10-Q
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________ 
FORM 10-Q
__________________________________ 
(Mark One)
x
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2015
¨
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from                     to                    
Commission File Number: 001-34452
__________________________________ 
Apollo Commercial Real Estate Finance, Inc.
(Exact name of registrant as specified in its charter)
__________________________________ 
Maryland
 
27-0467113
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
Apollo Commercial Real Estate Finance, Inc.
c/o Apollo Global Management, LLC
9 West 57th Street, 43rd Floor,
New York, New York 10019
(Address of registrant’s principal executive offices)
(212) 515–3200
(Registrant’s telephone number, including area code)
__________________________________ 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):
Large accelerated filer 
 
x
  
Accelerated filer
 
¨
 
 
 
 
 
 
 
Non-accelerated filer
 
¨  (Do not check if a smaller reporting company)
  
Smaller Reporting Company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date.
As of November 6, 2015, there were 67,145,252 shares, par value $0.01, of the registrant’s common stock issued and outstanding.
 

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Table of Contents
 
 
Page
 
 

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Part I — FINANCIAL INFORMATION
ITEM 1. Financial Statements
Apollo Commercial Real Estate Finance, Inc. and Consolidated Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands—except share and per share data)
 
September 30, 2015
 
December 31, 2014
Assets:
 
 
 
Cash
$
20,158

 
$
40,641

Restricted cash
30,127

 
30,127

Securities available-for-sale, at estimated fair value
—

 
17,105

Securities, at estimated fair value
512,485

 
522,730

Securities, held-to-maturity
153,799

 
154,283

Commercial mortgage loans, held for investment
905,681

 
458,520

Subordinate loans, held for investment
861,808

 
561,182

Investment in unconsolidated joint venture
20,183

 
37,016

Derivative assets
246

 
4,070

Interest receivable
14,424

 
10,829

Deferred financing costs, net
8,125

 
7,444

Other assets
767

 
1,200

Total Assets
$
2,527,803

 
$
1,845,147

Liabilities and Stockholders’ Equity
 
 
 
Liabilities:
 
 
 
Borrowings under repurchase agreements
$
735,437

 
$
622,194

Convertible senior notes, net
247,736

 
246,464

Participations sold
119,407

 
89,584

Accounts payable and accrued expenses
4,668

 
7,578

Payable to related party
4,100

 
3,240

Dividends payable
32,060

 
21,018

Total Liabilities
1,143,408

 
990,078

Commitments and Contingencies (see Note 16)

 

Stockholders’ Equity:
 
 
 
Preferred stock, $0.01 par value, 50,000,000 shares authorized:
 
 
 
Series A Preferred stock, 3,450,000 shares issued and outstanding ($86,250 aggregate liquidation preference) in 2015 and 2014
35

 
35

Series B Preferred stock, 8,000,000 shares issued and outstanding ($200,000 aggregate liquidation preference) in 2015
80

 
—

Common stock, $0.01 par value, 450,000,000 shares authorized, 67,145,252 and 46,900,442 shares issued and outstanding, respectively
671

 
469

Additional paid-in-capital
1,408,448

 
868,035

Retained earnings (accumulated deficit)
(22,225
)
 
(10,485
)
Accumulated other comprehensive loss
(2,614
)
 
(2,985
)
Total Stockholders’ Equity
1,384,395

 
855,069

Total Liabilities and Stockholders’ Equity
$
2,527,803

 
$
1,845,147


See notes to unaudited condensed consolidated financial statements.
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Apollo Commercial Real Estate Finance, Inc. and Consolidated Subsidiaries
Condensed Consolidated Statement of Operations (Unaudited)
(in thousands—except share and per share data)
 
Three months ended 
 September 30,
 
Nine months ended 
 September 30,
 
2015
 
2014
 
2015
 
2014
Net interest income:
 
 
 
 
 
 
 
Interest income from securities
$
8,293

 
$
6,129

 
$
24,846

 
$
12,914

Interest income from securities, held to maturity
2,956

 
2,219

 
9,050

 
2,219

Interest income from commercial mortgage loans
15,184

 
8,025

 
37,246

 
18,475

Interest income from subordinate loans
25,445

 
18,983

 
65,206

 
51,951

Interest expense
(13,187
)
 
(8,786
)
 
(36,287
)
 
(15,802
)
Net interest income
38,691

 
26,570

 
100,061

 
69,757

Operating expenses:
 
 
 
 
 
 
 
General and administrative expenses (includes $756 and $2,695 of equity based compensation in 2015 and $308 and $1,096 in 2014, respectively)
(2,099
)
 
(1,434
)
 
(6,512
)
 
(4,355
)
Management fees to related party
(4,097
)
 
(3,193
)
 
(11,325
)
 
(8,725
)
Total operating expenses
(6,196
)
 
(4,627
)
 
(17,837
)
 
(13,080
)
Income from unconsolidated joint venture
108

 
(88
)
 
495

 
(88
)
Other income
239

 
21

 
252

 
26

Realized loss on sale of securities
—

 
—

 
(443
)
 
—

Unrealized gain (loss) on securities
(6,926
)
 
(2,147
)
 
(5,792
)
 
4,787

Foreign currency gain (loss)
(2,165
)
 
(3,596
)
 
3,424

 
(2,637
)
Gain (loss) on derivative instruments
2,096

 
3,026

 
(4,144
)
 
1,933

Net income
25,847

 
19,159

 
76,016

 
60,698

Preferred dividends
(2,304
)
 
(1,860
)
 
(6,023
)
 
(5,580
)
Net income available to common stockholders
$
23,543

 
$
17,299

 
$
69,993

 
$
55,118

Basic and diluted net income per share of common stock
$
0.39

 
$
0.37

 
$
1.24

 
$
1.30

Basic weighted average shares of common stock outstanding
59,355,613

 
46,848,675

 
55,818,731

 
42,322,380

Diluted weighted average shares of common stock outstanding
59,934,008

 
47,068,929

 
56,415,082

 
42,538,744

Dividend declared per share of common stock
$
0.44

 
$
0.40

 
$
1.32

 
$
1.20



See notes to unaudited condensed consolidated financial statements.
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Apollo Commercial Real Estate Finance, Inc. and Consolidated Subsidiaries
Condensed Consolidated Statement of Comprehensive Income (Unaudited)
(in thousands)
 
Three months ended 
 September 30,
 
Nine months ended 
 September 30,
 
2015
 
2014
 
2015
 
2014
Net income available to common stockholders
$
23,543

 
$
17,299

 
$
69,993

 
$
55,118

Change in net unrealized gain (loss) on securities available-for-sale
—

 
39

 
678

 
116

Foreign currency translation adjustment
53

 
—

 
(307
)
 
—

Comprehensive income
$
23,596

 
$
17,338

 
$
70,364

 
$
55,234



See notes to unaudited condensed consolidated financial statements.
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Apollo Commercial Real Estate Finance, Inc. and Consolidated Subsidiaries
Condensed Consolidated Statement of Changes in Stockholders’ Equity (Unaudited)
(in thousands—except share data)
 
Preferred Stock
 
Common Stock
 
Additional
Paid In
Capital
 
Retained
Earnings
(Accumulated
Deficit)
 
Accumulated
Other
Comprehensive
Income
 
 
 
Shares
 
Par
 
Shares
 
Par
 
 
 
 
Total
Balance at January 1, 2015
3,450,000

 
$
35

 
46,900,442

 
$
469

 
$
868,035

 
$
(10,485
)
 
$
(2,985
)
 
$
855,069

Capital increase related to Equity Incentive Plan
—

 
—

 
12,763

 
*

 
2,573

 
—

 
—

 
2,573

Issuance of preferred stock
8,000,000

 
80

 
—

 
—

 
197,600

 
—

 
—

 
197,680

Issuance of restricted common stock
—

 
—

 
15,950

 
*

 
—

 
—

 
—

 
—

Issuance of common stock
—

 
—

 
20,323,529

 
203

 
343,227

 
—

 
—

 
343,430

Repurchase of common stock
—

 
—

 
(107,432
)
 
(1
)
 
(1,740
)
 
—

 
—

 
(1,741
)
Offering costs
—

 
—

 
—

 
—

 
(1,247
)
 
—

 
—

 
(1,247
)
Net income
—

 
—

 
—

 
—

 
—

 
76,016

 
—

 
76,016

Change in other comprehensive loss
—

 
—

 
—

 
—

 
—

 
—

 
371

 
371

Dividends on common stock
—

 
—

 
—

 
—

 
—

 
(81,733
)
 
—

 
(81,733
)
Dividends on preferred stock
—

 
—

 
—

 
—

 
—

 
(6,023
)
 
—

 
(6,023
)
Balance at September 30, 2015
11,450,000

 
$
115

 
67,145,252

 
$
671

 
$
1,408,448

 
$
(22,225
)
 
$
(2,614
)
 
$
1,384,395


* Rounds to zero.


