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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________
FORM 10-Q
__________________________________
(Mark One)

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

For the quarterly period ended September 30, 2022
OR

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

For the transition period from to
Commission File Number: 001-34452
__________________________________
Apollo Commercial Real Estate Finance, Inc.
(Exact name of registrant as specified in its charter)
__________________________________

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

Apollo Commercial Real Estate Finance, Inc.
c/o Apollo Global Management, Inc.
9 West 57th Street, 42nd Floor,
New York, New York 10019
(Address of principal executive offices) (Zip Code)
(212) 515–3200
(Registrant’s telephone number, including area code)
__________________________________
Securities registered pursuant to Section 12(b) of the Act:

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer |  | ☒ |  | Accelerated filer |  | ☐
Non-accelerated filer |  | ☐ |  | Smaller reporting company |  | ☐
|  |  |  | Emerging growth company |  | ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of October 21, 2022, there were 140,595,995 shares, par value $0.01, of the registrant’s common stock issued and outstanding.

Table of Contents

|  |  | Page
| Part I - Financial Information |  |
| Item 1. Financial Statements |  | 4
| Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations |  | 32
| Item 3. Quantitative and Qualitative Disclosures About Market Risk |  | 46
| Item 4. Controls and Procedures. |  | 48
| Part II - Other Information |  |
| Item 1. Legal Proceedings. |  | 48
| Item 1A. Risk Factors |  | 48
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |  | 48
| Item 3. Defaults Upon Senior Securities |  | 48
| Item 4. Mine Safety Disclosures. |  | 48
| Item 5. Other Information |  | 48
| Item 6. Exhibits |  | 48

3

PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Apollo Commercial Real Estate Finance, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands—except share data)

| September 30, 2022 |  | December 31, 2021
Assets: |  |  |
Cash and cash equivalents | $ | 319,264 |  |  | $ | 343,106 |
Commercial mortgage loans, net(1)(3) | 8,013,469 |  |  | 7,012,312 |
Subordinate loans and other lending assets, net(2)(3) | 717,837 |  |  | 844,948 |
Real estate owned, held for investment, net (net of $2,645 accumulated depreciation in 2021) | 291,104 |  |  | 151,788 |
Derivative assets, net | 249,220 |  |  | 16,788 |
Assets related to real estate owned, held for sale | 162,059 |  |  | — |
Other assets | 71,066 |  |  | 47,753 |
Total Assets | $ | 9,824,019 |  |  | $ | 8,416,695 |
Liabilities and Stockholders' Equity |  |  |
Liabilities: |  |  |
Secured debt arrangements, net (net of deferred financing costs of $13,533 and $9,062 in 2022 and 2021, respectively) | $ | 5,350,586 |  |  | $ | 4,150,268 |
Senior secured term loans, net (net of deferred financing costs of $10,750 and $12,734 in 2022 and 2021, respectively) | 764,899 |  |  | 768,325 |
Senior secured notes, net (net of deferred financing costs of $5,356 and $5,949 in 2022 and 2021, respectively) | 494,644 |  |  | 494,051 |
Accounts payable, accrued expenses and other liabilities(4) | 378,479 |  |  | 102,609 |
Convertible senior notes, net | 229,174 |  |  | 569,979 |
Debt related to real estate owned, held for investment, net (net of deferred financing costs of $4,857 in 2022) | 159,978 |  |  | — |
Participations sold | 22,696 |  |  | 27,064 |
Payable to related party | 9,762 |  |  | 9,773 |
Liabilities related to real estate owned, held for sale | 6,116 |  |  | — |
Total Liabilities | 7,416,334 |  |  | 6,122,069 |
Commitments and Contingencies (see Note 17) |  |  |
Stockholders’ Equity: |  |  |
Preferred stock, $0.01 par value, 50,000,000 shares authorized, Series B-1, 6,770,393 shares issued and outstanding ($169,260 liquidation preference) in 2022 and 2021 (see Note 16) | 68 |  |  | 68 |
Common stock, $0.01 par value, 450,000,000 shares authorized, 140,595,995 and 139,894,060 shares issued and outstanding in 2022 and 2021, respectively | 1,406 |  |  | 1,399 |
Additional paid-in-capital | 2,712,390 |  |  | 2,721,042 |
Accumulated deficit | (306,179) |  |  | (427,883) |
Total Stockholders’ Equity | 2,407,685 |  |  | 2,294,626 |
Total Liabilities and Stockholders’ Equity | $ | 9,824,019 |  |  | $ | 8,416,695 |

———————
(1) Includes $7,491,513 and $5,957,707 pledged as collateral under secured debt arrangements in 2022 and 2021, respectively.
(2) Includes $187,138 and $0 pledged as collateral under secured debt arrangements in 2022 and 2021, respectively.
(3) Net of $140,985 and $178,588 CECL Allowances in 2022 and 2021, respectively, comprised of $119,000 and $145,000 Specific CECL Allowance and $21,985 and $33,588 General CECL Allowance, respectively.
(4) Includes $2,812 and $3,106 of General CECL Allowance related to unfunded commitments on commercial mortgage loans, subordinate loans and other lending assets, net in 2022 and 2021, respectively.
See notes to unaudited condensed consolidated financial statements.
4

Apollo Commercial Real Estate Finance, Inc. and Subsidiaries
Condensed Consolidated Statement of Operations (Unaudited)
(in thousands—except share and per share data)

| Three months ended September 30, |  | Nine months ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021 |  |
Net interest income: |  |  |  |  |  |  |  |  |
Interest income from commercial mortgage loans | $ | 120,821 |  |  | $ | 84,304 |  |  | $ | 304,631 |  |  | $ | 242,107 |  |  |
Interest income from subordinate loans and other lending assets | 13,354 |  |  | 18,836 |  |  | 43,719 |  |  | 82,070 |  |  |
Interest expense | (72,302) |  |  | (42,391) |  |  | (173,949) |  |  | (117,792) |  |  |
Net interest income | $ | 61,873 |  |  | $ | 60,749 |  |  | $ | 174,401 |  |  | $ | 206,385 |  |  |
Revenue from real estate owned operations | 14,428 |  |  | 5,896 |  |  | 42,098 |  |  | 7,270 |  |  |
Total net revenue | $ | 76,301 |  |  | $ | 66,645 |  |  | $ | 216,499 |  |  | $ | 213,655 |  |  |
Operating expenses: |  |  |  |  |  |  |  |  |
General and administrative expenses (includes equity-based compensation of $4,518 and $13,734 in 2022 and $4,405 and $13,149 in 2021, respectively) | $ | (7,184) |  |  | $ | (6,561) |  |  | $ | (21,501) |  |  | $ | (20,235) |  |  |
Management fees to related party | (9,719) |  |  | (9,583) |  |  | (28,705) |  |  | (28,387) |  |  |
Operating expenses related to real estate owned | (13,308) |  |  | (6,914) |  |  | (36,094) |  |  | (8,908) |  |  |
Depreciation and amortization on real estate owned | — |  |  | (1,096) |  |  | (704) |  |  | (1,548) |  |  |
Total operating expenses | $ | (30,211) |  |  | $ | (24,154) |  |  | $ | (87,004) |  |  | $ | (59,078) |  |  |
Other income | $ | 285 |  |  | $ | 3,676 |  |  | $ | 353 |  |  | $ | 3,785 |  |  |
Realized gain (loss) on investments | 43,577 |  |  | — |  |  | 43,577 |  |  | (20,000) |  |  |
Reversal of current expected credit loss allowance, net(1) | 55,564 |  |  | 5,766 |  |  | 37,897 |  |  | 36,590 |  |  |
Realized losses and impairments on real estate owned | — |  |  | — |  |  | — |  |  | (550) |  |  |
Foreign currency translation loss | (92,782) |  |  | (24,413) |  |  | (210,138) |  |  | (27,808) |  |  |
Gain on foreign currency forward contracts (includes unrealized gains of $108,428 and $221,623 in 2022 and $32,376 and $40,857 in 2021, respectively) | 129,252 |  |  | 32,947 |  |  | 257,227 |  |  | 39,653 |  |  |
Unrealized gain (loss) on interest rate hedging instruments | 1,044 |  |  | (75) |  |  | 10,808 |  |  | 171 |  |  |
Net income | $ | 183,030 |  |  | $ | 60,392 |  |  | $ | 269,219 |  |  | $ | 186,418 |  |  |
Preferred dividends | (3,068) |  |  | (3,126) |  |  | (9,204) |  |  | (9,896) |  |  |
Net income available to common stockholders | $ | 179,962 |  |  | $ | 57,266 |  |  | $ | 260,015 |  |  | $ | 176,522 |  |  |
Net income per share of common stock: |  |  |  |  |  |  |  |  |
Basic | $ | 1.27 |  |  | $ | 0.40 |  |  | $ | 1.83 |  |  | $ | 1.24 |  |  |
Diluted | $ | 1.13 |  |  | $ | 0.38 |  |  | $ | 1.66 |  |  | $ | 1.18 |  |  |
Basic weighted-average shares of common stock outstanding | 140,594,987 |  |  | 139,891,777 |  |  | 140,513,957 |  |  | 139,860,882 |  |  |
Diluted weighted-average shares of common stock outstanding | 164,350,132 |  |  | 170,884,172 |  |  | 169,252,602 |  |  | 170,836,682 |  |  |
Dividend declared per share of common stock | $ | 0.35 |  |  | $ | 0.35 |  |  | $ | 1.05 |  |  | $ | 1.05 |  |  |

———————
(1) Comprised of $53,000 and $26,000 Specific CECL Reversals and $2,564 and $11,897 of General CECL Reversals for the three and nine months ended September 30, 2022, respectively. Comprised of $0 and $30,000 Specific CECL Reversals and $5,766 and $6,590 of General CECL Reversals for the three and nine months ended September 30, 2021, respectively.
See notes to unaudited condensed consolidated financial statements.
5

Apollo Commercial Real Estate Finance, Inc. and Subsidiaries
Condensed Consolidated Statement of Changes in Stockholders’ Equity (Unaudited)
(in thousands—except share and per share data)

| Preferred Stock |  | Common Stock |  | Additional Paid-In-Capital |  | Accumulated Deficit |  |  |  | Total
| Shares |  | Par |  | Shares |  | Par |
Balance at January 1, 2022 | 6,770,393 |  |  | $ | 68 |  |  | 139,894,060 |  |  | $ | 1,399 |  |  | $ | 2,721,042 |  |  | $ | (427,883) |  |  |  |  | $ | 2,294,626 |
Adoption of ASU 2020-06 | — |  |  | — |  |  | — |  |  | — |  |  | (15,408) |  |  | 11,992 |  |  |  |  | (3,416) |
Capital increase (decrease) related to Equity Incentive Plan | — |  |  | — |  |  | 647,349 |  |  | 6 |  |  | (2,280) |  |  | — |  |  |  |  | (2,274) |
Net income | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 15,238 |  |  |  |  | 15,238 |
Dividends declared on preferred stock - $0.45 per share | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (3,068) |  |  |  |  | (3,068) |
Dividends declared on common stock - $0.35 per share | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (50,088) |  |  |  |  | (50,088) |
Balance at March 31, 2022 | 6,770,393 |  |  | $ | 68 |  |  | 140,541,409 |  |  | $ | 1,405 |  |  | $ | 2,703,354 |  |  | $ | (453,809) |  |  |  |  | $ | 2,251,018 |
Capital increase related to Equity Incentive Plan | — |  |  | — |  |  | 49,434 |  |  | 1 |  |  | 4,518 |  |  | — |  |  |  |  | 4,519 |
Net income | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 70,951 |  |  |  |  | 70,951 |
Dividends declared on preferred stock - $0.45 per share | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (3,068) |  |  |  |  | (3,068) |
Dividends declared on common stock - $0.35 per share | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (50,108) |  |  |  |  | (50,108) |
Balance at June 30, 2022 | 6,770,393 |  |  | $ | 68 |  |  | 140,590,843 |  |  | $ | 1,406 |  |  | $ | 2,707,872 |  |  | $ | (436,034) |  |  |  |  | $ | 2,273,312 |
Capital increase related to Equity Incentive Plan | — |  |  | — |  |  | 5,152 |  |  | — |  |  | 4,518 |  |  | — |  |  |  |  | 4,518 |
Net income | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 183,030 |  |  |  |  | 183,030 |
Dividends declared on preferred stock - $0.45 per share | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (3,068) |  |  |  |  | (3,068) |
Dividends declared on common stock - $0.35 per share | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (50,107) |  |  |  |  | (50,107) |
Balance at September 30, 2022 | 6,770,393 |  |  | $ | 68 |  |  | 140,595,995 |  |  | $ | 1,406 |  |  | $ | 2,712,390 |  |  | $ | (306,179) |  |  |  |  | $ | 2,407,685 |

| Preferred Stock |  | Common Stock |  | Additional Paid-In-Capital |  | Accumulated Deficit |  |  |  | Total
| Shares |  | Par |  | Shares |  | Par |
Balance at January 1, 2021 | 6,770,393 |  |  | $ | 68 |  |  | 139,295,867 |  |  | $ | 1,393 |  |  | $ | 2,707,792 |  |  | $ | (438,724) |  |  |  |  | $ | 2,270,529 |
Capital increase related to Equity Incentive Plan | — |  |  | — |  |  | 553,008 |  |  | 5 |  |  | 103 |  |  | — |  |  |  |  | 108 |
Offering costs | — |  |  | — |  |  | — |  |  | — |  |  | (40) |  |  | — |  |  |  |  | (40) |
Net income | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 58,335 |  |  |  |  | 58,335 |
Dividends declared on preferred stock - $0.50 per share | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (3,385) |  |  |  |  | (3,385) |
Dividends declared on common stock - $0.35 per share | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (49,794) |  |  |  |  | (49,794) |
Balance at March 31, 2021 | 6,770,393 |  |  | $ | 68 |  |  | 139,848,875 |  |  | $ | 1,398 |  |  | $ | 2,707,855 |  |  | $ | (433,568) |  |  |  |  | $ | 2,275,753 |
Capital increase related to Equity Incentive Plan | — |  |  | — |  |  | 35,185 |  |  | 1 |  |  | 4,357 |  |  | — |  |  |  |  | 4,358 |
Net income | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 67,691 |  |  |  |  | 67,691 |
Dividends declared on preferred stock - $0.50 per share | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (3,385) |  |  |  |  | (3,385) |
Dividends declared on common stock - $0.35 per share | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (49,809) |  |  |  |  | (49,809) |
Balance at June 30, 2021 | 6,770,393 |  |  | $ | 68 |  |  | 139,884,060 |  |  | $ | 1,399 |  |  | $ | 2,712,212 |  |  | $ | (419,071) |  |  |  |  | $ | 2,294,608 |
Capital increase related to Equity Incentive Plan | — |  |  | — |  |  | 10,000 |  |  | — |  |  | 4,405 |  |  | — |  |  |  |  | 4,405 |
Retirement of Series B Preferred Stock | (6,770,393) |  |  | (68) |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  | (68) |
Issuance of Series B-1 Preferred Stock | 6,770,393 |  |  | 68 |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  | 68 |
Net income | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 60,392 |  |  |  |  | 60,392 |
Dividends declared on preferred stock - $0.50 per share | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (3,126) |  |  |  |  | (3,126) |
Dividends declared on common stock - $0.35 per share | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (49,837) |  |  |  |  | (49,837) |
Balance at September 30, 2021 | 6,770,393 |  |  | $ | 68 |  |  | 139,894,060 |  |  | $ | 1,399 |  |  | $ | 2,716,617 |  |  | $ | (411,642) |  |  |  |  | $ | 2,306,442 |

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)

| For the nine months ended September 30,
| 2022 |  | 2021 |
Cash flows provided by operating activities: |  |  |  |
Net income | $ | 269,219 |  |  | $ | 186,418 |  |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |  |
Amortization of discount/premium and PIK | (39,828) |  |  | (61,029) |  |
Amortization of deferred financing costs | 8,582 |  |  | 9,358 |  |
Equity-based compensation | 13,734 |  |  | 13,149 |  |
Reversal of current expected credit loss allowance, net | (37,897) |  |  | (36,590) |  |
Foreign currency loss | 199,587 |  |  | 28,155 |  |
Unrealized gain on derivative instruments | (232,431) |  |  | (41,028) |  |
Depreciation and amortization | 704 |  |  | 1,548 |  |
Loss from unconsolidated joint venture | — |  |  | 161 |  |
Realized (gain) loss and impairments on investments and real estate owned | (43,577) |  |  | 20,550 |  |
Changes in operating assets and liabilities: |  |  |  |
Proceeds received from PIK interest | 83,731 |  |  | 35,400 |  |
Other assets | (24,149) |  |  | 772 |  |
Accounts payable, accrued expenses and other liabilities | 27,454 |  |  | 8,024 |  |
Payable to related party | (11) |  |  | (15) |  |
Net cash provided by operating activities | 225,118 |  |  | 164,873 |  |
Cash flows used in investing activities: |  |  |  |
New funding of commercial mortgage loans | (2,753,609) |  |  | (1,463,619) |  |
Add-on funding of commercial mortgage loans | (407,063) |  |  | (226,773) |  |
Add-on funding of subordinate loans and other lending assets | (85,964) |  |  | (132,302) |  |
Proceeds received from the repayment and sale of commercial mortgage loans | 1,316,431 |  |  | 725,196 |  |
Proceeds received from the repayment of subordinate loans and other lending assets | 129,760 |  |  | 236,770 |  |
Origination and exit fees received on commercial mortgage loans, and subordinate loans and other lending assets, net | 42,779 |  |  | 21,058 |  |
Proceeds received from the sale of real estate owned, held for sale | — |  |  | 42,356 |  |
Capital expenditures on real estate assets | (21,160) |  |  | (65) |  |
Cash received from hotel title assumption | — |  |  | 4,148 |  |
Increase in collateral related to derivative contracts, net | 255,110 |  |  | 29,450 |  |
Net cash used in investing activities | (1,523,716) |  |  | (763,781) |  |
Cash flows provided by financing activities: |  |  |  |
Payment of offering costs | — |  |  | (40) |  |
Proceeds from secured debt arrangements | 2,770,405 |  |  | 1,173,613 |  |
Repayments of secured debt arrangements | (1,118,630) |  |  | (1,126,627) |  |
Repayments of senior secured term loan principal | (6,000) |  |  | (5,250) |  |
Repayments of convertible notes | (345,000) |  |  | — |  |
Proceeds from issuance of senior secured term loan | — |  |  | 297,000 |  |
Proceeds from issuance of senior secured notes | — |  |  | 500,000 |  |
Repayment of debt related to real estate owned | — |  |  | (143,073) |  |
Proceeds related to financing on real estate owned | 164,835 |  |  | — |  |
Payment of deferred financing costs | (15,333) |  |  | (14,816) |  |
Other financing activities | (6,972) |  |  | (4,278) |  |
Dividends on common stock | (150,467) |  |  | (149,809) |  |
Dividends on preferred stock | (9,204) |  |  | (9,896) |  |
Net cash provided by financing activities | 1,283,634 |  |  | 516,824 |  |
Net decrease in cash and cash equivalents, including cash classified within assets related to real estate owned, held for sale | (14,964) |  |  | (82,084) |  |
Less increase in cash classified within assets related to real estate owned, held for sale | (5,858) |  |  | — |  |
Net decrease in cash and cash equivalents | (20,822) |  |  | (82,084) |  |
Cash and cash equivalents, beginning of period | 343,106 |  |  | 325,498 |  |
Effects of foreign currency translation on cash and cash equivalents | (3,020) |  |  | — |  |
Cash and cash equivalents, end of period | $ | 319,264 |  |  | $ | 243,414 |  |
Supplemental disclosure of cash flow information: |  |  |  |
Interest paid | $ | 151,348 |  |  | $ | 96,092 |  |
Supplemental disclosure of non-cash financing activities: |  |  |  |
Dividend declared, not yet paid | $ | 53,175 |  |  | $ | 52,398 |  |
Change in participation sold | $ | (4,368) |  |  | $ | 19,644 |  |
Change in loan proceeds held by servicer | $ | 5,871 |  |  | $ | 8,732 |  |
Deferred financing costs, not yet paid | $ | — |  |  | $ | 4,145 |  |
Repayments of PIK on participation sold | $ | — |  |  | $ | (27,670) |  |
Assumption of real estate | $ | 270,035 |  |  | $ | 154,300 |  |
Assumption of debt related to real estate owned | $ | — |  |  | $ | (110,073) |  |
Assumption of other assets related to real estate owned | $ | — |  |  | $ | 1,555 |  |
Assumption of accounts payable and other liabilities related to real estate owned | $ | — |  |  | $ | (4,641) |  |
Transfer of assets to assets related to real estate owned, held for sale | $ | (156,201) |  |  | $ | — |  |
Transfer of liabilities to liabilities related to real estate owned, held for sale | $ | 6,116 |  |  | $ | — |  |
Transfer of subordinate loans to real estate owned | $ | — |  |  | $ | (45,289) |  |
Transfer of subordinate loans to held for sale | $ | — |  |  | $ | 41,773 |  |
Retirement of Series B Preferred Stock | $ | — |  |  | $ | (169,260) |  |
Issuance of Series B-1 Preferred Stock | $ | — |  |  | $ | 169,260 |  |

