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, 2018

or

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

For the transition period from                     to                    

Commission File Number: 001-34452

__________________________________ 

Apollo Commercial Real Estate Finance, Inc.

(Exact name of registrant as specified in its charter)

__________________________________ 

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

Apollo Commercial Real Estate Finance, Inc.

c/o Apollo Global Management, LLC

9 West 57th Street, 43rd Floor,

New York, New York 10019

(Address of principal executive offices) (Zip Code)

(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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	x	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	¨
Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of October 23, 2018, there were 133,853,565 shares, par value $0.01, of the registrant’s common stock issued and outstanding.

Table of Contents

	Page
Part I — Financial Information
Item 1. Financial Statements	4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3. Quantitative and Qualitative Disclosures about Market Risk	40
Item 4. Controls and Procedures	42
Part II — Other Information
Item 1. Legal Proceedings	42
Item 1A. Risk Factors	42
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 3. Defaults Upon Senior Securities	42
Item 4. Mine Safety Disclosures	43
Item 5. Other Information	43
Item 6. Exhibits	43

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Apollo Commercial Real Estate Finance, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands—except share data)

	September 30, 2018			December 31, 2017
Assets:
Cash	$	99,188		$	77,671
Commercial mortgage loans, net (includes $3,245,600 and $2,148,368 pledged as collateral under secured debt arrangements in 2018 and 2017, respectively)	3,723,550			2,653,826
Subordinate loans, net	1,104,496			1,025,932
Loan proceeds held by servicer	—			302,756
Other assets	31,894			28,420
Derivative assets, net	15,341			—
Total Assets	$	4,974,469		$	4,088,605
Liabilities and Stockholders' Equity
Liabilities:
Secured debt arrangements, net (net of deferred financing costs of $16,746 and $14,348 in 2018 and 2017, respectively)	$	1,996,871		$	1,330,847
Convertible senior notes, net	370,174			584,897
Derivative liabilities, net	—			5,644
Accounts payable, accrued expenses and other liabilities	79,538			70,906
Payable to related party	9,515			8,168
Total Liabilities	2,456,098			2,000,462
Commitments and Contingencies (see Note 15)
Stockholders’ Equity:
Preferred stock, $0.01 par value, 50,000,000 shares authorized:
Series B preferred stock, 6,770,393 shares issued and outstanding ($169,260 aggregate liquidation preference) in 2018 and 2017	68			68
Series C preferred stock, 6,900,000 shares issued and outstanding ($172,500 aggregate liquidation preference) in 2018 and 2017	69			69
Common stock, $0.01 par value, 450,000,000 shares authorized, 133,765,392 and 107,121,235 shares issued and outstanding in 2018 and 2017, respectively	1,338			1,071
Additional paid-in-capital	2,630,468			2,170,078
Accumulated deficit	(113,572		)	(83,143		)
Total Stockholders’ Equity	2,518,371			2,088,143
Total Liabilities and Stockholders’ Equity	$	4,974,469		$	4,088,605

See notes to unaudited condensed consolidated financial statements.

4

Apollo Commercial Real Estate Finance, Inc. and Subsidiaries

Condensed Consolidated Statement of Operations (Unaudited)

(in thousands—except share and per share data)

	Three months ended September 30,						Nine months ended September 30,
	2018			2017			2018			2017
Net interest income:
Interest income from commercial mortgage loans	$	71,179		$	41,203		$	188,434		$	112,690
Interest income from subordinate loans	37,308			47,268			105,236			121,298
Interest income from securities	—			2,625			—			13,379
Interest expense	(31,007		)	(19,855		)	(82,184		)	(56,089		)
Net interest income	77,480			71,241			211,486			191,278
Operating expenses:
General and administrative expenses (includes equity-based compensation of $4,048 and $11,404 in 2018 and $2,635 and $9,887 of equity-based compensation in 2017, respectively)	(5,843		)	(4,629		)	(16,493		)	(15,587		)
Management fees to related party	(9,515		)	(8,309		)	(26,620		)	(23,484		)
Total operating expenses	(15,358		)	(12,938		)	(43,113		)	(39,071		)
Loss from unconsolidated joint venture	—			—			—			(2,847		)
Other income	427			359			973			710
Provision for loan losses and impairments	—			—			(5,000		)	(5,000		)
Realized loss on sale of assets	—			(4,076		)	—			(5,118		)
Unrealized gain on securities	—			13,488			—			11,830
Foreign currency gain (loss)	(4,050		)	7,763			(23,574		)	17,848
Loss on early extinguishment of debt	(2,573		)	—			(2,573		)	—
Gain (loss) on derivative instruments (includes unrealized gains (losses) of $5,045 and $20,986 in 2018 and $(7,302) and $(17,626) in 2017, respectively)	6,291			(7,481		)	28,797			(17,916		)
Net income	$	62,217		$	68,356		$	166,996		$	151,714
Preferred dividends	(6,836		)	(11,148		)	(20,505		)	(29,768		)
Net income available to common stockholders	$	55,381		$	57,208		$	146,491		$	121,946
Net income per share of common stock:
Basic	$	0.42		$	0.54		$	1.19		$	1.23
Diluted	$	0.40		$	0.54		$	1.14		$	1.23
Basic weighted average shares of common stock outstanding	129,188,343			105,446,704			120,876,240			97,546,437
Diluted weighted average shares of common stock outstanding	153,918,435			106,812,721			150,424,889			98,919,689
Dividend declared per share of common stock	$	0.46		$	0.46		$	1.38		$	1.38

See notes to unaudited condensed consolidated financial statements.

5

Apollo Commercial Real Estate Finance, Inc. and Subsidiaries

Condensed Consolidated Statement of Comprehensive Income (Unaudited)

(in thousands)

	Three months ended September 30,				Nine months ended September 30,
	2018		2017		2018		2017
Net income available to common stockholders	$	55,381	$	57,208	$	146,491	$	121,946
Foreign currency translation adjustment	—		—		—		3,811
Comprehensive income	$	55,381	$	57,208	$	146,491	$	125,757

See notes to unaudited condensed consolidated financial statements.

6

Apollo Commercial Real Estate Finance, Inc. and Subsidiaries

Condensed Consolidated Statement of Changes in Stockholders’ Equity (Unaudited)

(in thousands—except share and per share data)

	Preferred Stock			Common Stock			Additional Paid-In-Capital			Accumulated Deficit			Total
	Shares	Par		Shares	Par
Balance at January 1, 2018	13,670,393	$	137	107,121,235	$	1,071	$	2,170,078		$	(83,143	)	$	2,088,143
Capital increase related to Equity Incentive Plan	—	—		374,580	5		6,672			—			6,677
Issuance of common stock	—	—		15,525,000	155		275,724			—			275,879
Exchange of convertible senior notes for common stock	—	—		10,744,577	107		178,459			—			178,566
Offering costs	—	—		—	—		(465		)	—			(465		)
Net income	—	—		—	—		—			166,996			166,996
Dividends declared on preferred stock	—	—		—	—		—			(20,505		)	(20,505		)
Dividends declared on common stock - $0.46 per share	—	—		—	—		—			(176,920		)	(176,920		)
Balance at September 30, 2018	13,670,393	$	137	133,765,392	$	1,338	$	2,630,468		$	(113,572	)	$	2,518,371

See notes to unaudited condensed consolidated financial statements.

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Apollo Commercial Real Estate Finance, Inc. and Subsidiaries

Condensed Consolidated Statement of Cash Flows (Unaudited)

(in thousands)

	For the nine months ended September 30,
	2018			2017
Cash flows (used in) provided by operating activities:
Net income	$	166,996		$	151,714
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of discount/premium and PIK	(46,103		)	(15,491		)
Amortization of deferred financing costs	8,204			4,464
Equity-based compensation	6,672			7,551
Unrealized gain on securities	—			(11,830		)
Provision for loan losses and impairment	5,000			5,000
Loss from unconsolidated joint venture	—			2,259
Foreign currency (gain) loss	22,162			(16,940		)
Unrealized (gain) loss on derivative instruments	(20,986		)	17,564
Loss on early extinguishment of debt	2,573			—
Realized loss on derivative instruments	—			289
Realized loss on sale of assets	—			5,118
Changes in operating assets and liabilities:
Proceeds received from PIK	75,652			—
Other assets	(8,476		)	(28,893		)
Accounts payable, accrued expenses and other liabilities	8,087			(8,623		)
Payable to related party	1,347			1,295
Net cash (used in) provided by operating activities	221,128			113,477
Cash flows used in investing activities:
New funding of commercial mortgage loans	(1,382,440		)	(505,323		)
Add-on funding of commercial mortgage loans	(90,201		)	(76,244		)
New funding of subordinate loans	(207,683		)	(365,500		)
Add-on funding of subordinate loans	(84,852		)	(110,003		)
Proceeds and payments received on commercial mortgage loans	356,865			17,062
Proceeds and payments received on subordinate loans	463,524			221,478
Funding of derivative instruments	—			(201		)
Origination and exit fees received on commercial mortgage and subordinate loans	32,473			13,047
Funding of unconsolidated joint venture	—			(726		)
Funding of other assets	—			(1,379		)
(Increase) decrease in collateral held related to derivative contracts	4,930			(14,262		)
Payments and proceeds received on securities	—			288,781
Proceeds from sale of investments in unconsolidated joint venture	—			24,498
Net cash (used in) provided by investing activities	(907,384		)	(508,772		)
Cash flows from financing activities:
Proceeds from issuance of common stock	275,879			249,021
Redemption of preferred stock	—			(86,250		)
Payment of offering costs	(199		)	(359		)
Proceeds from secured debt arrangements	1,623,186			866,548
Repayments of secured debt arrangements	(941,662		)	(727,691		)
Proceeds from issuance of convertible senior notes	—			227,700
Exchanges and conversions of convertible senior notes	(40,461		)	—
Repayments of participations sold	—			(85,081		)
Payment of deferred financing costs	(11,545		)	(8,585		)
Dividends on common stock	(176,920		)	(136,404		)
Dividends on preferred stock	(20,505		)	(26,752		)
Net cash (used in) provided by financing activities	707,773			272,147
Net increase (decrease) in cash and cash equivalents	21,517			(123,148		)
Cash and restricted cash, beginning of period	77,671			263,453
Cash and restricted cash, end of period	$	99,188		$	140,305
Supplemental disclosure of cash flow information:
Interest paid	$	77,219		$	44,303
Supplemental disclosure of non-cash financing activities:
Exchange of convertible senior notes for common stock	$	178,567		$	—
Dividend declared, not yet paid	$	68,536		$	55,916
Offering costs payable	$	265		$	41

