estate Owned
Net income related to real estate owned increased by $0.8 million during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The increase was a result of greater net income attributable to the D.C. Hotel during the nine months ended September 30, 2024 primarily due to catch-up depreciation recorded upon reclassification of the asset from held-for-sale to held-for-investment as of March 31, 2023. Additionally, the increase in net income related to real estate owned is a result of taking title to the Atlanta Hotel on March 31, 2023. Given the timing of title acquisition, there was no net income associated with the Atlanta Hotel during the first quarter of 2023. Refer to "Note 5 – Real Estate Owned" for full discussion of operations related to real estate owned.
Operating Expenses
General and administrative expenses remained generally the same for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.
45
Management fees expense decreased by $1.0 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The decrease was primarily due to a decrease in stockholders' equity (as defined in the Management Agreement) as a result of increased Specific CECL Allowance and realized losses on investments recorded during the nine months ended September 30, 2024.
Other income, net
Other income, net decreased by $1.8 million during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. This decrease was due to a decrease in bank interest earned on our cash balances and money market funds, as we deployed capital into loan originations and stock repurchases during 2024.
Net realized loss on investments
During the nine months ended September 30, 2024, we recorded a $128.2 million net realized loss on investments, consisting of i) a $0.7 million realized loss related to the sale of a commercial mortgage loan collateralized by a hotel property located in Honolulu, HI, which was previously classified as held for sale and was sold at a price of 99.5% and ii) a $127.5 million realized loss related to the extinguishment of the Massachusetts Healthcare Loan. Refer to "Note 4 – Commercial Mortgage Loans, Subordinate Loans and Other Lending Assets, Net" for additional detail.
Comparatively, during the nine months ended September 30, 2023, we recorded a net realized loss on investments of $86.6 million, consisting of i) a $4.8 million realized loss related to the acquisition of the Atlanta Hotel through a deed-in-lieu of foreclosure and ii) a $82.0 million realized loss on investments representing a write-off of previously recorded Specific CECL Allowance on one of our subordinate loans secured by an ultra-luxury residential property in Manhattan, NY. These losses were partially offset by a $0.2 million gain on investments recorded in connection with the sale of our entire interest in three commercial loans secured by properties in Europe and a partial interest in one commercial loan secured by property located in London, UK.
Refer to "Note 4 – Commercial Mortgage Loans, Subordinate Loans and Other Lending Assets, Net" and "Note 5 – Real Estate Owned" for additional detail.
Gain on Extinguishment of Debt
During the nine months ended September 30, 2023, we repurchased $53.9 million aggregate principal amount of the 2023 Notes. As a result of this transaction, we recognized a $0.5 million gain on extinguishment of debt. We repaid the remaining principal of the 2023 Notes in full during the fourth quarter of 2023.
Increase in Specific CECL Allowance, net
During the nine months ended September 30, 2024, we recorded a net increase in our Specific CECL Allowance of $149.5 million, related to two of our subordinate loans. During the three months ended March 31, 2024, we recorded a $142.0 million Specific CECL Allowance related to a mezzanine loan secured by an ultra-luxury residential property in Manhattan, NY, primarily attributable to a reduction in list pricing of remaining units and slower sales pace at the property. During the three months ended June 30, 2024, we recorded a Specific CECL Allowance of $7.5 million on a subordinate loan secured by our interest in a Class A office building in Troy, MI, attributable to low occupancy and limited leasing activity in the property's submarket. Additionally, we recorded an increase and subsequent write-off of $127.5 million of our Specific CECL Allowance related to the Massachusetts Healthcare Loan. The $127.5 million write-off was recorded as a realized loss within net realized loss on investments in our September 30, 2024 condensed consolidated statement of operations.
During the nine months ended September 30, 2023, we recorded a net increase to our Specific CECL Allowance of $59.5 million. We recorded a $141.5 million Specific CECL Allowance related to two mezzanine loans secured by the same ultra-luxury residential property in Manhattan, NY. As of June 30, 2023, $82.0 million related to the most junior mezzanine loan was deemed unrecoverable. Accordingly, $82.0 million of previously recorded Specific CECL was written-off and recorded as a realized loss within net realized loss on investments in our June 30, 2023 condensed consolidated statement of operations.
Refer to "Note 4 – Commercial Mortgage Loans, Subordinate Loans and Other Lending Assets, Net" for additional detail.
46
Increase in General CECL Allowance, net
For the nine months ended September 30, 2024, we recorded a net increase in our General CECL Allowance of $7.5 million. The increase was primarily driven by new loan originations as well as a more adverse macroeconomic outlook on our office portfolio. The increase was partially offset by the favorable impacts of portfolio seasoning.
During the nine months ended September 30, 2023, we recorded a net increase in our General CECL Allowance of $0.7 million primarily driven by a more adverse macroeconomic outlook, which was partially offset by the effects of portfolio seasoning and loan repayment activity outpacing origination activity.
Refer to "Note 4 – Commercial Mortgage Loans, Subordinate Loans and Other Lending Assets, Net" for additional detail.
Foreign currency translation gain and loss on derivative instruments
Foreign currency gains and losses on derivative instruments are evaluated on a combined basis and the net impact for the nine months ended September 30, 2024 and nine months ended September 30, 2023 was a net gain of $9.4 million and $4.3 million, respectively.
During the nine months ended September 30, 2024, the GBP and EUR rates rose in relation to USD while the GBP rate rose and the EUR rate fell during the nine months ended September 30, 2023. The increase in Fx rates during the nine months ended September 30, 2024 resulted in a loss on our foreign currency forward contracts and a gain related to foreign currency translation. The slight overall decrease in Fx rates during the nine months ended September 30, 2023 resulted in a gain on our foreign currency forward contracts and a loss related to foreign currency translation. The net gain both for the nine months ended September 30, 2024 and the nine months ended September 30, 2023 was due to lower forward point estimates.
Gain (loss) on interest rate hedges
During the nine months ended September 30, 2024, we recorded a net gain of $0.4 million on our interest rate hedges or caps. The net gain was primarily driven by a $1.6 million realized gain recorded in relation to our construction financing interest rate cap, which we purchased in September 2023. The realized gain is attributable to SOFR exceeding the interest rate cap's strike rate. Additionally, we recorded a partially offsetting unrealized loss of $1.2 million, driven by a decrease in the interest rate cap's fair value, as it approaches its maturity.
During the nine months ended September 30, 2023, we recorded a net loss of $0.1 million on our interest rate cap related to our 2026 Term Loan. Though we recorded a realized gain of $9.1 million driven by an increase in the applicable index rate above the interest rate cap strike rate, this gain was offset by unrealized losses of $9.2 million, resulting from a decrease in the interest rate cap's fair value as it reached its June 2023 maturity.
Refer to "Note 11 – Derivatives" for full discussion of interest rate caps.