See notes to unaudited condensed consolidated financial statements.
7

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 losses. Actual results could differ from those estimates.
These unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to
Form 10-Q and should be read in conjunction with the consolidated financial statements and notes thereto included in our
Annual Report on Form 10-K for the year ended December 31, 2021 ("Annual Report"), as filed with the Securities and
Exchange Commission (the "SEC"). In the opinion of management, all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly our financial position, results of operations and cash flows have been included. Our
results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for the full year or any other future period.
We currently operate in one reporting segment.
Risks and Uncertainties
During the first quarter of 2020, there was a global outbreak of a novel coronavirus ("COVID-19"), which was declared by the World Health Organization as a pandemic. The ongoing COVID-19 pandemic has adversely impacted global economic activity and has contributed to significant volatility in financial markets. Due to various uncertainties, including the rise of new variants, the severity of such new variants, disparities in vaccination rates and vaccine hesitancy, the ultimate duration of the pandemic, and additional actions that may be taken by governmental authorities, further business risks could arise. Although more normalized activities have resumed and there has been improved global economic activity due to global and domestic vaccination efforts, we are not in a position to estimate the ultimate impact COVID-19 and its variants will have on our business and the economy as a whole, including longer-term macroeconomic effects on supply chains, inflation and labor shortages. For example, in response to recent inflationary pressure, the U.S. Federal Reserve and other global central banks have raised interest rates in 2022 and have indicated likely further interest rate increases. We believe the estimates used in preparing our financial statements and related footnotes are reasonable and supportable based on the best information available to us as of September 30, 2022. The uncertainty over the ultimate impact of COVID-19 and its variants, supply chain disruptions and labor shortages, rising inflation and increases in interest rates on the global economy generally and our business in particular may materially impact the accuracy of the estimates and assumptions used in the financial statements and related footnotes and, as a result, actual results may vary significantly from estimates.
Recent Accounting Pronouncements
In March 2020, the FASB issued ASU 2020-04 "Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting" ("ASU 2020-04"). ASU 2020-04 provides optional expedients and exceptions for applying GAAP to debt instruments, derivatives, and other contracts that reference London Interbank Offered Rate
8

("LIBOR") or other reference rates expected to be discontinued as a result of reference rate reform. This guidance is optional and may be elected through December 31, 2022 using a prospective application on all eligible contract modifications. We have loan agreements, debt agreements, and an interest rate cap that incorporate LIBOR as a referenced interest rate. It is difficult to predict what effect, if any, the phase-out of LIBOR and the use of alternative benchmarks may have on our business or on the overall financial markets. During the fourth quarter of 2021, we adopted optional expedients per ASU 2020-04 for certain of our commercial mortgage loans and debt agreements denominated in British Pound Sterling ("GBP") and Euro ("EUR") with contracts that reference GBP LIBOR and EUR LIBOR, respectively. As prescribed by the optional expedients within ASU 2020-04, we have accounted for applicable modified contracts that incorporate alternative benchmarks as if they are not substantially different. We will continue to evaluate the possible adoption of any such expedients or exceptions for certain of our commercial mortgage loans and debt agreements denominated in U.S. Dollars.
In March 2022, the FASB issued ASU 2022-02 "Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures" ("ASU 2022-02"). The intention of ASU 2022-02 is to simplify the guidance surrounding loan modifications and restructurings and to eliminate the accounting guidance related to troubled debt restructurings ("TDR"). The new guidance deviates from TDR guidance as disclosures are now based on whether a modification or restructuring with a borrower experiencing financial difficulty results in principal forgiveness, an interest rate reduction, other-than-insignificant payment delay or term extension as opposed to simply a concession. The new guidance requires disclosure by class of financing receivables, of the types of modifications, the financial effects of those modifications and the performance of those modified receivables in the trailing twelve months after modification. Accounting for credit losses under ASC 326 "Financial Instruments—Credit Losses", is also updated to allow entities to use any acceptable method to determine credit losses as a result of modification or restructuring with a borrower experiencing financial difficulty. ASU 2022-02 also requires disclosure of gross write-offs recorded in the current period, on a year-to-date basis, by year of origination in the vintage disclosures. ASU 2022-02 is effective for fiscal years beginning after December 15, 2022. Entities are able to early adopt these amendments, including adoption in an interim period, and have the ability to early adopt the TDR enhancements separately from the vintage disclosures. If an entity adopts the amendments in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes the interim period. During the third quarter of 2022, we have early adopted the TDR enhancements and new vintage disclosure requirements under of ASU 2022-02. Refer to "Note 4 -Commercial Mortgage Loans, Subordinate Loans and Other Lending Assets, Net".
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 ASC 820, "Fair Value Measurements and Disclosures" are described below:
Level I — Quoted prices in active markets for identical assets or liabilities.
Level II — Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants would use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk and others.
Level III — Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used.
While we anticipate that our valuation methods 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 value of our interest rate cap is determined by using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rise above the strike rate of the interest rate cap. The variable interest rates used in the calculation of projected receipts on the interest rate cap are based on a third party expert's expectation of future interest rates derived from observable market interest rate curves and volatilities. Our interest rate cap is classified as Level II in the fair value hierarchy.
9

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, 2022 and December 31, 2021 ($ in thousands):

| Fair Value as of September 30, 2022 |  | Fair Value as of December 31, 2021
| Level I |  | Level II |  | Level III |  | Total |  | Level I |  | Level II |  | Level III |  | Total
Recurring fair value measurements: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency forward, net | $ | — |  |  | $ | 236,963 |  |  | $ | — |  |  | $ | 236,963 |  |  | $ | — |  |  | $ | 15,340 |  |  | $ | — |  |  | $ | 15,340 |
Interest rate cap asset | — |  |  | 12,257 |  |  | — |  |  | 12,257 |  |  | — |  |  | 1,448 |  |  | — |  |  | 1,448 |
Total financial instruments | $ | — |  |  | $ | 249,220 |  |  | $ | — |  |  | $ | 249,220 |  |  | $ | — |  |  | $ | 16,788 |  |  | $ | — |  |  | $ | 16,788 |

Refer to "Note 5 – Assets and Liabilities Related to Real Estate Owned" for additional disclosure regarding nonrecurring fair value measurements related to real estate owned.
Note 4 – Commercial Mortgage Loans, Subordinate Loans and Other Lending Assets, Net
Our loan portfolio was comprised of the following at September 30, 2022 and December 31, 2021 ($ in thousands):

Loan Type |  | September 30, 2022 |  | December 31, 2021
Commercial mortgage loans, net(1) |  | $ | 8,013,469 |  |  | $ | 7,012,312 |
Subordinate loans and other lending assets, net |  | 717,837 |  |  | 844,948 |
Carrying value, net |  | $ | 8,731,306 |  |  | $ | 7,857,260 |

———————
(1)Includes $206.8 million and $97.8 million in 2022 and 2021, respectively, of contiguous financing structured as subordinate loans.
Our loan portfolio consisted of 98% floating rate loans, based on amortized cost, as of each of September 30, 2022 and December 31, 2021.
Activity relating to our loan portfolio for the nine months ended September 30, 2022 was as follows ($ in thousands):

|  | Principal Balance |  | Deferred Fees/Other Items (1) |  | Specific CECL Allowance |  | Carrying Value, Net(2)
December 31, 2021 |  | $ | 8,072,377 |  |  | $ | (36,529) |  |  | $ | (145,000) |  |  | $ | 7,890,848 |
New funding of loans |  | 2,753,609 |  |  | — |  |  | — |  |  | 2,753,609 |
Add-on loan fundings(3) |  | 493,027 |  |  | — |  |  | — |  |  | 493,027 |
Loan repayments and sales |  | (1,511,311) |  |  | — |  |  | — |  |  | (1,511,311) |
Gain (loss) on foreign currency translation |  | (675,007) |  |  | 6,425 |  |  | — |  |  | (668,582) |
Specific CECL Allowance, net |  | — |  |  | — |  |  | 26,000 |  |  | 26,000 |
Transfer to real estate owned |  | (225,036) |  |  | (1,423) |  |  | — |  |  | (226,459) |
Deferred fees and other items |  | — |  |  | (42,779) |  |  | — |  |  | (42,779) |
PIK interest and amortization of fees |  | 16,149 |  |  | 22,789 |  |  | — |  |  | 38,938 |
September 30, 2022 |  | $ | 8,923,808 |  |  | $ | (51,517) |  |  | $ | (119,000) |  |  | $ | 8,753,291 |
General CECL Allowance(4) |  |  |  |  |  |  |  | (21,985) |
Carrying value, net |  |  |  |  |  |  |  | $ | 8,731,306 |

———————
(1)Other items primarily consist of purchase discounts or premiums, cost recovery interest, exit fees, deferred origination expenses, and the activity of unconsolidated joint ventures.
(2)December 31, 2021 carrying value excludes General CECL Allowance of $33.6 million.
(3)Represents fundings committed prior to 2022.
(4)$2.8 million of the General CECL Allowance is excluded from this table because it relates to unfunded commitments and has been recorded as a liability under accounts payable, accrued expenses and other liabilities in our condensed consolidated balance sheet.
10

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

|  | September 30, 2022 |  | December 31, 2021
Number of loans |  | 65 |  |  | 67 |
Principal balance |  | $ | 8,923,808 |  |  | $ | 8,072,377 |
Carrying value, net |  | $ | 8,731,306 |  |  | $ | 7,857,260 |
Unfunded loan commitments(1) |  | $ | 1,127,857 |  |  | $ | 1,357,122 |
Weighted-average cash coupon(2) |  | 5.8 | % |  | 4.5 | %
Weighted-average remaining fully-extended term(3) |  | 3.0 years |  | 2.9 years
Weighted-average expected term(4) |  | 1.7 years |  | 2.3 years

———————
(1)Unfunded loan commitments are funded to finance construction costs, tenant improvements, leasing commissions, or carrying costs. These future commitments are funded over the term of each loan, subject in certain cases to an expiration date.
(2)For floating rate loans, based on applicable benchmark rates as of the specified dates. For loans placed on non-accrual or cost recovery the interest rate used in calculating weighted-average cash coupon is 0%.
(3)Assumes all extension options are exercised.
(4)Expected term represents our estimated timing of repayments as of the specified dates. Excludes risk-rated 5 loans.
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, 2022 |  | December 31, 2021
Property Type |  | Carrying Value |  | % of Portfolio(1) |  | Carrying Value |  | % of Portfolio(1)
Hotel |  | $ | 1,983,071 |  |  | 22.7 | % |  | $ | 1,875,439 |  |  | 23.8 | %
Office |  | 1,750,260 |  |  | 20.0 |  |  | 1,700,779 |  |  | 21.6 |
Residential |  | 1,629,031 |  |  | 18.6 |  |  | 1,434,186 |  |  | 18.2 |
Retail |  | 1,318,862 |  |  | 15.1 |  |  | 1,126,332 |  |  | 14.3 |
Healthcare |  | 603,150 |  |  | 6.9 |  |  | 316,321 |  |  | 4.0 |
Mixed Use |  | 529,200 |  |  | 6.0 |  |  | 269,839 |  |  | 3.4 |
Industrial |  | 310,516 |  |  | 3.5 |  |  | 377,068 |  |  | 4.8 |
Other(2) |  | 629,201 |  |  | 7.2 |  |  | 790,884 |  |  | 9.9 |
Total |  | $ | 8,753,291 |  |  | 100.0 | % |  | $ | 7,890,848 |  |  | 100.0 | %
General CECL Allowance(3) |  | (21,985) |  |  |  |  | (33,588) |  |  |
Carrying value, net |  | $ | 8,731,306 |  |  |  |  | $ | 7,857,260 |  |  |

(1)Percentage of portfolio calculations are made prior to consideration of General CECL Allowance.
(2)Other property types include parking garages (3.1%), caravan parks (2.1%) and urban predevelopment (2.0%) in 2022, and parking garages (3.3%), caravan parks (2.8%), multifamily development (2.2%), and urban predevelopment (1.6%) in 2021.
(3)$2.8 million and $3.1 million of the General CECL Allowance for 2022 and 2021, respectively, is excluded from this table because it relates to unfunded commitments and has been recorded as a liability under accounts payable, accrued expenses and other liabilities in our condensed consolidated balance sheet.
Geography
The table below details the geographic distribution of the properties securing the loans in our portfolio at the dates indicated ($ in thousands):

|  | September 30, 2022 |  | December 31, 2021
Geographic Location |  | Carrying Value |  | % of Portfolio(1) |  | Carrying Value |  | % of Portfolio(1)
United Kingdom |  | $ | 2,300,384 |  |  | 26.3 | % |  | $ | 2,297,286 |  |  | 29.1 | %
New York City |  | 2,240,469 |  |  | 25.6 |  |  | 2,000,661 |  |  | 25.4 |
Other Europe(2) |  | 1,402,047 |  |  | 16.0 |  |  | 1,295,870 |  |  | 16.4 |

11

Southeast |  | 735,912 |  |  | 8.4 |  |  | 708,920 |  |  | 9.0 |
Midwest |  | 623,233 |  |  | 7.1 |  |  | 689,274 |  |  | 8.7 |
West |  | 616,594 |  |  | 7.0 |  |  | 356,097 |  |  | 4.5 |
Other(3) |  | 834,652 |  |  | 9.6 |  |  | 542,740 |  |  | 6.9 |
Total |  | $ | 8,753,291 |  |  | 100.0 | % |  | $ | 7,890,848 |  |  | 100.0 | %
General CECL Allowance(4) |  | (21,985) |  |  |  |  | (33,588) |  |  |
Carrying value, net |  | $ | 8,731,306 |  |  |  |  | $ | 7,857,260 |  |  |

(1)Percentage of portfolio calculations are made prior to consideration of General CECL Allowance.
(2)Other Europe includes Italy (4.8%), Germany (4.4%), Spain (3.5%), Sweden (2.6%) and Ireland (0.7%) in 2022 and Germany (6.1%), Sweden (3.6%), Spain (3.3%), Italy (2.6%), and Ireland (0.8%) in 2021.
(3)Other includes Northeast (5.5%), Southwest (2.4%), Mid-Atlantic (1.4%) and Other (0.3%) in 2022 and Southwest (3.5%), Mid-Atlantic (1.6%), Northeast (1.5%), and Other (0.3%) in 2021.
(4)$2.8 million and $3.1 million of the General CECL Allowance for 2022 and 2021, respectively, is excluded from this table because it relates to unfunded commitments and has been recorded as a liability under accounts payable, accrued expenses and other liabilities in our condensed consolidated balance sheet.
Risk Rating
We assess the risk factors of each loan and assign a risk rating based on a variety of factors, including, without limitation, loan to value ("LTV") ratio, debt yield, property type, geographic and local market dynamics, physical condition, cash flow volatility, leasing and tenant profile, loan structure and exit plan, and project sponsorship. This review is performed quarterly. Based on a 5-point scale, our loans are rated "1" through "5," from less risk to greater risk, which ratings are defined as follows:
1. Very low risk
2. Low risk
3. Moderate/average risk
4. High risk/potential for loss: a loan that has a risk of realizing a principal loss
5. Impaired/loss likely: a loan that has a high risk of realizing principal loss, has incurred principal loss, or an impairment has been recorded
The following tables allocate the carrying value of our loan portfolio based on our internal risk ratings and date of origination at the dates indicated ($ in thousands):

September 30, 2022
|  |  |  |  |  |  |  |  | Year Originated
Risk Rating |  | Number of Loans |  | Total |  | % of Portfolio |  |  | 2022 |  | 2021 |  | 2020 |  | 2019 |  | 2018 |  | Prior
1 |  | — |  |  | $ | — |  |  | — | % |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
2 |  | 1 |  |  | 32,000 |  |  | 0.4 | % |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 32,000 |
3 |  | 60 |  |  | 8,291,679 |  |  | 94.7 | % |  |  | 2,336,965 |  |  | 2,369,568 |  |  | 643,652 |  |  | 1,691,069 |  |  | 511,360 |  |  | 739,065 |
4 |  | — |  |  | — |  |  | — | % |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
5 |  | 4 |  |  | 429,612 |  |  | 4.9 | % |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 429,612 |
Total |  | 65 |  |  | $ | 8,753,291 |  |  | 100.0 | % |  |  | $ | 2,336,965 |  |  | $ | 2,369,568 |  |  | $ | 643,652 |  |  | $ | 1,691,069 |  |  | $ | 511,360 |  |  | $ | 1,200,677 |
General CECL Allowance(1) |  | (21,985) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Total carrying value, net | $ | 8,731,306 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Weighted Average Risk Rating |  | 3.1 |  |  |  |  |  |  |  |  |  |  |  |  |

December 31, 2021

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|  |  |  |  |  |  |  |  | Year Originated
Risk Rating |  | Number of Loans |  | Total |  | % of Portfolio |  |  | 2021 |  | 2020 |  | 2019 |  | 2018 |  | 2017 |  | Prior
1 |  | — |  |  | $ | — |  |  | — | % |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
2 |  | 1 |  |  | 32,000 |  |  | 0.4 | % |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 32,000 |
3 |  | 62 |  |  | 7,372,081 |  |  | 93.5 | % |  |  | 2,622,248 |  |  | 644,404 |  |  | 2,307,948 |  |  | 828,270 |  |  | 389,264 |  |  | 579,947 |
4 |  | 1 |  |  | 81,980 |  |  | 1.0 | % |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 81,980 |  |  | — |
5 |  | 3 |  |  | 404,787 |  |  | 5.1 | % |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 177,483 |  |  | 227,304 |
Total |  | 67 |  |  | $ | 7,890,848 |  |  | 100.0 | % |  |  | $ | 2,622,248 |  |  | $ | 644,404 |  |  | $ | 2,307,948 |  |  | $ | 828,270 |  |  | $ | 648,727 |  |  | $ | 839,251 |
General CECL Allowance(1) |  | (33,588) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Total carrying value, net | $ | 7,857,260 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Weighted Average Risk Rating |  | 3.1 |  |  |  |  |  |  |  |  |  |  |  |  |

———————
(1)$2.8 million and $3.1 million of the General CECL Allowance for 2022 and 2021, respectively, is excluded from the tables above because it relates to unfunded commitments and has been recorded as a liability under accounts payable, accrued expenses and other liabilities in our condensed consolidated balance sheet
CECL
In accordance with ASU 2016-13 "Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments", which we refer to as the "CECL Standard", we record allowances for loans and held-to-maturity debt securities that are deducted from the carrying amount of the assets to present the net carrying value of the amounts expected to be collected on the assets. We record loan specific allowances as a practical expedient under the CECL Standard ("Specific CECL Allowance"), which we apply to assets that are collateral dependent and where the borrower or sponsor is experiencing financial difficulty. For the remainder of the portfolio, we record a general allowance ("General CECL Allowance", and together with the Specific CECL Allowance, "CECL Allowances"), in accordance with the CECL Standard on a collective basis by assets with similar risk characteristics. We have elected to use the weighted average remaining maturity ("WARM") method in determining a General CECL Allowance for a majority of our portfolio. In the future, we may use other acceptable methods, such as a probability-of-default/loss-given-default method.
The following schedule illustrates the quarterly changes in CECL Allowances for the nine months ended September 30, 2022 and 2021, respectively ($ in thousands):

|  | Specific CECL Allowance(4) |  | General CECL Allowance |  | Total CECL Allowance |  | CECL Allowance as % of Amortized Cost(4) |
|  |  | Funded | Unfunded | Total |  |  | General | Total |
December 31, 2021 | $ | 145,000 |  |  | $ | 33,588 |  | $ | 3,106 |  | $ | 36,694 |  |  | $ | 181,694 |  |  | 0.49 | % | 2.26 | % |
Changes: |  |  |  |  |  |  |  |  |  |  |
| Q1 Allowance (Reversals)(1) | 30,000 |  |  | (12,211) |  | 822 |  | (11,389) |  |  | 18,611 |  |  |  |  |
March 31, 2022 | $ | 175,000 |  |  | $ | 21,377 |  | $ | 3,928 |  | $ | 25,305 |  |  | $ | 200,305 |  |  | 0.32 | % | 2.34 | % |
Changes: |  |  |  |  |  |  |  |  |  |  |
| Q2 Allowance (Reversals), net(2) | (3,000) |  |  | 1,985 |  | 71 |  | 2,056 |  |  | (944) |  |  |  |  |
June 30, 2022 | $ | 172,000 |  |  | $ | 23,362 |  | $ | 3,999 |  | $ | 27,361 |  |  | $ | 199,361 |  |  | 0.33 | % | 2.18 | % |
Changes: |  |  |  |  |  |  |  |  |  |  |
| Q3 (Reversals), net(3) | $ | (53,000) |  |  | (1,377) |  | (1,187) |  | (2,564) |  |  | (55,564) |  |  |  |  |
September 30, 2022 | $ | 119,000 |  |  | $ | 21,985 |  | $ | 2,812 |  | $ | 24,797 |  |  | $ | 143,797 |  |  | 0.30 | % | 1.62 | % |