See notes to unaudited condensed consolidated financial statements.

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Apollo Commercial Real Estate Finance Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 1 – Organization

Apollo Commercial Real Estate Finance, Inc. (together with its consolidated subsidiaries, is referred to throughout this report as the “Company,” “ARI,” “we,” “us” and “our”) is a corporation that has elected to be taxed as a real estate investment trust (“REIT”) for U.S. federal income tax purposes and primarily originates, acquires, invests in and manages performing commercial first mortgage loans, subordinate financings, and other commercial real estate-related debt investments. These asset classes are referred to as our target assets.

We were formed in Maryland on June 29, 2009, commenced operations on September 29, 2009 and are externally managed and advised by ACREFI Management, LLC (the “Manager”), an indirect subsidiary of Apollo Global Management, LLC (together with its subsidiaries, "Apollo").

We elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, commencing with the taxable year ended December 31, 2009. To maintain our tax qualification as a REIT, we are required to distribute at least 90% of our taxable income, excluding net capital gains, to stockholders and meet certain other asset, income, and ownership tests.

Note 2 – Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements include our accounts and those of our consolidated subsidiaries. All intercompany amounts have been eliminated. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Our most significant estimates include loan loss reserves and impairment. 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, 2017, as filed with the Securities and Exchange Commission (the “SEC”). In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary to present fairly our financial position, results of operations and cash flows have been included. Our results of operations for the three and nine months ended September 30, 2018 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.

Recent Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board ("FASB") issued ASU 2018-13 "Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement" ("ASU 2018-13"). ASU 2018-13 changes the fair value measurement disclosure requirements of ASC 820 "Fair Value Measurement" by adding, eliminating, and modifying certain disclosure requirements. ASU 2018-13 is effective for all entities for fiscal years beginning after December 15, 2019 and requires application of the prospective method of transition. We are currently assessing the impact the guidance will have on our condensed consolidated financial statements.

In June 2018, the FASB issued ASU 2018-07 "Compensation - Stock Compensation (Topic 718): Improvements to Nonemployees Share-Based Payment Accounting" ("ASU 2018-07"). The intention of ASU 2018-07 is to expand the scope of Topic 718 to include share-based payment transactions in exchange for goods and services from nonemployees. These share-based payments will now be measured at grant-date fair value of the equity instrument issued. Upon adoption, only liability-classified awards that have not been settled and equity-classified awards for which a measurement date has not been established should be remeasured through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. ASU 2018-07 is effective for fiscal years beginning after December 15, 2019 and is applied retrospectively. We are currently assessing the impact the guidance will have on our condensed consolidated financial statements.

In August 2017, the FASB issued ASU 2017-12 "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities” ("ASU 2017-12"). The intention of ASU 2017-12 is to align an entity’s financial reporting for hedging activities with the economic objectives of those activities. Upon adoption of ASU 2017-12, the cumulative ineffectiveness previously recognized on existing cash flow and net investment hedges will be adjusted and removed from beginning retained earnings and placed in accumulated other comprehensive income (loss). We note that this guidance will not have a material impact on our condensed consolidated financial statements. ASU 2017-12 is effective for fiscal years beginning

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after December 15, 2018 and is applied retrospectively.

In November 2016, the FASB issued ASU 2016-18 “Statement of Cash Flows (Topic 230): Restricted Cash” ("ASU 2016-18"). ASU 2016-18 is intended to clarify how entities present restricted cash in the statement of cash flows. The guidance requires entities to show the changes in the total of cash and cash equivalents and restricted cash in the statement of cash flows. As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash in the statement of cash flows. When cash and cash equivalents and restricted cash are presented in more than one line item on the balance sheet, the new guidance requires a reconciliation of the totals in the statement of cash flows to the related captions in the balance sheet. This reconciliation can be presented either on the face of the statement of cash flows or in the notes to the financial statements. ASU 2016-18 is effective for fiscal years beginning after December 15, 2017 and is to be applied retrospectively. We early adopted ASU 2016-18 on June 30, 2017, which changed our condensed consolidated statement of cash flows and related disclosures for all periods presented. The following is a reconciliation of our cash, cash equivalents, and restricted cash to the total presented in our condensed consolidated statement of cash flows for the nine months ended September 30, 2018 and September 30, 2017, respectively ($ in thousands):

	Balance at September 30, 2018		Balance at September 30, 2017
Cash	$	99,188	$	140,229
Restricted cash	—		76
Total cash and restricted cash shown in the condensed consolidated statement of cash flows	$	99,188	$	140,305

In June 2016, the FASB issued ASU 2016-13 “Financial Instruments - Credit Losses - Measurement of Credit Losses on Financial Instruments (Topic 326)" ("ASU 2016-13"). ASU 2016-13 significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income.  The guidance will replace the “incurred loss” approach under existing guidance with an “expected loss” model for instruments measured at amortized cost and require entities to record allowances for available-for-sale debt securities rather than reduce the carrying amount, as they do today under the other-than-temporary impairment model. It also simplifies the accounting model for purchased credit-impaired debt securities and loans. The guidance is effective for fiscal years beginning after December 15, 2019 and is to be adopted through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. While we are currently evaluating the impact ASU 2016-13 will have on our condensed consolidated financial statements, we expect that the adoption will result in higher provisions for potential loan losses.    

Note 3 – Fair Value Disclosure

GAAP establishes a hierarchy of valuation techniques based on the observability of the inputs utilized in measuring financial instruments at fair 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 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 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. We 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 values of our 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

11

of discounting the future expected cash receipts (or payments) 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 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.  Our 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 our financial instruments were categorized as of September 30, 2018 and December 31, 2017 ($ in thousands): 

	Fair Value as of September 30, 2018								Fair Value as of December 31, 2017
	Level I		Level II		Level III		Total		Level I		Level II			Level III		Total
Derivative assets (liabilities), net	$	—	$	15,341	$	—	$	15,341	$	—	$	(5,644	)	$	—	$	(5,644	)

Note 4 – Securities

We previously held CMBS, which were all sold in 2017. During the three and nine months ended September 30, 2017, we sold CMBS (Fair Value Option) resulting in a net realized loss of $4.1 million and $5.1 million, respectively.

During the three and nine months ended September 30, 2017, CMBS (Held-to-Maturity) of $146.5 million was fully repaid. We did not hold any CMBS (Held-to-Maturity) during the three and nine months ended September 30, 2018.

During the three and nine months ended September 30, 2017, we recorded interest income from securities of $2.6 million and $13.4 million, respectively. For the three months ended September 30, 2017, there was no interest income from CMBS (Held-to-Maturity) and $2.6 million of interest income from CMBS (Fair Value Option). For the nine months ended September 30, 2017, there was $4.2 million of interest income from CMBS (Held-to-Maturity) and $9.2 million of interest income from CMBS (Fair Value Option).

To conform to the 2018 presentation of the condensed consolidated statement of cash flows, we reclassified (i) $146.5 million of payments received on securities, held-to-maturity, (ii) $128.9 million of proceeds from sale of securities, and (iii) $13.3 million of payments received on securities, and combined the line items into payments and proceeds received on securities.

Note 5 – Commercial Mortgage and Subordinate Loans, Net

Our loan portfolio was comprised of the following at September 30, 2018 and December 31, 2017 ($ in thousands):

Loan Type	September 30, 2018		December 31, 2017
Commercial mortgage loans, net	$	3,723,550	$	2,653,826
Subordinate loans, net	1,104,496		1,025,932
Total loans, net	$	4,828,046	$	3,679,758

Our loan portfolio consisted of 90% and 88% floating rate loans, based on amortized cost, as of September 30, 2018 and December 31, 2017, respectively.

