Published: 2022-07-26 00:00:00 ET

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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.

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 six months ended June 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. 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. Due to various uncertainties, including the rise of new variants that may occur, 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. 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 June 30, 2022. The uncertainty surrounding COVID-19 and its variants 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 ("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

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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, a significant 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 last twelve months. 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 and have the ability to early adopt the TDR enhancements separately from the vintage disclosures. We are currently evaluating the impact ASU 2022-02 will have on our consolidated financial statements.

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.

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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 June 30, 2022 and December 31, 2021 ($ in thousands): 

			Fair Value as of June 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			$	—					$	128,535					$	—					$	128,535					$	—					$	15,340					$	—					$	15,340
Interest rate cap asset			—						11,213						—						11,213						—						1,448						—						1,448
Total financial instruments			$	—					$	139,748					$	—					$	139,748					$	—					$	16,788					$	—					$	16,788

Our loan portfolio was comprised of the following at June 30, 2022 and December 31, 2021 ($ in thousands):

Loan Type						June 30, 2022						December 31, 2021
Commercial mortgage loans, net(1)						$	8,176,149					$	7,012,312
Subordinate loans and other lending assets, net						753,711						844,948
Subordinate loan, held for sale						7,500						—
Carrying value, net						$	8,937,360					$	7,857,260

  ———————

(1)Includes $11.0 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 June 30, 2022 and December 31, 2021.

Activity relating to our loan portfolio for the six months ended June 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						2,326,545						—						—						2,326,545
Add-on loan fundings(3)						334,094						—						—						334,094
Loan repayments and sales						(1,191,375)						—						—						(1,191,375)
Gain (loss) on foreign currency translation						(368,401)						3,714						—						(364,687)
Specific CECL Allowance, net						—						—						(27,000)						(27,000)
Deferred fees and other items						—						(34,907)						—						(34,907)
PIK interest and amortization of fees						11,653						15,551						—						27,204
June 30, 2022						$	9,184,893					$	(52,171)					$	(172,000)					$	8,960,722
General CECL Allowance(4)																								(23,362)
Carrying value, net																								$	8,937,360

———————

(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.

(3)Represents fundings committed prior to 2022.

(4)$4.0 million of the General CECL Allowance is excluded from this table because it relates to unfunded commitments and has been recorded as a liability under accounts payable, accrued expenses and other liabilities in our condensed consolidated balance sheet.

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

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						June 30, 2022						December 31, 2021
Number of loans						67						67
Principal balance						$	9,184,893					$	8,072,377
Carrying value, net						$	8,937,360					$	7,857,260
Unfunded loan commitments(1)						$	1,711,776					$	1,357,122
Weighted-average cash coupon(2)						4.7		%				4.5		%
Weighted-average remaining fully-extended term(3)						3.0 years						2.9 years
Weighted-average expected term(4)						1.9 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):

						June 30, 2022												December 31, 2021
Property Type						Carrying Value						% of Portfolio(1)						Carrying Value						% of Portfolio(1)
Hotel						$	1,991,936					22.2		%				$	1,875,439					23.8		%
Office						1,808,216						20.2						1,700,779						21.6
Retail Center						1,126,538						12.6						414,740						5.3
Residential-for-sale						886,423						9.9						956,617						12.1
Healthcare						621,800						6.9						316,321						4.0
Residential-for-rent						543,572						6.1						477,569						6.1
Mixed Use						480,677						5.4						269,839						3.4
Urban Retail						353,258						3.9						711,592						9.0
Industrial						335,584						3.7						377,068						4.8
Other(2)						812,718						9.1						790,884						9.9
Total						$	8,960,722					100.0		%				$	7,890,848					100.0		%
General CECL Allowance(3)						(23,362)												(33,588)
Carrying value, net						$	8,937,360											$	7,857,260

(1)Percentage of portfolio calculations are made prior to consideration of General CECL Allowance.

(2)Other property types include parking garages (3.0%), multifamily development (2.5%), caravan parks (2.2%) and urban predevelopment (1.4%) in 2022, and parking garages (3.3%), caravan parks (2.8%), multifamily development (2.2%), and urban predevelopment (1.6%) in 2021.

(3)$4.0 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):

						June 30, 2022												December 31, 2021
Geographic Location						Carrying Value						% of Portfolio(1)						Carrying Value						% of Portfolio(1)
United Kingdom						$	2,401,638					26.8		%				$	2,297,286					29.1		%
New York City						2,236,508						25.0						2,000,661						25.4

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Other Europe(2)						1,506,295						16.8						1,295,870						16.4
Midwest						677,265						7.6						689,274						8.7
Southeast						667,373						7.4						708,920						9.0
West						627,127						7.0						356,097						4.5
Other(3)						844,516						9.4						542,740						6.9
Total						$	8,960,722					100.0		%				$	7,890,848					100.0		%
General CECL Allowance(4)						(23,362)												(33,588)
Carrying value, net						$	8,937,360											$	7,857,260

(1)Percentage of portfolio calculations are made prior to consideration of General CECL Allowance.