———————
(1)During the three months ended March 31, 2022, a $30.0 million Specific CECL Allowance was recorded on a subordinate loan secured by an ultra luxury residential property in Manhattan, NY. During the three months ended March 31, 2022, the General CECL Allowance decreased by $11.4 million primarily due to changes in expected loan repayment dates, as well as portfolio seasoning, which was partially offset by new loan originations.
(2)During the three months ended June 30, 2022, the $3.0 million net reversal of Specific CECL Allowance was comprised of (i) the reversal of $10.0 million of previously recorded allowance on a loan related to a multifamily development in Brooklyn, NY as a result of market rent growth and value created from development activities and (ii) a $7.0 million allowance recorded on a loan secured by a hotel in Atlanta, GA due to slower than expected recovery from COVID-19. General CECL Allowance increased by $2.1 million due to new loan originations and more adverse macroeconomic outlook, which was partially offset by portfolio seasoning.
(3)During the three months ended September 30, 2022, the $53.0 million Specific CECL Allowance was reversed on an urban predevelopment first
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mortgage loan in Miami, FL because the collateral which secures the loan is under contract to be sold in the near term at a higher value than the carrying value of the loan pre-reversal. General CECL Allowance decreased by $2.6 million primarily due to portfolio seasoning and sale of unfunded commitments, which was partially offset by one new loan origination and a more adverse macroeconomic outlook.
(4)Loans evaluated for Specific CECL Allowance are excluded from General CECL Allowance pool.

|  | Specific CECL Allowance(5) |  | General CECL Allowance |  | Total CECL Allowance |  | CECL Allowance as % of Amortized Cost(5)
|  |  | Funded | Unfunded | Total |  |  | General | Total
December 31, 2020 | $ | 175,000 |  |  | $ | 38,102 |  | $ | 3,365 |  | $ | 41,467 |  |  | $ | 216,467 |  |  | 0.67 | % | 3.23 | %
Changes: |  |  |  |  |  |  |  |  |  |
| Q1 Allowance (Reversals)(1) | — |  |  | (1,667) |  | 429 |  | (1,238) |  |  | (1,238) |  |  |  |
March 31, 2021 | $ | 175,000 |  |  | $ | 36,435 |  | $ | 3,794 |  | $ | 40,229 |  |  | $ | 215,229 |  |  | 0.62 | % | 3.06 | %
Changes: |  |  |  |  |  |  |  |  |  |
| Q2 Allowance (Reversals)(2) | (20,000) |  |  | 1,764 |  | (1,350) |  | 414 |  |  | (19,586) |  |  |  |
| Write-offs(3) | (10,000) |  |  | — |  | — |  | — |  |  | (10,000) |  |  |  |
June 30, 2021 | $ | 145,000 |  |  | $ | 38,199 |  | $ | 2,444 |  | $ | 40,643 |  |  | $ | 185,643 |  |  | 0.57 | % | 2.41 | %
Changes: |  |  |  |  |  |  |  |  |  |
| Q3 Allowance (Reversals)(4) | — |  |  | (5,515) |  | (251) |  | (5,766) |  |  | (5,766) |  |  |  |
September 30, 2021 | $ | 145,000 |  |  | $ | 32,684 |  | $ | 2,193 |  | $ | 34,877 |  |  | $ | 179,877 |  |  | 0.51 | % | 2.43 | %

———————
(1)During the three months ended March 31, 2021, General CECL Allowance decreased by $1.2 million due to portfolio seasoning and accelerated expected loan repayment dates, which was partially offset by new loan originations.
(2)During the three months ended June 30, 2021, there was a reversal of previously recorded Specific CECL Allowance of $20.0 million on a loan related to a multifamily development in Brooklyn, NY due to improved market outlook. General CECL Allowance increased by $0.4 million due to new loan originations, which was partially offset by portfolio seasoning and an improved macroeconomic outlook.
(3)$10.0 million of previously recorded Specific CECL Allowance, on a subordinate hotel loan, was written-off in connection with the assumption of the hotels assets and liabilities. Refer to "Note 5 – Assets and Liabilities Related to Real Estate Owned, Held for Sale" for additional information.
(4)During the three months ended September 30, 2021, General CECL Allowance decreased by $5.8 million primarily due to portfolio seasoning.
(5)Loans evaluated for Specific CECL Allowance are excluded from General CECL Allowance pool.
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 as the result of COVID-19, including inflation, labor shortages and interest rates.
We derived an annual historical loss rate based on a commercial mortgage backed securities ("CMBS") database with historical losses from 1998 through the third quarter of 2022 provided by a third party, Trepp LLC. We applied various filters to arrive at a CMBS dataset most analogous to our current portfolio from which to determine an appropriate historical loss rate. The annual historical loss rate was further adjusted to reflect our expectations of the macroeconomic environment for a reasonable and supportable forecast period which we have determined to be one year. In assessing the macroeconomic environment, we consider macroeconomic factors, including unemployment rate, commercial real estate prices, and market liquidity. We compared the historical data for each metric to historical commercial real estate losses in order to determine the correlation of the data. We used projections, obtained from third-party service providers, of each factor to approximate the impact the macroeconomic outlook may have on our loss rate.
The General CECL Allowance on subordinate loans is calculated by incorporating both the loan balance of the position(s) of the structurally senior third-party lender(s) and the balance of our subordinate loan(s). The subordinate loans, by virtue of being the first loss position, are required to absorb losses prior to the senior position(s) being impacted, resulting in a higher percentage allowance attributable to the subordinate loan. The General CECL Allowance on unfunded loan commitments is time-weighted based on our expected commitment to fund such obligations. The General CECL Allowance on unfunded commitments is recorded as a liability on our condensed consolidated balance sheet within accounts payable, accrued expenses and other liabilities.
We have made an accounting policy election to exclude accrued interest receivable ($61.5 million and $41.2 million, as of September 30, 2022 and December 31, 2021, respectively), included in other assets on our condensed consolidated balance
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sheet, from the amortized cost basis of the related commercial mortgage loans and subordinate loans and other lending assets in determining the General CECL Allowance, as any uncollectible accrued interest receivable is written off in a timely manner.
Although our secured debt obligations and senior secured term loan financing have a minimum tangible net worth maintenance covenant, the General CECL Allowance has no impact on these covenants as we are permitted to add back the General CECL Allowance for the computation of tangible net worth as defined in the respective agreements.
The following schedule sets forth our General CECL Allowance as of September 30, 2022 and December 31, 2021 ($ in thousands):

|  | September 30, 2022 |  | December 31, 2021
Commercial mortgage loans, net |  | $ | 18,554 |  |  | $ | 22,554 |
Subordinate loans and other lending assets, net |  | 3,431 |  |  | 11,034 |
Unfunded commitments(1) |  | 2,812 |  |  | 3,106 |
Total General CECL Allowance |  | $ | 24,797 |  |  | $ | 36,694 |

———————
(1)The General CECL Allowance on unfunded commitments is recorded as a liability on our condensed consolidated balance sheet within accounts payable, accrued expenses and other liabilities.
Specific CECL Allowance
For collateral-dependent loans where we have deemed the borrower/sponsor to be experiencing financial difficulty, we have elected to apply a practical expedient in accordance with the CECL Standard in 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 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.
The following table summarizes our risk rated 5 loans as of September 30, 2022, 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 |  |  |  |  |  |
| Urban Predevelopment(1) | Miami, FL | $191,139 | $15,000 | $176,139 | Non-Accrual/ 3/1/2020 | 5
| Retail(2)(3) | Cincinnati, OH | 170,661 | 67,000 | 103,661 | Non-Accrual/ 10/1/2019 | 5
| Hotel(4) | Atlanta, GA | 104,832 | 7,000 | 97,832 | Non-Accrual/ 5/1/2022 | 5
Mortgage total: |  | $466,632 | $89,000 | $377,632 |  |
Mezzanine |  |  |  |  |  |
| Residential(5) | Manhattan, NY | $81,980 | $30,000 | $51,980 | Non-Accrual/ 7/1/2021 | 5

15

Mezzanine total: |  | $81,980 | $30,000 | $51,980 |  |
Total: |  | $548,612 | $119,000 | $429,612 |  |

———————
(1)In October 2020, we entered a joint venture with CCOF Design Venture, LLC, which owns the underlying properties that secure our $188.2 million first mortgage loan. The entity in which we own an interest, and which owns the underlying properties, was deemed to be a Variable Interest Entity ("VIE") and we determined that we are not the primary beneficiary of that VIE as we do not have the power to direct the entity's activities. The related profit and loss from the joint venture was immaterial for the three and nine months ended September 30, 2022 and 2021. During the three months ended September 30, 2022, $53.0 million of the previously recorded $68.0 million Specific CECL Allowance was reversed because the collateral which secures the loan is under contract to be sold in the near term. Fair value of the property is based on contracted price net of amounts due to our joint venture partner based on terms of the joint venture agreement. The loan remains on non-accrual and the risk rating remains a 5.
(2)The fair value of retail collateral was determined by applying a capitalization rate of 8.0%.
(3)In September 2018, we entered a joint venture with Turner Consulting II, LLC ("Turner Consulting"), through an entity which owns the underlying property that secures our loan. Turner Consulting contributed 10% of the venture’s equity and we contributed 90%. The entity was deemed to be a VIE and we determined that we are not the primary beneficiary of that VIE as we do not have the power to direct the entity's activities. During the three and nine months ended September 30, 2022 and 2021, $0.6 million and $1.2 million, respectively and $0.2 million and $1.0 million, respectively of interest paid was applied towards reducing the carrying value of the loan. The related profit and loss from the joint venture was immaterial for the three and nine months ended September 30, 2022 and 2021.
(4)The fair value of the hotel collateral was determined by applying a capitalization rate of 9.3% and a discount rate of 11.3%.
(5)The fair value of the residential collateral was determined by making certain projections and assumptions with respect to future performance and a discount rate of 10%.
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 for loans on non-accrual was $661.5 million and $639.6 million as of September 30, 2022 and December 31, 2021, respectively. 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, 2022, we received $2.1 million and $2.6 million, respectively, in interest that reduced amortized cost under the cost recovery method. For the three and nine months ended September 30, 2021 we received $0.2 million and $1.0 million, respectively, in interest that reduced amortized cost under the cost recovery method.
As of September 30, 2022 and December 31, 2021, the amortized cost basis for loans with accrued interest past due 90 or more days was $661.5 million and $757.6 million, respectively. As of September 30, 2022 the amortized cost basis for loans with accrued interest between 30 and 89 days past due was $102.6 million. There were no loans with accrued interest between 30 and 89 days past due as of December 31, 2021.
During the third quarter of 2022, we refinanced our three mezzanine loans, and originated a commercial mortgage loan as part of an overall recapitalization, which are secured by an ultra-luxury residential property in Manhattan, NY. These loans have an aggregate amortized cost at September 30, 2022 of $825.0 million (inclusive of $82.5 million of payment- in-kind (“PIK”) interest). As of September 30, 2022, these loans include (i) a $354.0 million commercial mortgage loan (“Senior Loan”), (ii) a $187.1 million senior mezzanine loan (“Senior Mezzanine Loan”), (iii) a $231.9 million junior mezzanine loan (“Junior Mezzanine A Loan”), and (iv) a $52.0 million junior mezzanine loan (net of a $30.0 million Specific CECL Allowance) (“Junior Mezzanine B Loan” together with the Junior Mezzanine A Loan collectively referred to as “Junior Mezzanine Loan”).
In refinancing the Senior Mezzanine Loan and Junior Mezzanine Loan, we modified the loan terms with the borrower by modifying the interest rates from LIBOR+15.7% to SOFR+9.0% on the Senior Mezzanine Loan, from LIBOR+22.5% to SOFR+15.0% on the Junior Mezzanine A Loan, and from LIBOR+17.5% to SOFR+15.0% on the Junior Mezzanine B Loan. We also extended the term on all three loans from July 2022 to September 2024. Based on our analysis under ASC 310-20 “Receivables – Nonrefundable Fees and Other Costs” (“ASC 310-20”), we have deemed this refinance to be a continuation of our existing loans. We opted to cease accruing interest on the Junior Mezzanine A Loan and Junior Mezzanine B Loan as of July 1, 2021 based on a waterfall sharing arrangement with a subordinate capital provider. We will continue to not accrue interest on the Junior Mezzanine Loan following this refinancing.
In accordance with ASC 326 and adoption of ASU 2022-02, we have classified the refinancing of the Senior Mezzanine Loan and Junior Mezzanine Loan as an interest rate reduction and term extension. The aggregate amortized cost of the Senior Mezzanine Loan and Junior Mezzanine Loan as of September 30, 2022 totaled $471.1 million, or 5.4% of our aggregate commercial mortgage loans and subordinate loans and other lending assets by amortized cost. As of March 31, 2022, sales velocity on the underlying property lagged behind the borrower's business plan and management's expectations. Based on this information as of March 31, 2022, we deemed the borrower to be experiencing financial difficulty and accordingly changed the risk rating to a 5 and recorded $30.0 million of Specific CECL Allowance on the Junior Mezzanine B Loan. The modified loan terms as discussed above have been reflected in our calculation of current expected credit losses for the quarter ended September 30, 2022. Refer to "CECL" section above for additional information regarding our calculation of current expected credit loss allowance. As of September 30, 2022, our amortized cost basis in this loan was $52.0 million, and its risk rating
16

remained as a 5.
As of the quarter ended September 30, 2022, there were $17.6 million of unfunded commitments related to borrowers experiencing financial difficulty for the entire loan portfolio.
In March 2017, we originated a first mortgage secured by a hotel in Atlanta, GA. As of May 1, 2022, due to slower than expected recovery from the COVID-19 pandemic, we deemed the borrower to be experiencing financial difficulty and ceased accruing interest. As of June 30, 2022, we recorded a $7.0 million Specific CECL Allowance and the risk rating was downgraded from a 4 to a 5. During the nine months ended September 30, 2022, we modified the loan to provide two short term extensions to the borrower. As of September 30, 2022, our amortized cost basis in the loan was $97.8 million and its risk rating remained as a 5.
Other Loan and Lending Assets Activity
We recognized PIK interest of $2.7 million and $8.3 million for the three and nine months ended September 30, 2022 respectively, and $10.2 million and $40.7 million for the three and nine months ended September 30, 2021, respectively.
We recognized $0.1 million and $2.5 million in pre-payment penalties and accelerated fees for the three and nine months ended September 30, 2022, respectively. We recognized $0.6 million and $1.2 million in pre-payment penalties and accelerated fees for the three and nine months ended September 30, 2021.
As of September 30, 2022 and December 31, 2021, our portfolio included other lending assets, which are subordinate risk retention interests in securitization vehicles. The underlying mortgages related to our subordinate risk retention interests are secured by a portfolio of properties located throughout the United States. Our maximum exposure to loss from the subordinate risk retention interests is limited to the book value of such interests. The book value as of September 30, 2022 was $51.1 million, consisting of one interest with a weighted average maturity of 1.7 years and $64.6 million as of December 31, 2021 consisting of two interests with weighted average maturity of 4.5 years. We are not obligated to provide, and do not intend to provide financial support to these subordinate risk retention interests. These interests are accounted for as held-to-maturity and recorded at carrying value on our condensed consolidated balance sheet.
We recognized $3.7 million of shared appreciation fees for the three and nine months ended September 30, 2021 related to a first mortgage loan secured by a portfolio of multifamily assets located in the United States, which is recorded in other income in the condensed consolidated statement of operations.
In November 2020, the borrower under a £309.2 million commercial mortgage loan ($422.7 million assuming conversion into U.S. Dollars ("USD")), of which we owned £247.5 million ($338.4 million assuming conversion into USD), secured by an urban retail property located in London, United Kingdom, entered into administration triggering an event of default. In accordance with the loan agreement, we were entitled to collect default interest in addition to the contractual interest we had been earning. During the first quarter of 2022, our commercial mortgage loan was fully satisfied and all accrued contractual and default interest was collected.
During the three months ended September 30, 2022, we transferred a portion of our unfunded commitment of £293.4 million ($327.7 million assuming conversion into USD) in a commercial mortgage loan secured by a mixed use property located in London, United Kingdom to entities managed by affiliates of the Manager. In addition to transferring the unfunded commitment, we also transferred a proportionate share of the origination fee associated with such unfunded commitment, resulting in a reduction to our amortized cost basis. We evaluated the transfer under ASC 860 and determined the transfer met the criteria for sale accounting. We recorded no gain or loss on the sale.
During the three months ended September 30, 2022 one of our commercial mortgage loans collateralized by an office building located in London, United Kingdom was not repaid upon its contractual maturity, triggering an event of default. To provide the borrower with additional time to refinance the loan, we agreed to a conditional waiver of the event of default, and modified the terms of the loan agreement to include (i) a short term extension and (ii) default interest of 2.0%, which we commenced accruing in addition to our contractual rate. At September 30, 2022, the loan had an amortized cost basis of £91.9 million ($102.6 million assuming conversion into USD), including £20.3 million ($22.7 million assuming conversion into USD) of subordinate participation sold accounted for as secured borrowing. We expect to receive all principal and contractual and default interest accrued to date.
Note 5 – Assets and Liabilities Related to Real Estate Owned
Assets and Liabilities Related to Real Estate Owned, Held for Sale
17

In 2017, we originated a subordinate loan junior to a $33.0 million third-party mortgage, secured by a hotel in Anaheim, CA. In December 2020, due to non-performance, we assumed legal title through the execution of a deed-in-lieu of foreclosure. We intended to sell the hotel and, as such, as of the date of the title assumption, we recorded the hotel property on our condensed consolidated balance sheet at its fair market value less costs to sell, net of a realized loss of $2.4 million, that was previously recorded as Specific CECL Allowance.
As of March 31, 2021, there was an increase in our expected costs to sell the property, and therefore, we recorded a $0.6 million loss during the three months ended March 31, 2021, as realized losses and impairments on real estate owned in our condensed consolidated statement of operations. During the second quarter of 2021 the property was sold at our cost basis and no additional gain or loss was recorded. The $33.0 million first mortgage was repaid upon the sale of the property.
In 2017, we originated a $20.0 million junior mezzanine loan which was subordinate to: (i) a $110.0 million mortgage loan, and (ii) a $24.5 million senior mezzanine loan, secured by a full-service luxury hotel in Washington, D.C. During the first quarter of 2020, we recorded a $10.0 million Specific CECL Allowance and placed our junior mezzanine loan on non-accrual status.
On May 24, 2021, we purchased the $24.5 million senior mezzanine loan at par and acquired legal title to the hotel through a deed-in-lieu of foreclosure. We assumed the hotel’s assets and liabilities (including the $110.0 million mortgage loan) and recorded an additional $10.0 million charge reflecting the difference between the fair value of the hotel’s net assets and the carrying amount of the loan. This $10.0 million loss on title assumption plus the previously recorded Specific CECL Allowance of $10.0 million resulted in a $20.0 million realized loss on investments included in our condensed consolidated statement of operations during the second quarter of 2021.
On May 24, 2021, in accordance with ASC 805, "Business Combinations," we allocated the fair value of the hotel’s acquired assets and assumed debt. The non-recurring fair value measurement was classified as Level III within the fair value hierarchy due to the use of significant unobservable inputs. On June 29, 2021, we repaid the $110.0 million mortgage loan against the property. As of March 1, 2022, the hotel assets and liabilities met the criteria to be classified as held for sale under ASC Topic 360, "Property, Plant, and Equipment." As of March 1, 2022, we ceased recording depreciation on the building and furniture, fixtures, and equipment on the condensed consolidated statement of operations.
Below are the hotel's assets and liabilities as of September 30, 2022 on our condensed consolidated balance sheet ($ in thousands):

| September 30, 2022 |  |
Assets: |  |  |
Cash | $ | 5,858 |  |  |
Land | 58,742 |  |  |
Buildings | 86,973 |  |  |
Furniture, fixtures, and equipment | 8,811 |  |  |
Accumulated depreciation | (3,349) |  |  |
Other assets | 5,024 |  |  |
Total Assets | $ | 162,059 |  |  |
Liabilities: |  |  |
Accounts payable, accrued expenses and other liabilities | 6,116 |  |  |
Total Liabilities | $ | 6,116 |  |  |
Net Real Estate Assets | $ | 155,943 |  |  |

For the three and nine months ended September 30, 2022 and 2021, we recorded the operating revenue, expenses and fixed asset depreciation and amortization in our condensed consolidated income statement as shown below ($ in thousands):
18

| Three months ended September 30, |  | Nine months ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
Operations related to real estate owned: |  |  |  |  |  |  |
Revenue from operations | $ | 14,428 |  |  | $ | 5,896 |  |  | $ | 42,098 |  |  | $ | 7,270 |
Operating expenses | (13,308) |  |  | (6,914) |  |  | (36,094) |  |  | (8,908) |
Depreciation and amortization | — |  |  | (1,096) |  |  | (704) |  |  | (1,548) |
Net income (loss) from real estate owned | $ | 1,120 |  |  | $ | (2,114) |  |  | $ | 5,300 |  |  | $ | (3,186) |