Activity relating to our loan investment portfolio, for the nine months endedSeptember 30, 2018, was as follows ($ in thousands):

	Principal Balance			Deferred Fees/Other Items (1)			Provision for Loan Loss (2)			Carrying Value
December 31, 2017	$	3,706,169		$	(9,430	)	$	(16,981	)	$	3,679,758
New loan fundings	1,590,123			—			—			1,590,123
Add-on loan fundings (3)	175,053			—			—			175,053
Loan repayments	(601,041		)	—			—			(601,041		)

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Unrealized gain (loss) on foreign currency translation	(35,412		)	(21		)	—			(35,433		)
Provision for loan loss (2)	—			—			(5,000		)	(5,000		)
Deferred fees and other items (1)	—			(24,596		)	—			(24,596		)
PIK interest, amortization of fees and other items (1)	29,944			19,238			—			49,182
September 30, 2018	$	4,864,836		$	(14,809	)	$	(21,981	)	$	4,828,046

———————

(1) Other items primarily consist of purchase discounts or premiums, exit fees and deferred origination expenses.

(2)In addition to the $22.0 million provision for loan loss, we recorded an impairment of $3.0 million against an investment previously recorded under other assets on our condensed consolidated balance sheet.

(3) Represents fundings for loans closed prior to 2018.

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

	September 30, 2018			December 31, 2017
Number of loans	68			59
Principal balance	$	4,864,836		$	3,706,169
Carrying value	$	4,828,046		$	3,679,758
Unfunded loan commitments (1)	$	884,178		$	435,627
Weighted-average cash coupon (2)	8.2		%	8.4		%

———————

(1) Unfunded loan commitments are primarily funded to finance property improvements or lease-related expenditures by the borrowers. 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.

The table below details the property type of the properties securing the loans in our portfolio at the dates indicated ($ in thousands):

	September 30, 2018				December 31, 2017
Property Type	Carrying Value		% of Portfolio		Carrying Value		% of Portfolio
Hotel	$	1,229,460	25.5	%	$	645,056	17.6	%
Residential-for-sale: inventory (1)	602,826		12.5	%	92,438		2.5	%
Residential-for-sale: construction (1)	385,303		8.0	%	349,739		9.5	%
Urban Predevelopment	677,440		14.0	%	654,736		17.8	%
Office	520,926		10.8	%	513,830		14.0	%
Multifamily	450,017		9.3	%	465,057		12.6	%
Mixed Use	320,984		6.6	%	354,640		9.6	%
Healthcare	255,588		5.3	%	173,870		4.7	%
Retail Center	202,031		4.2	%	198,913		5.4	%
Other	151,471		3.1	%	154,141		4.2	%
Industrial	32,000		0.7	%	77,338		2.1	%
Total	$	4,828,046	100.0	%	$	3,679,758	100.0	%

(1) To conform to the current period’s presentation, loans with a combined carrying value of $442.2 million classified as residential-for-sale as of December 31, 2017 were broken out into $349.8 million of residential-for-sale: construction and $92.4 million of residential-for-sale: inventory.

The table below details the geographic distribution of the properties securing the loans in our portfolio at the dates indicated ($ in thousands):

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	September 30, 2018				December 31, 2017
Geographic Location	Carrying Value		% of Portfolio		Carrying Value		% of Portfolio
Manhattan, NY	$	1,365,211	28.3	%	$	1,173,833	31.9	%
Brooklyn, NY	332,372		6.9	%	357,611		9.7	%
Northeast	37,410		0.8	%	100,536		2.7	%
Midwest	800,196		16.6	%	683,380		18.6	%
Southeast	608,925		12.6	%	531,582		14.4	%
West	522,818		10.8	%	227,024		6.2	%
Mid Atlantic	213,881		4.4	%	191,976		5.2	%
Southwest	115,683		2.4	%	33,615		0.9	%
United Kingdom	706,342		14.6	%	303,488		8.3	%
Other International	125,208		2.6	%	76,713		2.1	%
Total	$	4,828,046	100.0	%	$	3,679,758	100.0	%

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 ratio ("LTV"), 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 has been impaired

The following table allocates the carrying value of our loan portfolio based on our internal risk ratings at the dates indicated ($ in thousands):

	September 30, 2018					December 31, 2017
Risk Rating	Number of Loans	Carrying Value		% of Loan Portfolio		Number of Loans	Carrying Value		% of Loan Portfolio
1	—	$	—	—	%	—	$	—	—	%
2	5	340,237		7	%	5	399,326		10	%
3	60	4,254,383		88	%	51	3,034,358		83	%
4	1	171,127		4	%	1	168,208		5	%
5	2	62,299		1	%	2	77,866		2	%
	68	$	4,828,046	100	%	59	$	3,679,758	100	%

We evaluate our loans for possible impairment on a quarterly basis. We regularly evaluate 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 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 property’s liquidation value. 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 loan loss 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

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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 we will not be able to collect all amounts due according to the contractual terms of the loan.

We recorded a $10.0 million loan loss provision and impairment against a commercial mortgage loan secured by a fully-built, for-sale residential condominium units located in Bethesda, MD. This was comprised of (i) $5.0 million loan loss recorded during the second quarter of 2018, and (ii) $2.0 million loan loss provision and $3.0 million of impairment recorded during the second quarter of 2017. The impairment was recorded on an investment previously recorded under other assets on our condensed consolidated balance sheet. The loan loss provision and impairment were based on the difference between fair value of the underlying collateral, and the carrying value of the loan (prior to the loan loss provision and related impairment). Fair value of the collateral was determined using a discounted cash flow analysis. The significant unobservable inputs used in determining the collateral value were sales price per square foot and discount rate which were an average of $662 dollars per square foot across properties and 15%, respectively. Effective April 1, 2017, we ceased accruing all interest associated with the loan and accounts for the loan on a cost-recovery basis (all proceeds are applied towards the loan balance). As of September 30, 2018 and December 31, 2017, this loan was assigned a risk rating of 5.

During 2016, we recorded a loan loss provision of $10.0 million on a commercial mortgage loan and $5.0 million on a contiguous subordinate loan secured by a multifamily property located in Williston, ND. The loan loss provision was based on the difference between fair value of the underlying collateral, and the carrying value of the loan (prior to the loan loss provision). Fair value of the collateral was determined using a discounted cash flow analysis. The significant unobservable inputs used in determining the collateral value were terminal capitalization rate and discount rate which were 11% and 10%, respectively. We ceased accruing interest associated with the loan and only recognize interest income upon receipt of cash. As of September 30, 2018 and December 31, 2017, this loan was assigned a risk rating of 5.

We evaluate modifications to our loan portfolio to determine if the modifications constitute a troubled debt restructuring ("TDR"), under ASC Topic 310, “Receivables." During the second quarter of 2018, we determined that a modification of one commercial mortgage loan with a principal balance of $169.0 million constituted a TDR as the interest rate spread was reduced from 5.5% over LIBOR to 3.0% over LIBOR. As of September 30, 2018 and December 31, 2017, this loan was assigned a risk rating of 4. The entity that we are a part of and owns the underlying property was deemed to be a variable interest entity ("VIE") and it was determined that we are not the primary beneficiary of that VIE.

During the three months ended September 30, 2018, we sold a $75.0 million ($17.7 million funded) subordinate position of our $265.0 million loans for the construction of an office campus in Renton, Washington. As of September 30, 2018, our exposure to the property is limited to a $190.0 million ($65.5 million funded) mortgage loan. This transaction was evaluated under ASC 860 - Transfers and Servicing and we determined that it qualifies as a sale and accounted for as such.

As of September 30, 2018 and December 31, 2017, the aggregate loan loss provision was $17.0 million and $5.0 million for commercial mortgage loans and subordinate loans, respectively.

We recognized payment-in-kind ("PIK") interest of $10.2 million and $29.9 million for the three and nine months endedSeptember 30, 2018, respectively, and $5.3 million and $19.3 million for the three and nine months endedSeptember 30, 2017, respectively.

We recognized pre-payment penalties and accelerated fees of $0.2 million and $1.8 million for the three and nine months ended September 30, 2018, respectively. For the three and nine months endedSeptember 30, 2017, we recognized pre-payment penalties of $3.6 million and $4.0 million, respectively.

Note 6 – Loan Proceeds Held by Servicer

Loan proceeds held by servicer represents principal payments held by our third-party loan servicer as of the balance sheet date which were remitted to us subsequent to the balance sheet date. Loan proceeds held by servicer was$302.8 millionas of December 31, 2017. There were no loan proceeds held by servicer as of September 30, 2018.

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Note 7 – Other Assets

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

	September 30, 2018		December 31, 2017
Interest receivable	$	31,255	$	23,101
Collateral deposited under derivative agreements	—		4,930
Other	639		389
Total	$	31,894	$	28,420

Note 8 – Secured Debt Arrangements, Net

At September 30, 2018 and December 31, 2017, our borrowings had the following secured debt arrangements, maturities and weighted average interest rates ($ in thousands):

	September 30, 2018 (2)						December 31, 2017
	Maximum Amount of Borrowings		Borrowings Outstanding			Maturity (1)	Maximum Amount of Borrowings		Borrowings Outstanding			Maturity (1)	Weighted Average Rate
JPMorgan Facility (USD)	$	1,332,450	$	950,635		June 2021	$	1,393,000	$	944,529		March 2020	USD L + 2.30%
JPMorgan Facility (GBP)	49,550		49,550			June 2021	N/A		N/A			N/A	N/A
DB Repurchase Facility (USD)	900,905		389,525			March 2021	472,090		225,367			March 2020	USD L + 2.56%
DB Repurchase Facility (GBP)	154,095		154,095			March 2021	93,919		93,919			March 2020	GBP L + 2.60%
Goldman Facility	300,000		205,982			November 2020	331,130		81,380			November 2020	USD L + 2.73%
CS Facility (USD)	69,941		69,941			March 2019	N/A		N/A			N/A	N/A
CS Facility (GBP)	143,993		143,993			March 2019	N/A		N/A			N/A	N/A
HSBC Facility (GBP)	49,896		49,896			September 2019	N/A		N/A			N/A	N/A
Sub-total	3,000,830		2,013,617				2,290,139		1,345,195
less: deferred financing costs	N/A		(16,746		)		N/A		(14,348		)		N/A
Total / Weighted Average	$	3,000,830	$	1,996,871			$2,290,139		$1,330,847				USD L + 2.37% /
													GBP L + 2.60%

———————

(1) Maturity date assumes extensions at our option are exercised.

