Consolidated K-Series

6 Months Ended

Jun. 30, 2019

The Company's investments in first loss POs, certain IOs and mezzanine securities issued by certain Freddie Mac-sponsored multi-family loan K-series securitizations that the Company consolidates in its financial statements in accordance with GAAP represent the "Consolidated K-Series." The Company has elected the fair value option on the assets and liabilities held within the Consolidated K-Series, which requires that changes in valuations in the assets and liabilities of the Consolidated K-Series be reflected in the Company's condensed consolidated statements of operations. Our investment in the Consolidated K-Series is limited to the multi-family CMBS that we own with an aggregate net carrying value of $801.2 million and $657.6 million at June 30, 2019 and December 31, 2018, respectively (see Note 9). The Consolidated K-Series is comprised of eleven and nine Freddie Mac-sponsored multi-family loan K-Series securitizations as of June 30, 2019 and December 31, 2018, respectively.

The condensed consolidated balance sheets of the Consolidated K-Series at June 30, 2019 and December 31, 2018, respectively, are as follows (dollar amounts in thousands):



Balance Sheets	June 30, 2019		December 31, 2018
Assets
Multi-family loans held in securitization trusts, at fair value	$	14,573,925	$	11,679,847
Receivables	48,958		41,850
Total Assets	$	14,622,883	$	11,721,697
Liabilities and Equity
Multi-family CDOs, at fair value	$	13,772,726	$	11,022,248
Accrued expenses	47,921		41,102
Total Liabilities	13,820,647		11,063,350
Equity	802,236		658,347
Total Liabilities and Equity	$	14,622,883	$	11,721,697

The multi-family loans held in securitization trusts had unpaid aggregate principal balances of approximately $13.7 billion and $11.5 billion at June 30, 2019 and December 31, 2018, respectively. The multi-family CDOs (the "Multi-Family CDOs") had aggregate unpaid principal balances of approximately $13.7 billion and $11.5 billion at June 30, 2019 and December 31, 2018, respectively. As of June 30, 2019 and December 31, 2018, the current weighted average interest rate on these Multi-Family CDOs was 4.14% and 3.96%, respectively.

The Company does not have any claims to the assets or obligations for the liabilities of the Consolidated K-Series (other than those securities represented by the first loss POs, IOs and mezzanine securities owned by the Company). We have elected the fair value option for the Consolidated K-Series. The net fair value of our investment in the Consolidated K-Series, which represents the difference between the carrying values of multi-family loans held in securitization trusts less the carrying value of Multi-Family CDOs, approximates the fair value of our underlying securities (see Note 16).

The condensed consolidated statements of operations of the Consolidated K-Series for the three and six months ended June 30, 2019 and 2018, respectively, are as follows (dollar amounts in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
Statements of Operations	2019		2018		2019		2018
Interest income	$	133,157	$	85,629	$	244,925	$	170,721
Interest expense	114,914		74,686		211,711		149,165
Net interest income	18,243		10,943		33,214		21,556
Unrealized gain on multi-family loans and debt held in securitization trusts, net	5,207		12,019		14,617		19,564
Net income	$	23,450	$	22,962	$	47,831	$	41,120

The geographic concentrations of credit risk exceeding 5% of the total loan balances related to multi-family loans held in securitization trusts as of June 30, 2019 and our CMBS investments included in investment securities available for sale, held in securitization trusts, and multi-family loans held in securitization trusts as of December 31, 2018 are as follows:



	June 30, 2019		December 31, 2018
California	16.1	%	14.8	%
Texas	12.4	%	13.0	%
Maryland	5.8	%	5.0	%
New York	5.1	%	6.4	%
Florida	5.0	%	4.5	%