(2)Other Europe includes Italy (5.0%), Germany (4.8%), Spain (3.5%), Sweden (2.8%) 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 (2.3%), Mid-Atlantic (1.3%) and Other (0.3%) in 2022 and Southwest (3.5%), Mid-Atlantic (1.6%), Northeast (1.5%), and Other (0.3%) in 2021.

(4)$4.0 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):

June 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						61						8,329,775						92.9		%							2,042,260						2,495,867						691,610						1,777,227						502,448						820,363
4						1						220,487						2.5		%							—						—						—						—						—						220,487
5						4						378,460						4.2		%							—						—						—						—						—						378,460
Total						67						$	8,960,722					100.0		%							$	2,042,260					$	2,495,867					$	691,610					$	1,777,227					$	502,448					$	1,451,310
General CECL Allowance(1)												(23,362)
Total carrying value, net												$	8,937,360
Weighted Average Risk Rating																		3.1

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December 31, 2021
																											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)$4.0 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 six months ended June 30, 2022 and 2021, respectively ($ in thousands):

						Specific CECL Allowance(3)						General CECL Allowance												Total CECL Allowance						CECL Allowance as % of Amortized Cost(3)
												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		%

———————

(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-for-sale 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)Loans evaluated for Specific CECL Allowance are excluded from General CECL Allowance pool.

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						Specific CECL Allowance(4)						General CECL Allowance												Total CECL Allowance						CECL Allowance as % of Amortized Cost(4)
												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		%

———————

(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)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.

We derived an annual historical loss rate based on a commercial mortgage backed securities ("CMBS") database with historical losses from 1998 through the second 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 ($46.4 million and $41.2 million, as of June 30, 2022 and December 31, 2021, respectively), included in other assets on our condensed consolidated balance 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

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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 June 30, 2022 and December 31, 2021 ($ in thousands):

						June 30, 2022						December 31, 2021
Commercial mortgage loans, net						$	19,505					$	22,554
Subordinate loans and other lending assets, net						3,857						11,034
Unfunded commitments(1)						3,999						3,106
Total General CECL Allowance						$	27,361					$	36,694

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(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 4 and 5 loans as of June 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
			Multifamily Development(1)(2)			Brooklyn, NY			$220,487			$—			$220,487			Cost Recovery/ 3/1/2020			4
			Urban Predevelopment(2)(3)			Miami, FL			190,929			68,000			122,929			Cost Recovery/ 3/1/2020			5
			Retail Center(4)(5)			Cincinnati, OH			171,255			67,000			104,255			Cost Recovery/ 10/1/2019			5
			Hotel(6)			Atlanta, GA			106,296			7,000			99,296			Cash Basis/ 5/1/2022			5
Mortgage total:									$688,967			$142,000			$546,967
Mezzanine
			Residential-for-Sale(7)			Manhattan, NY			$81,980			$30,000			$51,980			Cash Basis/ 7/1/2021			5
Mezzanine total:									$81,980			$30,000			$51,980
Total:									$770,947			$172,000			$598,947

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(1)During the three months ended June 30, 2022, the previously recorded $10.0 million Specific CECL Allowance was reversed as a result of market rent growth and value created from development activities. The loan remains on cost recovery and the risk rating has been upgraded from a 5 to a 4 as of June 30, 2022.

(2)The fair value of this collateral was determined by assuming rent per square foot ranging from $62 to $215 and a capitalization rate ranging from 5.0% to 5.5%.

(3)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 six months ended June 30, 2022 and 2021.

(4)The fair value of retail collateral was determined by applying a capitalization rate of 8.0%.

(5)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 six months ended June 30, 2022 and 2021, $0.3 million and $0.6 million, respectively and $0.4 million and $0.8 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 six months ended June 30, 2022 and 2021.

(6)The fair value of the hotel collateral was determined by applying a capitalization rate of 9.3% and a discount rate of 11.3%.

(7)The fair value of the residential-for-sale 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. Under certain circumstances, we may apply the cost recovery method under which interest collected on a loan reduces the loan's amortized cost. The amortized cost basis for loans on cost recovery was $447.7 million and $404.8 million as of June 30, 2022 and December 31, 2021, respectively. For the three and six months ended June 30, 2022 and 2021, we received $0.3 million and $0.6 million and $0.4 million and $0.8 million, respectively, in interest that reduced amortized cost under the cost recovery method.

As of June 30, 2022 and December 31, 2021, the amortized cost basis for loans with accrued interest past due 90 or more days was $714.0 million and $757.6 million, respectively. As of June 30, 2022 the amortized cost basis for loans with accrued interest between 30 and 59 days past due was $99.3 million. As of December 31, 2021, there were no loans with interest between 30 and 59 days past due.

We evaluate modifications to our loan portfolio to determine if the modifications constitute a TDR and/or substantial modification, under ASC Topic 310 "Receivables".