(2) Weighted average rate as of September 30, 2018 was USD L + 2.26% / GBP L + 2.27%.

JPMorgan Facility

In May 2017, through two indirect wholly-owned subsidiaries, we entered into the Fifth Amended and Restated Master Repurchase Agreement with JPMorgan Chase Bank, National Association (as amended, the "JPMorgan Facility"). The JPMorgan Facility provides for maximum total borrowing capacity of $1.4 billion, comprised of a $1.25 billion repurchase facility and a $132.0 million asset specific financing and enables us to elect to receive advances in either U.S. dollars, British pounds ("GBP"), or Euros ("EUR"). The repurchase facility matures in June 2020, plus a one-year extension available at our option, subject to certain conditions. The asset specific financing matures in February 2019. Margin calls may occur any time at specified aggregate margin deficit thresholds. We have agreed to provide a limited guarantee of the obligations of our indirect wholly-owned subsidiaries under the JPMorgan Facility.

As of September 30, 2018, we had $1.0 billion (including £38.0 million assuming conversion into U.S. dollars) of borrowings outstanding under the JPMorgan Facility secured by certain of our commercial mortgage loans.

DB Repurchase Facility

In April 2018, through an indirect wholly-owned subsidiary, we entered into a Second Amended and Restated Master Repurchase Agreement with Deutsche Bank AG, Cayman Islands Branch and Deutsche Bank AG, London Branch (as amended, the "DB Repurchase Facility"), which was upsized in September 2018, and provides for advances of up to $1.0

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billion for the sale and repurchase of eligible first mortgage loans secured by commercial or multifamily properties located in the United States, United Kingdom and the European Union, and enables us to elect to receive advances in either U.S. dollars, British pounds, or Euros. Additionally, we have a $55.0 million of asset specific financing with Deutsche Bank in connection with financing a first mortgage loan secured by real estate. The repurchase facility matures in March 2020, plus a one-year extension available at our option, subject to certain conditions. The asset specific financing matures in August 2019. Margin calls may occur any time at specified aggregate margin deficit thresholds. We have agreed to provide a limited guarantee of the obligations of our indirect wholly-owned subsidiaries under this facility.

As of September 30, 2018, we had $543.6 million (including £118.3 million assuming conversion into U.S. dollars) of borrowings outstanding under the DB Repurchase 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"), which provides for advances of up to $300.0 million and matures in November 2019, plus a one-year extension available at our option, subject to certain conditions. Margin calls may occur any time at specified margin deficit thresholds. We have agreed to provide a limited guarantee of the obligations of the seller under the Goldman Facility.

As of September 30, 2018, we had total borrowings of $206.0 million of borrowings outstanding under the Goldman Facility.

CS Facility - USD

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 - USD"), which provides for advances for the sale and repurchase of eligible commercial mortgage loans secured by real estate. The CS Facility - USD matures six months after either party notifies the other party of intention to terminate. Margin calls may occur any time at specified aggregate margin deficit thresholds. We have agreed to provide a guarantee of the obligations of our indirect wholly-owned subsidiaries under this facility.

As of September 30, 2018, we had total borrowings of $69.9 million of borrowings outstanding under the CS Facility - USD secured by one of our commercial mortgage loans.

CS Facility - GBP

In June 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 - GBP"), which provides for advances for the sale and repurchase of eligible commercial mortgage loans secured by real estate. The CS Facility - GBP matures six months after either party notifies the other party of intention to terminate. Margin calls may occur any time at specified aggregate margin deficit thresholds. We have agreed to provide a guarantee of the obligations of our indirect wholly-owned subsidiaries under this facility.

As of September 30, 2018, we had total borrowings of $144.0 million (£110.5 million assuming conversion into U.S. dollars) of borrowings outstanding under the CS Facility - GBP secured by one of our commercial mortgage loans.

HSBC Facility

In September 2018, through an indirect wholly-owned subsidiary, we entered into a secured debt arrangement with HSBC Bank plc (the "HSBC Facility"), which provides for a single asset financing. The facility matures in September 2019 and unless terminated by either party, automatically extends for further periods prior to maturity. Margin calls may occur any time at specified aggregate margin deficit thresholds. We have agreed to provide a guarantee of the obligations of our indirect wholly-owned subsidiaries under this facility.

As of September 30, 2018, we had total borrowings of $49.9 million (£38.3 million assuming conversion into U.S. dollars) of borrowings outstanding under the HSBC Facility secured by one of our commercial mortgage loans.

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At September 30, 2018, our borrowings had the following remaining maturities ($ in thousands):

	Less than 1 year (1)		1 to 3 years (1)		3 to 5 years		More than 5 years		Total
JPMorgan Facility	$	334,884	$	665,301	$	—	$	—	$	1,000,185
DB Repurchase Facility	177,164		366,456		—		—		543,620
Goldman Facility	—		205,982		—		—		205,982
CS Facility - USD	69,941		—		—		—		69,941
CS Facility - GBP	143,993		—		—		—		143,993
HSBC Facility	49,896		—		—		—		49,896
Total	$	775,878	$	1,237,739	$	—	$	—	$	2,013,617

———————

(1)Assumes underlying assets are financed through the fully extended maturity date of the facility.

The table below summarizes the outstanding balances at September 30, 2018, as well as the maximum and average month-end balances for the nine months ended September 30, 2018 for our borrowings under secured debt arrangements ($ in thousands).

					For the nine months ended September 30, 2018
	Balance at September 30, 2018		Amortized Cost of collateral at September 30, 2018		Maximum Month-End Balance		Average Month-End Balance
JPMorgan Facility	$	1,000,185	$	1,621,477	$	1,000,854	$	910,138
DB Repurchase Facility	543,620		955,460		707,405		511,259
Goldman Facility	205,982		278,490		236,764		159,010
CS Facility - USD	69,941		99,013		69,941		69,941
CS Facility - GBP	143,993		220,397		145,937		144,540
HSBC Facility	49,896		70,763		49,896		49,896
Total	$	2,013,617	$	3,245,600

We were in compliance with the covenants under each of our secured debt arrangements at September 30, 2018 and December 31, 2017.

Note 9 – Convertible Senior Notes, Net

In two separate offerings during 2014, we issued an aggregate principal amount of $254.8 million of 5.50% Convertible Senior Notes due 2019 (the "2019 Notes"), for which we received aggregate net proceeds of approximately $248.6 million, after deducting the underwriting discount and estimated offering expenses payable by us.

During the three months ended September 30, 2018, we exchanged or converted $218.8 million in aggregate principal of the 2019 Notes as follows:

(i) on August 2, 2018, we entered into privately negotiated exchange agreements with a limited number of holders of the 2019 Notes pursuant to which we exchanged $206.2 million of the 2019 Notes for an aggregate of (a) 10,020,328 newly issued shares of our common stock, and (b) $39.3 million in cash. We recorded $166.0 million of additional paid-in-capital in the condensed consolidated statement of changes in stockholders' equity in connection with these transactions,

(ii) certain holders elected to convert $12.6 million of the 2019 Notes through multiple transactions for an aggregate of (a) 724,250 newly issued shares of our common stock, and (b) $0.2 million in cash. We recorded $12.4 million of additional paid-in-capital in the condensed consolidated statement of changes in stockholders' equity in connection with these transactions.

During the three and nine months ended September 30, 2018, in connection with the exchanges and conversions of the

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2019 Notes, we recorded a loss on early extinguishment of debt of $2.6 million, which includes fees and accelerated amortization of capitalized costs. There was no such loss during the three and nine months ended September 30, 2017.

At September 30, 2018, the outstanding 2019 Notes had a carrying value of $35.5 million and an unamortized discount of $0.5 million.

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," and together with the 2019 Notes, the "Notes"), for which we received aggregate net proceeds of approximately $337.5 million, after deducting the underwriting discount and estimated offering expenses.At September 30, 2018, the 2022 Notes had a carrying value of $334.7 million and an unamortized discount of $10.3 million.

The following table summarizes the terms of the Notes ($ in thousands):

	Principal Amount		Coupon Rate		Effective Rate (1)		Conversion Rate (2)	Maturity Date	Remaining Period of Amortization
2019 Notes	$	35,932	5.50	%	6.50	%	58.0421	3/15/2019	0.45 years
2022 Notes	345,000		4.75	%	5.61	%	50.2260	8/23/2022	3.90 years
Total	$	380,932

———————

(1) Effective rate includes the effect of the adjustment for the conversion option (See endnote (2) below), the value of which reduced the initial liability and was recorded in additional paid-in-capital.