See notes to unaudited condensed consolidated financial statements.
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Apollo Commercial Real Estate Finance, Inc. and Consolidated Subsidiaries
Condensed Consolidated Statement of Cash Flows (Unaudited)
(in thousands)
 
Nine months ended September 30, 2015
 
Nine months ended September 30, 2014
Cash flows provided by operating activities:
 
 
 
Net income
$
76,016

 
$
60,698

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Premium amortization and (discount accretion), net
(7,782
)
 
(3,018
)
Amortization of deferred financing costs
2,219

 
1,252

Equity-based compensation
2,573

 
220

Unrealized (gain) loss on securities
5,916

 
(4,787
)
Income from unconsolidated joint venture
(511
)
 
88

Foreign currency (gain) loss
1,703

 
2,623

Unrealized loss on derivative instruments
4,151

 
(1,933
)
Realized loss on sale of security
443

 
—

Changes in operating assets and liabilities:
 
 
 
Accrued interest receivable, less purchased interest
(20,711
)
 
(16,521
)
Other assets
396

 
200

Accounts payable and accrued expenses
(3,202
)
 
1,077

Payable to related party
860

 
565

Net cash provided by operating activities
62,071

 
40,464

Cash flows used in investing activities:
 
 
 
Funding of securities at estimated fair value
—

 
(325,961
)
Funding of commercial mortgage loans
(483,090
)
 
(211,738
)
Funding of subordinate loans
(483,480
)
 
(353,386
)
Funding of unconsolidated joint venture
(3,929
)
 
(39,477
)
Funding of other assets
(8
)
 
(1,258
)
Funding of derivative instruments
(327
)
 
—

Proceeds from sale of securities available-for-sale
17,291

 
—

Proceeds from sale of securities at estimated fair value
6,338

 
—

Proceeds from sale of investment in unconsolidated joint venture
20,794

 
—

Principal payments received on securities available-for-sale
—

 
15,289

Principal payments received on securities at estimated fair value
32

 
15,306

Principal payments received on securities, held-to-maturity
1,000

 
—

Principal payments received on commercial mortgage loans
41,479

 
666

Principal payments received on subordinate loans
146,775

 
117,003

Principal payments received on other assets
167

 
86

Proceeds from sale of commercial mortgage loans
—

 
4,950

Proceeds from sale of subordinate loans
52,612

 
—

Net cash used in investing activities
(684,346
)
 
(778,520
)
Cash flows from financing activities:
 
 
 
Proceeds from issuance of preferred stock
197,680

 
—

Proceeds from issuance of common stock
343,430

 
158,693

Repurchase of common stock
(1,741
)
 
—

Payment of offering costs
(956
)
 
(308
)
Proceeds from repurchase agreement borrowings
553,214

 
441,391

Repayments of repurchase agreement borrowings
(439,971
)
 
(105,658
)
Proceeds from issuance of convertible senior notes
—

 
256,970

Proceeds from participations sold
30,484

 
89,012

Repayments of participations sold
(733
)
 
—

Payment of deferred financing costs
(2,900
)
 
(8,846
)
Dividends on common stock
(71,135
)
 
(49,065
)
Dividends on preferred stock
(5,580
)
 
(5,580
)
Net cash provided by financing activities
601,792

 
776,609

Net increase in cash and cash equivalents
(20,483
)
 
38,553

Cash and cash equivalents, beginning of period
40,641

 
20,096

Cash and cash equivalents, end of period
$
20,158

 
$
58,649

Supplemental disclosure of cash flow information:
 
 
 
Interest paid
$
36,563

 
$
14,565

Supplemental disclosure of non-cash financing activities:
 
 
 
Dividend declared, not yet paid
$
32,060

 
$
20,753

Deferred financing costs, not yet paid
$
—

 
$
213

Offering costs payable
$
325

 
$
71


See notes to unaudited condensed consolidated financial statements.
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Apollo Commercial Real Estate Finance Inc. and Consolidated Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(in thousands—except share and per share data)
Note 1 – Organization
Apollo Commercial Real Estate Finance, Inc. (together with its consolidated subsidiaries, is referred to throughout this report as the “Company,” “ARI,” “we,” “us” and “our”) is a Maryland corporation that has elected to be taxed as a real estate investment trust (“REIT”) for U.S. federal income tax purposes. The Company primarily originates, acquires, invests in and manages performing commercial first mortgage loans, subordinate financings, commercial mortgage-backed securities (“CMBS”) and other commercial real estate-related debt investments. These asset classes are referred to as the Company’s target assets.
Note 2 – Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements include the Company’s accounts and those of its 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. The Company’s most significant estimates include the fair value of financial instruments and loan loss reserve. 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 the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, 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 the Company’s financial position, results of operations and cash flows have been included. The Company's results of operations for the quarterly period ended September 30, 2015 are not necessarily indicative of the results to be expected for the full year or any other future period.
The Company currently operates in one business segment.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (the "FASB") issued guidance which broadly amends the accounting guidance for revenue recognition. This guidance is effective for the first interim or annual period beginning after December 15, 2017, and is to be applied prospectively.  The Company does not anticipate that the adoption of this guidance will have a material impact on the Company's consolidated financial statements.
In June 2014, the FASB issued guidance which amends the accounting guidance for repurchase-to-maturity transactions and repurchase agreements executed as repurchase financings, and requires additional disclosure about certain transactions by the transferor. The guidance is effective for certain transactions that qualify for sales treatment for the first interim or annual period beginning after December 15, 2014. The new disclosure requirements for repurchase agreements, securities lending transactions and repurchase-to-maturity transactions that qualify for secured borrowing treatment is effective for annual periods beginning after December 15, 2014 and for interim periods beginning after March 15, 2014. The Company currently records repurchase arrangements as secured borrowings and does not anticipate this guidance will have an impact on the Company's consolidated financial statements.
In August 2014, the FASB issued guidance regarding management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. The new guidance requires that management evaluate each annual and interim reporting period whether conditions exist that give rise to substantial doubt about the entity’s ability to continue as a going concern within one year from the financial statement issuance date, and if so, provide related disclosures. Disclosures are only required if conditions give rise to substantial doubt, whether or not the substantial doubt is alleviated by management’s plans. No disclosures are required specific to going concern uncertainties if an assessment of the conditions does not give rise to substantial doubt. Substantial doubt exists when conditions and events, considered in the aggregate, indicate that it is probable that a company will be unable to meet its obligations as they become due within one year after the financial statement issuance date. If substantial doubt is alleviated as a result of the consideration of management’s plans, a company should disclose information that enables users of financial statements to understand all of the following (or refer to similar information disclosed elsewhere in the footnotes): (1) principal conditions

