Consolidated K-Series

9 Months Ended

Sep. 30, 2019

The Company's investments in first loss POs, certain IOs and certain senior 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 $885.1 million and $657.6 million at September 30, 2019 and December 31, 2018, respectively (see Note 9). The Consolidated K-Series is comprised of twelve and nine Freddie Mac-sponsored multi-family loan K-Series securitizations as of September 30, 2019 and December 31, 2018, respectively.

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



Balance Sheets	September 30, 2019		December 31, 2018
Assets
Multi-family loans held in securitization trusts, at fair value	$	15,863,264	$	11,679,847
Receivables	51,950		41,850
Total Assets	$	15,915,214	$	11,721,697
Liabilities and Equity
Multi-family CDOs, at fair value	$	14,978,199	$	11,022,248
Accrued expenses	50,783		41,102
Total Liabilities	15,028,982		11,063,350
Equity	886,232		658,347
Total Liabilities and Equity	$	15,915,214	$	11,721,697

The multi-family loans held in securitization trusts had unpaid aggregate principal balances of approximately $14.7 billion and $11.5 billion at September 30, 2019 and December 31, 2018, respectively. The multi-family CDOs (the "Multi-Family CDOs") had aggregate unpaid principal balances of approximately $14.7 billion and $11.5 billion at September 30, 2019 and December 31, 2018, respectively. As of September 30, 2019 and December 31, 2018, the current weighted average interest rate on these Multi-Family CDOs was 4.11% 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 certain senior 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 15).

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



	Three Months Ended September 30,				Nine Months Ended September 30,
Statements of Operations	2019		2018		2019		2018
Interest income	$	139,818	$	86,458	$	384,743	$	257,179
Interest expense	120,329		75,145		332,041		224,310
Net interest income	19,489		11,313		52,702		32,869
Unrealized gains, net	7,630		12,303		22,247		31,867
Net income	$	27,119	$	23,616	$	74,949	$	64,736

The geographic concentrations of credit risk exceeding 5% of the total loan balances related to multi-family loans held in securitization trusts as of September 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:



	September 30, 2019		December 31, 2018
California	15.4	%	14.8	%
Texas	12.0	%	13.0	%
Maryland	6.3	%	5.0	%
Florida	5.4	%	4.5	%