(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 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 Notes prior to maturity except in limited circumstances. The closing price of our common stock on September 30, 2018 of $18.87 was greater than the per share conversion price of the 2019 Notes and less than the per share conversion price of the 2022 Notes. As of September 30, 2018, we no longer assert our intent to fully settle the principal amount of the Notes in cash.

In accordance with ASC 470 - Debt, the liability and equity components of convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) is 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 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 us at such time. We measured the fair value of the debt components of the Notes as of their issuance date based on effective interest rates.  As a result, we attributed approximately $22.4 million of the proceeds to the equity component of the Notes ($11.4 million to the 2019 Notes and $11.0 million to the 2022 Notes), which represents the excess proceeds received over the fair value of the liability component of the Notes at the date of issuance. The equity component of the Notes has been reflected within additional paid-in capital in the condensed consolidated balance sheet as of September 30, 2018. The resulting debt discount is being amortized over the period during which the 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 Notes will increase in subsequent reporting periods through the maturity date as the Notes accrete to their par value over the same period.

The aggregate contractual interest expense was approximately $5.5 million and $20.7 million for the three and nine months ended September 30, 2018, respectively, as compared to approximately $4.7 million and $11.7 million for the three and nine months ended September 30, 2017, respectively. With respect to the amortization of the discount on the liability component of the Notes as well as the amortization of deferred financing costs, we reported additional non-cash interest expense of approximately $1.2 million and $4.9 million for the three and nine months ended September 30, 2018, respectively, as compared to approximately $1.2 million and $3.0 million for the three and nine months ended September 30, 2017, respectively.

Note 10 – Derivatives, Net

We use forward currency contracts to economically hedge interest and principal payments due under our loans denominated in currencies other than U.S. dollars.

We have entered into a series of forward contracts to sell an amount of foreign currency (British pound and Euro) for an agreed upon amount of U.S. dollars at various dates through November 2020. These forward contracts were executed to economically fix the U.S. dollar amounts of foreign denominated cash flows expected to be received by us related to foreign

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denominated loan investments.

The following table summarizes our non-designated foreign exchange (“Fx”) forwards as of September 30, 2018:

Type of Derivative	September 30, 2018
	Number of Contracts	Aggregate Notional Amount (in thousands)	Notional Currency	Maturity
Fx Contracts - GBP	35	274,309	GBP	October 2018 - November 2020
Fx Contracts - EUR	1	42,247	EUR	October 2018

The following table summarizes our non-designated Fx forwards as of December 31, 2017:

Type of Derivative	December 31, 2017
	Number of Contracts	Aggregate Notional Amount (in thousands)	Notional Currency	Maturity
Fx Contracts - GBP	24	177,077	GBP	January 2018- November 2020

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 the condensed consolidated statements of operations related to our derivatives for the three and nine months endedSeptember 30, 2018 and 2017 ($ in thousands):

		Amount of gain (loss) recognized in income						Amount of gain (loss) recognized in income
		Three months ended September 30,						Nine months ended September 30,
	Location of Gain (Loss) Recognized in Income	2018			2017			2018			2017
Forward currency contracts	Gain (loss) on derivative instruments - unrealized	$	5,046		$	(7,308	)	$	20,987		$	(17,629	)
Forward currency contracts	Gain (loss) on derivative instruments - realized	1,246			(179		)	7,811			(290		)
Interest rate caps(1)	Gain (loss) on derivative instruments - unrealized	(1		)	6			(1		)	3
Total		$	6,291		$	(7,481	)	$	28,797		$	(17,916	)

———————

(1) With a notional amount of $36.2 million and $41.5 million at September 30, 2018, and 2017, respectively.

The following table summarizes the gross asset and liability amounts related to our derivatives at September 30, 2018 and December 31, 2017 ($ in thousands).

	September 30, 2018							December 31, 2017
	Gross Amount of Recognized Assets		Gross Amounts Offset in the Condensed Consolidated Balance Sheet			Net Amounts of Assets Presented in the Condensed Consolidated Balance Sheet		Gross Amount of Recognized Liabilities			Gross Amounts Offset in the Condensed Consolidated Balance Sheet		Net Amounts of Assets (Liabilities) Presented in the Condensed Consolidated Balance Sheet
Interest rate caps	$	1	$	—		$	1	$	—		$	1	$	1
Forward currency contracts	15,708		(368		)	15,340		(5,645		)	—		(5,645		)
Total derivative instruments	$	15,709	$	(368	)	$	15,341	$	(5,645	)	$	1	$	(5,644	)

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Note 11 – Accounts Payable, Accrued Expenses and Other Liabilities

The following table details the components of our accounts payable, accrued expense and other liabilities ($ in thousands):

	September 30, 2018		December 31, 2017
Accrued dividends payable	$	68,544	$	56,576
Accrued interest payable	6,540		12,796
Accounts payable and other liabilities	4,454		1,534
Total	$	79,538	$	70,906

Note 12 – Related Party Transactions

Management Agreement

In connection with our initial public offering in September 2009, we entered into a management agreement (the “Management Agreement”) with the Manager, which describes the services to be provided by the Manager and its compensation for those services. The Manager is responsible for managing our day-to-day operations, subject to the direction and oversight of our board of directors.

Pursuant to the terms of the Management Agreement, the Manager is paid a base management fee equal to 1.5% per annum of our stockholders’ equity (as defined in the Management Agreement), calculated and payable (in cash) quarterly in arrears.

The current term of the Management Agreement was renewed during the period and expires on September 29, 2019 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 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 2018, 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 $9.5 million and $26.6 million in base management fees under the Management Agreement for the three and nine months ended September 30, 2018, respectively, as compared to approximately $8.3 million and $23.5 million for the three and nine months ended September 30, 2017, respectively.

In addition to the base management fee, we are also responsible for reimbursing the Manager for certain expenses paid by the Manager on our behalf or for certain services provided by the Manager to us.

For the three and nine months endedSeptember 30, 2018, we paid expenses totaling $0.6 million and $1.8 million, respectively, related to reimbursements for certain expenses paid by the Manager on our behalf under the Management Agreement. For the three and nine months ended September 30, 2017, we paid expenses totaling $0.1 million and $0.2 million, respectively, related to reimbursements for certain expenses paid by the Manager on our behalf under the Management Agreement. Expenses incurred by the Manager and reimbursed by us are reflected in the respective condensed consolidated statement of operations expense category or the condensed consolidated balance sheet based on the nature of the item.

Included in payable to related party on the condensed consolidated balance sheet at September 30, 2018 and December 31, 2017 are approximately $9.5 million and $8.2 million, respectively, for base management fees incurred but not yet paid under the Management Agreement.

Unconsolidated Joint Venture

In September 2014, through a wholly owned subsidiary, we 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 Bremer Kreditbank AG ("BKB"). In May 2017, we sold our remaining ownership interest in Champ LP, to unaffiliated third

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parties. As such, in 2018 we no longer held any interest in Champ LP.

Loans receivable

In June, 2017, we increased our outstanding loan commitment through the acquisition of an additional $25.0 million of interests in an existing subordinate loan from a fund managed by an affiliate of the Manager, increasing our total outstanding loan commitment to $100.0 million. Furthermore, in September 2017 we funded an additional $25.0 million to acquire a portion of the same pre-development subordinate loan from a fund managed by an affiliate of the Manager, increasing our total outstanding loan commitment to $125.0 million. In May 2018, we increased our outstanding principal balance through the acquisition of an additional $28.2 million interest in the same subordinate loan from a fund managed by an affiliate of the Manager. The pre-development subordinate loan is for the construction of a residential condominium building in New York, New York and is part of a $300.0 million subordinate loan.

In June, 2018, we increased our outstanding loan commitment through the acquisition of £4.8 million ($6.4 million assuming conversion into U.S. dollars) pari-passu interest in an existing subordinate loan from a fund managed by an affiliate of the Manager. The subordinate loan is secured by a healthcare portfolio located in the United Kingdom.

Note 13 – Share-Based Payments

On September 23, 2009, our board of directors approved the Apollo Commercial Real Estate Finance, Inc., 2009 Equity Incentive Plan (as amended from time to time, 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 our common stock (on a fully diluted basis). The LTIP is administered by the compensation committee of our board of directors (the “Compensation Committee”) and all grants under the LTIP must be approved by the Compensation Committee.

We recognized stock-based compensation expense of $4.0 million and $11.4 million for the three and nine months ended September 30, 2018, respectively, related to restricted stock and RSU vesting, as compared to $2.6 million and $9.9 million for the three and nine months ended September 30, 2017, respectively, related to restricted stock and RSU vesting.

The following table summarizes the grants, vesting and forfeitures of restricted common stock and RSUs during the nine months endedSeptember 30, 2018:

	Type	Restricted Stock		RSUs		Grant Date Fair Value ($ in thousands)
Outstanding at December 31, 2017		105,561		1,632,746
	Grant	28,070		7,100		634
	Vested	(24,840	)	(807	)	N/A
	Forfeiture	—		(44,739	)	N/A
Outstanding at September 30, 2018		108,791		1,594,300

Below is a summary of restricted stock and RSU vesting dates as of September 30, 2018: 

Vesting Year	Restricted Stock	RSU	Total Awards
2018	43,094	738,581	781,675
2019	60,803	557,394	618,197
2020	4,894	295,957	300,851
2021	—	2,368	2,368
Total	108,791	1,594,300	1,703,091

At September 30, 2018, we had unrecognized compensation expense of approximately $1.1 million and $19.6 million, respectively, related to the vesting of restricted stock awards and RSUs noted in the table above.