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that initially give rise to substantial doubt, (2) management’s evaluation of the significance of those conditions in relation to the company’s ability to meet its obligations, and (3) management’s plans that alleviated substantial doubt. If substantial doubt is not alleviated after considering management’s plans, disclosures should enable investors to understand the underlying conditions, and include the following: (1) a statement indicating that there is substantial doubt about the company’s ability to continue as a going concern within one year after the issuance date, (2) the principal conditions that give rise to substantial doubt, (3) management’s evaluation of the significance of those conditions in relation to the company’s ability to meet its obligations, and (4) management's plans that are intended to mitigate the adverse conditions. The new guidance applies to all companies. The guidance is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2016. Early adoption is permitted. The Company does not anticipate that the adoption of this guidance will have a material impact on the Company's condensed consolidated financial statements.
In February 2015, the FASB issued guidance which amends the guidance related to accounting for the consolidation of certain legal entities. The modifications impacts limited partnerships and similar legal entities, the evaluation of (i) fees paid to a decision maker or a service provider as a variable interest, (ii) fee arrangements, and (iii) related parties on the primary beneficiary determination. This guidance is effective for the first interim or annual period beginning after December 15, 2015. The Company does not anticipate that the adoption of this guidance will have a material impact on the Company's condensed consolidated financial statements.
In April 2015, the FASB issued guidance that simplifies the presentation of debt issuance costs by amending the accounting guidance to require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability. The amendments are consistent with the accounting guidance related to debt discounts. This guidance is effective for the first interim or annual period beginning after December 15, 2015. Early adoption is permitted, and the Company is currently assessing the impact of this guidance on the Company's condensed consolidated financial statements.
Note 3 – Fair Value Disclosure
GAAP establishes a hierarchy of valuation techniques based on observable inputs utilized in measuring financial instruments at fair values. Market based or observable inputs are the preferred source of values, followed by valuation models using management assumptions in the absence of market inputs. The three levels of the hierarchy 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 the Company anticipates that its valuation methods will be appropriate and consistent with 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. The Company will 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 estimated fair value of the CMBS portfolio is determined by reference to market prices provided by certain dealers who make a market in these financial instruments. Broker quotes are only indicative of fair value and may not necessarily represent what the Company would receive in an actual trade for the applicable instrument. Management performs additional analysis on prices received based on broker quotes to validate the prices and adjustments are made as deemed necessary by management to capture current market information. The estimated fair values of the Company’s securities are based on observable market parameters and are classified as Level II in the fair value hierarchy. In accordance with GAAP, the Company elects the fair value option for these securities at the date of purchase in order to allow the Company to measure these securities at fair value with the change in estimated fair value included as a component of earnings in order to reflect the performance of investment in a timely manner.
The estimated fair values of the Company’s derivative instruments are determined using a discounted cash flow analysis on the expected cash flows of each derivative. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The fair values of interest rate caps are determined 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 caps. The variable interest rates used in the calculation of projected cash flows are based on an expectation of future interest

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rates derived from observable market interest rate curves and volatilities. The fair values of foreign exchange 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.   The Company’s derivative instruments are classified as Level II in the fair value hierarchy.
The following table summarizes the levels in the fair value hierarchy into which the Company’s financial instruments were categorized as of September 30, 2015 and December 31, 2014:
 
 
Fair Value as of September 30, 2015
 
Fair Value as of December 31, 2014
 
Level I
 
Level II
 
Level III
 
Total
 
Level I
 
Level II
 
Level III
 
Total
CMBS (Available-for-Sale)
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
17,105

 
$
—

 
$
17,105

CMBS (Fair Value Option)
—

 
512,485

 
—

 
512,485

 
—

 
522,730

 
—

 
522,730

Derivative assets
—

 
246

 
—

 
246

 
—

 
4,070

 
—

 
4,070

Derivative liabilities
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Total
$
—

 
$
512,731

 
$
—

 
$
512,731

 
$
—

 
$
543,905

 
$
—

 
$
543,905


Note 4 – Debt Securities
At September 30, 2015, all of the Company's CMBS (Fair Value Option) were pledged to secure borrowings under the Company’s master repurchase agreements with UBS AG, London Branch ("UBS") (the "UBS Facility") and Deutsche Bank AG ("DB") (the "DB Facility"). See "Note 8 - Borrowings Under Repurchase Agreements" for further information regarding these facilities.
During February 2015, the Company sold CMBS with an amortized cost of $24,038 resulting in a net realized loss of $443, which was comprised of realized gains of $43 and realized losses of $486. As a result of the sale, $678 was reclassified out of accumulated other comprehensive income. The sale generated proceeds of $1,341 after the repayment of $22,254 of borrowings under the Company's master repurchase agreement with Wells Fargo Bank, N.A. ("Wells Fargo") (the "Wells Facility").
CMBS (Held-to-Maturity) represents a loan the Company closed during May 2014 that was subsequently contributed to a securitization during August 2014. During May 2014, the Company closed a $155,000 floating-rate whole loan secured by the first mortgage and equity interests in an entity that owns a resort hotel in Aruba. The property consists of 442 hotels rooms, 114 timeshare units, two casinos and approximately 131,500 square feet of retail space. During June 2014, the Company syndicated a $90,000 senior participation in the loan and retained a $65,000 junior participation. The Company evaluated this transaction and concluded due to its continuing involvement the transaction should not be accounted for as a sale. During August 2014, both the $90,000 senior participation and the Company's $65,000 junior participation were contributed to a CMBS securitization. In exchange for contributing its $65,000 junior participation, the Company received a CMBS secured solely by the $65,000 junior participation. The whole loan has a three-year term with two one-year extension options and an appraised loan-to-value ("LTV") of approximately 60%.
The amortized cost and estimated fair value of the Company’s debt securities at September 30, 2015 are summarized as follows:
 
Security Description
Face
Amount
 
Amortized
Cost
 
Gross
Unrealized
Gain
 
Gross
Unrealized
Loss
 
Carrying
Value
CMBS (Fair Value Option)
$
520,883

 
$
512,107

 
$
5,752

 
$
(5,374
)
 
$
512,485

CMBS (Held-to-Maturity)
$
154,000

 
$
153,799

 
$
—

 
$
—

 
$
153,799

Total
$
674,883

 
$
665,906

 
$
5,752

 
$
(5,374
)
 
$
666,284

The following table presents information about the Company's debt securities that were in an unrealized loss position at September 30, 2015:
 
Unrealized Loss Position for Less than 12 months
 
Unrealized Loss Position for 12 months or More
Security Description
Fair Value
 
Unrealized Loss
 
Fair Value
 
Unrealized Loss
CMBS (Fair Value Option)
239,715

 
(4,222
)
 
6,315

 
(1,152
)
Total
$
239,715

 
$
(4,222
)
 
$
6,315

 
$
(1,152
)

10
Table of Contents

The gross unrealized loss related to the available-for-sale securities results from the fair value of the securities falling below the amortized cost basis. The unrealized losses are primarily the result of market factors other than credit impairment and the Company believes the carrying value of the securities are fully recoverable over their expected holding period. Management does not intend to sell or expect to be forced to sell the securities prior to the Company recovering the amortized cost. As such, management does not believe any of the securities are other than temporarily impaired.
The amortized cost and estimated fair value of the Company’s debt securities at December 31, 2014 are summarized as follows:
 
Security Description
Face
Amount
 
Amortized
Cost
 
Gross
Unrealized
Gain
 
Gross
Unrealized
Loss
 
Estimated
Fair
Value
CMBS (Available-for-Sale)
$
17,013

 
$
17,783

 
$
—

 
$
(678
)
 
$
17,105

CMBS (Fair Value Option)
527,177

 
516,443

 
7,322

 
(1,035
)
 
522,730

CMBS (Held-to-Maturity)
$
155,000

 
$
154,283

 
$
—

 
$
—

 
$
154,283

Total
$
699,190

 
$
688,509

 
$
7,322

 
$
(1,713
)
 
$
694,118


The overall statistics for the Company’s CMBS (Available-for-Sale) and CMBS (Fair Value Option) investments calculated on a weighted average basis assuming no early prepayments or defaults as of September 30, 2015 and December 31, 2014 are as follows:
 
 
September 30, 2015
 
December 31, 2014
Credit Ratings *
AAA to CC

 
AAA to CCC-

Coupon
5.9
%
 
5.9
%
Yield
6.6
%
 
6.4
%
Weighted Average Life
1.7 years

 
2.3 years

 
*
Ratings per Fitch Ratings, Moody’s Investors Service or Standard & Poor's.
The percentage vintage, property type and location of the collateral securing the Company’s CMBS (Available-for-Sale) and CMBS (Fair Value Option) investments calculated on a weighted average basis as of September 30, 2015 and December 31, 2014 are as follows:
 
Vintage
September 30, 2015
 
December 31, 2014
2005
9.7
%
 
9.0
%
2006
19.4

 
19.0

2007
61.8

 
63.0

2008
9.1

 
9.0

Total
100.0
%
 
100.0
%
 
Property Type
September 30, 2015
 
December 31, 2014
Office
32.3
%
 
33.4
%
Retail
29.4

 
29.1

Multifamily
13.3

 
13.3

Other *
25.0

 
24.2

Total
100.0
%
 
100.0
%
 *    No other individual category comprises more than 10% of the total.
 