Income tax provision
During the nine months ended September 30, 2024, we recorded an income tax provision of $0.3 million. Comparatively, we recorded an income tax provision of $0.5 million for the nine months ended September 30, 2023. The income tax provisions recorded during the nine months ended September 30, 2024 and 2023 reflect our expectations of aggregate projected taxable income of one of our TRS entities for the taxable years ending December 31, 2024 and 2023, respectively.
Subsequent Events
Refer to "Note 21 – Subsequent Events" to the accompanying condensed consolidated financial statements for disclosure regarding significant transactions that occurred subsequent to September 30, 2024.
47
Non-GAAP Financial Measures
Distributable Earnings
Distributable Earnings is defined 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 (including depreciation and amortization related to real estate owned) 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, and (v) provision for loan losses. Distributable 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.
For the three and nine months ended September 30, 2024, our Distributable Earnings were ($83.2) million, or $(0.59) per share, and $16.6 million, or $0.12 per share, respectively, as compared to $52.7 million, or $0.37 per share, and $106.0 million, or $0.73 per share, respectively, for the same period in the prior year.
The weighted-average diluted shares outstanding used for Distributable 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 Convertible Notes for 2023. The Convertible Notes were fully repaid during the fourth quarter 2023, and as such, no adjustment is applied in 2024. Consistent with the treatment of other unrealized adjustments to Distributable 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 Convertible Notes from our computation of Distributable Earnings per weighted-average diluted share is useful to investors for various reasons, including the following: (i) conversion of Convertible Notes to shares requires both the holder of a note to elect to convert the Convertible 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 Convertible Notes from the computation of Distributable Earnings per weighted-average diluted share is consistent with how we treat other unrealized items in our computation of Distributable Earnings per weighted-average diluted share; and (iv) we believe that when evaluating our operating performance, investors and potential investors consider our Distributable Earnings relative to our actual distributions, which are based on shares outstanding and not shares that might be issued in the future.
The table below summarizes the reconciliation from weighted-average diluted shares under GAAP to the weighted-average diluted shares used for Distributable Earnings:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Weighted-Averages |
|
Shares |
|
|
Shares |
|
|
Shares |
|
|
Shares |
|
||||
Diluted shares - GAAP |
|
|
138,246,827 |
|
|
|
141,350,428 |
|
|
|
140,177,962 |
|
|
|
141,255,730 |
|
Potential shares issued under conversion of the Convertible Notes |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Unvested RSUs, net(1) |
|
|
2,485,258 |
|
|
|
2,832,265 |
|
|
|
2,650,308 |
|
|
|
2,966,277 |
|
Diluted shares - Distributable Earnings |
|
|
140,732,086 |
|
|
|
144,182,693 |
|
|
|
142,828,270 |
|
|
|
144,222,007 |
|
As a REIT, U.S. federal income tax law generally requires us to 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. Given these requirements and our belief that dividends are generally one of the principal reasons stockholders invest in a REIT, 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.
48
Distributable Earnings is a key factor considered by the board of directors in setting the dividend and as such we believe Distributable Earnings is useful to investors.
We believe it is useful to our investors to present Distributable Earnings prior to net realized loss on investments and realized gain on extinguishment of debt to reflect our operating results because (i) our operating results are primarily comprised of earning interest income on our investments net of borrowing and administrative costs, which comprise our ongoing operations and (ii) it has been a useful factor related to our dividend per share because it is one of the considerations when a dividend is determined. We believe that our investors use Distributable Earnings and Distributable Earnings prior to net realized loss on investments and realized gain on extinguishment of debt, or a comparable supplemental performance measure, to evaluate and compare the performance of our company and our peers.
2024 Realized Losses
During the three months and nine months ended September 30, 2024, we recorded a realized loss on investments of $127.5 million and $128.2 million, respectively. We recorded a $127.5 million realized loss on the extinguishment of our Massachusetts Healthcare Loan during the three months ended September 30, 2024. Additionally, in April 2024, we sold a commercial mortgage loan collateralized by a hotel property in Honolulu, HI, at a price of 99.5%, resulting in a realized loss of $0.7 million. These losses comprised the total realized loss on investments of $128.2 million for the nine months ended September 30, 2024. Refer to "Note 4 – Commercial Mortgage Loans, Subordinate Loans and Other Lending Assets, Net" for additional detail.
2023 Realized Losses & Gain on Extinguishment of Debt
During nine months ended September 30, 2023, we recorded a net realized loss on investments of $86.6 million consisting of i) $4.8 million realized loss related to the acquisition of a hotel property through a deed-in-lieu of foreclosure, ii) $82.0 million realized loss on investments representing a write-off of previously recorded Specific CECL Allowance on one of our subordinate loans secured by an ultra-luxury residential property in Manhattan, NY, iii) which was partially offset by a $0.2 million net realized gain on loan sales. No realized loss on investments was recorded during the three months ended September 30, 2023. Refer to "Note 4 – Commercial Mortgage Loans, Subordinate Loans and Other Lending Assets, Net" for additional detail.
During the three months and nine months ended September 30, 2023, we recorded realized gains on extinguishment of debt of $30.0 thousand and $0.5 million, respectively in connection with partial repurchases of our 2023 Notes. See "Note 10 – Convertible Senior Notes, Net" for full discussion of these transactions.
A significant limitation associated with Distributable Earnings as a measure of our financial performance over any period is that it excludes unrealized gains (losses) from investments. In addition, our presentation of Distributable Earnings may not be comparable to similarly-titled measures of other companies, that use different calculations. As a result, Distributable Earnings should not be considered as a substitute for our GAAP net income as a measure of our financial performance or any measure of our liquidity under GAAP. Distributable Earnings are reduced for realized losses on loans which include losses that management believes are near certain to be realized.