We own three mezzanine loans secured by an ultra luxury residential-for-sale property in Manhattan, NY which had an aggregate amortized cost at June 30, 2022 of $513.4 million (inclusive of $142.9 million of payment- in-kind ("PIK") interest) and are secured by the same residential-for-sale property currently under construction in Manhattan, NY. These loans include (i) a $247.1 million senior mezzanine loan ("Senior Mezzanine Loan"), (ii) a $214.3 million junior mezzanine loan ("Junior Mezzanine A Loan"), and (iii) a $52.0 million junior mezzanine (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"). During the third quarter of 2021, a vehicle (the "Seller") managed by an affiliate of the Manager 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 based on a change in the estimated sales velocity of the collateral.

In conjunction with this transaction, the Company and the subordinate capital provider have agreed to a waterfall sharing arrangement pursuant to which, rather than the Company receiving interest it otherwise would have been entitled to after July 1, 2021 on the Junior Mezzanine Loan, proceeds received from the sale or refinance of the underlying collateral, after repayment to priority lenders under the waterfall, will be shared between the Company and the subordinate capital provider at an agreed upon allocation. As such, we opted to cease accruing interest on the Junior Mezzanine Loan as of July 1, 2021 and will resume doing so when we deem appropriate. 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. As of June 30, 2022, our amortized cost basis in this loan was $52.0 million, and its risk rating remained as a 5.

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 ceased accruing interest and will record interest on cash-basis. 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.

Other Loan and Lending Assets Activity

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We recognized PIK interest of $4.5 million and $5.7 million for the three and six months ended June 30, 2022 respectively, and $13.7 million and $30.6 million for the three and six months ended June 30, 2021, respectively.

We recognized $0.3 million and $2.4 million in pre-payment penalties and accelerated fees for the three and six months ended June 30, 2022, respectively. We recognized $0.7 million in pre-payment penalties and accelerated fees for the three and six months ended June 30, 2021.

As of June 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 June 30, 2022 was $51.1 million, consisting of one interest with a weighted average maturity of 2.0 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.

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.

Held for Sale

Loans are classified as held for sale if there is an intent to sell them in the short-term following the reporting date. Loans classified as held for sale are carried at the lower of amortized cost or fair value less costs to sell, unless the fair value option is elected at origination. Additionally, held for sale loans are not subject to the General CECL Allowance.

Due to our intent to sell, we reclassified one of our subordinate loans to held for sale during the three months ended June 30, 2022. The loan is collateralized by an office property located in Troy, MI, and had an amortized cost of $7.5 million as of June 30, 2022. The loan has a risk rating of 3 as of June 30, 2022.

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

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acquired assets and assumed debt. 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 June 30, 2022 on our condensed consolidated balance sheet ($ in thousands):

			June 30, 2022
Assets:
Cash			$	7,304
Land			58,742
Buildings			86,973
Furniture, fixtures, and equipment			8,801
Accumulated depreciation			(3,349)
Other assets			4,375
Total Assets			$	162,846
Liabilities:
Accounts payable, accrued expenses and other liabilities			7,156
Total Liabilities			$	7,156
Net Real Estate Assets			$	155,690

For the three and six months ended June 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):

			Three months ended June 30,												Six months ended June 30,
			2022						2021						2022						2021
Operations related to real estate owned:
Revenue from operations			$	18,630					$	1,374					$	27,670					$	1,374
Operating expenses			(13,134)						(1,994)						(22,786)						(1,994)
Depreciation and amortization			—						(452)						(704)						(452)
Net income (loss) from real estate owned			$	5,496					$	(1,072)					$	4,180					$	(1,072)

The following table details the components of our other assets at the dates indicated ($ in thousands):

			June 30, 2022						December 31, 2021
Interest receivable			$	46,387					$	41,219
Loan proceeds held by servicer			24,905						3,179
Other(1)			76						3,355
Total			$	71,368					$	47,753

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(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.

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			Maximum Amount of Borrowings(1)						Borrowings Outstanding(1)						Maturity (2)						Maximum Amount of Borrowings(1)						Borrowings Outstanding(1)						Maturity (2)
JPMorgan - USD			$	1,421,841					$	1,224,801					September 2026						$	1,344,283					$	1,329,923					September 2026
JPMorgan - GBP			78,159						78,159						September 2026						87,497						86,849						September 2026
JPMorgan - EUR			—						—						N/A						68,220						68,220						September 2026
DB - USD			700,000						429,352						March 2023						700,000						259,073						March 2023
Goldman - USD			300,000						152,589						November 2025(3)						300,000						168,231						November 2025(3)
CS Facility - USD			632,360						629,349						August 2026(4)(5)						161,609						148,720						February 2025(4)(5)
HSBC Facility - GBP			367,288						367,288						April 2025						—						—						N/A
HSBC Facility - EUR			273,406						273,406						January 2026(5)						167,756						162,937						July 2022
Barclays - USD			200,000						172,693						June 2026(4)(5)						200,000						32,693						March 2024
Santander - EUR			56,614						50,537						August 2024						—						—						N/A
Total Secured Credit Facilities			4,029,668						3,378,174												3,029,365						2,256,646
Barclays Private Securitization - GBP, EUR, SEK			1,815,687						1,815,687						February 2026(5)						1,902,684						1,902,684						August 2024(5)
Total Secured Debt Arrangements			5,845,355						5,193,861												4,932,049						4,159,330
Less: deferred financing costs			N/A						(10,024)												N/A						(9,062)
Total Secured Debt Arrangements, net(6)(7)(8)			$	5,845,355					$	5,183,837											$	4,932,049					$	4,150,268