11
Table of Contents

Location
September 30, 2015
 
December 31, 2014
South Atlantic
23.2
%
 
23.2
%
Middle Atlantic
17.9

 
21.1

Pacific
17.6

 
17.0

East North Central
12.4

 
11.0

Other *
28.9

 
27.7

Total
100.0
%
 
100.0
%
 *    No other individual category comprises more than 10% of the total.
Note 5 – Commercial Mortgage Loans
The Company’s commercial mortgage loan portfolio was comprised of the following at September 30, 2015:
 
Description
Date of
Investment
 
Maturity
Date
 
Original
Face
Amount
 
Current
Face
Amount
 
Carrying
Value
 
Coupon
 
Property Size
Condo Conversion – New York, NY (1)
Aug-13
 
Sept-16
 
33,000

 
24,131

 
24,252

 
Floating

 
40,000 sq. ft.
Condo Construction - Potomac, MD (3)
Feb-14
 
Sept-16
 
80,000

 
80,000

 
79,739

 
Floating

 
50 units
Vacation Home Portfolio - Various (1)
Apr-14
 
Apr-19
 
101,000

 
95,984

 
95,086

 
Fixed

 
229 properties
Hotel - Philadelphia, PA (1)(4)
May-14
 
May-17
 
34,000

 
34,000

 
33,960

 
Floating

 
301 rooms
Condo Construction - Bethesda, MD (5)
Jun-14
 
Dec-16
 
33,000

 
33,000

 
32,900

 
Floating

 
40 units
Multifamily - Brooklyn, NY (1)(6)
Jul-14
 
Aug-16
 
34,500

 
34,500

 
34,818

 
Floating

 
63 units
Mixed Use - Cincinnati, OH (7)
Nov-14
 
May-18
 
128,700

 
128,700

 
127,074

 
Floating

 
65 acres
Condo Conversion - New York, NY (1)(8)
Nov-14
 
Dec-15
 
67,300

 
67,300

 
67,078

 
Floating

 
86,000 sq. ft.
Multifamily - Williston, ND (1)(4)
Nov-14
 
Nov-17
 
58,000

 
55,140

 
54,979

 
Floating

 
366 units/homes
Vacation Home Portfolio - Various U.S. (1)(4)
Nov-14
 
Nov-19
 
50,000

 
50,000

 
49,572

 
Fixed

 
24 properties
Mixed Use - Brooklyn, NY (1)(9)
Feb-15
 
Mar-17
 
85,770

 
85,770

 
85,414

 
Floating

 
330,000 sq. ft.
Hotel Portfolio - Various U.S. (1)(2)
Jun-15
 
Mar-17
 
45,400

 
45,400

 
45,290

 
Floating

 
2,690 rooms
Retail redevelopment - Miami, FL (1)(10)
Jun-15
 
Jan-17
 
45,000

 
45,000

 
44,740

 
Floating

 
63,300 sq. ft.
Retail redevelopment - Miami, FL (1)
Jun-15
 
Jul-17
 
33,000

 
33,000

 
32,719

 
Floating

 
16,600 sq. ft.
Retail - Brooklyn, NY (1)(11)
Aug-15
 
Mar-17
 
1,653

 
1,653

 
1,629

 
Floating

 
10,500 sq. ft.
Hotel - New York, NY (12)
Sept-15
 
Sept-18
 
97,807

 
97,807

 
96,431

 
Floating

 
317 rooms
Total/Weighted Average
 
 
 
 
$
928,130

 
$
911,385

 
$
905,681

 
7.02
%
 
 
 
(1)
At September 30, 2015, this loan was pledged to secure borrowings under the Company’s master repurchase facilities entered into with JPMorgan Chase Bank, N.A. (the “JPMorgan Facility”) or Goldman Sachs Bank USA (the “Goldman Loan”). See "Note 8 – Borrowings Under Repurchase Agreements" for a description of these facilities.
(2)
This loan includes a one-year extension option subject to certain conditions and the payment of a fee.
(3)
This loan includes a six-month extension option subject to certain conditions and the payment of a fee.
(4)
This loan includes two one-year extension options subject to certain conditions and the payment of a fee.
(5)
This loan includes a six-month extension option subject to certain conditions and the payment of a fee. At September 30, 2015, the Company had $32,100 of unfunded loan commitments related to this loan.
(6)
This loan includes three one-year extension options subject to certain conditions and the payment of a fee for each extension.
(7)
This loan includes two one-year extension options subject to certain conditions and the payment of a fee. At September 30, 2015, the Company had $36,300 of unfunded loan commitments related to this loan.
(8)
This loan includes a six-month extension option subject to certain conditions and the payment of a fee.
(9)
At September 30, 2015, the Company had $6,730 of unfunded loan commitments related to this loan.
(10)
This loan includes two six-month extension options subject to certain conditions and the payment of a fee.
(11)
At September 30, 2015, the Company had $9,000 of unfunded loan commitments related to this loan.
(12)
This loan includes two one-year extension options subject to certain conditions and the payment of a fee. At September 30, 2015, the Company had $40,599 of unfunded loan commitments related to this loan.
During April 2015, the Company received the full repayment from a commercial mortgage loan secured by a hotel in Silver Spring, Maryland.

12
Table of Contents

The Company’s commercial mortgage loan portfolio was comprised of the following at December 31, 2014:
 
Description
Date of
Investment
 
Maturity
Date
 
Original
Face
Amount
 
Current
Face
Amount
 
Carrying
Value
 
Coupon
 
Property Size
Hotel - Silver Spring, MD (1)
Mar-10
 
Apr-15
 
$
26,000

 
$
24,590

 
$
24,557

 
Fixed

 
263 rooms
Condo Conversion – New York, NY (1)(2)
Aug-13
 
Sept-15
 
33,000

 
33,846

 
33,961

 
Floating

 
40,000 sq. ft.
Condo Construction - Potomac, MD (3)
Feb-14
 
Sept-16
 
28,000

 
28,000

 
27,520

 
Floating

 
50 units
Vacation Home Portfolio - Various
Apr-14
 
Apr-19
 
101,000

 
100,046

 
99,086

 
Fixed

 
229 properties
Hotel - Philadelphia, PA (1)(4)
May-14
 
May-17
 
34,000

 
34,000

 
33,842

 
Floating

 
301 rooms
Condo Construction - Bethesda, MD (5)
Jun-14
 
Dec-16
 
20,000

 
20,000

 
19,616

 
Floating

 
40 units
Multifamily - Brooklyn, NY (1)(6)
Jul-14
 
Aug-16
 
30,000

 
30,000

 
30,110

 
Floating

 
63 units
Mixed Use - Cincinnati, OH (7)
Nov-14
 
May-18
 
20,000

 
20,000

 
18,309

 
Floating

 
65 acres
Condo Conversion - New York, NY (1)(8)
Nov-14
 
Dec-15
 
67,300

 
67,300

 
64,714

 
Floating

 
86,000 sq. ft.
Multifamily - Williston, ND (1)(4)
Nov-14
 
Nov-17
 
58,000

 
57,792

 
57,297

 
Floating

 
366 units/homes
Vacation Home Portfolio - Various U.S. (4)
Nov-14
 
Nov-19
 
50,000

 
50,000

 
49,508

 
Fixed

 
24 properties
Total/Weighted Average
 
 
 
 
$
467,300

 
$
465,574

 
$
458,520

 
6.84
%
 
 
 
(1)
At December 31, 2014, this loan was pledged to secure borrowings under the JPMorgan Facility. See "Note 8 – Borrowings Under Repurchase Agreements" for a description of this facility.
(2)
This loan includes a one-year extension option subject to certain conditions and the payment of a fee.
(3)
This loan includes a six-month extension option subject to certain conditions and the payment of a fee. At December 31, 2014, the Company had $52,000 of unfunded loan commitments related to this loan.
(4)
This loan includes two one-year extension options subject to certain conditions and the payment of a fee.
(5)
This loan includes a six-month extension option subject to certain conditions and the payment of a fee. At December 31, 2014, the Company had $45,100 of unfunded loan commitments related to this loan.
(6)
This loan includes three one-year extension options subject to certain conditions and the payment of a fee for each extension. At December 31, 2014, the Company had $4,500 of unfunded loan commitments related to this loan.
(7)
This loan includes two one-year extension options subject to certain conditions and the payment of a fee. At December 31, 2014, the Company had $145,000 of unfunded loan commitments related to this loan.
(8)
This loan includes a six-month extension option subject to certain conditions and the payment of a fee.