Assets and Liabilities Related to Real Estate Owned, Held for Investment
In 2015, we originated a $122.2 million multifamily development commercial mortgage loan secured by an assemblage of properties in downtown Brooklyn, NY. In 2020, the loan went into default and we recorded a $30.0 million Specific CECL Allowance, due to the deterioration of market conditions attributable to COVID-19. As a result of improved market conditions we reversed $20 million of Specific CECL Allowance during the second quarter of 2021. In the second quarter of 2022, we reversed the remaining $10 million Specific CECL Allowance as a result of market rent growth and value created from development activities at the underlying property.
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, "Business Combinations." At that time, our amortized cost basis in the commercial mortgage loan was $226.5 million. We recorded the real estate assumed at a fair value of $270.1 million based on the market value of the land. We recognized a realized gain of $43.6 million, recorded within realized gain on investments on our condensed consolidated statement of operations, which reflects the difference between the fair value of the property and the carrying value of the loan at the time of acquisition. The non-recurring fair value measurement was classified as Level III within the fair value hierarchy due to the use of significant unobservable inputs, including comparable sales of similar properties in the market. Since title acquisition we have capitalized an additional $21.1 million of construction and financing costs. As of September 30, 2022, our cost basis in the property was $291.1 million.
Upon taking title, we concurrently contributed the property to a joint venture with a third party real estate developer. Through our wholly owned subsidiaries, we hold a 100% equity ownership interest in the joint venture and our partner is only entitled to profit upon achievement of certain returns under our joint venture agreement. Concurrently with taking title to the property, we obtained $164.8 million in construction financing on the property.
The construction financing includes a maximum commitment of $388.4 million, an interest rate of SOFR+2.55%, and current maturity of August 2026, with an option for us to extend for one year contingent upon meeting certain conditions. The construction financing agreement contains the following financial covenants: (i) our unencumbered liquidity must be greater $100.0 million and (ii) our net worth must be greater than $600.0 million. Under these covenants, our General CECL Allowance is added back to our net worth calculation. At September 30, 2022, we were in compliance with these covenants.
Note 6 – Other Assets
The following table details the components of our other assets at the dates indicated ($ in thousands):

| September 30, 2022 |  | December 31, 2021
Interest receivable | $ | 61,512 |  |  | $ | 41,219 |
Loan proceeds held by servicer | 9,050 |  |  | 3,179 |
Other(1) | 504 |  |  | 3,355 |
Total | $ | 71,066 |  |  | $ | 47,753 |

———————
(1)Includes $3.1 million of other assets from real estate owned at December 31, 2021. Refer to "Note 5 – Assets and Liabilities Related to Real Estate Owned, Held for Sale" for additional information.
Note 7 – Secured Debt Arrangements, Net
19

We utilize our secured debt arrangements to finance the origination activity in our loan portfolio. Our secured debt arrangements comprise secured credit facilities and a private securitization. During the nine months ended September 30, 2022, we entered into two new asset-specific credit facilities and increased borrowing capacity on three of our existing secured credit facilities.
Our borrowings under secured debt arrangements at September 30, 2022 and December 31, 2021 are detailed in the following table ($ in thousands):

| September 30, 2022 |  | December 31, 2021 |
| Maximum Amount of Borrowings(1) |  | Borrowings Outstanding(1) |  | Maturity (2) |  | Maximum Amount of Borrowings(1) |  | Borrowings Outstanding(1) |  | Maturity (2) |
JPMorgan Facility - USD(3)(4) | $ | 1,533,896 |  |  | $ | 1,427,097 |  |  | September 2026 |  | $ | 1,344,283 |  |  | $ | 1,329,923 |  |  | September 2026 |
JPMorgan Facility - GBP(3)(4) | 66,104 |  |  | 66,104 |  |  | September 2026 |  | 87,497 |  |  | 86,849 |  |  | September 2026 |
JPMorgan Facility - EUR(3)(4) | — |  |  | — |  |  | N/A |  | 68,220 |  |  | 68,220 |  |  | September 2026 |
Deutsche Bank Facility - USD(3) | 700,000 |  |  | 432,269 |  |  | March 2023 |  | 700,000 |  |  | 259,073 |  |  | March 2023 |
Credit Suisse Facility - USD | 633,798 |  |  | 629,026 |  |  | August 2026(6)(7) |  | 161,609 |  |  | 148,720 |  |  | February 2025(6)(7) |
HSBC Facility - GBP | 336,887 |  |  | 336,887 |  |  | April 2025 |  | — |  |  | — |  |  | N/A |
HSBC Facility - EUR | 255,623 |  |  | 255,623 |  |  | January 2026(7) |  | 167,756 |  |  | 162,937 |  |  | July 2022 |
Goldman Sachs Facility - USD | 300,000 |  |  | 148,334 |  |  | November 2025(5) |  | 300,000 |  |  | 168,231 |  |  | November 2025(5) |
Barclays Facility - USD | 200,000 |  |  | 125,592 |  |  | June 2027(6) |  | 200,000 |  |  | 32,693 |  |  | March 2024 |
MUFG Securities Facility - GBP | 179,592 |  |  | 179,592 |  |  | June 2025(6) |  | — |  |  | — |  |  | N/A |
Santander Facility - EUR | 52,931 |  |  | 48,426 |  |  | August 2024 |  | — |  |  | — |  |  | N/A |
Total Secured Credit Facilities | 4,258,831 |  |  | 3,648,950 |  |  |  |  | 3,029,365 |  |  | 2,256,646 |  |  |  |
Barclays Private Securitization - GBP, EUR, SEK | 1,734,264 |  |  | 1,715,169 |  |  | January 2026(7) |  | 1,902,684 |  |  | 1,902,684 |  |  | August 2024(7) |
Total Secured Debt Arrangements | 5,993,095 |  |  | 5,364,119 |  |  |  |  | 4,932,049 |  |  | 4,159,330 |  |  |  |
Less: deferred financing costs | N/A |  | (13,533) |  |  |  |  | N/A |  | (9,062) |  |  |  |
Total Secured Debt Arrangements, net(8)(9)(10) | $ | 5,993,095 |  |  | $ | 5,350,586 |  |  |  |  | $ | 4,932,049 |  |  | $ | 4,150,268 |  |  |

———————
(1)As of September 30, 2022, GBP, EUR, and Swedish Krona ("SEK") borrowings were converted to USD at a rate o f 1.12, 0.98, and 0.09, respectively. As of December 31, 2021, GBP, EUR and SEK borrowings were converted to USD at a rate of 1.35, 1.14 and 0.11, respectively.
(2)Maturity date assumes extensions at our option are exercised with consent of financing providers, where applicable.
(3)Facility enables us to elect to receive advances in USD, GBP, or EUR.
(4)The JPMorgan Facility allows for $1.6 billion of maximum borrowings in total.
(5)Assumes facility enters the two-year amortization period subsequent to the November 2023 maturity, which allows for the refinancing or pay down of assets under the facility.
(6)Assumes financings are extended in line with the underlying loans.
(7)Represents weighted average maturity across various financings with the counterparty. See below for additional details.
(8)Weighted-average borrowing costs as of September 30, 2022 and December 31, 2021 were applicable benchmark rates and credit spread adjustments, plus spreads of USD: +2.31% / GBP: +1.95% / EUR: +1.55% / SEK: +1.50% and USD: +2.00% / GBP: +1.86% / EUR: +1.42%/ SEK: +1.50%, respectively.
(9)Weighted average advance rates based on cost as of September 30, 2022 and December 31, 2021 were 69.5% (65.7% (USD) / 74.0% (GBP) / 73.0% (EUR) / 80.6% (SEK)) and 69.8% (67.1% (USD) / 72.7% (GBP) / 68.9% (EUR) / 80.7% (SEK)), respectively.
(10)As of September 30, 2022 and December 31, 2021, approximately 55% and 50% of the outstanding balance under these secured borrowings were recourse to us.
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 it. As of September 30, 2022 and December 31, 2021, the weighted average haircut under our secured debt arrangements was approximately 30.5% and 30.2%, respectively. Our secured credit facilities do not contain capital markets-based mark-to-market provisions.
Barclays Private Securitization
We are party to a private securitization with Barclays Bank plc (the "Barclays Private Securitization"). Commercial mortgage loans currently financed under the Barclays Securitization are denominated in GBP, EUR and SEK.
20

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 18 months. The securitization includes loan-to-value based covenants with deleveraging requirements that are based on significant declines in the value of the collateral as determined by an annual third-party (engaged by us) appraisal process tied to the provisions of the underlying loan agreements. We believe this provides us with both cushion and predictability to avoid sudden unexpected outcomes and material repayment requirements.
The table below provides principal balances and the carrying value for commercial mortgage loans pledged to the Barclays Private Securitization as of September 30, 2022 and December 31, 2021 ($ in thousands):

| September 30, 2022
Local Currency | Count |  | Outstanding Principal |  | Carrying Value
GBP | 7 |  | $ | 1,398,521 |  |  | $ | 1,381,632 |
EUR | 5 |  | 690,087 |  | 685,090
SEK | 1 |  | 233,280 |  |  | 230,964 |
Total | 13 |  | $ | 2,321,888 |  |  | $ | 2,297,686 |

| December 31, 2021
Local Currency | Count |  | Outstanding Principal |  | Carrying Value
GBP | 7 |  | $ | 1,767,063 |  |  | $ | 1,748,367 |
EUR | 2 |  | 533,164 |  | 528,344
SEK | 1 |  | 286,822 |  |  | 282,555 |
Total | 10 |  | $ | 2,587,049 |  |  | $ | 2,559,266 |

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, 2022 ($ in thousands):

| Borrowings outstanding(1) |  | Fully-Extended Maturity(2)
Total/Weighted-Average GBP | $ | 1,046,524 |  |  | April 2026
Total/Weighted-Average EUR | 482,021 |  | July 2025(3)
Total/Weighted-Average SEK | 186,624 |  | May 2026
Total/Weighted-Average Securitization | $ | 1,715,169 |  |  | January 2026

———————
(1)As of September 30, 2022, we had £936.9 million, €491.8 million, and kr2.1 billion of borrowings outstanding under the Barclays Private Securitization secured by certain of our commercial mortgage loans.
(2)Assumes underlying loans extend to fully extended maturity and extensions at our option are exercised.
(3)The EUR portion of the Barclays Private Securitization has an "evergreen" feature such that the facility continues for one year and can be terminated by either party on certain dates with, depending on the date of notice, a minimum of nine to twelve months' notice.
The table below provides the 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, 2021 ($ in thousands):

| Borrowings outstanding |  | Fully-Extended Maturity(1)
Total/Weighted-Average GBP | $ | 1,299,321 |  |  | June 2025
Total/Weighted-Average EUR | 373,904 |  | November 2022(2)
Total/Weighted-Average SEK | 229,458 |  | November 2022
Total/Weighted-Average Securitization | $ | 1,902,683 |  |  | August 2024

———————
21

(1)Assumes underlying loans extend to fully extended maturity and extensions at our option are exercised.
(2)The EUR portion of the Barclays Private Securitization has an "evergreen" feature such that the facility continues for one year and can be terminated by either party on certain dates with, depending on the date of notice, a minimum of nine to twelve months' notice.
The table below provides the assets and liabilities of the Barclays Private Securitization VIE included in our condensed consolidated balance sheet ($ in thousands):

| September 30, 2022 |  | December 31, 2021
Assets: |  |  |
Cash | $ | 7,375 |  |  | $ | 3,456 |
Commercial mortgage loans, net(1) | 2,297,686 |  |  | 2,559,266 |
Other Assets | 20,590 |  |  | 20,765 |
Total Assets | $ | 2,325,651 |  |  | $ | 2,583,487 |
Liabilities: |  |  |
Secured debt arrangements, net (net of deferred financing costs of $2.7 million and $2.0 million in 2022 and 2021, respectively) | $ | 1,712,454 |  |  | $ | 1,900,640 |
Accounts payable, accrued expenses and other liabilities(2) | 5,379 |  |  | 2,671 |
Total Liabilities | $ | 1,717,833 |  |  | $ | 1,903,311 |

———————
(1)Net of the General CECL Al lowance of $6.2 million and $11.8 million as of September 30, 2022 and December 31, 2021, respectively.
(2)Includes General CECL Allowance related to unfunded commitments on commercial mortgage loans, net o f $1.3 million and $0.4 million as of September 30, 2022 and December 31, 2021, respectively.
The table below provides the net income of the Barclays Private Securitization VIE included in our condensed consolidated statement of operations ($ in thousands):

| Three months ended September 30, |  | Nine months ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
Net Interest Income: |  |  |  |  |  |  |
Interest income from commercial mortgage loans | $ | 30,518 |  |  | $ | 23,446 |  |  | $ | 86,695 |  |  | $ | 60,482 |
Interest expense | (12,668) |  |  | (7,014) |  |  | (32,830) |  |  | (18,000) |
Net interest income | $ | 17,850 |  |  | $ | 16,432 |  |  | $ | 53,865 |  |  | $ | 42,482 |
Reversal of (provision for) loan losses, net | 889 |  |  | 1,819 |  |  | 4,698 |  |  | (3,849) |
Foreign currency translation gain (loss) | (50,237) |  |  | (15,866) |  |  | (111,745) |  |  | (13,976) |
Net Income | $ | (31,498) |  |  | $ | 2,385 |  |  | $ | (53,182) |  |  | $ | 24,657 |

At September 30, 2022, our borrowings had the following remaining maturities ($ in thousands):

| Less than 1 year |  | 1 to 3 years |  | 3 to 5 years |  | More than 5 years |  | Total
JPMorgan Facility | $ | 220,269 |  |  | $ | 671,652 |  |  | $ | 601,280 |  |  | $ | — |  |  | $ | 1,493,201 |
Deutsche Bank Facility | 432,269 |  |  | — |  |  | — |  |  | — |  |  | 432,269 |
Credit Suisse Facility | — |  |  | 164,323 |  |  | 464,703 |  |  | — |  |  | 629,026 |
HSBC Facility | — |  |  | 452,042 |  |  | 140,468 |  |  | — |  |  | 592,510 |
Goldman Sachs Facility | 112,478 |  |  | — |  |  | 35,856 |  |  | — |  |  | 148,334 |
Barclays Facility | — |  |  | — |  |  | 125,592 |  |  | — |  |  | 125,592 |
MUFG Securities Facility | — |  |  | 179,592 |  |  | — |  |  | — |  |  | 179,592 |
Santander Facility | — |  |  | 48,426 |  |  | — |  |  | — |  |  | 48,426 |
Barclays Private Securitization | — |  |  | 553,485 |  |  | 1,161,684 |  |  | — |  |  | 1,715,169 |
Total | $ | 765,016 |  |  | $ | 2,069,520 |  |  | $ | 2,529,583 |  |  | $ | — |  |  | $ | 5,364,119 |

22

The table above reflects the fully extended maturity date of the facility and assumes facilities with an "evergreen" feature continue to extend through the fully-extended maturity of the underlying asset and assumes underlying loans are extended with consent of financing providers.
The table below summarizes the outstanding balances at September 30, 2022, as well as the maximum and average month-end balances for the nine months ended September 30, 2022 for our borrowings under secured debt arrangements ($ in thousands).

| As of September 30, 2022 |  | For the nine months ended September 30, 2022
| Balance |  | Amortized Cost of Collateral |  | Maximum Month-End Balance |  | Average Month-End Balance
JPMorgan Facility | $ | 1,493,201 |  |  | $ | 2,451,227 |  |  | $ | 1,584,171 |  |  | $ | 1,407,031 |
Deutsche Bank Facility | 432,269 |  |  | 633,026 |  |  | 432,455 |  |  | 403,888 |
Goldman Sachs Facility | 148,334 |  |  | 240,039 |  |  | 164,607 |  |  | 155,750 |
Credit Suisse Facility | 629,026 |  |  | 846,123 |  |  | 633,143 |  |  | 511,003 |
HSBC Facility | 592,510 |  |  | 743,442 |  |  | 660,004 |  |  | 461,138 |
Barclays Facility | 125,592 |  |  | 155,459 |  |  | 172,693 |  |  | 97,972 |
MUFG Securities Facility | 179,592 |  |  | 240,904 |  |  | 186,860 |  |  | 122,151 |
Santander Facility | 48,426 |  |  | 64,568 |  |  | 52,222 |  |  | 50,080 |
Barclays Private Securitization | 1,715,169 |  |  | 2,303,863 |  |  | 1,963,837 |  |  | 1,830,053 |
Total | $ | 5,364,119 |  |  | $ | 7,678,651 |  |  |  |  |

The table below summarizes the outstanding balances at December 31, 2021, as well as the maximum and average month-end balances for the year ended December 31, 2021 for our borrowings under secured debt arrangements ($ in thousands).

| As of December 31, 2021 |  | For the year ended December 31, 2021
| Balance |  | Amortized Cost of Collateral |  | Maximum Month-End Balance |  | Average Month-End Balance
JPMorgan Facility | $ | 1,484,992 |  |  | $ | 2,259,376 |  |  | $ | 1,484,992 |  |  | $ | 1,219,072 |
Deutsche Bank Facility | 259,073 |  |  | 389,238 |  |  | 520,217 |  |  | 407,428 |
Goldman Sachs Facility | 168,231 |  |  | 261,848 |  |  | 331,154 |  |  | 228,312 |
Credit Suisse Facility | 148,720 |  |  | 214,124 |  |  | 369,182 |  |  | 224,351 |
HSBC Facility | 162,937 |  |  | 211,813 |  |  | 174,717 |  |  | 165,958 |
Barclays Facility | 32,693 |  |  | 50,241 |  |  | 35,193 |  |  | 33,526 |
Barclays Private Securitization | 1,902,684 |  |  | 2,571,067 |  |  | 1,902,684 |  |  | 1,396,411 |
Total | $ | 4,159,330 |  |  | $ | 5,957,707 |  |  |  |  |

Debt Covenants
The guarantees related to our secured debt arrangements contain the following financial covenants: (i) tangible net worth must be greater than $1.25 billion plus 75% of the net cash proceeds of any equity issuance after March 31, 2017; (ii) our ratio of total indebtedness to tangible net worth cannot be greater than 3.75:1; and (iii) our liquidity cannot be less than an amount equal to the greater of 5% of total recourse indebtedness or $30.0 million. Under these covenants, our General CECL Allowance is added back to our tangible net worth calculation.
We were in compliance with the covenants under each of our secured debt arrangements at September 30, 2022 and December 31, 2021.
Note 8 – Senior Secured Term Loans, Net
In May 2019, we entered into a $500.0 million senior secured term loan (the "2026 Term Loan"), which matures in May 2026 and contains restrictions relating to liens, asset sales, indebtedness, and investments in non-wholly owned entities. The 2026 Term Loan bears interest at LIBOR plus 2.75% and was issued at a price of 99.5%.
23

In March 2021, we entered into an additional $300.0 million senior secured term loan, with substantially the same terms as the 2026 Term Loan, (the "2028 Term Loan" and, together with the 2026 Term Loan, the "Term Loans"), which matures in March 2028 and contains restrictions relating to liens, asset sales, indebtedness, and investments in non-wholly owned entities. The 2028 Term Loan bears interest at LIBOR (with a floor of 0.50%) plus 3.50% and was issued at a price of 99.0%.
The Term Loans are amortizing with repayments of 0.25% per quarter of the total committed principal. During both the three and nine months ended September 30, 2022 and 2021, we repaid $1.3 million and $3.8 million of principal related to the 2026 Term Loan, respectively. During the three and nine months ended September 30, 2022, we repaid $0.7 million and $2.2 million of principal related to the 2028 Term Loan, respectively. During the three and nine months ended September 30, 2021, we repaid $0.8 million and $1.5 million of principal related to the 2028 Term Loan, respectively.
The following table summarizes the terms of our Term Loans as of September 30, 2022 ($ in thousands):

| Principal Amount | Unamortized Issuance Discount(1) | Deferred Financing Costs(1) | Carrying Value | Spread | Maturity Date
2026 Term Loan | $ | 483,750 |  | $ | (1,280) |  | $ | (6,635) |  | $ | 475,835 |  | 2.75 | % | 5/15/2026
2028 Term Loan | 295,500 |  | (2,321) |  | (4,115) |  | 289,064 |  | 3.50 | % | 3/11/2028
Total | $ | 779,250 |  | $ | (3,601) |  | $ | (10,750) |  | $ | 764,899 |  |  |