49
The table below summarizes the reconciliation from net income available to common stockholders to Distributable Earnings and Distributable Earnings prior to net realized loss on investments and realized gain on extinguishment of debt ($ in thousands):
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Net income (loss) available to common stockholders |
|
$ |
(94,617 |
) |
|
$ |
43,003 |
|
|
$ |
(169,492 |
) |
|
$ |
2,383 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Equity-based compensation expense |
|
|
4,165 |
|
|
|
4,356 |
|
|
|
12,510 |
|
|
|
13,091 |
|
Loss (gain) on foreign currency forwards |
|
|
59,535 |
|
|
|
(39,490 |
) |
|
|
29,760 |
|
|
|
(8,239 |
) |
Foreign currency loss (gain), net |
|
|
(60,102 |
) |
|
|
44,165 |
|
|
|
(39,177 |
) |
|
|
3,974 |
|
Unrealized loss on interest rate cap |
|
|
562 |
|
|
|
70 |
|
|
|
1,213 |
|
|
|
9,211 |
|
Realized gains relating to interest income on foreign currency hedges, net |
|
|
195 |
|
|
|
2,594 |
|
|
|
2,604 |
|
|
|
9,668 |
|
Realized gains relating to forward points on foreign currency hedges, net |
|
|
5,587 |
|
|
|
2,784 |
|
|
|
12,823 |
|
|
|
8,461 |
|
Depreciation and amortization on real estate owned |
|
|
2,342 |
|
|
|
1,020 |
|
|
|
9,285 |
|
|
|
7,208 |
|
Increase (decrease) in current expected credit loss allowance, net |
|
|
(899 |
) |
|
|
(5,833 |
) |
|
|
157,043 |
|
|
|
60,205 |
|
Gain on extinguishment of debt |
|
|
— |
|
|
|
(30 |
) |
|
|
— |
|
|
|
(495 |
) |
Net realized loss on investments |
|
|
127,512 |
|
|
|
— |
|
|
|
128,191 |
|
|
|
86,604 |
|
Total adjustments: |
|
|
138,897 |
|
|
|
9,636 |
|
|
|
314,252 |
|
|
|
189,688 |
|
Distributable Earnings prior to net realized loss on investments and gain on extinguishment of debt |
|
$ |
44,280 |
|
|
$ |
52,639 |
|
|
$ |
144,760 |
|
|
$ |
192,071 |
|
Net realized loss on investments |
|
$ |
(127,512 |
) |
|
$ |
— |
|
|
$ |
(128,191 |
) |
|
$ |
(86,604 |
) |
Gain on extinguishment of debt |
|
|
— |
|
|
|
30 |
|
|
|
— |
|
|
|
495 |
|
Distributable Earnings |
|
$ |
(83,232 |
) |
|
$ |
52,669 |
|
|
$ |
16,569 |
|
|
$ |
105,962 |
|
Diluted Distributable Earnings per share prior to net realized loss on investments and gain on extinguishment of debt |
|
$ |
0.31 |
|
|
$ |
0.37 |
|
|
$ |
1.01 |
|
|
$ |
1.33 |
|
Diluted Distributable Earnings per share of common stock |
|
$ |
(0.59 |
) |
|
$ |
0.37 |
|
|
$ |
0.12 |
|
|
$ |
0.73 |
|
Weighted-average diluted shares - Distributable Earnings |
|
|
140,732,086 |
|
|
|
144,182,693 |
|
|
|
142,828,270 |
|
|
|
144,222,007 |
|
Book Value Per Share
The following table calculates our book value per share ($ in thousands, except per share data):
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
||
Stockholders' Equity |
|
$ |
1,868,388 |
|
|
$ |
2,208,733 |
|
Series B-1 Preferred Stock (Liquidation Preference) |
|
|
(169,260 |
) |
|
|
(169,260 |
) |
Common Stockholders' Equity |
|
$ |
1,699,128 |
|
|
$ |
2,039,473 |
|
Common Stock |
|
|
138,169,164 |
|
|
|
141,358,605 |
|
Book value per share |
|
$ |
12.30 |
|
|
$ |
14.43 |
|
50
The following table shows the changes in our book value per share:
|
|
Book value per share |
|
|
Book value per share at December 31, 2023 |
|
$ |
14.43 |
|
General CECL Allowance and accumulated depreciation |
|
|
0.30 |
|
Book value per share at December 31, 2023 prior to General CECL Allowance and accumulated depreciation |
|
$ |
14.73 |
|
Diluted Distributable Earnings per share prior to net realized loss on investments |
|
|
1.01 |
|
Impact of share repurchases |
|
|
0.12 |
|
Net increase in Specific CECL Allowance |
|
|
(1.06 |
) |
Common dividends declared |
|
|
(0.95 |
) |
Vesting and delivery of RSUs |
|
|
(0.14 |
) |
Net loss on currency and interest rate hedges(1) |
|
|
(0.05 |
) |
Realized loss on investments |
|
|
(0.93 |
) |
Book value per share at September 30, 2024 prior to General CECL Allowance and accumulated depreciation |
|
$ |
12.73 |
|
General CECL Allowance and accumulated depreciation |
|
|
(0.43 |
) |
Book value per share at September 30, 2024 |
|
$ |
12.30 |
|
We believe that presenting book value per share with sub-totals prior to the CECL Allowances and depreciation and amortization 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, which 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. We further believe that presenting book value before depreciation and amortization is useful to investors since it is a non-cash expense included in net income and is not representative of our core business and ongoing operations.
Investment Guidelines
Our current investment guidelines, approved by our board of directors, are comprised of the following:
The board of directors must approve any change in or waiver to these investment guidelines.
Investment Activity
During the nine months ended September 30, 2024, we committed $1.1 billion of capital to new loans ($955.3 million was funded at closing), and provided $530.7 million of add-on fundings, including $212.9 million to a first mortgage loan secured by a portfolio of pubs across the United Kingdom, that was originated in December 2023. During the nine months ended September 30, 2024, we received $1.7 billion in loan repayments and sales.