The Company evaluates its loans for possible impairment on a quarterly basis. The Company regularly evaluates the extent and impact of any credit deterioration 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. Specifically, a property’s operating results and any cash reserves are analyzed and used to assess (i) whether cash from operations are 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 property’s liquidation value. The Company also evaluates the financial wherewithal of any loan guarantors as well as the borrower’s competency in managing and operating the properties. In addition, the Company considers the overall economic environment, real estate sector and geographic sub-market in which the borrower operates. Such loan loss analyses are 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. An allowance for loan loss is established when it is deemed probable that the Company will not be able to collect all amounts due according to the contractual terms of the loan. The Company has determined that an allowance for loan losses was not necessary at September 30, 2015 or December 31, 2014.

13
Table of Contents

Note 6 – Subordinate Loans
The Company’s subordinate loan portfolio was comprised of the following at September 30, 2015:
 
Description
Date of
Investment
 
Maturity
Date
 
Original
Face
Amount
 
Current
Face
Amount
 
Carrying
Value
 
Coupon
Office - Michigan
May-10
 
Jun-20
 
$
9,000

 
$
8,769

 
$
8,769

 
Fixed

Mixed Use – North Carolina
Jul-12
 
Aug-22
 
6,525

 
6,525

 
6,525

 
Fixed

Office Complex - Missouri
Sept-12
 
Oct-22
 
10,000

 
9,604

 
9,604

 
Fixed

Condo Construction – New York, NY (1)
Jan-13
 
Jul-17
 
60,000

 
84,396

 
84,234

 
Fixed

Hotel Portfolio – Rochester, MN
Jan-13
 
Feb-18
 
25,000

 
24,261

 
24,261

 
Fixed

Warehouse Portfolio - Various
May-13
 
May-23
 
32,000

 
32,000

 
32,000

 
Fixed

Office Condo - New York, NY
Jul-13
 
Jul-22
 
14,000

 
14,000

 
13,622

 
Fixed

Condo Conversion – New York, NY (2)
Aug-13
 
Sept-16
 
29,400

 
11,437

 
11,535

 
Floating

Mixed Use - Various (3)
Dec-13
 
Dec-18
 
17,000

 
19,500

 
19,365

 
Fixed

Mixed Use - London, England
Apr-14
 
Jan-16
 
52,024

 
52,024

 
52,024

 
Fixed

Healthcare Portfolio - Various (4)
Jun-14
 
Jun-16
 
50,000

 
45,588

 
45,588

 
Floating

Ski Resort - Big Sky, MT
Aug-14
 
Sept-20
 
15,000

 
15,000

 
14,874

 
Fixed

Mixed Use - New York, NY (5)
Dec-14
 
Dec-17
 
70,943

 
75,473

 
74,806

 
Floating

Senior Housing - United Kingdom
Jan-15
 
Dec-17
 
82,063

 
82,063

 
82,063

 
Floating

Hotel - Burbank, CA
Feb-15
 
Jan-20
 
20,000

 
20,000

 
20,000

 
Fixed

Multifamily Portfolio - Florida (4)
Apr-15
 
May-17
 
22,000

 
22,000

 
21,851

 
Floating

Multifamily Portfolio - Florida (4)
Apr-15
 
May-17
 
15,500

 
15,500

 
15,395

 
Floating

Mixed Use - Various (4)
Jun-15
 
May-17
 
45,000

 
45,000

 
44,719

 
Floating

Hotel - Phoenix, AZ
Jun-15
 
Jul-25
 
25,000

 
25,000

 
25,000

 
Fixed

Hotel - Washington, DC (3)
Jun-15
 
Jul-17
 
20,000

 
20,000

 
19,896

 
Floating

Condo development - New York, NY (1)(6)
Jun-15
 
Jul-19
 
72,093

 
73,072

 
70,337

 
Floating

Condo Conversion - New York, NY (3)
  Jul-15
 
Aug-18
 
50,000

 
50,764
 
50,175
 
Floating

Mixed Use - New York, NY
  Aug-15
 
 Mar-17
 
14,000

 
12,347
 
12,168
 
   Floating

Mixed Use - New York, NY (1)
 Sept-15
 
 Oct-18
 
30,000

 
30,000
 
29,706
 
   Floating

Hotel - New York, NY (7)
 Sept-15
 
Sept-18
 
2,562

 
2,562
 
2,411
 
   Floating

Destination Resort - Various (8)
 Sept-15
 
May-18
 
75,000

 
75,000
 
70,880
 
   Floating

Total/Weighted Average
 
 
 
 
$
864,110

 
$
871,885

 
$
861,808

 
11.20
%

(1)
Includes a one-year extension option subject to certain conditions and the payment of an extension fee.
(2)
At September 30, 2015, this loan was pledged to secure borrowings under the JPMorgan Facility. See "Note 8 – Borrowings Under Repurchase Agreements" for a description of this facility.
(3)
Includes two one-year extension options subject to certain conditions and the payment of a fee for each extension.
(4)
Includes three one-year extension options subject to certain conditions and the payment of an extension fee.
(5)
Includes two one-year extension options subject to certain conditions and the payment of a fee for each extension. At September 30, 2015, the Company had $11,557 of unfunded loan commitments related to this loan.
(6)
At September 30, 2015, the Company had $202,197 of unfunded loan commitments related to this loan.
(7)
Includes two one-year extension options subject to certain conditions and the payment of a fee for each extension. At September 30, 2015, the Company had $12,512 of unfunded loan commitments related to this loan.
(8)
Includes four one-year extension options subject to certain conditions and the payment of an extension fee.

During June 2015, the Company received the full repayment of a subordinate loan secured by a pledge of the equity interest in a borrower that owns a mixed use property located in the central business district of Pittsburgh, PA.
During August 2015, the Company sold a subordinate loan secured by a pledge of the equity interest in a borrower that owns a portfolio of hotels throughout the United States that is scheduled to mature in November 2015 and retained an interest-only strip (included in other assets on these consolidated financial statements) that bears interest at 3.4% and will mature at the time the loan is repaid.

14
Table of Contents

During August 2015, the Company sold a subordinate loan secured by a pledge of the equity interest in a borrower that owns a hotel in New York, NY and retained the rights to the prepayment penalty should the loan repay prior to January 2016, the expiration of the prepayment lockout.
During September 2015, the Company received the full repayment of a subordinate loan secured by a pledge of the equity interest in a borrower that owns a ski resort in California.
The Company’s subordinate loan portfolio was comprised of the following at December 31, 2014:
 
Description
Date of
Investment
 
Maturity
Date
 
Original
Face
Amount
 
Current
Face
Amount
 
Carrying
Value
 
Coupon
Office - Michigan
May-10
 
Jun-20
 
$
9,000

 
$
8,813

 
$
8,813

 
Fixed

Ski Resort - California
Apr-11
 
May-17
 
40,000

 
40,000

 
39,771

 
Fixed

Mixed Use – North Carolina
Jul-12
 
Aug-22
 
6,525

 
6,525

 
6,525

 
Fixed

Office Complex - Missouri
Sept-12
 
Oct-22
 
10,000

 
9,711

 
9,711

 
Fixed

Hotel Portfolio – Various (1)
Nov-12
 
Nov-15
 
50,000

 
34,042

 
33,995

 
Floating

Condo Construction – New York, NY (1)
Jan-13
 
Jul-17
 
60,000

 
76,344

 
76,005

 
Fixed

Multifamily Conversion – New York, NY (1)
Jan-13
 
Dec-15
 
18,000

 
14,608

 
14,703

 
Floating

Hotel Portfolio – Rochester, MN
Jan-13
 
Feb-18
 
25,000

 
24,486

 
24,486

 
Fixed

Warehouse Portfolio - Various
May-13
 
May-23
 
32,000

 
32,000

 
32,000

 
Fixed

Multifamily Conversion – New York, NY (2)
May-13
 
Feb-15
 
44,000

 
44,000

 
43,989

 
Floating

Office Condo - New York, NY
Jul-13
 
Jul-22
 
14,000

 
14,000

 
13,596

 
Fixed

Condo Conversion – New York, NY (1)
Aug-13
 
Sept-15
 
29,400

 
29,751

 
29,762

 
Floating

Mixed Use - Pittsburgh, PA (3)
Aug-13
 
Aug-16
 
22,500

 
22,500

 
22,473

 
Floating

Mixed Use - Various (3)
Dec-13
 
Dec-18
 
17,000

 
19,464

 
19,294

 
Fixed

Mixed Use - London, England
Apr-14
 
Jan-15
 
50,009

 
52,355

 
52,355

 
Fixed

Healthcare Portfolio - Various (4)
Jun-14
 
Jun-16
 
50,000

 
50,000

 
50,000

 
Floating

Hotel - New York, NY (4)
Jul-14
 
Jul-16
 
20,000

 
20,000

 
19,870

 
Floating

Ski Resort - Big Sky, MT
Aug-14
 
Sept-20
 
15,000

 
15,000

 
14,861

 
Fixed

Mixed Use - New York, NY (5)
Dec-14
 
Dec-17
 
50,000

 
50,000

 
48,973

 
Floating

Total/Weighted Average
 
 
 
 
$
562,434

 
$
563,599

 
$
561,182

 
11.34
%

(1)
Includes a one-year extension option subject to certain conditions and the payment of an extension fee.
(2)
Includes a three-month extension option subject to certain conditions and the payment of an extension fee.
(3)
Includes two one-year extension options subject to certain conditions and the payment of a fee for each extension.
(4)
Includes three one-year extension options subject to certain conditions and the payment of an extension fee.
(5)
Includes two one-year extension options subject to certain conditions and the payment of a fee for each extension. At December 31, 2014, the Company had $32,500 of unfunded loan commitments related to this loan.