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(1)As of June 30, 2022, GBP, EUR, and Swedish Krona ("SEK") borrowings were converted to USD at a rate of 1.22, 1.05, and 0.10, 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)Assumes facility enters the amortization period described below.

(4)Assumes financings are extended in line with the underlying loans.

(5)Represents weighted average maturity across various financings with the counterparty. See below for additional details.

(6)Weighted-average borrowing costs as of June 30, 2022 and December 31, 2021 were applicable benchmark rates and credit spread adjustments, plus spreads of USD: +2.11% / GBP: +1.84% / EUR: +1.52% / SEK: +1.50% and USD: +2.00% / GBP: +1.86% / EUR: +1.42%/ SEK: +1.50%, respectively.

(7)Weighted average advance rates based on cost as of June 30, 2022 and December 31, 2021 were 71.9% (68.0% (USD) / 76.6% (GBP) / 74.9% (EUR) / 80.6% (SEK)) and 69.8% (67.1% (USD) / 72.7% (GBP) / 68.9% (EUR) / 80.7% (SEK)), respectively.

(8)As of June 30, 2022 and December 31, 2021, approximately 58% and 50% of the outstanding balance under these secured borrowings were recourse to us.

Each of our existing secured credit facilities include "credit based and other mark-to-market" features. "Credit mark-to-market" provisions in repurchase facilities are designed to keep the lenders' credit exposure generally constant as a percentage of the underlying collateral value of the assets pledged as security to them. If the credit of the underlying collateral value decreases, the amount of leverage available to us will be reduced as our assets are marked-to-market, which would reduce our liquidity. Generally, the lender under the applicable secured debt arrangement calls for and/or sets the valuation and any revaluation of the collateral assets in its sole, good faith discretion. If it is determined (subject to certain conditions) that the market value of the underlying collateral has decreased by more than a defined minimum amount, the lender may require us to provide additional collateral or may make margin calls, which may require us to repay all or a portion of the funds advanced. We closely monitor our liquidity and intend to maintain sufficient liquidity on our condensed consolidated balance sheet in order to meet any margin calls in the event of any significant decreases in asset values. As of June 30, 2022 and December 31, 2021, the weighted average haircut under our secured debt arrangements was approximately 28.1% and 30.2%, respectively. In addition, our existing secured debt arrangements are not entirely term-matched financings and may mature before our commercial real estate debt investments that represent underlying collateral to those financings. We are in frequent dialogue with the lenders under our secured debt arrangements regarding our management of their collateral assets and as we negotiate renewals and extensions of these liabilities, we may experience lower advance rates and higher pricing under the renewed or extended agreements.

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JPMorgan Facility

In November 2019, through wholly-owned subsidiaries, we entered into a Sixth Amended and Restated Master Repurchase Agreement with JPMorgan Chase Bank, National Association (the "JPMorgan Facility"). During the third quarter of 2021, we amended the JPMorgan Facility to allow for $1.5 billion of maximum borrowings and maturity in September 2024, plus two one-year extensions available at our option, which are subject to certain conditions. The JPMorgan Facility enables us to elect to receive advances in USD, GBP, or EUR. Margin calls may occur any time at specified aggregate margin deficit thresholds.

As of June 30, 2022, we had $1.3 billion, including £64.2 million ($78.2 million assuming conversion into USD) of borrowings outstanding under the JPMorgan Facility secured by certain of our commercial mortgage loans.

DB Facility

In January 2022, through an indirect wholly-owned subsidiary, we entered into a Fourth Amended and Restated Master Repurchase Agreement with Deutsche Bank AG, Cayman Islands Branch, London Branch (the "DB Facility"). The DB Facility allows for $700.0 million in maximum borrowings ($429.4 million drawn at June 30, 2022) for the sale and repurchase of eligible first mortgage loans secured by commercial or residential-for-rent properties, located in the United States, United Kingdom and the European Union, and enables us to elect to receive advances in USD, GBP, or EUR. In March 2022, we exercised our second extension option and extended maturity to March 2023. Margin calls may occur any time at specified aggregate margin deficit thresholds.

As of June 30, 2022, we had $429.4 million of borrowings outstanding under the DB Facility secured by certain of our commercial mortgage loans.