———————
(1) Unamortized issuance discount and deferred financing costs will be amortized to interest expense over remaining life of respective term loans.
The following table summarizes the terms of our Term Loans as of December 31, 2021 ($ in thousands):

| Principal Amount | Unamortized Issuance Discount(1) | Deferred Financing Costs(1) | Carrying Value | Spread | Maturity Date
2026 Term Loan | $ | 487,500 |  | $ | (1,548) |  | $ | (7,933) |  | $ | 478,019 |  | 2.75 | % | 5/15/2026
2028 Term Loan | 297,750 |  | (2,643) |  | (4,801) |  | 290,306 |  | 3.50 | % | 3/11/2028
Total | $ | 785,250 |  | $ | (4,191) |  | $ | (12,734) |  | $ | 768,325 |  |  |

———————
(1) Unamortized issuance discount and deferred financing costs will be amortized to interest expense over remaining life of respective term loans.
Covenants
During the fourth quarter of 2021, we modified the financial covenants of the Term Loans which included the following: (i) increased our maximum ratio of total recourse debt to tangible net worth from 3:1 to 4:1; (ii) increased our maximum ratio of total unencumbered assets to total pari-passu indebtedness from 1.25:1 to 2.50:1; and (iii) amended the definition of unencumbered asset to include the carrying value of the residual equity in the entities where we hold assets financed under repurchase obligations. In conjunction with the modifications, we incurred $5.2 million in fees, $3.9 million of which were consent fees paid to borrowers recorded as deferred financing costs and $1.3 million of arrangement fees paid to the Term Loan arranger recorded as general and administrative expenses.
We were in compliance with the covenants under the Term Loans at September 30, 2022 and December 31, 2021.
Interest Rate Cap
During the second quarter of 2020, we entered into a three-year interest rate cap to cap LIBOR at 0.75%. This effectively limits the maximum all-in coupon on our 2026 Term Loan to 3.50%. In connection with the interest rate cap, we incurred upfront fees of $1.1 million for the year ended December 31, 2020, which we recorded as a deferred financing cost on our consolidated balance sheet. The deferred financing cost is being amortized over the duration of the interest rate cap with respective amortization recognized as part of interest expense in our condensed consolidated statement of operations.
During the three and nine months ended September 30, 2022, LIBOR exceeded the cap rate of 0.75%. As such, during the three and nine months ended September 30, 2022, we recognized income from the interest rate cap in the amount of $1.8 million and $2.0 million, respectively, which is offsetting interest expense in our condensed consolidated statement of operations. There was no such contra-expense recorded during the three and nine months ended September 30, 2021.
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Note 9 – Senior Secured Notes, Net
In June 2021, we issued $500.0 million of 4.625% Senior Secured Notes due 2029 (the "2029 Notes"), for which we received net proceeds of $495.0 million, after deducting initial purchasers' discounts and commissions. The 2029 Notes will mature on June 15, 2029, unless earlier repurchased or redeemed. The 2029 Notes are secured by a first-priority lien, and rank pari passu in right of payment with all of our existing and future first lien obligations, including indebtedness under the Term Loans. The 2029 Notes were issued at par and contain covenants relating to liens, indebtedness, and investments in non-wholly owned entities. The 2029 Notes had a carrying value of $494.6 million and $494.1 million, net of deferred financing costs of $5.4 million and $5.9 million, as of September 30, 2022 and December 31, 2021, respectively.
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 1.20:1. As of September 30, 2022 and December 31, 2021, we were in compliance with all covenants.
Note 10 – Convertible Senior Notes, Net
In two separate offerings during 2017, we issued an aggregate principal amount of $345.0 million of 4.75% Convertible Senior Notes due 2022 (the "2022 Notes"), for which we received $337.5 million, after deducting the underwriting discount and offering expenses. During the third quarter of 2022, we repaid the $345.0 million aggregate principal amount of the 2022 Notes in cash at par.
During the fourth quarter of 2018, we issued $230.0 million of 5.375% Convertible Senior Notes due 2023 (the "2023 Notes" and, together with the 2022 Notes, the "Convertible Notes"), for which we received $223.7 million after deducting the underwriting discount and offering expenses. At September 30, 2022, the 2023 Notes had a carrying value of $229.2 million and an unamortized discount of $0.8 million.
The following table summarizes the terms of the Convertible Notes as of September 30, 2022 ($ in thousands):

| Principal Amount | Coupon Rate | Effective Rate (1) | Conversion Rate (2) | Maturity Date | Remaining Period of Amortization
2023 Notes | 230,000 |  | 5.38 | % | 5.85 | % | 48.7187 |  | 10/15/2023 | 1.04
Total | $ | 230,000 |  |  |  |  |  |

The following table summarizes the terms of the Convertible Notes as of December 31, 2021 ($ in thousands):

| Principal Amount | Coupon Rate | Effective Rate (1) | Conversion Rate (2) | Maturity Date | Remaining Period of Amortization
2022 Notes | $ | 345,000 |  | 4.75 | % | 5.60 | % | 50.2260 |  | 8/23/2022 | 0.64
2023 Notes | 230,000 |  | 5.38 | % | 6.16 | % | 48.7187 |  | 10/15/2023 | 1.79
Total | $ | 575,000 |  |  |  |  |  |

———————
(1)Effective rate includes the effect of the adjustment for the conversion option (See footnote (2) below), the value of which reduced the initial liability and was recorded in additional paid-in-capital. The effective rate as of September 30, 2022 reflects adoption of ASU 2020-06 "Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity".
(2)We have the option to settle any conversions in cash, shares of common stock or a combination thereof. The conversion rate represents the number of shares of common stock issuable per one thousand principal amount of the Convertible Notes converted, and includes adjustments relating to cash dividend payments made by us to stockholders that have been deferred and carried-forward in accordance with, and are not yet required to be made pursuant to, the terms of the applicable supplemental indenture.
We may not redeem the 2023 Notes prior to maturity except in limited circumstances. The closing price of our common stock on September 30, 2022 of $8.30 was less than the per share conversion price of the 2023 Notes.
On January 1, 2022, we adopted ASU 2020-06 "Debt – Debt with Conversion and Other Options (Subtopic 470-20) and
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Derivatives and Hedging – Contracts in Entity’s Own Equity" ("ASU 2020-06"), which no longer require the liability and equity components of convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) to be separately accounted for in a manner that reflects the issuer’s nonconvertible debt borrowing rate. Prior to the adoption of ASU 2020-06, we attributed $15.4 million of the proceeds to the equity component of the Convertible Notes ($11.0 million to the 2022 Notes and $4.4 million to the 2023 Notes), which represented the excess proceeds received over the fair value of the liability component of the Convertible Notes at the date of issuance. The equity component of the Convertible Notes had been reflected within additional paid-in capital on our condensed consolidated balance sheet until January 1, 2022 when we adopted ASU 2020-06 through the modified retrospective approach. Upon adoption, we (i) reclassified $12.0 million of previously recorded amortization related to the equity component of the Convertible Notes from retained earnings to additional paid-in-capital and (ii) reclassified the remaining unamortized balance of $3.4 million to additional paid-in-capital, which increased the cost basis of convertible notes and decreased additional paid-in-capital on the condensed consolidated balance sheet.
The aggregate contractual interest expense was approximately $5.5 million and $19.8 million for the three and nine months ended September 30, 2022, as compared to $7.2 million and $21.6 million for the three and nine months ended September 30, 2021, respectively. With respect to the amortization of the discount on the liability component of the Convertible Notes as well as the amortization of deferred financing costs, we reported additional non-cash interest expense of approximately $0.6 million and $2.1 million for the three and nine months ended September 30, 2022, as compared to $1.6 million and $4.7 million for the three and nine months ended September 30, 2021, respectively.
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 February 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 following table summarizes our non-designated Fx forwards and our interest rate cap as of September 30, 2022:

| September 30, 2022
Type of Derivatives | Number of Contracts |  | Aggregate Notional Amount (in thousands) |  | Notional Currency |  | Maturity |  | Weighted-Average Years to Maturity
Fx contracts - GBP | 130 |  | 971,560 |  | GBP |  | October 2022 - February 2027 |  | 1.98
Fx contracts - EUR | 127 |  | 560,982 |  | EUR |  | October 2022 - November 2025 |  | 1.97
Fx contracts - SEK | 20 |  | 744,089 |  | SEK |  | November 2022 - May 2026 |  | 3.15
Interest rate cap | 1 |  | 500,000 |  | USD |  | June 2023 |  | 0.71

The following table summarizes our non-designated Fx forwards and our interest rate cap as of December 31, 2021:

| December 31, 2021
Type of Derivatives | Number of Contracts |  | Aggregate Notional Amount (in thousands) |  | Notional Currency |  | Maturity |  | Weighted-Average Years to Maturity
Fx contracts - GBP | 125 |  | 738,178 |  | GBP |  | January 2022 - February 2026 |  | 2.14
Fx contracts - EUR | 90 |  | 508,541 |  | EUR |  | January 2022 - November 2025 |  | 1.88
Fx contracts - SEK | 20 |  | 765,138 |  | SEK |  | February 2022 - May 2026 |  | 3.74
Interest rate cap | 1 |  | 500,000 |  | USD |  | June 2023 |  | 1.45

We have not designated any of our derivative instruments as hedges as defined in ASC 815, "Derivatives and Hedging" and, therefore, changes in the fair value of our derivative instruments are recorded directly in earnings. The following table summarizes the amounts recognized on our condensed consolidated statements of operations related to our derivatives for the nine months ended September 30, 2022 and 2021 ($ in thousands):
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|  |  | Amount of gain (loss) recognized in income |
|  |  | Three months ended September 30, |  | Nine months ended September 30,
| Location of Gain (Loss) Recognized in Income |  | 2022 |  | 2021 |  | 2022 |  | 2021 |
Forward currency contracts | Unrealized gain on derivative instruments |  | $ | 108,428 |  |  | $ | 32,376 |  |  | $ | 221,623 |  |  | $ | 40,857 |  |
Forward currency contracts | Realized gain (loss) on derivative instruments |  | 20,824 |  |  | 571 |  |  | 35,604 |  |  | (1,204) |  |
Total |  |  | $ | 129,252 |  |  | $ | 32,947 |  |  | $ | 257,227 |  |  | $ | 39,653 |  |

In June 2020, we entered into an interest rate cap for approximately $1.1 million. We use our interest rate cap to manage exposure to variable cash flows on our borrowings under our senior secured term loan by effectively limiting LIBOR from exceeding 0.75%. This effectively limits the maximum all-in coupon on our senior secured term loan to 3.50%. The unrealized gain or loss related to the interest rate cap is recorded net under unrealized gain on interest rate hedging instruments in our condensed consolidated statement of operations. During the three and nine months ended September 30, 2022, LIBOR exceeded the cap rate of 0.75%. As such, during the three and nine months ended September 30, 2022, we recognized income from the interest rate cap in the amount of $1.8 million and $2.0 million, respectively, which is offsetting interest expense in our condensed consolidated statement of operations. There was no such contra-expense recorded during the three and nine months ended September 30, 2021. The following table summarizes the amount recognized on our condensed consolidated statements of operations related to our interest rate cap for the three and nine months ended September 30, 2022 and 2021 ($ in thousands):

|  |  | Amount of gain (loss) recognized in income
|  |  | Three months ended September 30, | Nine months ended September 30,
| Location of Gain Recognized in Income |  | 2022 |  | 2021 | 2022 |  | 2021 |  |
Interest rate cap(1) | Unrealized gain (loss) on interest rate hedging instruments |  | $ | 1,044 |  |  | $ | (75) |  | $ | 10,808 |  |  | $ | 171 |  |  |
Total |  |  | $ | 1,044 |  |  | $ | (75) |  | $ | 10,808 |  |  | $ | 171 |  |  |

———————
(1)With a notional amount of $500.0 million at September 30, 2022 and 2021.
The following tables summarize the gross asset and liability amounts related to our derivatives at September 30, 2022 and December 31, 2021 ($ in thousands):

| September 30, 2022 |  | December 31, 2021
| Gross Amount of Recognized Assets |  | Gross Amounts Offset in our Condensed Consolidated Balance Sheet |  | Net Amounts of Assets Presented in our Condensed Consolidated Balance Sheet |  | Gross Amount of Recognized Assets |  | Gross Amounts Offset in our Condensed Consolidated Balance Sheet |  | Net Amounts of Assets Presented in our Condensed Consolidated Balance Sheet
Forward currency contracts | $ | 270,871 |  |  | $ | (33,908) |  |  | $ | 236,963 |  |  | $ | 28,781 |  |  | $ | (13,441) |  |  | $ | 15,340 |
Interest rate cap | 12,257 |  |  | — |  |  | 12,257 |  |  | 1,448 |  |  | — |  |  | 1,448 |
Total derivative assets (liabilities) | $ | 283,128 |  |  | $ | (33,908) |  |  | $ | 249,220 |  |  | $ | 30,229 |  |  | $ | (13,441) |  |  | $ | 16,788 |

Note 12 – Participations Sold
Participations sold represents 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, "Transfers and Servicing." 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 October 2020, we sold a $25.0 million interest, at par, in a mezzanine loan collateralized by a ground-up condominium
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development in New York City that we originated in December 2017. The participation interest sold accrued payment-in-kind interest, was accounted for as a secured borrowing on our condensed consolidated balance sheet, and was subordinate to our remaining mezzanine loan. The mezzanine loan was repaid at par in June 2021, and therefore, we de-recognized the related participating interest of $27.7 million, which included $2.7 million in payment-in-kind interest.
In December 2020, we sold a £6.7 million ($8.9 million assuming conversion into USD at time of transfer) interest, at par, in a first mortgage loan collateralized by an office building located in London, United Kingdom that was originated by us in December 2017. In connection with this sale, we transferred our remaining unfunded commitment of £19.1 million ($25.3 million assuming conversion into USD at time of transfer). The participation interest sold is subordinate to our remaining £71.6 million ($79.9 million assuming conversion into USD) first mortgage loan and is accounted for as a secured borrowing on our condensed consolidated balance sheet.
During the nine months ended September 30, 2022, the participation sold on commercial mortgage loans balance decreased by $4.4 million due to unrealized loss on foreign currency translation. Refer to "Note 4 – Commercial Mortgage Loans, Subordinate Loans and Other Lending Assets, Net" for further discussion of default interest being accrued on the whole position.
The table below details participations sold included in our condensed consolidated balance sheet ($ in thousands):

| September 30, 2022 |  | December 31, 2021
Participation sold on commercial mortgage loans | $ | 22,696 |  |  | $ | 27,064 |
Total participations sold | $ | 22,696 |  |  | $ | 27,064 |

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, 2022 |  | December 31, 2021
Collateral held under derivative agreements | $ | 276,530 |  |  | $ | 21,420 |
Accrued dividends payable | 52,666 |  |  | 52,833 |
Accrued interest payable | 30,516 |  |  | 16,166 |
Accounts payable and other liabilities(1) | 15,955 |  |  | 9,084 |
General CECL Allowance on unfunded commitments(2) | 2,812 |  |  | 3,106 |
Total | $ | 378,479 |  |  | $ | 102,609 |

———————
(1)Includes $0.8 million of accounts payable and other liabilities on the balance sheet of the Real Estate Owned, Held for Investment at September 30, 2022 and $7.2 million of accounts payable and other liabilities on the balance sheet of the Real Estate Owned at December 31, 2021.
(2)Refer to "Note 4 - Commercial Mortgage Loans, Subordinate Loans and Other Lending Assets, Net" for additional disclosure related to the General CECL Allowance on unfunded commitments as of September 30, 2022 and December 31, 2021, respectively.
Note 14 – Related Party Transactions
Management Agreement
In connection with our initial public offering in September 2009, we entered into a management agreement (the "Management Agreement") with the Manager, which describes the services to be provided by the Manager and its compensation for those services. The Manager is responsible for managing our day-to-day operations, subject to the direction and oversight of our board of directors.
Pursuant to the terms of the Management Agreement, the Manager is paid a base management fee equal to 1.5% per annum of our stockholders’ equity (as defined in the Management Agreement), calculated and payable (in cash) quarterly in arrears.
The term of the Management Agreement was automatically renewed for a successive one-year term on September 29, 2022, and will automatically renew on each anniversary thereafter. The Management Agreement may be terminated upon expiration of the one-year extension term only upon the affirmative vote of at least two-thirds of our independent directors, based upon (1) unsatisfactory performance by the Manager that is materially detrimental to ARI or (2) a determination that the management fee payable to the Manager is not fair, subject to the Manager’s right to prevent such a termination based on unfair
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fees by accepting a mutually acceptable reduction of management fees agreed to by at least two-thirds of our independent directors. The Manager must be provided with written notice of any such termination at least 180 days prior to the expiration of the then existing term and will be paid a termination fee equal to three times the sum of the average annual base management fee during the 24-month period immediately preceding the date of termination, calculated as of the end of the most recently completed fiscal quarter prior to the date of termination. Following a meeting by our independent directors in February 2022, which included a discussion of the Manager’s performance and the level of the management fees thereunder, we determined not to seek termination of the Management Agreement.
We incurred approximately $9.7 million and $28.6 million in base management fees under the Management Agreement for the three and nine months ended September 30, 2022, respectively, as compared to $9.6 million and $28.4 million for the three and nine months ended September 30, 2021, respectively.
In addition to the base management fee, we are also responsible for reimbursing the Manager for certain expenses paid by the Manager on our behalf or for certain services provided by the Manager to us. For the three and nine months ended September 30, 2022 we paid expenses totaling $0.9 million and $3.1 million, respectively, related to reimbursements for certain expenses paid by the Manager on our behalf under the Management Agreement as compared to $0.5 million and $1.7 million for the three and nine months ended September 30, 2021, respectively. Expenses incurred by the Manager and reimbursed by us are reflected in the respective condensed consolidated statement of operations expense category or our condensed consolidated balance sheet based on the nature of the item.
Included in payable to related party on our condensed consolidated balance sheet at September 30, 2022 and December 31, 2021 is approximately $9.7 million and $9.8 million, respectively, for base management fees incurred but not yet paid under the Management Agreement.
Loans receivable
In June 2015, we originated a $20.0 million mezzanine loan secured by pledges of equity interests in the property recorded as real estate owned - held for sale on our condensed consolidated balance sheet at September 30, 2022. The mezzanine loan was subordinate to (i) a $110.0 million mortgage loan, originated by a third party, and (ii) a $24.5 million senior mezzanine loan, originated by an affiliate of the Manager. On May 24, 2021, we purchased the $24.5 million senior mezzanine loan at par from the affiliate and acquired legal title to the hotel through a deed-in-lieu of foreclosure. Refer to "Note 5 – Assets and Liabilities Related to Real Estate Owned" for additional information.
We own three mezzanine loans, including Junior Mezzanine B Loan, and a commercial mortgage that are secured by the same ultra luxury residential property currently under construction in Manhattan, NY. During the third quarter of 2021, the Seller transferred its Junior Mezzanine B Loan position to the Company and in connection with this transfer, one of the property’s subordinate capital providers paid the Seller a price representing the Seller’s original principal balance on the Junior Mezzanine B Loan position with the Seller agreeing to forego its accrued interest on the Junior Mezzanine B Loan. During the third quarter of 2022, we refinanced our mezzanine loans, and originated a commercial mortgage loan as part of an overall recapitalization. The mezzanine positions held by entities managed by affiliates of the Manager were repaid. Refer to "Note 4 - Commercial Mortgage Loans, Subordinate Loans and Other Lending Assets, Net" for additional information.
In September 2022, we transferred £293.4 million ($327.7 million assuming conversion into USD) of unfunded commitments related to a mixed-use development property located in London, UK to entities managed by affiliates of the Manager. Refer to "Note 4 – Commercial Mortgage Loans, Subordinate Loans and Other Lending Assets, Net" for additional disclosure.
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 $0.2 million of arrangement fees. In addition, funds managed by an affiliate of the Manager invested in $30.0 million of the 2028 Term Loan.
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 $0.4 million of initial purchasers' discounts and commissions.
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
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"AIFM"), an affiliate of the Manager. During the three and nine months ended September 30, 2022, the AIF incurred $11,000 and $57,000 in fees payable to the AIFM, which is recorded in payable to related party on our condensed consolidated balance sheet.
Note 15 – Share-Based Payments
On September 23, 2009, our board of directors approved the Apollo Commercial Real Estate Finance, Inc. 2009 Equity Incentive Plan ("2009 LTIP") and on April 16, 2019, our board of directors approved the Amended and Restated Apollo Commercial Real Estate Finance, Inc. 2019 Equity Incentive Plan ("2019 LTIP," and together with the 2009 LTIP, the "LTIPs"), which amended and restated the 2009 LTIP. Following the approval of the 2019 LTIP by our stockholders at our 2019 annual meeting of stockholders on June 12, 2019, no additional awards have been or will be granted under the 2009 LTIP and all outstanding awards granted under the 2009 LTIP remain in effect in accordance with the terms in the 2009 LTIP.
The 2019 LTIP provides for grants of restricted common stock, restricted stock units ("RSUs") and other equity-based awards up to an aggregate of 7,000,000 shares of our common stock. The LTIPs are administered by the compensation committee of our board of directors (the "Compensation Committee") and all grants under the LTIPs must be approved by the Compensation Committee.
We recognized stock-based compensation expense of $4.5 million and $13.7 million during the three and nine months ended September 30, 2022. We recognized stock-based compensation expense of $4.4 million and $13.1 million during the three and nine months ended September 30, 2021, respectively, related to restricted stock and RSU vesting.
The following table summarizes the grants, vesting and forfeitures of restricted common stock and RSUs during the nine months ended September 30, 2022:

| Type |  | Restricted Stock |  | RSUs |  | Grant Date Fair Value ($ in millions)
Outstanding at December 31, 2021 |  | 45,185 |  |  | 2,597,941 |  |  |
| Granted |  | 49,434 |  |  | 7,082 |  |  | $ | 0.8 |
| Vested |  | (38,517) |  |  | (50,130) |  |  | N/A
| Forfeiture |  | — |  |  | (12,524) |  |  | N/A
Outstanding at September 30, 2022 |  | 56,102 |  |  | 2,542,369 |  |  |