During January 2014, the Company received a $15,000 principal repayment from a subordinate loan secured by a pledge of the equity interests in the owner of a New York City hotel.
During June 2014, the Company received a $47,000 principal repayment from a mezzanine loan secured by a pledge of the equity interests in a portfolio of skilled nursing facilities.
The Company evaluates its loans for possible impairment on a quarterly basis. See “Note 5 – Commercial Mortgage Loans” for a summary of the metrics reviewed. The Company has determined that an allowance for loan loss was not necessary at September 30, 2015 or December 31, 2014.
Note 7 – Unconsolidated Joint Venture

15
Table of Contents

On September 30, 2014, the Company, through a wholly owned subsidiary, acquired a 59% ownership interest in Champ Limited Partnership (“Champ LP”) following which a wholly-owned subsidiary of Champ LP then acquired a 35% ownership interest in KBC Bank Deutschland AG ("KBC Bank"), the German subsidiary of Belgian KBC Group NV. KBC Bank specializes in corporate banking and financial services for medium-sized German companies. It also provides professional real estate financing, acquisition finance, institutional asset management and private wealth management services for German high-net-worth individuals. Following the closing of the transaction, KBC Bank was renamed Bremer Kreditbank AG and will operate under the name BKB Bank. The Company acquired its ownership interest in Champ LP for an initial purchase price paid at closing of approximately €30,724 ($39,477). The Company committed to invest up to approximately €38,000 ($50,000).
In January 2015, the Company funded an additional investment of €3,331 (or $3,929) related to its investment in Champ LP. In February 2015, the Company sold approximately 48% of its ownership interest in Champ LP at cost to an investment fund managed by Apollo Global Management, LLC (together with its subsidiaries, "Apollo") for €16,314 (or $20,794) (of which $2,614 related to foreign exchange losses which were previously included in accumulated other comprehensive loss), reducing its unfunded commitment to Champ LP to €3,229 (or $3,609).  Through its interest in Champ LP, the Company now holds an indirect ownership interest of approximately 11% in Bremer Kreditbank AG, which operates under the name BKB Bank. 
The Company together with certain other affiliated investors and unaffiliated third party investors, in aggregate, own 100% of BKB Bank. The Company determined that Champ LP met the definition of a variable interest entity ("VIE") and that the Company was not the primary beneficiary; therefore, the Company did not consolidate the assets and liabilities of the partnership. The Company's investment in Champ LP is accounted for as an equity method investment. Additionally, due to the nature of its investment in BKB Bank, the Company determined Champ LP is an investment company under GAAP, and is therefore reflected at fair value.
Note 8 – Borrowings Under Repurchase Agreements
At September 30, 2015 and December 31, 2014, the Company’s borrowings outstanding under the Wells Facility, the UBS Facility, the DB Facility, the JPMorgan Facility and the Goldman Loan had the following debt balances, weighted average maturities and interest rates:
 
 
September 30, 2015
 
December 31, 2014
 
 
 
Debt
Balance
 
Weighted
Average
Remaining
Maturity
 
Weighted
Average
Rate
 
Debt
Balance
 
Weighted
Average
Remaining
Maturity
 
Weighted
Average
Rate
 
 
Wells Facility borrowings
$
—

 
—

 
—
%
 
$
20,166

 
0.2 years

 
1.0
%
 
** 
UBS Facility borrowings
133,899

 
3.0 years

*
2.8
%
 
133,899

 
3.7 years

*
2.8
%
 
Fixed
DB Facility borrowings
300,005

 
2.5 years

 
3.7
%
 
300,005

 
3.3 years

 
3.7
%
 
***
JPMorgan Facility borrowings
253,481

 
2.3 years

 
2.5
%
 
168,124

 
0.1 years

  
2.7
%
 
L+225 - 350
Goldman Loan
48,052

 
3.6 years

 
3.7
%
 
—

 
—

 
—
%
 
L+350
Total borrowings
$
735,437

 
2.5 years

  
3.0
%
 
$
622,194

 
3.2 years

  
3.2
%
 
 
 *Assumes extension options are exercised.
**At December 31, 2014, borrowings outstanding under the Wells Facility bore interest at LIBOR plus 80 basis points.
*** Advances under the DB Facility accrue interest at a per annum pricing rate based on the rate implied by the fixed rate bid under a fixed for floating interest rate swap for the receipt of payments indexed to three-month U.S. dollar LIBOR, plus a financing spread ranging from 1.80% to 2.32% based on the rating of the collateral pledged.

At September 30, 2015, the Company’s borrowings had the following remaining maturities:
 
 
Less than
1 year
 
1 to 3
years
 
3 to 5
years
 
More than
5 years
 
Total
UBS Facility borrowings *
$
5,004

 
$
128,895

 
$
—

 
$
—

 
$
133,899

DB Facility borrowings
58,552

 
241,453

 
—

 
—

 
300,005

JPMorgan Facility borrowings
1,177

 
252,304

 


 


 
253,481

Goldman Loan
3,126

 
10,581

 
34,345

 


 
48,052

Total
$
67,859

 
$
633,233

 
$
34,345

 
$
—

 
$
735,437

*Assumes extension option is exercised.

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Table of Contents

At September 30, 2015, the Company’s collateralized financings were comprised of borrowings outstanding under the UBS Facility, the DB Facility, the JPMorgan Facility and the Goldman Loan. The table below summarizes the outstanding balances at September 30, 2015, as well as the maximum and average balances for the nine months ended September 30, 2015 for the Company's borrowings under repurchase agreements.
 
 
 
 
For the nine months ended September 30, 2015
 
Balance at September 30, 2015
 
Maximum Month-End
Balance
 
Average Month-End
Balance
Wells Facility borrowings
$
—

 
$
22,254

 
$
4,242

UBS Facility borrowings
133,899

 
133,899

 
$
133,899

DB Facility borrowings
300,005

 
300,005

 
300,005

JPMorgan Facility borrowings
253,481

 
395,572

 
244,678

Goldman Loan
48,052

 
52,524

 
45,259

Total
$
735,437

 
 
 
 