Goldman Facility

In November 2017, through an indirect wholly-owned subsidiary, we entered into a master repurchase and securities contract agreement with Goldman Sachs Bank USA (the "Goldman Facility"). During the fourth quarter of 2021, we amended the Goldman Facility to reduce the maximum borrowings from $500.0 million to $300.0 million and extended maturity to November 2023. In addition, the Goldman Facility contains a two-year amortization period subsequent to the November 2023 maturity, which allows for the refinancing or pay down of assets under the facility. Margin calls may occur any time at specified margin deficit thresholds.

As of June 30, 2022, we had $152.6 million of borrowings outstanding under the Goldman Facility secured by certain of our commercial mortgage loans.

CS Facility

In July 2018, through an indirect wholly-owned subsidiary, we entered into a Master Repurchase Agreement with Credit Suisse AG, acting through its Cayman Islands Branch and Alpine Securitization Ltd (the "CS Facility"), which provides for advances for the sale and repurchase of eligible commercial mortgage loans secured by real estate. The CS Facility has an "evergreen" feature such that the facility continues unless terminated at any time by Credit Suisse with six months' notice. Margin calls may occur any time at specified aggregate margin deficit thresholds.

As of June 30, 2022, we had $629.3 million of borrowings outstanding under the CS Facility secured by certain of our commercial mortgage loans.

HSBC Facility

In July 2019, through an indirect wholly-owned subsidiary, we entered into a secured credit facility with HSBC Bank plc, which provides for asset specific financing (the "HSBC Facility"). The weighted-average fully-extended maturity for the assets financed under the HSBC Facility is August 2025 (January 2026 for EUR portion and April 2025 for GBP portion). Margin calls may occur any time at specified aggregate margin deficit thresholds.

As of June 30, 2022, we had £301.6 million and €260.8 million ($640.7 million assuming conversion into USD) of borrowings outstanding under the HSBC Facility secured by certain of our commercial mortgage loans.

Barclays Facility

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In March 2020, through an indirect wholly-owned subsidiary, we entered into a secured credit facility pursuant to a Master Repurchase Agreement with Barclays Bank plc (the "Barclays Facility"). The Barclays Facility allows for $200.0 million of maximum borrowings. The weighted-average fully-extended maturity for the assets financed under the Barclays Facility is June 2026. Margin calls may occur any time at specified aggregate margin deficit thresholds.

As of June 30, 2022, we had $172.7 million of borrowings outstanding under the Barclays Facility secured by certain of our commercial mortgage loans.

Santander Facility

In March 2022, through an indirect wholly-owned subsidiary, we entered into a secured credit facility with Santander Bank, which provides for a single asset financing (the "Santander Facility"). The Santander Facility allows for €54.0 million ($56.6 million assuming conversion to USD) of maximum borrowings and initially matures in August 2024. Margin calls may occur any time at specified aggregate margin deficit thresholds.

As of June 30, 2022, we had €48.2 million ($50.5 million assuming conversion into USD) of borrowings outstanding under the Santander Facility secured by one commercial mortgage loan.

Barclays Private Securitization

In June 2020, through a newly formed entity, we entered into a private securitization with Barclays Bank plc, of which Barclays Bank plc retained $782.0 million of senior notes (the "Barclays Private Securitization"). The Barclays Private Securitization finances the loans that were previously financed under a Global Master Repurchase Agreement with Barclays Bank plc (the "Barclays Facility - GBP/EUR"). Commercial mortgage loans currently financed under the Barclays Securitization are denominated in GBP, EUR and SEK.

The table below provides principal balances and the carrying value for commercial mortgage loans pledged to the Barclays Private Securitization as of June 30, 2022 and December 31, 2021 ($ in thousands):

			June 30, 2022
Local Currency			Count						Outstanding Principal						Carrying Value
GBP			7						$	1,505,125					$	1,485,639
EUR			4						647,913						643,462
SEK			1						253,024						250,429
Total			12						$	2,406,062					$	2,379,530

			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 Barclays Private Securitization eliminates daily margining provisions and grants us significant discretion to modify certain terms of the underlying collateral including waiving certain loan-level covenant breaches and deferring or waiving of debt service payments for up to 18 months. The securitization includes LTV based covenants with significant headroom to previous levels included in the Barclays Facility - GBP/EUR. These deleveraging requirements are based on significant declines in the value of the collateral as determined by an annual third-party (engaged by us) appraisal process tied to the provisions of the underlying loan agreements. We believe this provides us with both cushion and predictability to avoid sudden unexpected outcomes and material repayment requirements.