Below is a summary of restricted stock and RSU vesting dates as of September 30, 2022:

Vesting Year |  | Restricted Stock |  | RSU |  | Total Awards
2022 |  | — |  |  | 1,210,327 |  |  | 1,210,327 |
2023 |  | 52,768 |  |  | 886,145 |  |  | 938,913 |
2024 |  | 3,334 |  |  | 443,536 |  |  | 446,870 |
2025 |  | — |  |  | 2,361 |  |  | 2,361 |
Total |  | 56,102 |  |  | 2,542,369 |  |  | 2,598,471 |

At September 30, 2022, we had unrecognized compensation expense of approximately $0.4 million and $21.5 million related to the vesting of restricted stock awards and RSUs, respectively, noted in the table above.
RSU Deliveries
During the nine months ended September 30, 2022 and 2021 we delivered 652,501 and 553,008 shares of common stock for 1,145,091 and 953,397 vested RSUs, respectively. We allow RSU participants to settle their tax liabilities with a reduction of their share delivery from the originally granted and vested RSUs. The amount, when agreed to by the participant, results in a cash payment to the Manager related to this tax liability and a corresponding adjustment to additional paid in capital on our condensed consolidated statement of changes in stockholders' equity. The adjustment was $7.0 million and $4.3 million for the nine months ended September 30, 2022 and 2021 respectively. The adjustment is a reduction of capital related to our equity incentive plan and is presented net of increases of capital related to our equity incentive plan in our condensed consolidated statement of changes in stockholders' equity.
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Note 16 – Stockholders’ Equity
Our authorized capital stock consists of 450,000,000 shares of common stock, $0.01 par value per share and 50,000,000 shares of preferred stock, $0.01 par value per share. As of September 30, 2022, 140,595,995 shares of common stock were issued and outstanding, and 6,770,393 shares of 7.25% Series B-1 Preferred Stock were issued and outstanding.
Dividends. The following table details our dividend activity:

| Three months ended September 30, |  | Nine months ended September 30,
Dividends declared per share of: | 2022 |  | 2021 |  | 2022 |  | 2021
Common Stock | $0.35 |  | $0.35 |  | $1.05 |  | $1.05
Series B Preferred Stock | N/A |  | N/A |  | N/A |  | 1.00
Series B-1 Preferred Stock | 0.45 |  | 0.45 |  | 1.35 |  | 0.45

On July 15, 2021, we exchanged all 6,770,393 shares outstanding of our 8.00% Fixed-to-Floating Series B Cumulative Redeemable Perpetual Preferred Stock, par value $0.01 per share ("Series B Preferred Stock"), with a liquidation preference of $25.00 per share, for 6,770,393 shares of 7.25% Series B-1 Preferred Stock, par value $0.01 per share ("Series B-1 Preferred Stock"), with a liquidation preference of $25.00 per share, pursuant to an exchange agreement with the two existing holders of the Series B Preferred Stock.
Note 17 – Commitments and Contingencies
Legal Proceedings. From time to time, we may be involved in various claims and legal actions arising in the ordinary course of business. On June 28, 2018, AmBase Corporation, 111 West 57th Street Manager Funding LLC and 111 West 57th Investment LLC commenced 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 ("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 $70.0 million investment plus punitive damages. The defendants' motion to dismiss was granted on October 23, 2019 and the Court entered judgment dismissing the complaint in its entirety on November 8, 2019. Plaintiffs appealed, the parties fully briefed the appeal, and then Plaintiffs dropped the appeal, and the case remains dismissed.
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. We believe the claims in this action are without merit, including as barred by the dismissal of the Apollo Action. The defendants filed a motion to dismiss, which currently is pending. Because this action is in the early stages, no reasonable estimate of possible loss, if any, can be made at this time.
Loan Commitments. As described in "Note 4 - Commercial Mortgage Loans, Subordinate Loans and Other Lending Assets, Net" at September 30, 2022, we had $1.1 billion of unfunded commitments related to our commercial mortgage and subordinate loans. The timings and amounts of fundings are uncertain as these commitments relate to loans for construction costs, capital expenditures, leasing costs, interest and carry costs, among others. As such, the timings and amounts of future fundings depend on the progress and performance of the underlying assets of our loans. Certain of our lenders are contractually obligated to fund their ratable portion of these loan commitments over time, while other lenders have some degree of discretion over future loan funding obligations. The total unfunded commitment is expected to be funded over the remaining 3.7 years weighted average tenor of these loans.
COVID-19. The COVID-19 pandemic has brought forth uncertainty and disruption to the global economy. The magnitude and duration of the COVID-19 pandemic and its impact on our borrowers and their tenants, cash flows and future results of operations could be significant and will largely depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and its new variants, the success of actions taken to contain or treat the pandemic, including vaccination and other treatments, disparities in vaccination rates and vaccine hesitancy, and reactions by consumers, companies, governmental entities and capital markets. The ultimate impact of the COVID-19 pandemic, including the continued impact and uncertainty resulting from COVID-19 variants, supply
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chain disruptions and labor shortages, rising inflation and increases in interest rates on the global economy could materially disrupt our business operations and impact our financial performance.
As of September 30, 2022, we have not recorded any contingencies on our condensed consolidated balance sheet related to COVID-19. To the extent COVID-19 continues to cause dislocations in the global economy, our financial condition, results of operations, and cash flows may continue to be adversely impacted. Refer to "Note 2 - Summary of Significant Accounting Policies" for further discussion regarding COVID-19.
Note 18 – 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 sheet at September 30, 2022 and December 31, 2021 ($ in thousands):

| September 30, 2022 |  | December 31, 2021
| Carrying Value |  | Estimated Fair Value |  | Carrying Value |  | Estimated Fair Value
Cash and cash equivalents | $ | 319,264 |  |  | $ | 319,264 |  |  | $ | 343,106 |  |  | $ | 343,106 |
Commercial mortgage loans, net | 8,013,469 |  |  | 7,991,134 |  |  | 7,012,312 |  |  | 6,945,038 |
Subordinate loans and other lending assets, net(1) | 717,837 |  |  | 718,524 |  |  | 844,948 |  |  | 725,906 |
Secured debt arrangements, net | (5,350,586) |  |  | (5,350,586) |  |  | (4,150,268) |  |  | (4,150,268) |
Senior secured term loans, net | (764,899) |  |  | (749,917) |  |  | (768,325) |  |  | (782,995) |
Senior secured notes, net | (494,644) |  |  | (375,845) |  |  | (494,051) |  |  | (489,175) |
2022 Notes | — |  |  | — |  |  | (343,117) |  |  | (347,552) |
2023 Notes | (229,175) |  |  | (230,000) |  |  | (226,862) |  |  | (231,150) |
Participations sold | (22,696) |  |  | (22,696) |  |  | (27,064) |  |  | (27,064) |

———————
(1)Includes subordinate risk retention interests in securitization vehicles with an estimated fair value that approximates their carrying value.
To determine estimated fair values of the financial instruments listed above, market rates of interest, which include credit assumptions, are used to discount contractual cash flows. The estimated fair values are not necessarily indicative of the amount we could realize on disposition of the financial instruments. The use of different market assumptions or estimation methodologies could have a material effect on the estimated fair value amounts. Estimates of fair value for cash and cash equivalents, convertible senior notes, net, secured debt arrangements net and senior secured term loan, net are measured using observable Level I inputs as defined in "Note 3 - Fair Value Disclosure." Estimates of fair value for all other financial instruments in the table above are measured using significant estimates, or unobservable Level III inputs as defined in "Note 3 - Fair Value Disclosure."
Note 19 – Net Income per Share
ASC 260, "Earnings per share" requires the use of the two-class method of computing earnings per share for all periods presented for each class of common stock and participating security as if all earnings for the period had been distributed. Under the two-class method, during periods of net income, the net income is first reduced for dividends declared on all classes of securities to arrive at undistributed earnings. During periods of net losses, the net loss is reduced for dividends declared on participating securities only if the security has the right to participate in the earnings of the entity and an objectively determinable contractual obligation to share in net losses of the entity.
The remaining earnings are allocated to common stockholders and participating securities to the extent that each security shares in earnings as if all of the earnings for the period had been distributed. Each total is then divided by the applicable number of shares to arrive at basic earnings per share. For the diluted earnings, the denominator includes all outstanding shares of common stock and all potential shares of common stock assumed issued if they are dilutive. The numerator is adjusted for any changes in income or loss that would result from the assumed conversion of these potential shares of common stock.
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The table below presents the computation of basic and diluted net income per share of common stock for the three and nine months ended September 30, 2022 and 2021 ($ in thousands except per share data):

| Three months ended September 30, |  | Nine months ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
Basic Earnings |  |  |  |  |  |  |
Net income | $ | 183,030 |  |  | $ | 60,392 |  |  | $ | 269,219 |  |  | $ | 186,418 |
Less: Preferred dividends | (3,068) |  |  | (3,126) |  |  | (9,204) |  |  | (9,896) |
Net income available to common stockholders | $ | 179,962 |  |  | $ | 57,266 |  |  | $ | 260,015 |  |  | $ | 176,522 |
Less: Dividends on participating securities | (898) |  |  | (874) |  |  | (2,698) |  |  | (2,570) |
Basic Earnings | $ | 179,064 |  |  | $ | 56,392 |  |  | $ | 257,317 |  |  | $ | 173,952 |
Diluted Earnings |  |  |  |  |  |  |
Basic Earnings | $ | 179,064 |  |  | $ | 56,392 |  |  | $ | 257,317 |  |  | $ | 173,952 |
Add: Dividends on participating securities | 898 |  |  | 874 |  |  | 2,698 |  |  | 2,570 |
Add: Interest expense on Convertible Notes | 5,684 |  |  | 8,277 |  |  | 20,608 |  |  | 24,783 |
Diluted Earnings | $ | 185,646 |  |  | $ | 65,543 |  |  | $ | 280,623 |  |  | $ | 201,305 |
Number of Shares: |  |  |  |  |  |  |
Basic weighted-average shares of common stock outstanding | 140,594,987 |  |  | 139,891,777 |  |  | 140,513,957 |  |  | 139,860,882 |
Diluted weighted-average shares of common stock outstanding | 164,350,132 |  |  | 170,884,172 |  |  | 169,252,602 |  |  | 170,836,682 |
Earnings Per Share Attributable to Common Stockholders |  |  |  |  |  |  |
Basic | $ | 1.27 |  |  | $ | 0.40 |  |  | $ | 1.83 |  |  | $ | 1.24 |
Diluted | $ | 1.13 |  |  | $ | 0.38 |  |  | $ | 1.66 |  |  | $ | 1.18 |

The dilutive effect to earnings per share is determined using the "if-converted" method whereby interest expense on the outstanding Convertible Notes is added back to the diluted earnings per share numerator and all of the potentially dilutive shares are included in the diluted earnings per share denominator. For the three and nine months ended September 30, 2022, 21,187,719 and 26,057,847, weighted-average potentially issuable shares with respect to the Convertible Notes, respectively, were included in the dilutive earnings per share denominator. For the three and nine months ended September 30, 2021, 28,533,271 weighted-average potentially issuable shares with respect to the Convertible Notes were included in the dilutive earnings per share denominator. Refer to "Note 10 - Convertible Senior Notes, Net" for further discussion.
For the three and nine months ended September 30, 2022, 2,567,427 and 2,680,798 weighted-average unvested RSUs, respectively, were included in the calculation of diluted net income per share because the effect was dilutive. For the three and nine months ended September 30, 2021, 2,459,124 and 2,442,530 weighted-average unvested RSUs, respectively, were included in the calculation of diluted net income per share because the effect was dilutive.
Note 20 – Subsequent Events
Subsequent to the quarter ended September 30, 2022, the following events took place:
Investment activity: We funded approximately $34.6 million for previously closed loans.
Loan Repayments: We received approximately $112.6 million from loan repayments including the $59.5 million full repayment of a floating rate loan secured by a luxury hotel located in Fort Lauderdale, FL.
Other Loan Activity: Subsequent to quarter end, our risk rated 5 loan collateralized by a hotel property in Atlanta, GA went into maturity default. We are in discussions with the sponsor regarding consensual foreclosure and expect to reach an agreement by the first quarter of 2023.
Financing Activity: We amended our Deutsche Bank Facility to allow for an additional one-year extension option that allows us to extend the facility by twelve months, to March 31, 2024.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
FORWARD-LOOKING INFORMATION
We make forward-looking statements herein and will make forward-looking statements in future filings with the Securities and Exchange Commission ("SEC"), press releases or other written or oral communications within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). For these statements, we claim the protections of the safe harbor for forward-looking statements contained in such Sections. Forward-looking statements are subject to substantial risks and uncertainties, many of which are difficult to predict and are generally beyond our control. These forward-looking statements include information about possible or assumed future results of our business, financial condition, liquidity, results of operations, plans and objectives. When we use the words "believe," "expect," "anticipate," "estimate," "plan," "continue," "intend," "should," "may" or similar expressions, it intends to identify forward-looking statements. Statements regarding the following subjects, among others, may be forward-looking: the macro- and micro-economic impact of the COVID-19 pandemic, increasing interest rates and inflation; the severity and duration of the COVID-19 pandemic, including the emergence and spread of COVID-19 variants; actions taken by governmental authorities to contain the COVID-19 pandemic or treat its impact; the efficacy of the vaccines or other remedies and the speed of their distribution and administration; the impact of the COVID-19 pandemic on our financial condition, results of operations, liquidity and capital resources; market trends in our industry, interest rates, real estate values, the debt securities markets or the general economy; the demand for commercial real estate loans; our business and investment strategy; our operating results; actions and initiatives of the U.S. government and governments outside of the United States, changes to government policies and the execution and impact of these actions, initiatives and policies; the state of the economy generally or in specific geographic regions; economic trends and economic recoveries; our ability to obtain and maintain financing arrangements, including secured debt arrangements and securitizations; the timing and amount of expected future fundings of unfunded commitments; the availability of debt financing from traditional lenders; the volume of short-term loan extensions; the demand for new capital to replace maturing loans; expected leverage; general volatility of the securities markets in which we participate; changes in the value of our assets; the scope of our target assets; interest rate mismatches between our target assets and any borrowings used to fund such assets; changes in interest rates and the market value of our target assets; changes in prepayment rates on our target assets; effects of hedging instruments on our target assets; rates of default or decreased recovery rates on our target assets; the degree to which hedging strategies may or may not protect us from interest rate volatility; impact of and changes in governmental regulations, tax law and rates, accounting, legal or regulatory issues or guidance and similar matters; our continued maintenance of our qualification as a real estate investment trust ("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. Refer to "Item 1A. Risk Factors" of this Quarterly Report on Form 10-Q and our Annual Report. These and other risks, uncertainties and factors, including those described in the annual, quarterly and current reports that we file with the SEC, could cause our actual results to differ materially from those included in any forward-looking statements we make. All forward-looking statements speak only as of the date they are made. New risks and uncertainties arise over time and it is not possible to predict those events or how they may affect us. Except as required by law, we are not obligated to, and do not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Overview
We are a Maryland corporation and have elected to be taxed as a REIT for U.S. federal income tax purposes. We primarily originate, acquire, invest in and manage performing commercial first mortgage loans, subordinate financings, and other commercial real estate-related debt investments. These asset classes are referred to as our target assets.
We are externally managed and advised by the Manager, an indirect subsidiary of Apollo, a global, high-growth alternative asset manager with assets under management of approximately $515.0 billion as of June 30, 2022.
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.
Current Market Conditions
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During the first quarter of 2020, there was a global outbreak of COVID-19, which was declared by the World Health Organization as a pandemic. The ongoing COVID-19 pandemic has adversely impacted global economic activity and has contributed to significant volatility in financial markets. Due to various uncertainties, including the rise of new variants, the severity of such new variants, disparities in vaccination rates and vaccine hesitancy, the ultimate duration of the pandemic, and additional actions that may be taken by governmental authorities, further business risks could arise. Although more normalized activities have resumed and there has been improved global economic activity due to global and domestic vaccination efforts, we are not in a position to estimate the ultimate impact COVID-19 and its variants will have on our business and the economy as a whole, including longer-term macroeconomic effects on supply chains, inflation and labor shortages. For example, in response to recent inflationary pressure, the U.S. Federal Reserve and other global central banks have raised interest rates in 2022 and have indicated likely further interest rate increases. The effects of COVID-19 and its variants have adversely impacted the value of our assets, business, financial condition, results of operations and cash flows, and our ability to operate successfully. Some of the factors that impacted us to date and may continue to affect us are outlined in Item 1A. "Risk Factors."
Critical Accounting Policies and Use of Estimates
A summary of our critical accounting policies is set forth in our Annual Report under "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Use of Estimates."
Real Estate Owned (and Related Debt)
From time to time, we may obtain legal title to the collateral from our loans due to non-performance. This acquisition of real estate is accounted for using the acquisition method under Accounting Standards Codification ("ASC") Topic 805, "Business Combinations." We recognize and measure identifiable assets acquired, liabilities assumed and any non-controlling interest in the acquiree, if applicable, based on their relative fair values. Once real estate assets have been recorded at fair value they are evaluated for impairment on a quarterly basis. Please refer to "Note 2 – Summary of Significant Accounting Policies," "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.
Real estate assets acquired may include land, building, furniture, fixtures and equipment ("FF&E"), and intangible assets. The fair value of land is determined by utilizing the market or sales comparison approach, which compares 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.
We estimate the fair value of any building and FF&E by the cost approach which measures 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.
Once real estate assets have been recorded at fair value, they are evaluated for impairment on a quarterly basis. We consider the following factors when performing our impairment analysis: (i) Management, having the authority to approve the action, commits to a plan to sell the asset; (ii) significant negative industry and economic outlook or trends; (iii) expected material costs necessary to extend the life or operate the real estate asset; and (iv) our ability to hold and dispose of the real estate asset in the ordinary course of business. 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: 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.
From time to time, real estate assets are classified as held for sale in the period in which the six criteria under ASC Topic 360, "Property, Plant, and Equipment" are met: (1) we commit to a plan and have the authority to sell the asset; (2) the asset is available for sale in its current condition; (3) we have initiated an active marketing plan to locate a buyer for the asset; (4) the sale of the asset is both probable and expected to qualify for full sales recognition within a period of 12 months; (5) the asset is being actively marketed for sale at a price that is reflective of its current fair value; and (6) we do not anticipate changes to our plans to sell the asset. 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.
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We determine the fair value of the real estate asset classified as held for sale using valuation methodologies appropriate to what is included within the disposal group, such as the market or sales comparison approach for land and the cost approach for any building and FF&E. Although we exercise significant judgment in generating the assumptions employed in these methodologies, ultimately, 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. Further, if it is determined that the asset should be reported at its carrying value, the actual sales price of the real estate asset could also differ from this amount.
Current Expected Credit Losses ("CECL")
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. The FASB recognizes the WARM method as an acceptable approach for computing current expected credit losses. We have adopted the WARM method to determine the 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). Refer to “Note 2 – Summary of Significant Accounting Policies” to our consolidated financial statements of our most recent annual report on Form 10-K and “Note 4 Commercial Mortgage Loans, Subordinate Loans and Other Lending Assets, Net” for further discussion regarding CECL.
General CECL Allowance
There are various significant assumptions required to estimate our General CECL Allowance which include deriving and applying an annual historical loss rate, forecasting and analyzing the impacts of macroeconomic conditions and 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 third quarter of 2022 provided by a third party, Trepp LLC. 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. Selecting these filters requires the use of significant judgment. The historical loss rate, and ultimately General CECL Allowance we calculated, is sensitive to the CMBS dataset that 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—which we have determined to be one year. We determine our expectations for the macroeconomic environment by analyzing various market factors and assess the potential impact on our portfolio. This assessment requires the use of significant judgment in selecting relevant market factors and our expectations of the future macroeconomic environment. The future macroeconomic environment is subject to uncertainty as the actual future macroeconomic environment could vary from our expectations, which will impact our General CECL Allowance.
Additionally, there are assumptions provided to us by the Manager that represent their best estimate as to expected loan maturity dates, 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.
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 per the guidance. 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 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 loan loss provision 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 loan loss provision), 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 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
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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 provision.
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.
Results of Operations
All non-USD denominated assets and liabilities are translated to USD at the exchange rate prevailing at the reporting date and income, expenses, gains, and losses are translated at the prevailing exchange rate on the dates that they were recorded.
Loan Portfolio Overview
The following table sets forth certain information regarding our loan portfolio as of September 30, 2022 ($ 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 carrying value(5) |
Commercial mortgage loans, net |  | $ | 8,013,469 |  |  | 5.7 | % |  | 6.5 | % |  | $ | 5,364,119 |  |  | 4.3 | % |  | $ | 2,649,350 |  |
Subordinate loans and other lending assets, net |  | 717,837 |  |  | 6.5 | % |  | 7.1 | % |  | — |  |  | — |  |  | 717,837 |  |
Total/Weighted-Average |  | $ | 8,731,306 |  |  | 5.8 | % |  | 6.5 | % |  | $ | 5,364,119 |  |  | 4.3 | % |  | $ | 3,367,187 |  |