51
Loan Portfolio Overview
Loan Portfolio Details
The following table sets forth certain information regarding our loan portfolio as of September 30, 2024 ($ in thousands):
Description |
|
Carrying Value |
|
|
Weighted-Average Coupon (1) |
|
|
Weighted-Average All-in Yield (1)(2) |
|
|
Secured Debt Arrangements (3) |
|
|
Cost of Funds(4) |
|
|
Equity at cost(5) |
|
||||||
Commercial mortgage loans, net |
|
$ |
7,456,389 |
|
|
|
8.4 |
% |
|
|
9.1 |
% |
|
$ |
5,524,825 |
|
|
|
7.1 |
% |
|
$ |
1,931,564 |
|
Subordinate loans, net |
|
|
374,222 |
|
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
— |
|
|
|
— |
|
|
|
374,222 |
|
Total/Weighted-Average |
|
$ |
7,830,611 |
|
|
|
8.0 |
% |
|
|
8.5 |
% |
|
$ |
5,524,825 |
|
|
|
7.1 |
% |
|
$ |
2,305,786 |
|
52
The following table provides loan-by-loan details of our commercial mortgage loan portfolio and subordinate loan portfolio as of September 30, 2024 ($ in millions):
Commercial Mortgage Loan Portfolio |
||||||||||||||||||||||||
# |
|
Property Type |
|
Risk Rating |
|
|
Origination Date |
|
Amortized Cost |
|
|
Unfunded Commitment |
|
|
Construction |
|
3rd Party Subordinate Debt |
|
Fully-extended Maturity |
|
Location |
|||
1 |
|
Office |
|
2 |
|
|
02/2022 |
|
$ |
461 |
|
|
$ |
209 |
|
|
Y |
|
|
|
02/2027 |
|
London, UK |
|
2 |
|
Office |
|
3 |
|
|
03/2022 |
|
|
249 |
|
|
|
17 |
|
|
|
|
Y |
|
04/2027 |
|
Manhattan, NY |
|
3 |
|
Office |
|
3 |
|
|
01/2020 |
|
|
223 |
|
|
|
28 |
|
|
|
|
Y |
|
03/2028 |
|
Long Island City, NY |
|
4 |
|
Office |
|
4 |
|
|
06/2019 |
|
|
222 |
|
|
|
— |
|
|
|
|
|
|
08/2026 |
|
Berlin, Germany |
|
5 |
|
Office |
|
3 |
|
|
02/2020 |
|
|
184 |
|
|
|
5 |
|
|
|
|
|
|
02/2025 |
|
London, UK |
|
6 |
|
Office |
|
3 |
|
|
02/2022 |
|
|
165 |
|
|
|
— |
|
|
|
|
|
|
06/2025 |
|
Milan, Italy |
|
7 |
|
Office |
|
3 |
|
|
11/2022 |
|
|
100 |
|
|
|
— |
|
|
|
|
|
|
01/2025 |
|
Chicago, IL |
|
8 |
|
Office |
|
4 |
|
|
03/2018 |
|
|
76 |
|
|
|
— |
|
|
|
|
Y |
|
01/2026 |
|
Chicago, IL |
|
9 |
|
Hotel |
|
3 |
|
|
12/2023 |
|
|
275 |
|
|
|
— |
|
|
|
|
|
|
12/2028 |
|
Various, Europe |
|
10 |
|
Hotel |
|
3 |
|
|
10/2019 |
|
|
265 |
|
|
|
18 |
|
|
|
|
|
|
08/2027 |
|
Various, Spain |
|
11 |
|
Hotel |
|
3 |
|
|
05/2022 |
|
|
195 |
|
|
|
9 |
|
|
|
|
Y |
|
06/2027 |
|
Napa Valley, CA |
|
12 |
|
Hotel |
|
3 |
|
|
07/2021 |
|
|
180 |
|
|
|
— |
|
|
|
|
|
|
08/2026 |
|
Various, US |
|
13 |
|
Hotel |
|
3 |
|
|
11/2021 |
|
|
165 |
|
|
|
— |
|
|
|
|
|
|
12/2026 |
|
St. Thomas, USVI |
|
14 |
|
Hotel |
|
3 |
|
|
09/2015 |
|
|
140 |
|
|
|
— |
|
|
|
|
|
|
12/2026 |
|
Manhattan, NY |
|
15 |
|
Hotel |
|
3 |
|
|
06/2024 |
|
|
131 |
|
|
|
— |
|
|
|
|
|
|
06/2029 |
|
St. Petersburg, FL |
|
16 |
|
Hotel |
|
3 |
|
|
06/2024 |
|
|
105 |
|
|
|
9 |
|
|
|
|
|
|
07/2029 |
|
Brooklyn, NY |
|
17 |
|
Hotel |
|
3 |
|
|
10/2021 |
|
|
92 |
|
|
|
— |
|
|
|
|
|
|
11/2026 |
|
New Orleans, LA |
|
18 |
|
Hotel |
|
3 |
|
|
05/2019 |
|
|
46 |
|
|
|
— |
|
|
|
|
|
|
12/2025 |
|
Chicago, IL |
|
19 |
|
Hotel |
|
3 |
|
|
02/2018 |
|
|
27 |
|
|
|
— |
|
|
|
|
|
|
11/2024 |
|
Pittsburgh, PA |
|
20 |
|
Retail |
|
3 |
|
|
04/2022 |
|
|
510 |
|
|
|
24 |
|
|
|
|
|
|
04/2027 |
|
Various, UK |
|
21 |
|
Retail |
|
3 |
|
|
10/2021 |
|
|
435 |
|
|
|
— |
|
|
|
|
|
|
10/2026 |
|
Various, UK |
|
22 |
|
Retail |
|
3 |
|
|
08/2019 |
|
|
250 |
|
|
|
— |
|
|
|
|
Y |
|
09/2025 |
|
Manhattan, NY |
|
23 |
|
Retail |
|
3 |
|
|
05/2022 |
|
|
124 |
|
|
|
— |
|
|
|
|
|
|
06/2027 |
|
Various, US |
|
24 |
|
Retail(1) |
|
5 |
|
|
11/2014 |
|
|
98 |
|
|
|
— |
|
|
|
|
|
|
09/2025 |
|
Cincinnati, OH |
|
25 |
|
Residential |
|
3 |
|
|
12/2021 |
|
|
241 |
|
|
|
12 |
|
|
|
|
|
|
12/2026 |
|
Various, UK |
|
26 |
|
Residential |
|
3 |
|
|
03/2023 |
|
|
163 |
|
|
|
— |
|
|
|
|
|
|
04/2026 |
|
Various, US |
|
27 |
|
Residential |
|
3 |
|
|
04/2024 |
|
|
156 |
|
|
|
— |
|
|
|
|
|
|
05/2029 |
|
Emeryville, CA |
|
28 |
|
Residential |
|
3 |
|
|
06/2024 |
|
|
99 |
|
|
|
— |
|
|
|
|
|
|
07/2029 |
|
Washington, DC |
|
29 |
|
Residential |
|
3 |
|
|
05/2022 |
|
|
94 |
|
|
|
— |
|
|
|
|
|
|
06/2027 |
|
Manhattan, NY |
|
30 |
|
Residential |
|
3 |
|
|
05/2021 |
|
|
76 |
|
|
|
— |
|
|
|
|
|
|
05/2027 |
|
Cleveland, OH |
|
31 |
|
Residential |
|
2 |
|
|
12/2021 |
|
|
15 |
|
|
|
— |
|
|
|
|
|
|
01/2027 |
|
Manhattan, NY |
|
32 |
|
Mixed Use |
|
3 |
|
|
12/2019 |
|
|
283 |
|
|
|
1 |
|
|
|
|
Y |
|
08/2025 |
|
London, UK |
|
33 |
|
Mixed Use |
|
3 |
|
|
03/2022 |
|
|
151 |
|
|
|
27 |
|
|
|
|
Y |
|
03/2027 |
|
Brooklyn, NY |
|
34 |
|
Industrial |
|
3 |
|
|
03/2021 |
|
|
243 |
|
|
|
— |
|
|
|
|
|
|
05/2026 |
|
Various, Sweden |
|
35 |
|
Industrial |
|
3 |
|
|
08/2024 |
|
|
128 |
|
|
|
127 |
|
|
Y |
|
|
|
08/2029 |
|
Various, UK |
|
36 |
|
Healthcare |
|
3 |
|
|
07/2024 |
|
|
200 |
|
|
|
— |
|
|
|
|
|
|
07/2029 |
|
Various, UK |
|
37 |
|
Healthcare |
|
3 |
|
|
08/2024 |
|
|
156 |
|
|
|
— |
|
|
|
|
|
|
08/2029 |
|
Various, UK |
|
38 |
|
Pubs |
|
3 |
|
|
12/2023 |
|
|
222 |
|
|
|
— |
|
|
|
|
Y |
|
01/2029 |
|
Various, UK |
|
39 |
|
Caravan Parks |
|
3 |
|
|
02/2021 |
|
|
215 |
|
|
|
— |
|
|
|
|
|
|
02/2028 |
|
Various, UK |
|
40 |
|
Portfolio(3) |
|
3 |
|
|
06/2021 |
|
|
197 |
|
|
|
18 |
|
|
|
|
|
|
06/2026 |
|
Various, Germany |
|
41 |
|
Urban Predevelopment |
|
3 |
|
|
12/2022 |
|
|
133 |
|
|
|
— |
|
|
|
|
|
|
01/2026 |
|
Miami, FL |
|
|
|
General CECL Allowance |
|
|
|
|
|
|
|
(33 |
) |
|
|
|
|
|
|
|
|
|
|
|
||
|
|
Subtotal / Weighted-Average Commercial Mortgage Loans |