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 June 30, 2022 ($ in thousands):

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			Borrowings outstanding						Fully-Extended Maturity(1)
Total/Weighted-Average GBP			$	1,142,881					April 2026
Total/Weighted-Average EUR			470,387						July 2025(2)
Total/Weighted-Average SEK			202,419						May 2026
Total/Weighted-Average Securitization			$	1,815,687					February 2026

———————

(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 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

———————

(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):

			June 30, 2022						December 31, 2021
Assets:
Cash			$	1,231					$	3,456
Commercial mortgage loans, net(1)			2,379,530						2,559,266
Other Assets			36,085						20,765
Total Assets			$	2,416,846					$	2,583,487
Liabilities:
Secured debt arrangements, net (net of deferred financing costs of $2.3 million and $2.0 million in 2022 and 2021, respectively)			$	1,813,364					$	1,900,640
Accounts payable, accrued expenses and other liabilities(2)			4,760						2,671
Total Liabilities			$	1,818,124					$	1,903,311

———————

(1)Net of the General CECL Allowance of $6.7 million and $11.8 million as of June 30, 2022 and December 31, 2021, respectively.

(2)Includes General CECL Allowance related to unfunded commitments on commercial mortgage loans, net of $1.7 million and $0.4 million as of June 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 June 30,												Six months ended June 30,
			2022						2021						2022						2021
Net Interest Income:
Interest income from commercial mortgage loans			$	27,463					$	20,943					$	56,177					$	37,036
Interest expense			(10,574)						(6,396)						(20,162)						(10,986)
Net interest income			$	16,889					$	14,547					$	36,015					$	26,050
Reversal of (provision for) loan losses, net			468						(2,040)						3,809						(5,668)
Foreign currency translation gain (loss)			(41,879)						2,802						(61,508)						1,889
Net Income			$	(24,522)					$	15,309					$	(21,684)					$	22,271

As of June 30, 2022, we had £938.5 million, €448.7 million, and kr2.1 billion ($1.8 billion assuming conversion into USD) of borrowings outstanding under the Barclays Private Securitization secured by certain of our commercial mortgage loans.

At June 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			$	182,096					$	513,498					$	607,365					$	—					$	1,302,959
DB Facility			429,352						—						—						—						429,352
Goldman Facility			80,847						35,886						35,856						—						152,589
CS Facility			—						162,347						467,002						—						629,349
HSBC Facility			—						490,455						150,240						—						640,695
Barclays Facility			32,693						—						140,000						—						172,693
Santander Facility			—						50,537						—						—						50,537
Barclays Private Securitization			—						530,829						1,284,858						—						1,815,687
Total			$	724,988					$	1,783,552					$	2,685,321					$	—					$	5,193,861

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 June 30, 2022, as well as the maximum and average month-end balances for the six months ended June 30, 2022 for our borrowings under secured debt arrangements ($ in thousands).

			As of June 30, 2022												For the six months ended June 30, 2022
			Balance						Amortized Cost of Collateral						Maximum Month-End Balance						Average Month-End Balance
JPMorgan Facility			$	1,302,960					$	2,013,513					$	1,467,343					$	1,381,513
DB Facility			429,352						633,113						432,455						391,224
Goldman Facility			152,589						250,243						164,607						158,708
CS Facility			629,349						845,782						633,143						451,734
HSBC Facility			640,694						803,321						660,004						385,236
Barclays Facility			172,693						223,618						172,693						79,359
Santander Facility			50,537						66,471						52,222						50,915
Barclays Private Securitization			1,815,687						2,386,192						1,963,837						1,862,220
Total			$	5,193,861					$	7,222,253

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
DB Facility			259,073						389,238						520,217						407,428
Goldman Facility			168,231						261,848						331,154						228,312
CS 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 June 30, 2022 and December 31, 2021.

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%.

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 the three and six months ended June 30, 2022 and 2021, we repaid $1.3 million and $2.5 million of principal related to the 2026 Term Loan, respectively. During the three and six months ended June 30, 2022, we repaid $0.7 million and $1.5 million of principal related to the 2028 Term Loan, respectively. During the three and six months ended June 30, 2021, we repaid $0.7 million of principal related to the 2028 Term Loan.

The following table summarizes the terms of our Term Loans as of June 30, 2022 ($ in thousands):

			Principal Amount			Unamortized Issuance Discount(1)			Deferred Financing Costs(1)			Carrying Value			Spread			Maturity Date
2026 Term Loan			$	485,000		$	(1,369)		$	(6,990)		$	476,641		2.75		%	5/15/2026
2028 Term Loan			296,250			(2,428)			(4,304)			289,518			3.50		%	3/11/2028
Total			$	781,250		$	(3,797)		$	(11,294)		$	766,159

———————

(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):

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			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 June 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 six months ended June 30, 2022, LIBOR exceeded the cap rate of 0.75%. As such, during the three and six months ended June 30, 2022, we recognized income from the interest rate cap in the amount of $0.2 million which is offsetting interest expense in our condensed consolidated statement of operations. There was no such contra-expense recorded during the three and six months ended June 30, 2021.

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 offering expenses. 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 $494.4 million and $494.1 million, net of deferred financing costs of $5.6 million and $5.9 million, as of June 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 June 30, 2022 and December 31, 2021, we were in compliance with all covenants.

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. At June 30, 2022, the 2022 Notes had a carrying value of $344.9 million and an unamortized discount of $0.1 million.