RSU Deliveries

During the three and nine months endedSeptember 30, 2018, we delivered 514 and 346,510 shares of common stock for 807 and 604,484 vested RSUs, respectively. We allow RSU participants to settle their tax liabilities with a reduction of their

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share delivery from the originally granted and vested RSUs. The amount, when agreed to by the participant, results in a cash payment to the Manager related to this tax liability and a corresponding adjustment to additional paid in capital on the condensed consolidated statement of changes in stockholders' equity. The adjustment was $4.7 million for the nine months endedSeptember 30, 2018, and is included as a reduction of capital related to our equity incentive plan in the condensed consolidated statement of changes in stockholders' equity. There was no adjustment for the three months ended September 30, 2018.

Note 14 – Stockholders’ Equity

Our authorized capital stock consists of 450,000,000 shares of common stock, $0.01 par value per share and 50,000,000 shares of preferred stock, $0.01 par value per share. As of September 30, 2018, 133,765,392 shares of common stock were issued and outstanding, 6,770,393 shares of 8.00% Fixed-to-Floating Series B Cumulative Redeemable Perpetual Preferred Stock ("Series B Preferred Stock") were issued and outstanding and 6,900,000 shares of 8.00% Series C Cumulative Redeemable Perpetual Preferred Stock ("Series C Preferred Stock") were issued and outstanding.

Dividends. During 2018, we declared the following dividends:

	Three months ended
Dividend declared per share of:	September 30, 2018	June 30, 2018	March 31, 2018
Common Stock	$0.46	$0.46	$0.46
Series B Preferred Stock	0.50	0.50	0.50
Series C Preferred Stock	0.50	0.50	0.50

Common Stock Offerings. During the first quarter of 2018, we completed a follow-on public offering of 15,525,000 shares of our common stock, at a price of $17.77 per share. The aggregate net proceeds from the offering, including proceeds from the sale of the additional shares, were approximately $275.9 million after deducting the underwriting discount and estimated offering expenses.

During the third quarter of 2018, we issued 10,744,577 shares of our common stock related to exchanges and conversions of the 2019 Notes. Refer to "Note 9 - Convertible Senior Notes, Net" for a further discussion on the exchanges and conversions of the 2019 Notes.

Note 15 – Commitments and Contingencies

Legal Proceedings. From time to time, we may be involved in various claims and legal actions arising in the ordinary course of business. On June 28, 2018, AmBase Corporation, 111 West 57th Street Manager Funding LLC and 111 West 57th Investment LLC commenced an action captioned AmBase Corporation et al v. ACREFI Mortgage Lending, LLC et al (No. 653251/2018) in New York Supreme Court.  The complaint names as defendants (i) ACREFI Mortgage Lending, LLC, a subsidiary of the Company, (ii) the Company, and (iii) certain funds managed by Apollo, who are co-lenders on a mezzanine loan against the development of a residential condominium building in Manhattan, New York. The plaintiffs allege that the defendants tortiously interfered with the contractual equity put right in 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 allege the loss of a $70.0 million investment as part of total damages of $700.0 million, which includes punitive damages. The defendants moved to dismiss the complaint on August 17, 2018, and the motion was fully briefed in October 2018. Oral argument is scheduled for February 2019.  We believe the claims are without merit and plan to vigorously defend the case.

On January 4, 2017, the United States Department of Justice served a Request for Information and Documents (the

“Request”) on the Company, in connection with a preliminary investigation into certain aspects of our former residential real estate portfolio, which we acquired in connection with the merger of Apollo Residential Mortgage, Inc. with and into the Company and subsequently sold in 2016. The Request sought a range of information in connection with the residential real estate portfolio, including, among other things, information concerning policies, procedures, and practices related to advertising, marketing, identifying, or acquiring residential properties for sale or rent, and various data for all rental and sales contracts executed since January 1, 2012. We fully cooperated with the Department of Justice, and were advised, by a letter dated May 2, 2018, that the Department of Justice did not intend to take any further actions in this matter as it relates to us.

Loan Commitments. As described in "Note 5 - Commercial Mortgage and Subordinate Loans, Net," at September 30, 2018, we had $884.2 million of unfunded commitments related to our commercial mortgage and subordinate loan portfolios.

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Note 16 – Fair Value of Financial Instruments

The following table presents the carrying value and estimated fair value of our financial instruments not carried at fair value on the condensed consolidated balance sheet at September 30, 2018 and December 31, 2017 ($ in thousands):

	September 30, 2018						December 31, 2017
	Carrying Value			Estimated Fair Value			Carrying Value			Estimated Fair Value
Cash	$	99,188		$	99,188		$	77,671		$	77,671
Commercial first mortgage loans, net	3,723,550			3,720,475			2,653,826			2,657,262
Subordinate loans, net	1,104,496			1,098,632			1,025,932			1,029,390
Secured debt arrangements	(2,013,617		)	(2,013,617		)	(1,345,195		)	(1,345,195		)
2019 Notes	(35,477		)	(39,660		)	(251,935		)	(267,506		)
2022 Notes	(334,697		)	(345,863		)	(332,962		)	(350,175		)

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 convertible senior notes, net are measured using observable Level I inputs as defined in "Note 3 - Fair Value Disclosure." Estimates of fair value for all other financial instruments in the table above are measured using significant estimates, or unobservable Level III inputs as defined in "Note 3 - Fair Value Disclosure."

Note 17 – Net Income per Share

ASC 260 "Earnings per share" requires the use of the two-class method of computing earnings per share for all periods presented for each class of common stock and participating security as if all earnings for the period had been distributed. Under the two-class method, during periods of net income, the net income is first reduced for dividends declared on all classes of securities to arrive at undistributed earnings. During periods of net losses, the net loss is reduced for dividends declared on participating securities only if the security has the right to participate in the earnings of the entity and an objectively determinable contractual obligation to share in net losses of the entity.

The remaining earnings are allocated to common stockholders and participating securities to the extent that each security shares in earnings as if all of the earnings for the period had been distributed. Each total is then divided by the applicable number of shares to arrive at basic earnings per share. For the diluted earnings, the denominator includes all outstanding shares of common stock and all potential shares of common stock assumed issued if they are dilutive. The numerator is adjusted for any changes in income or loss that would result from the assumed conversion of these potential shares of common stock.

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The table below presents the computation of basic and diluted net income per share of common stock for the three and nine months endedSeptember 30, 2018 and 2017 ($ in thousands except per share data):

	For the three months ended September 30,						For the nine months ended September 30,
	2018			2017			2018			2017
Basic Earnings
Net income	$	62,217		$	68,356		$	166,996		$	151,714
Less: Preferred dividends	(6,836		)	(11,148		)	(20,505		)	(29,768		)
Net income available to common stockholders	$	55,381		$	57,208		$	146,491		$	121,946
Less: Dividends on participating securities	(733		)	(620		)	(2,215		)	(1,884		)
Basic Earnings	$	54,648		$	56,588		$	144,276		$	120,062
Diluted Earnings
Net income	$	62,217		$	68,356		$	166,996		$	151,714
Less: Preferred dividends	(6,836		)	(11,148		)	(20,505		)	(29,768		)
Net income available to common stockholders	$	55,381		$	57,208		$	146,491		$	121,946
Add: Interest expense on Notes	6,746			N/A			25,607			N/A
Diluted Earnings	$	62,127		$	57,208		$	172,098		$	121,946
Number of Shares:
Basic weighted average shares of common stock outstanding	129,188,343			105,446,704			120,876,240			97,546,437
Diluted weighted average shares of common stock outstanding	153,918,435			106,812,721			150,424,889			98,919,689
Earnings Per Share Attributable to common stockholders
Basic	$	0.42		$	0.54		$	1.19		$	1.23
Diluted	$	0.40		$	0.54		$	1.14		$	1.23

Prior to the three months ended September 30, 2018, we asserted our intent and ability to settle the principal amount of the Notes in cash and, as a result, the Notes did not have any impact on our diluted earnings per share. As of September 30, 2018, we no longer assert our intent to fully settle the principal amount of the Notes in cash upon conversion. Accordingly, the dilutive effect to earnings per share for the current year periods is determined using the "if-converted" method whereby interest expense on the outstanding Notes is added back to the diluted earnings per share numerator and all of the potentially dilutive shares are included in the diluted earnings per share denominator. For the three and nine months endedSeptember 30, 2018, 24,730,092 and 29,548,649 weighted average potentially issuable shares from the Notes, respectively, were included in the dilutive earnings per share denominator. Refer to "Note 9 - Convertible Senior Notes, Net" for further discussion.

For the three and nine months endedSeptember 30, 2018, 1,593,070 and 1,617,398 weighted average unvested RSUs, respectively, were excluded from the calculation of diluted net income per share because the effect was anti-dilutive. For the three and nine months endedSeptember 30, 2017, 1,366,017 and 1,373,252 weighted average unvested RSUs, respectively, were excluded from the calculation of diluted net income per share because the effect was anti-dilutive.