|
|
3.0 |
|
|
|
|
$ |
7,457 |
|
|
$ |
504 |
|
|
|
|
|
|
2.5 Years |
|
|
Subordinate Loan Portfolio |
||||||||||||||||||||||||
# |
|
Property Type |
|
Risk Rating |
|
|
Origination Date |
|
Amortized Cost |
|
|
Unfunded Commitment |
|
|
Construction |
|
3rd Party Subordinate Debt |
|
Fully-extended Maturity |
|
Location |
|||
1 |
|
Residential(2) |
|
3 |
|
|
06/2015 |
|
$ |
273 |
|
|
|
— |
|
|
|
|
|
|
11/2025 |
|
Manhattan, NY |
|
2 |
|
Residential(2) |
|
3 |
|
|
08/2022 |
|
|
74 |
|
|
|
— |
|
|
|
|
|
|
11/2025 |
|
Manhattan, NY |
|
3 |
|
Residential(1)(2) |
|
5 |
|
|
05/2020 |
|
|
28 |
|
|
|
— |
|
|
|
|
|
|
11/2025 |
|
Manhattan, NY |
|
4 |
|
Office(1)(4) |
|
5 |
|
|
08/2017 |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
09/2024 |
|
Troy, MI |
|
|
|
General CECL Allowance |
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
||
|
|
Subtotal / Weighted-Average Subordinate Loans |
|
|
3.1 |
|
|
|
|
$ |
374 |
|
|
$ |
— |
|
|
|
|
|
|
1.1 Years |
|
|
|
|
Total / Weighted-Average |
|
|
3.0 |
|
|
|
|
$ |
7,831 |
|
|
$ |
504 |
|
|
|
|
|
|
2.5 Years |
|
|
53
Our average asset and debt balances for the nine months ended September 30, 2024 were ($ in thousands):
|
|
Average month-end balances for the nine months ended September 30, 2024 |
|
|||||
Description |
|
Assets |
|
|
Related debt |
|
||
Commercial mortgage loans, net |
|
$ |
7,941,002 |
|
|
$ |
5,526,845 |
|
Commercial mortgage loan, held for sale |
|
|
45,382 |
|
|
|
31,895 |
|
Subordinate loans, net |
|
|
627,762 |
|
|
|
— |
|
Portfolio Management
Our portfolio benefits from our core investment strategy whereby we target assets that are secured by institutional quality real estate throughout the United States and Europe. As discussed in Item 1. "Business—Investment Strategy" in our most recent Annual Report on Form 10-K, the Manager has implemented underwriting standards which place a particular emphasis on due diligence of prospective investments' sponsors and borrowers, as well as assessment of the risk/return profile and appropriate structure of each investment opportunity. As of September 30, 2024, our portfolio's weighted-average origination LTV ratio was 58%, excluding risk-rated five loans. This reflects significant equity value which we believe our loan sponsors would be committed to protect during periods of volatility and market disruption.
We maintain a strong relationship with our borrowers and actively manage the assets in our portfolio on an ongoing basis. A dedicated team of asset management professionals performs surveillance of all loans in our portfolio, on an individual basis, from closing through final repayment. This robust monitoring process includes continuous assessment of asset level performance against underwritten criteria, changes in borrowers' financial position, as well as the impact of macroeconomic trends and microeconomic developments on loan assets and respective underlying collateral performance.
In addition to ongoing asset management, as further described in "Note 4 – Commercial Mortgage Loans, Subordinate Loans and Other Lending Assets, Net" to our condensed consolidated financial statements, we perform a quarterly review of our portfolio whereby each loan is assigned a risk rating of "1" through "5," from less risk to greater risk, respectively. This analysis includes assessment of loans based on a variety of factors, including, without limitation, LTV ratio, debt yield, property type, geographic and local market dynamics, physical condition, cash flow volatility, leasing and tenant profile, loan structure and exit plan, and project sponsorship. In performing the analysis with respect to each loan, these various factors are assessed holistically, with a focus on their interplay, whereby no single factor on its own (whether quantitative or qualitative) is given more weight in the assessment or is prescriptive as to which specific risk rating is assigned to a specific loan. We apply these various factors on a case-by-case basis depending on the facts and circumstances for each loan, and the different factors may be given different weightings in different situations. As of September 30, 2024, the weighted-average risk rating of the loan portfolio was 3.0.
The following table presents the carrying value of our loans by internal risk rating as of September 30, 2024 ($ in thousands):
Risk Rating |
|
Number of Loans |
|
|
Total(1) |
|
|
% of Portfolio |
|
|||
1 |
|
|
— |
|
|
$ |
— |
|
|
— % |
|
|
2 |
|
|
2 |
|
|
|
474,460 |
|
|
|
6.0 |
% |
3 |
|
|
38 |
|
|
|
6,966,537 |
|
|
|
88.6 |
% |
4 |
|
|
2 |
|
|
|
297,806 |
|
|
|
3.8 |
% |
5 |
|
|
3 |
|
|
|
126,000 |
|
|
|
1.6 |
% |
Total |
|
|
45 |
|
|
$ |
7,864,803 |
|
|
|
100.0 |
% |
General CECL Allowance(2) |
|
|
|
|
|
(34,192 |
) |
|
|
|
||
Total carrying value, net |
|
|
|
|
$ |
7,830,611 |
|
|
|
|
||
54
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 and senior secured term loan, we access additional sources of borrowings. Our charter and bylaws do not limit the amount of indebtedness we can incur; however, we are subject to and carefully monitor the limits placed on us by our credit providers and those that assign ratings on our company.
At September 30, 2024, our debt-to-equity ratio was 3.5 and our portfolio was comprised of $7.5 billion of commercial mortgage loans and $0.4 billion of subordinate loans. 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.