———————
(1) Weighted-Average Coupon and Weighted-Average All-in Yield are based on the applicable benchmark rates as of September 30, 2022 on the floating rate loans.
(2) Weighted-Average All-in Yield includes the amortization of deferred origination fees, loan origination costs and accrual of both extension and exit fees. Weighted-Average All-in Yield excludes the benefit of forward points on currency hedges relating to loans denominated in currencies other than USD.
(3) Gross of deferred financing costs of $13.5 million.
(4) Cost of funds includes weighted average spread and applicable benchmark rates as of September 30, 2022 on secured debt arrangements.
(5) Represents loan portfolio at carrying value less secured debt outstanding.
The following table provides details of our commercial mortgage loan portfolio and subordinate loan and other lending assets portfolio, on a loan-by-loan basis, as of September 30, 2022 ($ in millions):

Commercial Mortgage Loan Portfolio
# | Property Type | Risk Rating | Origination Date | Amortized Cost | Unfunded Commitment | Construction Loan | 3rd Party Subordinate Debt | Fully-extended Maturity | Location
1 | Hotel | 3 | 10/2019 | $304 | $28 |  | Y | 08/2024 | Various, Spain
2 | Hotel | 3 | 11/2021 | 186 | 20 |  | Y | 11/2026 | Various, UK/Ireland
3 | Hotel | 3 | 05/2022 | 178 | 25 |  | Y | 06/2027 | Napa Valley, CA
4 | Hotel | 3 | 04/2018 | 152 | — |  |  | 04/2023 | Honolulu, HI
5 | Hotel | 3 | 07/2021 | 146 | 33 |  |  | 08/2026 | Various, US
6 | Hotel | 3 | 09/2015 | 146 | — |  |  | 06/2024 | Manhattan, NY
7 | Hotel | 3 | 11/2021 | 123 | 41 | Y |  | 12/2026 | St. Thomas, USVI
8 | Hotel | 3 | 08/2019 | 117 | — |  |  | 08/2024 | Puglia, Italy
9 | Hotel | 3 | 10/2021 | 99 | — |  |  | 11/2026 | New Orleans, LA
10 | Hotel(3)(6) | 5 | 03/2017 | 98 | — |  |  | 10/2022 | Atlanta, GA
11 | Hotel | 3 | 11/2018 | 90 | — |  |  | 12/2023 | Vail, CO
12 | Hotel | 3 | 12/2019 | 60 | — |  |  | 01/2025 | Tucson, AZ
13 | Hotel | 3 | 05/2021 | 59 | 2 |  | Y | 06/2026 | Fort Lauderdale, FL
14 | Hotel | 3 | 05/2019 | 52 | — |  |  | 06/2024 | Chicago, IL
15 | Hotel | 3 | 12/2015 | 42 | — |  |  | 08/2024 | St. Thomas, USVI
16 | Hotel | 3 | 10/2021 | 39 | 39 |  |  | 10/2026 | Lake Como, Italy
17 | Hotel | 3 | 02/2018 | 27 | — |  |  | 11/2024 | Pittsburgh, PA
18 | Hotel | 3 | 12/2021 | 21 | 28 |  |  | 06/2025 | Dublin, Ireland
19 | Office | 3 | 01/2020 | 224 | 66 |  | Y | 02/2025 | Long Island City, NY
20 | Office | 3 | 03/2022 | 218 | 47 |  | Y | 04/2027 | Manhattan, NY
21 | Office | 3 | 02/2020 | 188 | — |  |  | 02/2025 | London, UK
22 | Office | 3 | 06/2019 | 183 | 13 |  |  | 08/2026 | Berlin, Germany

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23 | Office | 3 | 02/2022 | 144 | — |  |  | 06/2025 | Milan, Italy
24 | Office | 3 | 02/2022 | 128 | 384 | Y |  | 02/2027 | London, UK
25 | Office | 3 | 11/2017 | 121 | — |  |  | 01/2023 | Chicago, IL
26 | Office(1) | 3 | 12/2017 | 103 | — |  | Y | 10/2022 | London, UK
27 | Office | 3 | 06/2022 | 87 | — |  |  | 06/2025 | Rome, Italy
28 | Office | 3 | 03/2018 | 86 | — |  | Y | 07/2023 | Chicago, IL
29 | Office | 3 | 11/2021 | 33 | 38 | Y |  | 11/2025 | Milan, Italy
30 | Retail | 3 | 04/2022 | 417 | 34 |  |  | 04/2027 | Various, UK
31 | Retail | 3 | 10/2021 | 362 | — |  |  | 10/2026 | Various, UK
32 | Retail | 3 | 08/2019 | 249 | — |  | Y | 09/2025 | Manhattan, NY
33 | Retail | 3 | 05/2022 | 155 | — |  |  | 06/2027 | Various, US
34 | Retail(3) | 5 | 11/2014 | 104 | — |  |  | 09/2023 | Cincinnati, OH
35 | Residential(4) | 3 | 08/2022 | 354 | 4 |  |  | 09/2024 | Manhattan, NY
36 | Residential | 3 | 12/2021 | 195 | 15 |  |  | 12/2026 | Various, UK
37 | Residential | 3 | 12/2018 | 136 | 43 |  | Y | 12/2023 | Manhattan, NY
38 | Residential | 3 | 12/2021 | 101 | 31 |  |  | 01/2027 | Manhattan, NY
39 | Residential | 3 | 05/2022 | 89 | 4 |  |  | 06/2027 | Manhattan, NY
40 | Residential | 3 | 05/2021 | 82 | — |  | Y | 05/2026 | Cleveland, OH
41 | Residential | 3 | 12/2019 | 60 | 7 |  | Y | 11/2025 | Boston, MA
42 | Residential | 3 | 04/2014 | 59 | — |  |  | 07/2023 | Various
43 | Residential | 3 | 11/2014 | 50 | — |  |  | 06/2023 | Various, US
44 | Residential | 3 | 12/2021 | 32 | — |  | Y | 01/2026 | Hallandale Beach, FL
45 | Healthcare | 3 | 03/2022 | 372 | — |  |  | 03/2027 | Various, MA
46 | Healthcare | 3 | 10/2019 | 180 | — |  |  | 10/2024 | Various, UK
47 | Mixed Use | 3 | 12/2019 | 281 | 88 | Y | Y | 06/2025 | London, UK
48 | Mixed Use | 3 | 03/2022 | 134 | 42 |  | Y | 03/2027 | Brooklyn, NY
49 | Mixed Use | 3 | 06/2022 | 59 | 58 | Y | Y | 06/2026 | London, UK
50 | Mixed Use | 3 | 12/2019 | 39 | — |  |  | 09/2023 | London, UK
51 | Parking Garages | 3 | 05/2021 | 270 | 5 |  |  | 05/2026 | Various, US
52 | Industrial | 3 | 03/2021 | 232 | — |  |  | 05/2026 | Various, Sweden
53 | Portfolio(2) | 3 | 06/2021 | 207 | 20 |  |  | 06/2026 | Various, Germany
54 | Caravan Parks | 3 | 02/2021 | 183 | — |  |  | 02/2028 | Various, UK
55 | Urban Predevelopment(3) | 5 | 01/2016 | 176 | — |  |  | 09/2023 | Miami, FL
| General CECL Allowance |  |  | (19) |  |  |  |  |
| Subtotal / Weighted-Average Commercial Mortgage Loans | 3.1 |  | $8,013 | $1,115 |  |  | 3.1 Years |

Subordinate Loan and Other Lending Assets Portfolio
# | Property Type | Risk Rating | Origination Date | Amortized Cost | Unfunded Commitment | Construction Loan | 3rd Party Subordinate Debt | Fully-extended Maturity | Location
1 | Residential(4) | 3 | 05/2020 | $232 | $— |  | Y | 09/2024 | Manhattan, NY
2 | Residential(4) | 3 | 06/2015 | 187 | 13 |  | Y | 09/2024 | Manhattan, NY
3 | Residential(3)(4) | 5 | 11/2017 | 52 | — |  | Y | 09/2024 | Manhattan, NY
4 | Office | 3 | 01/2019 | 100 | — |  |  | 12/2025 | Manhattan, NY
5 | Office | 3 | 08/2017 | 8 | — |  |  | 09/2024 | Troy, MI
6 | Healthcare(5) | 3 | 07/2019 | 51 | — |  | Y | 06/2024 | Various, US
7 | Hotel | 3 | 06/2015 | 23 | — |  |  | 07/2025 | Phoenix, AZ
8 | Hotel | 3 | 06/2018 | 20 | — |  |  | 06/2023 | Las Vegas, NV
9 | Industrial | 2 | 05/2013 | 32 | — |  |  | 05/2023 | Various, US
10 | Mixed Use | 3 | 02/2019 | 16 | — |  |  | 10/2022 | London, UK
| General CECL Allowance |  |  | (3) |  |  |  |  |
| Subtotal / Weighted-Average Subordinate Loans and Other Lending Assets | 3.1 |  | $718 | $13 |  |  | 2.0 Years |

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| Total / Weighted-Average Loan Portfolio | 3.1 |  | $8,731 | $1,128 |  |  | 3.0 Years |

———————
(1)Includes $22.7 million of a subordinate participation sold accounted for as secured borrowing.
(2)Includes portfolio of office, industrial, and retail property types.
(3)Amortized cost for these loans is net of the recorded Specific CECL Allowance.
(4)Loans are secured by the same property.
(5)Single Asset, Single Borrower CMBS.
(6)Loan went into maturity default subsequent to the quarter ended September 30, 2022.
Our average asset and debt balances for the nine months ended September 30, 2022 were ($ in thousands):

|  | Average month-end balances for the nine months ended September 30, 2022
Description |  | Assets |  | Related debt
Commercial mortgage loans, net |  | $ | 7,977,494 |  |  | $ | 5,039,066 |
Subordinate loans and other lending assets, net |  | 786,893 |  |  | — |
Subordinate loans, held for sale |  | 833 |  |  | — |

Portfolio Management
Due to the impact of COVID-19, including longer-term macroeconomic effects on supply chains, inflation and labor shortages, some of our borrowers have experienced challenges which have prevented the execution of their business plans and in some cases, resulted in temporary closures. As a result, we have worked with borrowers to execute loan modifications which are typically coupled with additional equity contributions from borrowers. Loan modifications to date have included repurposing of reserves, temporary deferrals of interest or principal, and partial deferral of coupon interest as payment-in-kind interest.
Investment Activity
During the nine months ended September 30, 2022, we committed $3.5 billion of capital to loans ($2.8 billion was funded at closing). In addition, during the nine months ended September 30, 2022, we received $1.5 billion in repayments and funded $0.5 billion for commitments closed prior to 2022.
Net Income Available to Common Stockholders
For the nine months ended September 30, 2022 and 2021, our net income available to common stockholders was $260.0 million, or $1.66 per diluted share of common stock, and $176.5 million, or $1.18 per diluted share of common stock,
respectively.
Operating Results
The following table sets forth information regarding our condensed consolidated results of operations and certain key operating metrics compared to the most recently reported period ($ in thousands):
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| Three months ended |  | Q3'22 vs. Q2'22
| September 30, 2022 |  | June 30, 2022 |
Net interest income: |  |  |  |  |
Interest income from commercial mortgage loans | $ | 120,821 |  |  | $ | 99,386 |  |  | $ | 21,435 |
Interest income from subordinate loans and other lending assets | 13,354 |  |  | 14,530 |  |  | (1,176) |
Interest expense | (72,302) |  |  | (56,529) |  |  | (15,773) |
Net interest income | 61,873 |  |  | 57,387 |  |  | 4,486 |
Operations related to real estate owned: |  |  |  |  |
Revenue from real estate owned operations | 14,428 |  |  | 18,630 |  |  | (4,202) |
Operating expenses related to real estate owned | (13,308) |  |  | (13,134) |  |  | (174) |
Net income related to real estate owned | 1,120 |  |  | 5,496 |  |  | (4,376) |
Operating expenses: |  |  |  |  |
General and administrative expenses | (7,184) |  |  | (7,130) |  |  | (54) |
Management fees to related party | (9,719) |  |  | (9,632) |  |  | (87) |
Total operating expenses | (16,903) |  |  | (16,762) |  |  | (141) |
Other income | 285 |  |  | 68 |  |  | 217 |
Realized gain on investments | 43,577 |  |  | — |  |  | 43,577 |
Reversal of loan losses - Specific CECL Allowance, net | 53,000 |  |  | 3,000 |  |  | 50,000 |
Reversal of (provision for) loan losses - General CECL Allowance, net | 2,564 |  |  | (2,056) |  |  | 4,620 |
Gain on foreign currency forward contracts | 129,252 |  |  | 105,213 |  |  | 24,039 |
Foreign currency translation loss | (92,782) |  |  | (84,838) |  |  | (7,944) |
Gain on interest rate hedging instruments | 1,044 |  |  | 3,443 |  |  | (2,399) |
Net income | $183,030 |  | $70,951 |  | $112,079

Net Interest Income
Net interest income increased by $4.5 million during the three months ended September 30, 2022 compared to the three months ended June 30, 2022. The increase in interest income was primarily due to higher average index rates in the current period: average U.S. LIBOR increased by 1.48%, average U.S. SOFR increased by 1.50%, average Daily SONIA increased by 0.66% from the three months ended June 30, 2022 to the three months ended September 30, 2022. Average EURIBOR increased by 0.49% during three months ended September 30, 2022 above the 0.0% floors taken during the three months ended June 30, 2022. The increase in interest expense was primarily due to (i) higher average index rates in the current period, as noted above, and (ii) an increase in the weighted average balance of our outstanding debt facilities by $135.2 million for the three months ended September 30, 2022, as compared to three months ended June 30, 2022, which was partially offset by a decrease in interest expense related to the payoff of the 2022 Notes.
Operations Related to Real Estate Owned
In 2017, we originated a $20.0 million junior mezzanine loan which was subordinate to: (i) a $110.0 million mortgage loan, and (ii) a $24.5 million senior mezzanine loan, secured by a full-service luxury hotel in Washington, D.C. On May 24, 2021, we acquired legal title to the hotel through a deed-in-lieu of foreclosure and the criteria for held-for-sale classification in ASC Topic 360, "Property, Plant, and Equipment" were not met. The assets and liabilities related to the hotel were assumed at their estimated fair value at acquisition and presented net of accumulated depreciation and impairment charges. As of March 1, 2022, the related assets and liabilities were transferred to assets and liabilities related to real estate owned, held for sale, as due to our marketing efforts on the property, as well as other developments, it now met the criteria for held for sale. Results of operations from the hotel are comprised of operating revenue, expenses and real estate asset depreciation. As of March 1, 2022, we ceased recording depreciation on the building and FF&E on the condensed consolidated statement of operations as the property was transferred to held for sale at such date.
The hotel operations generated $1.1 million of net income during the three months ended September 30, 2022 compared to $5.5 million of net income during the three months ended June 30, 2022. The decrease in net income from hotel operations primarily relates to the decrease in hotel occupancy and events held due to seasonality of hotel operations during the three months ended September 30, 2022 compared to the three months ended June 30, 2022.
Refer to "Note 5 - Assets and Liabilities Related to Real Estate Owned" for more information related to our impairment and realized losses on real estate owned.
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Operating Expenses
General and administrative expenses
General and administrative expenses remained generally the same for the three months ended September 30, 2022 compared to the three months ended June 30, 2022.
Management fees to related party
Management fee expense remained generally the same for the three months ended September 30, 2022 compared to the three months ended June 30, 2022.
Other income
Other income remained generally the same for the three months ended September 30, 2022 compared to the three months ended June 30, 2022.
Realized gain on investments
During the three months ended September 30, 2022, a $43.6 million realized gain on investments was recorded in connection with the title acquisition for one of our first mortgage loans secured by a multifamily development in Brooklyn, NY. The gain reflects the difference between the fair value of the property and the carrying value of the loan at the time of acquisition.
Refer to "Note 5 - Assets and Liabilities Related to Real Estate Owned" for more information related to our realized gain on investments.
Reversals of loan losses - Specific CECL Allowance, net
Our Specific CECL Allowance decreased by $53.0 million during the three months ended September 30, 2022. We reversed $53.0 million of previously recorded Specific CECL allowance on an urban predevelopment first mortgage loan in Miami, FL, because the collateral which secures the loan is under contract to be sold in the near term at a higher value than carrying value of the loan pre-reversal.
During the three months ended June 30, 2022, we reversed $10.0 million of previously recorded allowance on a loan related to a multifamily development in Brooklyn, NY, due to market rent growth and value created from development activities, which was partially offset by a $7.0 million allowance on a loan secured by a hotel in Atlanta, GA resulting from the hotel having a slower than expected recovery from the COVID-19 pandemic.
Refer to "Note 2 - Summary of Significant Accounting Policies" and "Note 4 - Commercial Mortgage Loans, Subordinate Loans and Other Lending Assets, Net" for additional information related to our Specific CECL Allowance.
Reversal of (provision for) loan losses - General CECL Allowance, net
Our General CECL Allowance decreased by $2.6 million during the three months ended September 30, 2022 compared to the three months ended June 30, 2022 due to portfolio seasoning and sale of unfunded commitments, which was partially offset by one new loan origination and a more adverse macroeconomic outlook.. The General CECL Allowance increased by $2.1 million during the three months ended June 30, 2022 compared to the three months ended March 31, 2022 as a result of new loan originations and a more adverse macroeconomic outlook.
Refer to "Note 2 - Summary of Significant Accounting Policies" and "Note 4 - Commercial Mortgage Loans, Subordinate Loans and Other Lending Assets, Net" for additional information related to our General CECL Allowance.
Foreign currency translation loss and gain on derivative instruments
We use forward currency contracts to economically hedge interest and principal payments due under our loans denominated in currencies other than USD. When gains and losses on foreign currency translation and derivative instruments are evaluated on a combined basis, the net impact for the three months ended September 30, 2022 and June 30, 2022 was a $36.5 million and $20.4 million gain, respectively.
The increase from the previous quarter represents a timing difference between the valuation on the foreign currency forward contracts, which are valued using spot rates, forward point estimates, and discount factors, and the foreign currency translation calculation which uses only spot rates. Additionally, as rates fell significantly during the quarter our unrealized gain
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from derivative instruments, including derivative instruments related to our future expected interest cash flow, increased. As derivative instruments related to our future expected interest cash flow have no offset in foreign currency (loss) they are accounting for some of the variance noted above.
Gain on interest rate hedges
During the second quarter of 2020, we entered into a three-year interest rate cap to cap LIBOR at 0.75%. During the three months ended September 30, 2022 and June 30, 2022, the interest rate cap had an unrealized gain of $1.0 million and $3.4 million, respectively. The decrease in the unrealized gain is a result of the nearing maturity of the cap offset by the current interest rate forward curve.
Subsequent Events
Refer to "Note 20 - Subsequent Events" to the accompanying condensed consolidated financial statements for disclosure regarding significant transactions that occurred subsequent to September 30, 2022.
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 $1.5 billion of corporate debt at face value and $5.4 billion of asset financings. Our corporate debt includes: (i) $779.3 million of term loan borrowings, (ii) $500.0 million of senior secured notes, and (iii) $230.0 million of convertible notes. Our asset specific financings are generally tied to the underlying loans and we anticipate repayments of $765.0 million 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, 2022, we had $1.1 billion of unfunded loan commitments. We expect that approximately $565.2 million will be funded to existing borrowers in the short term.
We have various sources of liquidity that we are able to use to satisfy our short and long term obligations. As of September 30, 2022, we had $319.3 million of cash on hand. As of September 30, 2022, we also held approximately $1.1 billion of unencumbered assets, consisting of $517.8 million of senior mortgages and $534.1 million of mezzanine loans. Depending on market conditions, we may utilize additional borrowings as a source of cash, which may also include additional secured debt arrangements as well as other borrowings or conduct additional public and private debt and equity offerings.
We maintain policies relating to our use of leverage. Refer to "Leverage Policies" below. In the future, we may seek to raise further equity or debt capital or engage in other forms of borrowings in order to fund future investments or to refinance expiring indebtedness.
We generally intend to hold our 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.
We also have interests in two unconsolidated joint ventures, each of which owns underlying properties that secure one of our first mortgage loans, respectively and are accounted for as off-balance-sheet arrangements. The unconsolidated joint ventures were deemed to be Variable Interest Entities ("VIEs"), of which we are not the primary beneficiary. Accordingly, the VIEs are not consolidated in our condensed consolidated financial statements as of September 30, 2022. Our maximum exposure to loss from these commercial mortgage loans is limited to their carrying value, which as of September 30, 2022 was $227.2 million. Although there is risk of loss we have no contractual obligation to fund any additional capital into the joint ventures.
Borrowings Under Various Financing Arrangements
The table below summarizes the outstanding balances and maturities for our various financing arrangements:
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| September 30, 2022 |  | December 31, 2021
| Borrowings Outstanding(1) |  | Maturity (2) |  | Borrowings Outstanding(1) |  | Maturity (2)
Secured credit facilities | $ | 3,648,950 |  |  | January 2026 |  | $ | 2,256,646 |  |  | October 2025
Barclays Private Securitization | 1,715,169 |  |  | January 2026 |  | 1,902,684 |  |  | August 2024
Total Secured debt arrangements | $ | 5,364,119 |  |  |  |  | $ | 4,159,330 |  |  |
Senior secured term loans | $ | 779,250 |  |  | January 2027 |  | $ | 785,250 |  |  | January 2027
Senior secured notes | 500,000 |  |  | June 2029 |  | 500,000 |  |  | June 2029
Convertible senior notes | 230,000 |  |  | October 2023 |  | 575,000 |  |  | February 2023
Total Borrowings | $ | 6,873,369 |  |  |  |  | $ | 6,019,580 |  |  |