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 June 30, 2022, the 2023 Notes had a carrying value of $229.0 million and an unamortized discount of $1.0 million.

The following table summarizes the terms of the Convertible Notes as of June 30, 2022 ($ in thousands):

			Principal Amount			Coupon Rate			Effective Rate (1)			Conversion Rate (2)			Maturity Date			Remaining Period of Amortization
2022 Notes			$	345,000		4.75		%	4.86		%	50.2260			8/23/2022			0.15
2023 Notes			230,000			5.38		%	5.85		%	48.7187			10/15/2023			1.29
Total			$	575,000

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 June 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 Convertible Notes prior to maturity except in limited circumstances. The closing price of our common stock on June 30, 2022 of $10.44 was less than the per share conversion price of the Convertible Notes.

On January 1, 2022, we adopted ASU 2020-06 "Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity" ("ASU 2020-06"), 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.

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

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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 June 30, 2022:

June 30, 2022

Type of Derivatives

Number of Contracts

Aggregate Notional Amount (in thousands)

Notional Currency

Maturity

Weighted-Average Years to Maturity

Fx contracts - GBP

133

1,013,398

GBP

July 2022 - February 2027

2.16

Fx contracts - EUR

116

622,313

EUR

July 2022 - November 2025

1.82

Fx contracts - SEK

21

757,599

SEK

August 2022 - May 2026

3.34

Interest rate cap

1

500,000

USD

June 2023

0.96

    

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 six months ended June 30, 2022 and 2021 ($ in thousands):

									Amount of gain (loss) recognized in income
									Three months ended June 30,												Six months ended June 30,
			Location of Gain (Loss) Recognized in Income						2022						2021						2022						2021
Forward currency contracts			Unrealized gain (loss) on derivative instruments						$	95,053					$	(2,021)					$	113,195					$	8,481
Forward currency contracts			Realized gain (loss) on derivative instruments						10,160						(1,073)						14,780						(1,775)
Total									$	105,213					$	(3,094)					$	127,975					$	6,706

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 six months ended June 30, 2022, LIBOR exceeded the cap rate of 0.75%. As such, during the three and six months ended June 30, 2022, we recognized income from the interest rate cap in the amount of $0.2 million which is offsetting interest expense in our condensed consolidated statement of operations. There was no such contra-expense recorded during the three and six months ended June 30, 2021. The following table summarizes the amount recognized on our condensed consolidated statements of operations related to our interest rate cap for the six months ended June 30, 2022 and 2021 ($ in thousands):

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									Amount of gain (loss) recognized in income
									Three months ended June 30,									Six months ended June 30,
			Location of Gain Recognized in Income						2022						2021			2022						2021
Interest rate cap(1)			Unrealized gain (loss) on interest rate hedging instruments						$	3,443					$	(111)		$	9,764					$	246
Total									$	3,443					$	(111)		$	9,764					$	246

———————

(1)With a notional amount of $500.0 million at June 30, 2022 and 2021.

The following tables summarize the gross asset and liability amounts related to our derivatives at June 30, 2022 and December 31, 2021 ($ in thousands):

			June 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 Liabilities Presented in our Condensed Consolidated Balance Sheet
Forward currency contracts			$	144,296					$	(15,761)					$	128,535					$	28,781					$	(13,441)					$	15,340
Interest rate cap			11,213						—						11,213						1,448						—						1,448
Total derivative assets (liabilities)			$	155,509					$	(15,761)					$	139,748					$	30,229					$	(13,441)					$	16,788

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 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) 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). The participation interest sold is subordinate to our remaining £70.7 million ($86.1 million assuming conversion into USD) first mortgage loan and is accounted for as a secured borrowing on our condensed consolidated balance sheet.

During the six months ended June 30, 2022, the participation sold on commercial mortgage loans balance decreased by $2.7 million due to unrealized loss on foreign currency translation.

The table below details participations sold included in our condensed consolidated balance sheet ($ in thousands):

			June 30, 2022						December 31, 2021
Participation sold on commercial mortgage loans			$	24,356					$	27,064
Total participations sold			$	24,356					$	27,064

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thousands):

			June 30, 2022						December 31, 2021
Collateral held under derivative agreements			$	138,800					$	21,420
Accrued dividends payable			52,670						52,833
Accrued interest payable			21,386						16,166
Accounts payable and other liabilities(1)			3,245						9,084
General CECL Allowance on unfunded commitments(2)			3,999						3,106
Total			$	220,100					$	102,609

  ———————

(1)Includes $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 June 30, 2022 and December 31, 2021, respectively.

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, 2021, 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 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 $9.6 million and $18.9 million in base management fees under the Management Agreement for the three and six months ended June 30, 2022, respectively, as compared to $9.4 million and $18.8 million for the three and six months ended June 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 six months ended June 30, 2022 we paid expenses totaling $1.3 million and $2.2 million, respectively, related to reimbursements for certain expenses paid by the Manager on our behalf under the Management Agreement as compared to $0.7 million and $1.3 million for the three and six months ended June 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 June 30, 2022 and December 31, 2021 is approximately $9.6 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

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recorded as real estate owned - held for sale on our condensed consolidated balance sheet at June 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, Held for Sale" for additional information.