Debt-to-Equity Ratio
The following table presents our debt-to-equity ratio:
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
Debt to Equity Ratio (1) |
|
|
3.5 |
|
|
3.0 |
Contractual Obligations, Liquidity, and Capital Resources
Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to fund and maintain our assets and operations, repay borrowings, make distributions to our stockholders and other general business needs. We utilize various sources of cash in order to meet our liquidity needs in the next twelve months, which is considered the short-term, and the longer term.
Our current debt obligations consist of $1.3 billion, at face value, of corporate debt, $5.5 billion of asset specific financings, and $282.4 million of debt related to real estate owned. Our corporate debt includes $763.3 million of term loan borrowings and $500.0 million of senior secured notes. Our asset specific financings are generally tied to the underlying loans, and we anticipate repayments of $1.3 billion of secured debt arrangements in the short term. Specifics about our secured debt arrangements and corporate debt maturities and obligations are discussed below.
In addition to our debt obligations, as of September 30, 2024, we had $503.9 million of unfunded loan commitments. We expect that approximately $440.7 million will be funded to existing borrowers in the short term.
As of September 30, 2024, we had $194.3 million of cash on hand, $105.8 million of loan proceeds held by servicer and held approximately $375.1 million of unencumbered assets. We also had $2.0 billion of undrawn capacity under our Secured Debt Arrangements and $179.7 million of additional capacity on our construction financing secured by our Brooklyn Development property which is available to fund future construction costs.
We maintain policies relating to our use of leverage. See "Leverage Policies" above. 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 assets for investment, 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.
55
Borrowings Under Various Financing Arrangements
The following table summarizes the outstanding balances and maturities for our various financing arrangements:
|
|
September 30, 2024 |
|
December 31, 2023 |
||||||||
|
|
Borrowings Outstanding(1) |
|
|
Maturity (2) |
|
Borrowings Outstanding(1) |
|
|
Maturity (2) |
||
Secured Credit Facilities |
|
|
3,438,878 |
|
|
November 2026 |
|
$ |
3,247,652 |
|
|
June 2026 |
Barclays Private Securitization(3) |
|
|
2,034,897 |
|
|
December 2026 |
|
|
2,157,157 |
|
|
June 2026 |
Revolving Credit Facility |
|
|
51,050 |
|
|
March 2026 |
|
|
147,000 |
|
|
February 2025 |
Total Secured Debt Arrangements |
|
|
5,524,825 |
|
|
|
|
|
5,551,809 |
|
|
|
Senior Secured Term Loans |
|
|
763,250 |
|
|
January 2027 |
|
|
769,250 |
|
|
January 2027 |
Senior Secured Notes |
|
|
500,000 |
|
|
June 2029 |
|
|
500,000 |
|
|
June 2029 |
Total Borrowings |
|
$ |
6,788,075 |
|
|
|
|
$ |
6,821,059 |
|
|
|
Secured Credit Facilities
As of September 30, 2024, we had nine secured credit counterparties through wholly-owned subsidiaries. In January 2024, we entered into a new secured credit facility with Goldman Sachs that provided £125.6 million ($158.6 million, assuming conversion into USD) of borrowing capacity. During the three months ended September 30, 2024, we further upsized the facility by £242.1 million ($314.6 million, assuming conversion into USD).
Additionally, during the nine months ended September 30, 2024, we upsized the Atlas Facility by $113.5 million and the Barclays facility by $300.0 million. Furthermore, we have repaid the full amount of borrowings outstanding on both the Goldman Sachs USD and Santander EUR facilities.
Refer to "Note 7 – Secured Debt Arrangements, Net" of our condensed consolidated financial statements for additional disclosure regarding our secured credit facilities.
Barclays Private Securitization
We are party to a private securitization with the Barclays Private Securitization. Commercial mortgage loans currently financed under the Barclays Private Securitization are denominated in GBP, EUR, SEK.
Refer to "Note 7 – Secured Debt Arrangements, Net" of our condensed consolidated financial statements for additional disclosure regarding our Barclays Private Securitization.
Revolving Credit Facility
In March 2023, we entered into a Revolving Credit Facility administered by Bank of America, N.A. The Revolving Credit Facility matures in March 2026 and is secured by certain of our qualifying commercial mortgage loans and real property owned assets. As of September 30, 2024, our Revolving Credit Facility had a capacity of $160.0 million and requires that we maintain an interest coverage ratio of 1.3:1. See "Debt Covenants" below for additional discussion.
Refer to "Note 7 – Secured Debt Arrangements, Net" of our condensed consolidated financial statements for additional disclosure regarding our Revolving Credit Facility.
Senior Secured Term Loans
In May 2019, we entered into the $500.0 million 2026 Term Loan and in March 2021, we entered into the $300.0 million 2028 Term Loan. The outstanding Term Loans principal balance as of September 30, 2024 and December 31, 2023 was $763.3 million and $769.3 million, respectively.
56
Refer to "Note 8 – Senior Secured Term Loans, Net" of our condensed consolidated financial statements for additional disclosure regarding our 2026 Term Loan and 2028 Term Loan.
Senior Secured Notes
In June 2021, we issued $500.0 million of the 4.625% 2029 Notes, for which we received net proceeds of $495.0 million, after deducting initial purchasers' discounts and commissions. The 2029 Notes had a carrying value of $496.2 million and $495.6 million, net of deferred financing costs of $3.8 million and $4.4 million, as of September 30, 2024 and December 31, 2023, respectively.
Refer to "Note 9 – Senior Secured Notes, Net" of our condensed consolidated financial statements for additional disclosure regarding our 2029 Notes.
Debt Related to Real Estate Owned
In August 2022, we obtained $164.8 million in construction financing on the Brooklyn Development property when we acquired legal title of the property. As of September 30, 2024, the construction financing had a carrying value of $206.4 million, net of $2.3 million in deferred financing costs.
In June 2024, we obtained a $73.7 million mortgage secured by our the D.C. Hotel property. As of September 30, 2024, the mortgage loan had a carrying value of $72.5 million, net of $1.2 million in deferred financing costs.
Refer to "Note 5 – Real Estate Owned" of our condensed consolidated financial statements for additional disclosure regarding our debt related to real estate owned.
Dividends
We intend to continue to make regular quarterly distributions to holders of our common stock. U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of our REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains, and that we pay tax at regular corporate rates to the extent that we annually distribute less than 100% of our net taxable income. We generally intend over time to pay dividends to our stockholders in an amount equal to our net taxable income, if and to the extent authorized by our board of directors. Any distributions we make are at the discretion of our board of directors and depend upon, among other things, our actual results of operations. These results and our ability to pay distributions are affected by various factors, including the net interest and other income from our portfolio, our operating expenses and any other expenditures. If our cash available for distribution is less than our net taxable income, we could be required to sell assets or borrow funds to make cash distributions or we may make a portion of the required distribution in the form of a taxable stock distribution or distribution of debt securities.