Goldman Loan. On January 26, 2015, the Company, through an indirect wholly-owned subsidiary, entered into the Goldman Loan. The Goldman Loan provides for a purchase price of $52,524 and a repurchase date of the earliest of: (1) April 30, 2019, (2) an early repurchase date as a result of repayment or sale of the purchased loan, or (3) an accelerated repurchase date as a result of certain events of default. Subject to the terms and conditions thereof, the Goldman Loan provides for the purchase and sale of certain participation interests in a mortgage loan secured by single-family and condominium properties. Prior to an event of default, amounts borrowed under the Goldman Loan bear interest at a spread of 3.5% plus one-month LIBOR. In addition, the Goldman Loan provides that margin calls may occur during the continuance of certain credit events if the market value of the mortgaged properties drop below an agreed upon percentage. The Goldman Loan contains affirmative and negative covenants and provisions regarding events of default that are normal and customary for similar repurchase agreements. The Company has agreed to the following restrictive covenants, among others: (1) continuing to operate in a manner that allows the Company to qualify as a REIT and (2) financial covenants, including (A) a minimum consolidated tangible net worth covenant ($750,000), (B) maximum total indebtedness to consolidated tangible net worth (3:1), (C) minimum liquidity ($15,000), (D) minimum sum of (i) cash liquidity and (ii) “near cash liquidity” (5.0% of the Company’s total recourse indebtedness), (E) minimum net income (one U.S. dollar during any four consecutive fiscal quarters) and (F) a minimum ratio of EBITDA to interest expense (1.5 to 1.0). The Company has also agreed to provide a guarantee of the obligations under the Goldman Loan.
JPMorgan Facility. On January 29, 2015, the Company, through indirect wholly-owned subsidiaries, entered into a Fourth Amended and Restated Master Repurchase Agreement with JPMorgan Chase Bank, National Association. The JPMorgan Facility was amended in June 2015 to increase the maximum aggregate purchase price from $300,000 to $400,000, and has a two-year term plus a one-year extension option, exercisable at the option of the Sellers, subject to satisfaction of certain conditions. Subject to the terms and conditions thereof, the JPMorgan Facility provides for the purchase, sale and repurchase of eligible senior commercial or multifamily mortgage loans, junior commercial or multifamily mortgage loans, mezzanine loans and participation interests therein that are secured by properties located in the United States, England or Wales. Amounts borrowed under the JPMorgan Facility bear interest at spreads ranging from 2.25% to 4.75% over one-month LIBOR. Maximum advance rates under the JPMorgan Facility range from 25% to 80% on the estimated fair value of the pledged collateral depending on its loan-to-value ratio. Margin calls may occur any time the aggregate repurchase price exceeds the agreed upon advance rate multiplied by the market value of the assets by more than $250. The JPMorgan Facility contains affirmative and negative covenants and provisions regarding events of default that are normal and customary for similar repurchase facilities. The Company has agreed to the following restrictive covenants, among others: (1) continuing to operate in a manner that allows the Company to qualify as a REIT and (2) financial covenants, including (A) a minimum consolidated tangible net worth covenant ($750,000 plus 75% of the net cash proceeds of any equity issuance by the Company), (B) maximum total indebtedness to consolidated tangible net worth (3:1), or (C) minimum liquidity (the greater of 5% of the Company’s total recourse indebtedness or $15,000). The Company has agreed to provide a limited guarantee of the obligations under the JPMorgan Facility.
Wells Facility. During February 2015, the Company repaid the outstanding balance under the Wells Facility upon the sale of the pledged collateral.
The Company was in compliance with the financial covenants under its repurchase agreements at September 30, 2015 and December 31, 2014.
Note 9 – Convertible Senior Notes

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Table of Contents

On March 17, 2014, the Company issued $143,750 aggregate principal amount of 5.50% Convertible Senior Notes due 2019 (the "March 2019 Notes"), for which the Company received net proceeds, after deducting the underwriting discount and estimated offering expense payable by the Company of approximately $139,037. At September 30, 2015, the March 2019 Notes had a carrying value of $140,405 and an unamortized discount of $3,345.
On August 18, 2014, the Company issued an additional $111,000 aggregate principal amount of 5.50% Convertible Senior Notes due 2019 (the "August 2019 Notes", and together with the March 2019 Notes, the "2019 Notes"), for which the Company received net proceeds, after deducting the underwriting discount and estimated offering expense payable by the Company of approximately $109,615. At September 30, 2015, the August 2019 Notes had a carrying value of $107,331 and an unamortized discount of $3,669.
The following table summarizes the terms of the 2019 Notes.
 
Principal Amount
Coupon Rate
Effective Rate (1)
Conversion Rate (2)
Maturity Date
Remaining Period of Amortization
March 2019 Notes
$
143,750

5.50
%
6.25
%
55.3649

3/15/2019
3.46 years
August 2019 Notes
$
111,000

5.50
%
6.50
%
55.3649

3/15/2019
3.46 years
(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.
(2)
The Company has 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 $1,000 principal amount of 2019 Notes converted.  The if-converted value of the 2019 Notes does not exceed their principal amount at September 30, 2015 since the closing market price of the Company’s common stock does not exceed the implicit conversion prices of $18.06 for the 2019 Notes.
 GAAP requires 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. GAAP requires that the initial proceeds from the sale of the 2019 Notes be allocated between a liability component and an equity component in a manner that reflects interest expense at the interest rate of similar nonconvertible debt that could have been issued by the Company at such time. The Company measured the fair value of the debt components of the 2019 Notes as of their issuance date based on effective interest rates.  As a result, the Company attributed approximately $11,445 of the proceeds to the equity component of the 2019 Notes, which represents the excess proceeds received over the fair value of the liability component of the 2019 Notes at the date of issuance. The equity component of the 2019 Notes has been reflected within additional paid-in capital in the condensed consolidated balance sheet as of September 30, 2015. The resulting debt discount is being amortized over the period during which the 2019 Notes are expected to be outstanding (the maturity date) as additional non-cash interest expense. The additional non-cash interest expense attributable to each of the 2019 Notes will increase in subsequent reporting periods through the maturity date as the 2019 Notes accrete to their par value over the same period. The aggregate contractual interest expense was approximately $3,503 and $10,508 for the three and nine months ended September 30, 2015, respectively.  With respect to the amortization of the discount on the liability component of the 2019 Notes as well as the amortization of deferred financing costs, the Company reported additional non-cash interest expense of approximately $867 and $2,566 for the three and nine months ended September 30, 2015, respectively.
As of September 30, 2015 potential shares of common stock contingently issuable upon the conversion of the 2019 Notes were excluded from the calculation of diluted income per share of common stock because it is management's current intent and the Company currently has the ability to settle the obligation in cash.
Note 10 - Federal Home Loan Bank of Indianapolis Membership
In February 2015, the Company's wholly owned subsidiary, ACREFI Insurance Services, LLC, was accepted for membership in the Federal Home Loan Bank of Indianapolis (“FHLBI”). As a member of the FHLBI, ACREFI Insurance Services, LLC has access to a variety of products and services offered by the FHLBI, including secured advances. As of September 30, 2015, ACREFI Insurance Services, LLC had not requested any secured advances.
The ability to borrow from the FHLBI is subject to our continued creditworthiness, pledging of sufficient eligible collateral to secure advances, and compliance with certain agreements with the FHLBI. Each advance will require approval by the FHLBI and will be secured by collateral in accordance with the FHLBI’s credit and collateral guidelines, as may be revised from time to time by the FHLBI.

18
Table of Contents

In addition, as a condition to membership in the FHLBI, the Company is required to purchase and hold a certain amount of FHLBI stock, which is based, in part, upon the outstanding principal balance of advances from the FHLBI. At September 30, 2015, the Company had stock in the FHLBI totaling $8, which is included in other assets on the consolidated balance sheet at September 30, 2015.

Note 11 – Participations Sold
Participations sold represent the interests in loans the Company originated and subsequently partially sold. The Company presents the participations sold as both assets and non-recourse liabilities because the participation does not qualify as a sale according to GAAP. The income earned on the participation sold is recorded as interest income and an identical amount is recorded as interest expense on the Company's consolidated statements of operations.
During January 2015, the Company closed a £34,519 ($51,996) floating-rate mezzanine loan secured by a portfolio of 44 senior housing facilities located throughout the United Kingdom. During February 2015, closed an additional £20,000 ($30,672) and participated that balance to an investment fund affiliated with Apollo. At September 30, 2015, the participation had a face amount of £19,900 ($30,104), a carrying amount of £19,900 ($30,104) and a cash coupon of LIBOR plus 825 basis points.
During May 2014, the Company closed a $155,000 floating-rate whole loan secured by the first mortgage and equity interests in an entity that owns a resort hotel in Aruba. During June 2014, the Company syndicated a $90,000 senior participation in the loan and retained a $65,000 junior participation in the loan. During August 2014, both the $90,000 senior participation and the Company's $65,000 junior participation were contributed to a CMBS securitization. In exchange for contributing its $65,000 junior participation, the Company received a CMBS secured solely by the $65,000 junior participation and classified it as CMBS (Held-to-Maturity) on its consolidated financial statements. At September 30, 2015, the participation had a face amount of $89,419, a carrying amount of $89,303 and a cash coupon of LIBOR plus 440 basis points.
Note 12 – Derivative Instruments
The Company uses forward currency contracts to economically hedge interest and principal payments due under its loans denominated in currencies other than U.S. dollars.
The Company has not designated any of its derivative instruments as hedges under GAAP and therefore, changes in the fair value of the Company's derivative instruments are recorded directly in earnings. The following table summarizes the amounts recognized on the consolidated statements of operations related to the Company’s derivatives for the three and nine months ended September 30, 2015 and 2014.
 