Note 18 – Subsequent Events

Investment activity.  Subsequent to the end of the quarter, we committed capital of $387.0 million, $273.2 million of which was funded at closing, of first mortgage loans.

In addition, we funded approximately $23.9 million for loans closed prior to the quarter.

Loan Repayments. Subsequent to the end of the quarter, we received approximately $180.9 million from loan repayments.

On October 5, 2018, we completed a public offering of $230.0 million aggregate principal amount of 5.375% Convertible Senior Notes due 2023 (the "2023 Notes"), which included $30.0 million due to underwriters’ exercise in full of their option to purchase additional 2023 Notes. The public offering generated net proceeds of approximately $223.7 million, after deducting the underwriting discount and offering expenses. The 2023 Notes bear interest at a rate of 5.375% per annum. The conversion rate is initially equal to 48.7187 shares of common stock per $1,000 principal amount of notes, which is equivalent to a conversion price of approximately $20.53 per share of common stock, representing an approximate 10%

25

conversion premium to the closing price of our common stock of $18.66 per share on October 2, 2018.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING INFORMATION

We make forward-looking statements herein and will make forward-looking statements in future filings with the SEC, press releases or other written or oral communications within the meaning of Section 27A of the Securities Act of

1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). For these statements, we claim the protections of the safe harbor for forward-looking statements contained in such Sections. Forward-looking statements are subject to substantial risks and uncertainties, many of which are difficult to predict and are generally beyond our control. These forward-looking statements include information about possible or assumed future results of our business, financial condition, liquidity, results of operations, plans and objectives. When we use the words “believe,” “expect,” “anticipate,” “estimate,” “plan,” “continue,” “intend,” “should,” “may” or similar expressions, it intends to identify forward-looking statements. Statements regarding the following subjects, among others, may be forward-looking: market trends in our industry, interest rates, real estate values, the debt securities markets or the general economy; the demand for commercial real estate loans; our business and investment strategy; our operating results; actions and initiatives of the U.S. government and governments outside of the United States, changes to government policies and the execution and impact of these actions, initiatives and policies; the state of the economy generally or in specific geographic regions; economic trends and economic recoveries; our ability to obtain and maintain financing arrangements, including secured debt arrangements and securitizations; the availability of debt financing from traditional lenders; the volume of short-term loan extensions; the demand for new capital to replace maturing loans; expected leverage; general volatility of the securities markets in which we participate; changes in the value of our assets; the scope of our target assets; interest rate mismatches between our target assets and any borrowings used to fund such assets; changes in interest rates and the market value of our target assets; changes in prepayment rates on our target assets; effects of hedging instruments on our target assets; rates of default or decreased recovery rates on our target assets; the degree to which hedging strategies may or may not protect us from interest rate volatility; impact of and changes in governmental regulations, tax law and rates, accounting, legal or regulatory issues or guidance and similar matters; our continued maintenance of our qualification as a REIT for U.S. federal income tax purposes; our continued exclusion from registration under the Investment Company Act of 1940, as amended; the availability of opportunities to acquire commercial mortgage-related, real estate-related and other securities; the availability of qualified personnel; estimates relating to our ability to make distributions to our stockholders in the future; our present and potential future competition; and unexpected costs or unexpected liabilities, including those related to litigation.

The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. Forward-looking statements are not predictions of future events. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us. See “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2017. These and other risks, uncertainties and factors, including those described in the annual, quarterly and current reports that we file with the SEC, could cause our actual results to differ materially from those included in any forward-looking statements we make. All forward-looking statements speak only as of the date they are made. New risks and uncertainties arise over time and it is not possible to predict those events or how they may affect us. Except as required by law, we are not obligated to, and do not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Overview

We are a Maryland corporation and have elected to be taxed as a REIT for U.S. federal income tax purposes. We primarily originate, acquire, invest in and manage performing commercial first mortgage loans, subordinate financings, and other commercial real estate-related debt investments. These asset classes are referred to as our target assets.

We are externally managed and advised by the Manager, an indirect subsidiary of Apollo, a leading global alternative investment manager with a contrarian and value-oriented investment approach in private equity, credit and real estate with assets under management of approximately $269.5 billion as of June 30, 2018.

The Manager is led by an experienced team of senior real estate professionals who have significant expertise in underwriting and structuring commercial real estate financing transactions. We benefit from Apollo’s global infrastructure and operating platform, through which we are able to source, evaluate and manage potential investments in our target assets.

Market Overview

Based on the current market dynamics, including significant upcoming commercial real estate debt maturities, we believe there remains compelling opportunities for us to invest capital in our target assets at attractive risk adjusted returns. We continue to focus on underlying real estate value, and transactions that benefit from our ability to execute complex and

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sophisticated transactions.

We believe the challenges faced by conduit lenders and the general uncertainty around value and pricing could create attractive risk adjusted investment opportunities for us. As a result, we expect to continue to see opportunities to originate first mortgage and subordinate financings in transactions which benefit from our ability to source, structure and execute complex transactions.

Critical Accounting Policies

A summary of our critical accounting policies is set forth in our Annual Report on Form 10-K for the year ended December 31, 2017 under “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Use of Estimates.” There have been no material changes to our critical accounting policies described in our Annual Report on Form 10-K filed with the SEC on February 14, 2018.

Results of Operations

All non-U.S. dollar denominated assets and liabilities are translated to U.S. dollars at the exchange rate prevailing at the reporting date and income, expenses, gains, and losses are translated at the prevailing exchange rate on the dates that they were recorded.

Investments

The following table sets forth certain information regarding our commercial real estate debt portfolio as of September 30, 2018 ($ in thousands):

Description	Amortized Cost		Weighted Average Coupon (1)		Weighted Average All-in Yield (1)(2)		Secured Debt (3)		Cost of Funds		Equity at cost(4)
Commercial mortgage loans, net	$	3,723,550	7.0	%	7.8	%	$	2,013,617	4.2	%	$	1,709,933
Subordinate loans, net	1,104,496		12.2	%	13.6	%	—		—		1,104,496
Total/Weighted Average	$	4,828,046	8.2	%	9.2	%	$	2,013,617	4.2	%	$	2,814,429

———————

(1) Weighted-Average Coupon and Weighted Average All-in-Yield are based on the applicable benchmark rates as of September 30, 2018 on the floating rate loans.

(2) Weighted-Average All-in-Yield includes the amortization of deferred origination fees, loan origination costs and accrual of both extension and exit fees.

(3) Gross of deferred financing costs of $16.7 million.

(4) Represents loan portfolio at amortized cost less secured debt outstanding.

Loan Portfolio Overview

The following table provides details of our commercial mortgage and subordinate loan portfolios, on a loan-by-loan basis, as of September 30, 2018 ($ in millions):

Commercial Mortgage Loan Portfolio
Property Type	Risk Rating	Origination Date	Amortized Cost	Unfunded Commitment	Construction Loan	Fully-extended Maturity	Location
Urban Predevelopment	3	01/2016	$222	—		07/2019	Miami, FL
Residential-for-sale: inventory	3	03/2018	220	—		03/2021	London, UK
Hotel	3	09/2016	215	—		08/2021	Manhattan, NY
Urban Predevelopment	3	04/2017	182	—		03/2019	London, UK
Office	3	11/2017	174	—		01/2023	Chicago, IL
Retail Center	4	11/2014	171	—		09/2020	Cincinnati, OH
Hotel	3	04/2018	151	2		04/2023	Honolulu, HI
Urban Predevelopment	3	03/2017	143	—		07/2020	Brooklyn, NY
Hotel (1)	3	09/2015	140	—		06/2023	Manhattan, NY
Hotel	3	05/2018	139	—		06/2023	Miami, FL

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Mixed Use	3	09/2016	133	—		10/2020	Chicago, IL
Mixed Use	2	07/2017	125	—		06/2019	Manhattan, NY
Office	3	11/2017	122	126	Y	12/2022	Manhattan, NY
Residential-for-sale: inventory	3	06/2018	99	—		06/2020	Manhattan, NY
Hotel	3	07/2018	86	—		08/2021	Detroit, MI
Multifamily	3	04/2014	80	—		07/2023	Various
Other	2	10/2016	80	—		08/2019	Manassas, VA
Residential-for-sale: inventory	3	05/2018	77	2		06/2020	Brooklyn, NY
Hotel	2	03/2017	77	—		03/2022	Atlanta, GA
Office	3	12/2017	75	58		03/2022	London, UK
Residential-for-sale: inventory	3	06/2018	71	—		06/2020	London, UK
Urban Predevelopment	3	07/2017	68	11		04/2019	London, UK
Multifamily	3	10/2017	67	—		11/2021	Brooklyn, NY
Urban Predevelopment	3	12/2016	63	18		12/2020	Los Angeles, CA
Office	3	01/2018	63	125	Y	01/2022	Renton, WA
Hotel	3	04/2018	63	—		05/2023	Scottsdale, AZ
Hotel	3	12/2017	63	27	Y	12/2022	Manhattan, NY
Hotel	2	01/2017	60	—		01/2022	Miami, FL
Multifamily	3	11/2014	59	—		11/2021	Various
Office	3	03/2018	59	28		04/2023	Chicago, IL
Residential-for-sale: inventory	3	05/2018	50	—		04/2021	Manhattan, NY
Multifamily	3	05/2016	46	6		06/2019	Brooklyn, NY
Multifamily	3	10/2017	43	—		10/2022	London, UK
Hotel	3	12/2015	42	2		12/2020	St. Thomas, USVI
Multifamily	3	12/2017	40	—		01/2020	Manhattan, NY
Hotel	3	02/2018	38	—		03/2023	Pittsburgh, PA
Multifamily (3)	5	11/2014	34	—		11/2019	Williston, ND
Retail Center	3	02/2017	31	—		10/2018	Miami, FL
Residential-for-sale: inventory (3)	5	02/2014	28	—		04/2019	Bethesda, MD
Residential-for-sale: construction	3	01/2018	16	63	Y	01/2023	Manhattan, NY
Mixed Use	3	07/2017	14	—		02/2019	Manhattan, NY
Residential-for-sale: construction	2	03/2018	(1)	115	Y	03/2023	San Francisco, CA
Office	3	08/2018	(2)	201	Y	12/2022	London, UK
Commercial mortgage loans			$3,724	$783	7%	2.6 Years