We own three mezzanine loans, including Junior Mezzanine B Loan, that are secured by the same residential-for-sale 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. Refer to "Note 4 - Commercial Mortgage Loans, Subordinate Loans and Other Lending Assets, Net" for additional information.

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

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 $9.2 million during the three and six months ended June 30, 2022. We recognized stock-based compensation expense of $4.4 million and $8.7 million during the three and six months ended June 30, 2021 respectively, related to restricted stock and RSU vesting.

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The following table summarizes the grants, vesting and forfeitures of restricted common stock and RSUs during the six months ended June 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						(35,185)						(23,089)						N/A
			Forfeiture						—						(12,524)						N/A
Outstanding at June 30, 2022									59,434						2,569,410

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

Vesting Year						Restricted Stock						RSU						Total Awards
2022						3,332						1,237,368						1,240,700
2023						52,768						886,145						938,913
2024						3,334						443,536						446,870
2025						—						2,361						2,361
Total						59,434						2,569,410						2,628,844

At June 30, 2022, we had unrecognized compensation expense of approximately $0.8 million and $29.7 million related to the vesting of restricted stock awards and RSUs, respectively, noted in the table above.

RSU Deliveries

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 June 30, 2022, 140,590,843 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 June 30,												Six months ended June 30,
Dividends declared per share of:			2022						2021						2022						2021
Common Stock			$0.35						$0.35						$0.70						$0.70
Series B Preferred Stock			N/A						0.50						N/A						1.00
Series B-1 Preferred Stock			0.45						N/A						0.90						N/A

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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 June 30, 2022, we had $1.7 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 3.8 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 prolonged duration and impact of the COVID-19 pandemic, including the continued impact and uncertainty resulting from COVID-19 variants, could materially disrupt our business operations and impact our financial performance.

As of June 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.

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 June 30, 2022 and December 31, 2021 ($ in thousands):

			June 30, 2022												December 31, 2021
			Carrying Value						Estimated Fair Value						Carrying Value						Estimated Fair Value
Cash and cash equivalents			$	241,619					$	241,619					$	343,106					$	343,106
Commercial mortgage loans, net			8,176,149						8,136,674						7,012,312						6,945,038
Subordinate loans and other lending assets, net(1)			753,711						748,812						844,948						725,906
Subordinate loan held-for-sale			7,500						7,500						—						—
Secured debt arrangements, net			(5,183,837)						(5,183,837)						(4,150,268)						(4,150,268)
Senior secured term loans, net			(766,159)						(743,198)						(768,325)						(782,995)

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Senior secured notes, net			(494,445)						(374,200)						(494,051)						(489,175)
2022 Notes			(344,899)						(344,600)						(343,117)						(347,552)
2023 Notes			(228,991)						(231,150)						(226,862)						(231,150)
Participations sold			(24,356)						(24,596)						(27,064)						(27,064)

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(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."

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 six months ended June 30, 2022 and 2021 ($ in thousands except per share data): 

			Three months ended June 30,												Six months ended June 30,
			2022						2021						2022						2021
Basic Earnings
Net income			$	70,951					$	67,691					$	86,189					$	126,026
Less: Preferred dividends			(3,068)						(3,385)						(6,136)						(6,770)
Net income available to common stockholders			$	67,883					$	64,306					$	80,053					$	119,256
Less: Dividends on participating securities			(901)						(849)						(1,800)						(1,697)
Basic Earnings			$	66,982					$	63,457					$	78,253					$	117,559
Diluted Earnings
Basic Earnings			$	66,982					$	63,457					$	78,253					$	117,559
Add: Dividends on participating securities			901						849						—						1,697
Add: Interest expense on Convertible Notes			7,464						8,261						14,924						16,506
Diluted Earnings			$	75,347					$	72,567					$	93,177					$	135,762
Number of Shares:
Basic weighted-average shares of common stock outstanding			140,590,843						139,884,060						140,472,771						139,845,178
Diluted weighted-average shares of common stock outstanding			171,698,185						170,832,186						169,006,042						170,812,544
Earnings Per Share Attributable to Common Stockholders
Basic			$	0.48					$	0.45					$	0.56					$	0.84
Diluted			$	0.44					$	0.42					$	0.55					$	0.79

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 six months ended June 30, 2022 and 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.

Subsequent to the quarter ended June 30, 2022, the following events took place:

Investment activity: We funded approximately $58.1 million for previously closed loans.

Loan Repayments: We received approximately $62.0 million from loan repayments, including the $50.3 million full repayment of a loan secured by a multifamily property in Cleveland, Ohio and the $9.2 million full repayment of a loan secured by a residential-for-sale property located in New York City.

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