———————
(1)Borrowings Outstanding represent principal balances as of the respective reporting periods.
(2)Maturity dates represent weighted average maturities based on borrowings outstanding and assumes extensions at our option are exercised with consent of financing providers, where applicable.
Secured Credit Facilities
As of September 30, 2022, we had entered into secured debt arrangements with seven secured credit facilities through wholly-owned subsidiaries. Terms under various master repurchase agreements vary by secured credit facility.
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
In June 2020, through a newly formed entity, we entered into a private securitization with Barclays Bank plc. As of September 30, 2022, we had £936.9 million, €491.8 million, and kr2.1 billion ($1.7 billion assuming conversion into USD) of borrowings outstanding under the Barclays Private Securitization secured by certain of our commercial mortgage loans.
Refer to "Note 7 - Secured Debt Arrangements, Net" of our Condensed Consolidated Financial Statements for additional disclosure regarding our Barclays Private Securitization.
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 (collectively Term Loans). The outstanding Term Loans principal balance as of September 30, 2022 and December 31, 2021 was $779.3 million and $785.3 million, respectively.
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 4.625% Senior Secured Notes due 2029 (the "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 $494.6 million and $494.1 million, net of deferred financing costs of $5.4 million and $5.9 million, as of September 30, 2022 and December 31, 2021, respectively.
Refer to “Note 9 – Senior Secured Notes, Net” of our Condensed Consolidated Financial Statements for additional disclosure regarding our 2029 Notes.
Convertible Senior Notes
In two separate offerings during 2017, we issued an aggregate principal amount of $345.0 million of 4.75% Convertible Senior Notes due 2022 (the "2022 Notes"), for which we received $337.5 million, after deducting the underwriting discount and offering expenses. During the third quarter of 2022, we repaid the $345.0 million aggregate principal amount of the 2022 Notes.
During the fourth quarter of 2018, we issued $230.0 million of 5.375% Convertible Senior Notes due 2023, for which we received $223.7 million after deducting the underwriting discount and offering expenses. At September 30, 2022, the 2023 Notes had a carrying value of $229.2 million and an unamortized discount of $0.8 million.
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Refer to “Note 10 – Convertible Senior Notes, Net” of our Condensed Consolidated Financial Statements for additional disclosure regarding our Convertible Notes.
Debt-to-Equity Ratio
The following table presents our debt-to-equity ratio:

| September 30, 2022 |  | December 31, 2021
Debt to Equity Ratio(1) | 2.8 |  | 2.4

———————
(1)Represents total debt less cash and loan proceeds held by se rvicer (recorded with Other Assets, refer to "Note 6 - Other Assets" for more information) to total stockholders' equity.
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, 2022, our debt-to-equity ratio was 2.8 and our portfolio was comprised of $8.0 billion of commercial mortgage loans and $717.8 million of subordinate loans and other lending assets. In order to achieve our return on equity, we generally finance our mortgage loans with 2.0 to 3.0 turns of leverage and generally do not finance our subordinate loans and other lending assets given built-in inherent structural leverage.
Investment Guidelines
Our current investment guidelines, approved by our board of directors, are comprised of the following:
•no investment will be made that would cause us to fail to qualify as a REIT for U.S. federal income tax purposes;
•no investment will be made that would cause us to register as an investment company under the 1940 Act;
•investments will be predominantly in our target assets;
•no more than 20% of our net equity (on a consolidated basis) will be invested in any single investment at the time of the investment; in determining compliance with the investment guidelines, the amount of the investment is the net equity in the investment (gross investment less amount of third-party financing) plus the amount of any recourse on the financing secured by the investment; and
•until appropriate investments can be identified, the Manager may invest the proceeds of any offering in interest bearing, short-term investments, including money market accounts and/or funds, that are consistent with our intention to qualify as a REIT.
The board of directors must approve any change in or waiver to these investment guidelines.
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, 2022, and December 31, 2021 we had 6,770,393 shares of 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.
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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 |  | Nine months ended
Dividends declared per share of: | September 30, 2022 |  | September 30, 2021 |  | September 30, 2022 |  | September 30, 2021
Common Stock | $0.35 |  | $0.35 |  | $1.05 |  | $1.05
Series B Preferred Stock | N/A |  | N/A |  | N/A |  | 1.00
Series B-1 Preferred Stock | 0.45 |  | 0.45 |  | 1.35 |  | 0.45

On July 15, 2021, we exchanged all 6,770,393 shares outstanding of our 8.00% Fixed-to-Floating Series B Cumulative Redeemable Perpetual Preferred Stock, par value $0.01 per share ("Series B Preferred Stock"), with a liquidation preference of $25.00 per share, for 6,770,393 shares of 7.25% Series B-1 Cumulative Redeemable Perpetual Preferred Stock, par value $0.01 per share ("Series B-1 Preferred Stock"), with a liquidation preference of $25.00 per share, pursuant to an exchange agreement with the two existing shareholders.
Non-GAAP Financial Measures
Distributable Earnings
Distributable Earnings, a non-GAAP financial measure, 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, (v) the non-cash amortization expense related to the reclassification of a portion of the Convertible Notes to stockholders’ equity in accordance with GAAP, and (vi) 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, 2022, our Distributable Earnings were $95.9 million, or $0.67 per share, and $194.8 million, or $1.36 per share, respectively, as compared to $49.2 million, or $0.35 per share, and $143.6 million, or $1.01 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. 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:
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| Three months ended September 30, |  | Nine months ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
Weighted-Averages | Shares |  | Shares |  | Shares |  | Shares
Diluted shares - GAAP | 164,350,132 |  |  | 170,884,172 |  |  | 169,252,602 |  |  | 170,836,682 |
Potential shares issued under conversion of the Convertible Notes | (21,187,719) |  |  | (28,533,271) |  |  | (26,057,847) |  |  | (28,533,271) |
Unvested RSUs | — |  |  | — |  |  | — |  |  | — |
Diluted shares - Distributable Earnings | 143,162,413 |  |  | 142,350,901 |  |  | 143,194,755 |  |  | 142,303,411 |

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. 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.
As discussed in "Note 5 – Assets and Liabilities Related to Real Estate Owned", during the three and nine months ended September 30, 2022, we recorded a $43.6 million realized gain on investments reflecting the difference between the fair value of a multifamily development property located in Brooklyn, NY acquired through a deed-in-lieu of foreclosure and the amortized cost of the loan at the time of foreclosure.
As discussed in "Note 5 – Assets and Liabilities Related to Real Estate Owned" during the three and nine months ended September 30, 2021, we recorded $20.0 million realized loss on investments reflecting the difference between the fair value of a hotel acquired through a deed-in-lieu of foreclosure and the amortized cost of the loan at the time of foreclosure. Additionally, during the nine months ended September 30, 2021, we recorded an impairment of $0.6 million on our real estate owned, held for sale due to increased costs to sell.
We also believe it is useful to our investors to present Distributable Earnings prior to realized gains (losses) and impairments on real estate owned and investments to reflect our operating results because (i) our operating results are primarily comprised of earning interest income on our investments net of borrowing and administrative costs, which comprise our ongoing operations and (ii) it has been a useful factor related to our dividend per share because it is one of the considerations when a dividend is determined. We believe that our investors use Distributable Earnings and Distributable Earnings prior to realized gains (losses) and impairments on real estate owned and investments, or a comparable supplemental performance measure, to evaluate and compare the performance of our company and our peers.
A significant limitation associated with Distributable Earnings as a measure of our financial performance over any period is that it excludes unrealized gains (losses) from investments. In addition, our presentation of Distributable Earnings may not be comparable to similarly-titled measures of other companies, that use different calculations. As a result, Distributable Earnings should not be considered as a substitute for our GAAP net income as a measure of our financial performance or any measure of our liquidity under GAAP. Distributable Earnings are reduced for realized losses on loans which include losses that management believes are near certain to be realized.
The table below summarizes the reconciliation from net income available to common stockholders to Distributable Earnings and Distributable Earnings prior to realized gains (losses) and impairments on real estate owned and investments ($ in thousands):
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| Three months ended September 30, |  | Nine months ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
Net income available to common stockholders | $ | 179,962 |  |  | $ | 57,266 |  |  | $ | 260,015 |  |  | $ | 176,522 |
Adjustments: |  |  |  |  |  |  |
Equity-based compensation expense | 4,518 |  |  | 4,405 |  |  | 13,734 |  |  | 13,149 |
Gain on foreign currency forwards | (129,252) |  |  | (32,947) |  |  | (257,227) |  |  | (39,653) |
Foreign currency loss, net | 92,782 |  |  | 24,413 |  |  | 210,138 |  |  | 27,808 |
Unrealized loss (gain) on interest rate cap | (1,044) |  |  | 75 |  |  | (10,808) |  |  | (171) |
Realized gains (losses) relating to interest income on foreign currency hedges, net | 2,908 |  |  | (219) |  |  | 8,020 |  |  | (1,558) |
Realized gains relating to forward points on foreign currency hedges, net | 1,545 |  |  | 63 |  |  | 8,168 |  |  | 75 |
Amortization of the convertible senior notes related to equity reclassification | — |  |  | 824 |  |  | — |  |  | 2,436 |
Depreciation and amortization on real estate owned | — |  |  | 1,096 |  |  | 704 |  |  | 1,548 |
Reversal of current expected credit loss allowance, net | (55,564) |  |  | (5,766) |  |  | (37,897) |  |  | (36,590) |
Realized (gains) losses and impairments on real estate owned and investments | (43,577) |  |  | — |  |  | (43,577) |  |  | 20,550 |
Total adjustments: | (127,684) |  |  | (8,056) |  |  | (108,745) |  |  | (12,406) |
Distributable Earnings prior to realized gains (losses) and impairments on real estate owned and investments | $ | 52,278 |  |  | $ | 49,210 |  |  | $ | 151,270 |  |  | $ | 164,116 |
Realized gains (losses) and impairments on real estate owned and investments | $ | 43,577 |  |  | $ | — |  |  | $ | 43,577 |  |  | $ | (20,550) |
Distributable Earnings | $ | 95,855 |  |  | $ | 49,210 |  |  | $ | 194,847 |  |  | $ | 143,566 |
Diluted Distributable Earnings per share prior to realized gains (losses) and impairments on real estate owned and investments | $ | 0.37 |  |  | $ | 0.35 |  |  | $ | 1.06 |  |  | $ | 1.15 |
Diluted Distributable Earnings per share of common stock | $ | 0.67 |  |  | $ | 0.35 |  |  | $ | 1.36 |  |  | $ | 1.01 |
Weighted-average diluted shares - Distributable Earnings | 143,162,413 |  |  | 142,350,901 |  |  | 143,194,755 |  |  | 142,303,411 |

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

| September 30, 2022 |  | December 31, 2021
Stockholders' Equity | $ | 2,407,685 |  |  | $ | 2,294,626 |
Series B-1 Preferred Stock (Liquidation Preference) | (169,260) |  |  | (169,260) |
Common Stockholders' Equity | $ | 2,238,425 |  |  | $ | 2,125,366 |
Common Stock | 140,595,995 |  |  | 139,894,060 |
Book value per share | $ | 15.92 |  |  | $ | 15.19 |

The table below shows the changes in our book value per share:

| Book value per share
Book value per share at December 31, 2021 | $ | 15.19 |
General CECL Allowance | 0.28 |
Book value per share at December 31, 2021 prior to General CECL Allowance and depreciation and amortization | $ | 15.47 |
Earnings in excess of dividends | 0.02 |
Realized gain on investments | 0.31 |
Net unrealized gain on currency and interest rate hedges | 0.29 |
Reversal of Specific CECL Allowance | 0.18 |

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Vesting and delivery of RSUs | (0.12) |
Adoption of ASU 2020-06 | (0.02) |
Other | (0.01) |
Book value per share at September 30, 2022 prior to General CECL Allowance and depreciation and amortization | $ | 16.12 |
General CECL Allowance and depreciation and amortization | (0.20) |
Book value per share at September 30, 2022 | $ | 15.92 |

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.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
We seek to manage our risks related to the credit quality of our assets, interest rates, liquidity, prepayment speeds, and market value, while, at the same time, seeking to provide an opportunity to stockholders to realize attractive risk-adjusted returns through ownership of our capital stock. While risks are inherent in any business enterprise, we seek to quantify and justify risks in light of available returns and to maintain capital levels consistent with the risks we undertake.
Credit Risk
One of our strategic focuses is acquiring assets that we believe to be of high credit quality. We believe this strategy will generally keep our credit losses and financing costs low. However, we are subject to varying degrees of credit risk in connection with our other target assets. We seek to mitigate this risk by seeking to acquire high quality assets, at appropriate prices given anticipated and unanticipated losses, and by deploying a value-driven approach to underwriting and diligence, consistent with the Manager’s historical investment strategy, with a focus on current cash flows and potential risks to cash flow. The Manager seeks to enhance its due diligence and underwriting efforts by accessing the Manager’s knowledge base and industry contacts. Nevertheless, unanticipated credit losses could occur, which could adversely impact our operating results.
Interest Rate Risk
Interest rates are highly sensitive to many factors, including fiscal and monetary policies, and domestic and international economic and political considerations, as well as other factors beyond our control. We are subject to interest rate risk in connection with our target assets and our related financing obligations.
To the extent consistent with maintaining our REIT qualification, we seek to manage risk exposure to protect our portfolio of financial assets against the effects of major interest rate changes. We generally seek to manage this risk by:
•attempting to structure our financing agreements to have a range of different maturities, terms, amortizations and interest rate adjustment periods;
•using hedging instruments and interest rate swaps, when we deem appropriate; and
•to the extent available and appropriate, using securitization financing to better match the maturity of our financing with the duration of our assets.
The following table estimates the hypothetical impact on our net interest income for the twelve-month period following September 30, 2022, 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 assets subject to interest rate sensitivity |  | Increase to net interest income (1)(2) |  | Increase to net interest income (per share) (1)(2) |  | Decrease to net interest income (1)(2) |  | Decrease to net interest income (per share) (1)(2)
GBP |  | $ | 663,050 |  |  | $ | 3,315 |  |  | $ | 0.02 |  |  | $ | (3,315) |  |  | $ | (0.02) |
USD |  | 698,037 |  |  | 6,255 |  |  | 0.04 |  |  | (6,255) |  |  | (0.04) |
EUR |  | 390,668 |  |  | 1,953 |  |  | 0.01 |  |  | (1,953) |  |  | (0.01) |
SEK |  | 46,656 |  |  | 233 |  |  | — |  |  | (233) |  |  | — |
Total: |  | $ | 1,798,411 |  |  | $ | 11,756 |  |  | $ | 0.07 |  |  | $ | (11,756) |  |  | $ | (0.07) |

———————
(1)Any such hypothetical impact on interest rates on our variable rate borrowings does not consider the effect of any change in overall economic activity that could occur in a rising or falling interest rate environment. Further, in the event of a change in interest rates of that magnitude, we may take actions to further mitigate our exposure to such a change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, this analysis assumes no changes in our financial structure.
(2)Certain of our floating rate loans are subject to index floors.
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
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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 sheet are measured with reference to historical cost and/or fair market value without considering inflation.
Currency Risk
Some of our loans and secured debt arrangements are denominated in a foreign currency and subject to risks related to fluctuations in currency rates. We seek to mitigate this exposure through foreign currency forward contracts, which match the net principal and interest of our foreign currency loans and secured debt arrangements.
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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 ARI that would potentially be subject to disclosure under the Exchange Act, and the rules and regulations promulgated thereunder.
During the period ended September 30, 2022, there was no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within ARI to disclose material information otherwise required to be set forth in our periodic reports.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may be involved in various claims and legal actions arising in the ordinary course of business. Refer to "Note 17 - 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 Annual Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not Applicable.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
None.
Item 6. Exhibits and Financial Statement Schedules.

3.1 |  | Articles of Amendment and Restatement of Apollo Commercial Real Estate Finance, Inc., incorporated by reference to Exhibit 3.1 of the Registrant’s Form S-11, as amended (Registration No. 333-160533).
3.2 |  | By-laws of Apollo Commercial Real Estate Finance, Inc., incorporated by reference to Exhibit 3.3 of the Registrant’s Form S-4 (Registration No. 333-210632).
3.3 |  | Articles Supplementary designating Apollo Commercial Real Estate Finance, Inc.'s 7.25% Series B-1 Cumulative Redeemable Perpetual Preferred Stock, liquidation preference $25.00 per share, par value $0.01 per share, incorporated by reference to Exhibit 3.1 of the Registrant's Form 8-K filed on July 20, 2021 (File No.: 001-34452).
4.1 |  | Specimen Stock Certificate of Apollo Commercial Real Estate Finance, Inc., incorporated by reference to Exhibit 4.1 of the Registrant’s Form S-11, as amended (Registration No. 333-160533).

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4.2 |  | Indenture, dated as of March 17, 2014, between the Registrant and Wells Fargo Bank, National Association, as Trustee, incorporated by reference to Exhibit 4.1 of the Registrant’s Form 8-K filed on March 21, 2014 (File No.: 001-34452).
4.3 |  | Second Supplemental Indenture, dated as of August 21, 2017, between the Registrant and Wells Fargo Bank, National Association, as Trustee (including the form of 4.75% Convertible Senior Note due 2022), incorporated by reference to Exhibit 4.2 of the Registrant’s Form 8-K filed on August 21, 2017 (File No.: 001-34452).
4.4 |  | Third Supplemental Indenture, dated as of October 5, 2018 between the Registrant and Wells Fargo Bank, National Association, as Trustee (including the form of 5.375% Convertible Senior Note due 2023), incorporated by reference to Exhibit 4.2 of the Registrant's Form 8-K filed on October 5, 2018 (File No.: 001-34452).
4.5 |  | Indenture dated as of June 29, 2021, by and among Apollo Commercial Real Estate Finance, Inc., as issuer, ACREFI Operating, LLC, ARM Operating, LLC and ACREFI Mortgage Lending, LLC, as guarantors, Wells Fargo Bank, National Association, as trustee and notes collateral agent (including the form of Apollo Commercial Real Estate Finance, Inc.’s 4.625% Senior Secured Notes due 2029), incorporated by reference to Exhibit 4.1 of the Registrant's Form 8-K filed on July 6, 2021 (File No.: 001-34452).
31.1* |  | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2* |  | Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1* |  | Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of 18 U.S.C. Section 1350 as adopted pursuant to the Sarbanes-Oxley Act of 2002.
101.INS* |  | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
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* | Filed herewith.

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

|  |  | Apollo Commercial Real Estate Finance, Inc. |  |
October 24, 2022 |  |  | By: |  |  | /s/ Stuart A. Rothstein |  |
|  |  |  |  |  | Stuart A. Rothstein |  |
|  |  |  |  |  | President and Chief Executive Officer (Principal Executive Officer) |  |
October 24, 2022 |  |  | By: | /s/ Anastasia Mironova |  |
|  |  |  |  |  | Anastasia Mironova |  |
|  |  |  |  |  | Chief Financial Officer, Treasurer and Secretary (Principal Financial Officer and Principal Accounting Officer) |  |

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