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
Location of Loss Recognized in Income
2015
 
2014
 
2015
 
2014
Forward currency contract
Gain (loss) on derivative instruments - unrealized
2,240

 
3,026

 
(3,938
)
 
1,933

Interest rate caps
Loss on derivative instruments - unrealized
(144
)
 
—

 
(206
)
 
—

Total
 
$
2,096

 
$
3,026

 
$
(4,144
)
 
$
1,933


The following table summarizes the gross asset amounts related to the Company's derivative instruments at September 30, 2015 and December 31, 2014.

 
September 30, 2015
 
December 31, 2014
 
Gross
Amount of
Recognized
Assets
 
Gross
Amounts
Offset in the
Consolidated Balance Sheet
 
Net Amounts
of Assets
Presented in
the Consolidated Balance Sheet
 
Gross
Amount of
Recognized
Assets
 
Gross
Amounts
Offset in the
Consolidated Balance Sheet
 
Net Amounts
of Assets
Presented in
the Consolidated Balance Sheet
Forward currency contract
$
306

 
$
(60
)
 
246

 
$
4,070

 
$
—

 
4,070

Total derivative instruments
$
306

 
$
(60
)
 
$
246

 
$
4,070

 
$
—

 
$
4,070



19
Table of Contents

Note 13 – Related Party Transactions
Management Agreement
In connection with the Company’s initial public offering in September 2009, the Company entered into a management agreement (the “Management Agreement”) with ACREFI Management, LLC (the “Manager”), which describes the services to be provided by the Manager and its compensation for those services. The Manager is responsible for managing the Company’s day-to-day operations, subject to the direction and oversight of the Company’s 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 the Company’s stockholders’ equity (as defined in the Management Agreement), calculated and payable (in cash) quarterly in arrears.
The current term of the Management Agreement expires on September 29, 2016 and is automatically renewed for successive one-year terms 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 the Company’s independent directors, based upon (1) unsatisfactory performance by the Manager that is materially detrimental to the Company 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 the Company’s 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 the Company’s independent directors in February 2015, which included a discussion of the Manager’s performance and the level of the management fees thereunder, the Company determined not to seek termination of the Management Agreement.
For the three and nine months ended September 30, 2015, respectively, the Company incurred approximately $4,097 and $11,325 in base management fees. For the three and nine months ended September 30, 2014, respectively, the Company incurred approximately $3,193 and $8,725 in base management fees. In addition to the base management fee, the Company is also responsible for reimbursing the Manager for certain expenses paid by the Manager on behalf of the Company or for certain services provided by the Manager to the Company. For the three and nine months ended September 30, 2015, respectively, the Company recorded expenses totaling $78 and $1,011 related to reimbursements for certain expenses paid by the Manager on behalf of the Company. For the three and nine months ended September 30, 2014, respectively, the Company recorded expenses totaling $312 and $712 related to reimbursements for certain expenses paid by the Manager on behalf of the Company. Expenses incurred by the Manager and reimbursed by the Company are reflected in the respective condensed consolidated statement of operations expense category or the consolidated balance sheet based on the nature of the item.
Included in payable to related party on the consolidated balance sheet at September 30, 2015 and December 31, 2014, respectively, are approximately $4,100 and $3,240 for base management fees incurred but not yet paid.
Placement Agent Fees
In connection with the private placement that closed on September 21, 2015, the Company agreed to pay a placement agent fee of $500 to Apollo Global Securities, LLC. See "Note 15 - Stockholders' Equity" for further information related to the private placement.
Unconsolidated Joint Venture
On September 30, 2014, the Company, through a wholly owned subsidiary, acquired a 59% ownership interest in Champ LP following which a wholly-owned subsidiary of Champ LP then acquired a 35% ownership interest in KBC Bank, the German subsidiary of Belgian KBC Group NV. The Company acquired its ownership interest in Champ LP for an initial purchase price paid at closing of approximately €30,724 ($39,477). The Company committed to invest up to approximately €38,000 ($50,000).
In January 2015, the Company funded an additional investment of €3,331 (or $3,929) related to its investment in Champ LP. In February 2015, the Company sold approximately 48% of its ownership interest in Champ LP at cost to an account managed by Apollo for approximately €16,314 (or $20,794), reducing its unfunded commitment to Champ LP to €3,229 (or $3,609).  Through its interest in Champ LP, the Company now holds an indirect ownership interest of approximately 11% in Bremer Kreditbank AG, which operates under the name BKB Bank.  The Company together with certain other affiliated investors and unaffiliated third party investors, in aggregate, own 100% of BKB Bank.
Table of Contents


20
Table of Contents

GE Capital and Mubadala Loan Portfolio
On September 29, 2015, the Company entered into a commitment to purchase a real estate loan portfolio from Mubadala GE Capital Ltd representing approximately $375,355 of first mortgage real estate loans (the “Real Estate Loans”).  The commitment was part of a larger transaction in which affiliates of Apollo agreed to acquire a portfolio of loans from Mubadala GE Capital Ltd (the “Transaction”).  The Transaction remains subject to certain regulatory approvals and closing conditions.  On October 1, 2015, the Company and MidCap FinCo Limited (“MidCap”), an affiliate of Apollo, entered into an agreement (the “MidCap Agreement”) whereby the Company granted MidCap an option to purchase the Real Estate Loans, which option is exercisable until 30 business days prior to the anticipated closing date for the Transaction.  In consideration of the option, MidCap agreed to pay the Company a fee of $750.  The MidCap Agreement also provides that if prior to the closing of the Transaction the Company is not satisfied with its due diligence investigation of the Real Estate Loans and provides notice to MidCap within a specified time period, MidCap will purchase the Real Estate Loans from the Company.
Note 14 – Share-Based Payments
On September 23, 2009, the Company’s board of directors approved the Apollo Commercial Real Estate Finance, Inc., 2009 Equity Incentive Plan (the “LTIP”). The LTIP provides for grants of restricted common stock, restricted stock units ("RSUs") and other equity-based awards up to an aggregate of 7.5% of the issued and outstanding shares of the Company’s common stock (on a fully diluted basis). The LTIP is administered by the compensation committee of the Company’s board of directors (the “Compensation Committee”) and all grants under the LTIP must be approved by the Compensation Committee.
The Company recognized stock-based compensation expense of $756 and $2,695 for the three and nine months ended September 30, 2015, respectively, related to restricted stock and RSU vesting. The Company recognized stock-based compensation expense of $308 and $1,096 for the three and nine months ended September 30, 2014, respectively, related to restricted stock and RSU vesting. The following table summarizes the activity related to restricted common stock and RSUs during the nine months ended September 30, 2015:
 
 
Type
Date
 
Restricted Stock
 
RSUs
 
Estimate Fair Value
on Grant Date
 
Initial Vesting
 
Final Vesting
Outstanding at December 31, 2014
 
274,114

 
610,254

 
 
 
 
 
 
 
Grant
January 2015
 
—

 
8,000

 
$132
 
December 2015
 
December 2017
 
Forfeiture
January 2015
 
—

 
(5,000
)
 
n/a
 
n/a
 
n/a
 
Cancelled upon delivery
March 2015
 
—

 
(20,000
)
 
n/a
 
n/a
 
n/a
 
Grant
April 2015
 
15,950

 
—

 
$275
 
July 2015
 
April 2018
 
Forfeiture
June 2015
 
—

 
(3,500
)
 
n/a
 
n/a
 
n/a
 
Grant
July 2015
 
—

 
1,631

 
$27
 
June 2016
 
June 2018
 
Forfeiture
August 2015
 
—

 
(5,000
)
 
n/a
 
n/a
 
n/a
Outstanding at September 30, 2015
 
290,064

 
586,385

 
 
 
 
 
 


21
Table of Contents

Below is a summary of expected restricted common stock and RSU vesting dates as of September 30, 2015.

Vesting Date
Shares Vesting
 
RSU Vesting
 
Total Awards
October 2015
4,631

 
—

 
4,631

December 2015
15,588

 
194,919

 
210,507

January 2016
4,629

 
—

 
4,629

April 2016
4,627

 
—

 
4,627

June 2016
—

 
543

 
543

July 2016
4,158

 
—

 
4,158

October 2016
4,158

 
—

 
4,158

December 2016
12,255

 
131,583

 
143,838

January 2017