As of September 30, 2024 and December 31, 2023, we had 6,770,393 shares of our Series B-1 Preferred Stock outstanding. The Series B-1 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: at a rate of 7.25% per annum of the $25.00 per share liquidation preference. Except under certain limited circumstances, the Series B-1 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 and after July 15, 2026, we may, at our option, redeem the shares at a redemption price of $25.00, plus any accrued unpaid dividends to, but not including, the date of the redemption.
The following table details our dividend activity:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
Dividends declared per share of: |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Common Stock |
|
$ |
0.25 |
|
|
$ |
0.35 |
|
|
$ |
0.95 |
|
|
$ |
1.05 |
|
Series B-1 Preferred Stock |
|
$ |
0.45 |
|
|
$ |
0.45 |
|
|
$ |
1.35 |
|
|
$ |
1.35 |
|
Repurchases of Equity Securities
57
In March 2020, our board of directors approved a stock repurchase program for up to $150.0 million of our common stock and in February 2021, approved the repurchase of an additional $150.0 million of our common stock. During the three and nine months ended September 30, 2024, we repurchased 289,633 and 4,013,405 shares, respectively, of our common stock under this program at a weighted-average price of $9.96 and $10.15 per share, respectively.
Critical Accounting Policies and Use of Estimates
Our financial statements are prepared in accordance with GAAP, which requires the use of estimates and assumptions that involve the exercise of judgment and use of assumptions as to future uncertainties. The most critical accounting policies involve decisions and assessments that affect our reported assets and liabilities, as well as reported revenues and expenses. We believe that all of the decisions and assessments upon which these financial statements are based are reasonable based upon information currently available to us. The accounting policies and estimates that we consider to be most critical to an investor's understanding of our financial results and condition and require complex management judgment are discussed below.
There have been no material changes to our Critical Accounting Policies described in our most recent Annual Report on Form 10-K under "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Use of Estimates."
For a complete listing and description of our significant accounting policies, refer to "Note 2 – Summary of Significant Accounting Policies" to our consolidated financial statements of our most recent Annual Report on Form 10-K.
Real Estate Owned (and Related Debt)
In order to maximize recovery against a defaulted loan, we may assume legal title or physical possession of the underlying collateral through foreclosure or deed-in-lieu of foreclosure. Foreclosed properties are classified as real estate owned and recognized at fair value on our condensed consolidated balance sheets in accordance with the acquisition method under ASC 805. Real estate assets acquired may include land, building, FF&E, and intangible assets. In accordance ASC 820, we may utilize the income, market or cost approach (or combination thereof) to determine fair value.
When determining the fair value of a real estate asset under the income approach, we make certain assumptions including, but not limited to, consideration of projected operating cash flows, comparable selling prices and projected cash flows from the eventual disposition of the real estate asset based upon our estimate of a capitalization rate and discount rate.
When determining the fair value of real estate assets under the market or sales comparison approach, we compare the property to similar properties in the marketplace. Although we exercise significant judgment to identify similar properties, and may also consult independent third-party valuation experts to assist, our assessment of fair value is subject to uncertainty and sensitive to our selection of comparable properties.
When determining the fair value of real estate assets under the cost approach, we measure fair value as the replacement cost of these assets. This approach also requires significant judgment, and our estimate of replacement cost could vary from actual replacements costs.
At times we may classify real estate assets as held for sale in the period in which they meet the criteria under ASC 360 as discussed in "Note 2 – Summary of Significant Accounting Policies" to our consolidated financial statements of our most recent Annual Report on Form 10-K. Once a real estate asset is classified as held for sale, depreciation is no longer recorded, and the asset is reported at the lower of its carrying value or fair value less cost to sell. The fair value of real estate assets classified as held for sale is determined using the appropriate methodologies noted in the preceding paragraph and the real estate asset's fair value is subject to uncertainty, as the actual sales price of the real estate asset could differ from those assumed in our valuations.
Once real estate assets have been recorded at fair value, they are evaluated for impairment on a quarterly basis. A real estate asset is considered impaired when the sum of estimated future undiscounted cash flows to be generated by the real estate asset over the estimated remaining holding period is less than the carrying value of such real estate asset. An impairment charge is recorded equal to the excess of the carrying value of the real estate asset over the fair value. When determining the fair value of a real estate asset for the purpose of assessing impairment, we make certain assumptions including, but not limited to:
58
consideration of projected operating cash flows, intended holding period of the real estate, comparable selling prices and projected cash flows from the eventual disposition of the real estate based upon our estimate of a capitalization rate and discount rate. While we exercise significant judgment in generating our assumptions, the asset's fair value is subject to uncertainty, as actual operating cash flows and disposition proceeds could differ from those assumed in our valuations. Additionally, the output is sensitive to the assumptions used in calculating any potential impairment.
Please refer to "Note 3 – Fair Value Disclosure" and "Note 5 – Assets and Liabilities Related to Real Estate Owned" for more information regarding real estate owned and our valuation methodology as well as "Note 2 – Summary of Significant Accounting Policies" to our consolidated financial statements of our most recent Annual Report on Form 10-K.
Current Expected Credit Losses
We measure and record potential expected credit losses related to our loan portfolio in accordance with the CECL Standard. The CECL Standard requires an entity to consider historical loss experience, current conditions, and a reasonable and supportable forecast of the macroeconomic environment. We have adopted the WARM method to determine a General CECL Allowance for the majority of loans in our portfolio, applied on a collective basis by assets with similar risk characteristics. If we determine that a borrower or sponsor is experiencing financial difficulty, we will record loan-specific allowances (our Specific CECL Allowance) in accordance with a practical expedient prescribed by the CECL Standard.
General CECL Allowance
There are a number of significant assumptions required to estimate our General CECL Allowance which include deriving and applying an annual historical loss rate, estimating the impacts of current and future macroeconomic conditions and forecasting the timing of expected repayments, satisfactions and future fundings.
We derive an annual historical loss rate based on a CMBS database with historical losses from 1998 through the first quarter of 2024 provided by Trepp. We apply various filters to arrive at a CMBS dataset most analogous to our current portfolio from which we determine an appropriate historical loss rate. This historical loss rate, and ultimately the General CECL Allowance we derive, is sensitive to the CMBS dataset we select.
We adjust our determined annual historical loss rate based on our outlook of the macroeconomic environment, for a reasonable and supportable forecast period. Selection of a forecast period is a matter of judgment and our General CECL Allowance is sensitive to this input.
We develop our expectations for the future macroeconomic environment and its potential impact on the performance of loans in our portfolio, by analyzing various market factors, such as unemployment rate, market liquidity and price indexes relevant to commercial real estate sector. This assessment requires the use of significant judgment in selecting relevant market factors and analyzing their correlation with historical loss rates. The future macroeconomic environment is subject to uncertainty as the actual future macroeconomic environment could vary from our expectations.
Additionally, there are assumptions provided to us by the Manager that represent their best estimate as to loan expected term, future fundings, and timing of loan repayments. These assumptions, although made with the most available information at the time of the estimate, are subjective and actual activity may not follow the estimated schedule. These assumptions impact the future balances that the loss rate will be applied to and as such impact our General CECL Allowance. As we acquire new loans and the Manager monitors loan and sponsor performance, these estimates may change each period. Refer to "Note 2 – Summary of Significant Accounting Policies" and "Note 4 – Commercial Mortgage Loans, Subordinate Loans and Other Lending Assets, Net" for further discussion regarding our General CECL Allowance.
Specific CECL Allowance
When we determine that a borrower or sponsor is experiencing financial difficulty, we evaluate the related loan for loan-specific allowances, under the practical expedient prescribed by the CECL Standard. Determining that a borrower or sponsor is experiencing financial difficulty requires the use of significant judgment and can be based on several factors subject to uncertainty. These factors can include, but are not limited to, whether cash from the borrower's operations are sufficient to cover current and future debt service requirements, the borrower's ability to potentially refinance the loan, and other circumstances that
59
can affect the borrower's ability to satisfy their obligations in accordance the terms of the loan. When utilizing the practical expedient for collateral dependent loans, the current expected credit losses is determined as the difference between the fair value of the underlying collateral, adjusted for estimated costs to sell when applicable, and the carrying value of the loan (prior to the current expected credit losses), as repayment or satisfaction of a loan is dependent on a sale of the underlying collateral. Collateral-dependent loans evaluated for a Specific CECL Allowance are removed from the General CECL Allowance pool.
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. These methods require the use of key unobservable inputs, which are inherently uncertain and subjective. Our estimate of fair value is sensitive to both the valuation methodology selected and inputs used. Determining a suitable valuation method and selecting the appropriate key unobservable inputs and assumptions requires significant judgment and consideration of factors specific to the underlying collateral being assessed. Additionally, the key unobservable inputs and assumptions used may vary depending on the information available to us and market conditions as of the valuation date. As such, the fair value that we derive and use in calculating our Specific CECL Allowance, is subject to uncertainty and any actual losses, if incurred, could differ materially from our current expected credit losses. Refer to "Note 2 – Summary of Significant Accounting Policies" and "Note 4 – Commercial Mortgage Loans, Subordinate Loans and Other Lending Assets, Net" for further discussion regarding our Specific CECL Allowance.
Refer to "Note 2 – Summary of Significant Accounting Policies" to our consolidated financial statements of our most recent Annual Report on Form 10-K for the complete listing and description of our significant accounting policies.
60
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:
The following table estimates the hypothetical impact on our net interest income for the twelve-month period following September 30, 2024, assuming an immediate increase or decrease of 50 basis points in the applicable interest rate benchmark by currency ($ in thousands, except per share data):
|
|
|
|
|
50 basis point increase |
|
|
50 basis point decrease |
|
|||||||||||
Currency |
|
Net floating rate |
|
|
Increase to net |
|
|
Increase to net |
|
|
Decrease to net |
|
|
Decrease to net |
|
|||||
USD |
|
$ |
(184,024 |
) |
|
$ |
(920 |
) |
|
$ |
(0.01 |
) |
|
$ |
920 |
|
|
$ |
0.01 |
|
GBP |
|
|
772,459 |
|
|
|
3,435 |
|
|
|
0.02 |
|
|
|
(3,435 |
) |
|
|
(0.02 |
) |
EUR |
|
|
310,723 |
|
|
|
1,554 |
|
|
|
0.01 |
|
|
|
(1,554 |
) |
|
|
(0.01 |
) |
SEK |
|
|
48,544 |
|
|
|
243 |
|
|
|
0.00 |
|
|
|
(243 |
) |
|
|
(0.00 |
) |
Total: |
|
$ |
947,702 |
|
|
$ |
4,312 |
|
|
$ |
0.03 |
|
|
$ |
(4,312 |
) |
|
$ |
(0.03 |
) |
61
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.
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; retroactive changes to building or similar 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 pandemic. COVID-19 and its variants have disrupted economic activities and could have a continued significant adverse effect on economic and market conditions including rising inflation, increases in interest rates, 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 sheets 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.
Item 4. Controls and Procedures.
Evaluation of Disclosure 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 our company that would potentially be subject to disclosure under the Exchange Act, and the rules and regulations promulgated thereunder.
During the period ended September 30, 2024, 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 our company to disclose material information otherwise required to be set forth in our periodic reports.
62
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. Refer to "Note 18 – Commitments and Contingencies" for further detail regarding legal proceedings.
Item 1A. Risk Factors
For information regarding factors that could affect our results of operations, financial condition and liquidity, see the risk factors discussed in "Item 1A. Risk Factors" in our most recent Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table sets forth the Company's repurchases of common stock during the three months ended September 30, 2024 ($ in thousands, except per share data):
Period |
|
Total Number of Shares Purchased(1) |
|
|
Average Price Paid per Share |
|
|
Total Number of Shares of Common Stock Purchased as Part of Publicly Announced Plans or Programs |
|
|
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs |
|
||||
July 1, 2024 - July 31, 2024 |
|
|
112,040 |
|
|
$ |
9.93 |
|
|
|
112,040 |
|
|
$ |
133,350 |
|
August 1, 2024 - August 31, 2024 |
|
|
177,593 |
|
|
|
9.97 |
|
|
|
177,593 |
|
|
|
131,579 |
|
September 1, 2024 - September 30, 2024 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
131,579 |
|
Total |
|
|
289,633 |
|
|
$ |
9.96 |
|
|
|
289,633 |
|
|
$ |
131,579 |
|
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
On
63
Item 6. Exhibits and Financial Statement Schedules.
3.1 |
|
|
|
|
|
3.2 |
|
Amended and Restated Bylaws of Apollo Commercial Real Estate Finance, Inc., incorporated by reference to Exhibit 3.2 of the Registrant's Form 10-Q filed on April 29, 2024 (File No.: 001-34452). |
|
|
|
3.3 |
|
|
|
|
|
4.1 |
|
|
|
|
|
4.2 |
|
|
|
|
|
4.3 |
|
|
|
|
|
4.4 |
|
|
|
|
|
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 With Embedded Linkbase Documents |
|
|
|
104* |
|
Cover Page Interactive Data File (embedded with the Inline XBRL document) |
* |
Filed herewith. |
64
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 30, 2024 |
By: |
|
/s/ Stuart A. Rothstein |
|
|
|
Stuart A. Rothstein |
|
|
|
President and Chief Executive Officer (Principal Executive Officer) |
October 30, 2024 |
By: |
|
/s/ Anastasia Mironova |
|
|
|
Anastasia Mironova |
|
|
|
Chief Financial Officer, Treasurer and Secretary (Principal Financial Officer and Principal Accounting Officer) |
65