Subordinate Loan Portfolio
Property Type	Risk Rating	Origination Date	Amortized Cost	Unfunded Commitment	Construction Loan	Fully-extended Maturity	Location
Residential-for-sale: construction (2)	3	06/2015	$177	—	Y	07/2020	Manhattan, NY
Healthcare	3	10/2016	112	—		10/2021	Various
Healthcare	3	06/2018	95	—		05/2019	Various
Residential-for-sale: construction	3	02/2016	78	—	Y	02/2021	Manhattan, NY
Other	3	09/2017	72	—		09/2022	Various
Multifamily	3	10/2015	61	2		07/2019	Manhattan, NY

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Residential-for-sale: construction	3	12/2017	58	—	Y	04/2023	Los Angeles, CA
Healthcare	3	01/2015	49	—		12/2019	Various
Hotel	3	06/2018	48	—		02/2023	Various
Mixed Use	3	01/2017	42	—		02/2027	Cleveland, OH
Residential-for-sale: construction (2)	3	11/2017	39	—	Y	07/2020	Manhattan, NY
Residential-for-sale: inventory	3	10/2016	34	—		10/2020	Manhattan, NY
Industrial	3	05/2013	32	—		05/2023	Various
Hotel	3	06/2015	25	—		07/2025	Phoenix, AZ
Residential-for-sale: inventory	3	06/2017	24	—		12/2020	Manhattan, NY
Multifamily	3	05/2018	21	—		05/2028	Cleveland, OH
Hotel	3	06/2015	20	—		07/2019	Washington, DC
Hotel	3	02/2015	20	—		01/2020	Burbank, CA
Hotel	3	06/2018	20	—		06/2023	Las Vegas, NV
Residential-for-sale: construction	3	12/2017	19	90	Y	06/2022	Manhattan, NY
Hotel (1)	3	09/2015	15	9		06/2023	Manhattan, NY
Office	3	07/2013	14	—		07/2022	Manhattan, NY
Office	3	09/2012	9	—		10/2022	Kansas City, MO
Hotel	3	05/2017	8	—		06/2027	Anaheim, CA
Office	3	08/2017	8	—		09/2024	Troy, MI
Mixed Use	3	07/2012	7	—		08/2022	Chapel Hill, NC
Sub total- Subordinate loans			$1,104	$101	34%	3.0 Years
Total Loan Portfolio			$4,828	$884	13%	2.7 Years

———————

(1) Both loans are secured by the same property.

(2) Both loans are secured by the same property.

(3) Amortized cost for these loans is net of the recorded provisions for loan losses and impairments.

Our average asset and debt balances for the nine months ended September 30, 2018, were ($ in thousands):

	Average month-end balances for the nine months ended September 30, 2018
Description	Assets		Related debt
Commercial mortgage loans, net	$	3,342,537	$	1,844,784
Subordinate loans, net	1,060,957		—

Investment Activity

During the nine months endedSeptember 30, 2018, we committed $2.2 billion of capital to loans ($1.6 billion of which was funded during the nine months endedSeptember 30, 2018). In addition, during the nine months endedSeptember 30, 2018, we funded $175.1 million for loans closed prior to 2018, and received $601 million in repayments.

Net Income Available to Common Stockholders

For the three months ended September 30, 2018 and September 30, 2017, respectively, our net income available to common stockholders was $55.4 million, or $0.40 per diluted share of common stock, and $57.2 million, or $0.54 per diluted share of common stock. For the nine months endedSeptember 30, 2018 and September 30, 2017, respectively, our net income available to common stockholders was $146.5 million, or $1.14 per diluted share of common stock, and $121.9 million, or $1.23 per diluted share of common stock.

Operating Results

The following table sets forth information regarding our consolidated results of operations and certain key operating

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metrics ($ in thousands):

	Three months ended September 30,						2018 vs. 2017			Nine months ended September 30,						2018 vs. 2017
	2018			2017						2018			2017
Net interest income:
Interest income from commercial mortgage loans	$	71,179		$	41,203		$	29,976		$	188,434		$	112,690		$	75,744
Interest income from subordinate loans	37,308			47,268			(9,960		)	105,236			121,298			(16,062		)
Interest income from securities	—			2,625			(2,625		)	—			13,379			(13,379		)
Interest expense	(31,007		)	(19,855		)	(11,152		)	(82,184		)	(56,089		)	(26,095		)
Net interest income	77,480			71,241			6,239			211,486			191,278			20,208
Operating expenses:
General and administrative expenses	(5,843		)	(4,629		)	(1,214		)	(16,493		)	(15,587		)	(906		)
Management fees to related party	(9,515		)	(8,309		)	(1,206		)	(26,620		)	(23,484		)	(3,136		)
Total operating expenses	(15,358		)	(12,938		)	(2,420		)	(43,113		)	(39,071		)	(4,042		)
Loss from unconsolidated joint venture	—			—			—			—			(2,847		)	2,847
Other income	427			359			68			973			710			263
Provision for loan losses and impairments	—			—			—			(5,000		)	(5,000		)	—
Realized loss on sale of assets	—			(4,076		)	4,076			—			(5,118		)	5,118
Unrealized gain on securities	—			13,488			(13,488		)	—			11,830			(11,830		)
Foreign currency gain (loss)	(4,050		)	7,763			(11,813		)	(23,574		)	17,848			(41,422		)
Loss on early extinguishment of debt	(2,573		)	—			(2,573		)	(2,573		)	—			(2,573		)
Gain (loss) on derivative instruments	6,291			(7,481		)	13,772			28,797			(17,916		)	46,713
Net income	$	62,217		$	68,356		$	(6,139	)	$	166,996		$	151,714		$	15,282

Net Interest Income

Net interest income increased by $6.2 million and $20.2 million during the three and nine months endedSeptember 30, 2018, respectively, as compared to the same periods in 2017. The increase was primarily due to (i) a net increase in the principal balance of our loan portfolio, by $1.3 billion, partially offset by a decrease in the principal balance of our securities by $222.5 million, and (ii) a 0.92% and 0.90% increase in average one-month LIBOR for the three and nine months endedSeptember 30, 2018 compared to September 30, 2017, respectively. This was offset by (i) an increase in interest expense due to an increase in our net debt balance of $620.3 million as of September 30, 2018 compared to September 30, 2017, and (ii) the increase in average one-month LIBOR discussed above.

We recognized pre-payment penalties and accelerated fees of $0.2 million and $1.8 million for the three and nine months endedSeptember 30, 2018 and $3.6 million and $4.0 million for the three and nine months endedSeptember 30, 2017.

Operating Expenses

General and administrative expenses

General and administrative expenses increased by $1.2 million for the three months endedSeptember 30, 2018 compared to the same period in 2017. The increase was primarily driven by an increase of $1.4 million of non-cash restricted stock and RSU amortization related to shares of common stock awarded under our long-term incentive plan offset by a $0.2 million decrease in general operating expenses.

General and administrative expenses increased by $0.9 million for the nine months endedSeptember 30, 2018 compared to the same period in 2017. The increase was primarily driven by an increase of $1.5 million of non-cash restricted stock and RSU amortization related to shares of common stock awarded under our long-term incentive plan offset by a $0.6 million decrease in general operating expenses.

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Management fees to related party

Management fee expense increased by $1.2 million and $3.1 million during the three and nine months endedSeptember 30, 2018, respectively, as compared to the same periods in 2017. The increase is primarily attributable to an increase in our stockholders’ equity (as defined in the Management Agreement) as a result of us completing follow-on public offerings of 13,800,000 and 15,525,000 shares of our common stock in June 2017 and March 2018, respectively. Additionally, during the three months ended September 30, 2018 we issued 10,744,577 shares of our common stock related to exchanges and conversions of the 2019 Notes, which are described in "Note 9 - Convertible Senior Notes, Net." This increase was partially offset due to the redemption of our 8.625% Series A Cumulative Redeemable Perpetual Preferred Stock ("Series A Preferred Stock") in August 2017.

Management fees and the relationship between us and the Manager under the Management Agreement are discussed further in the accompanying condensed consolidated financial statements, in “Note 12—Related Party Transactions.”

Income from unconsolidated joint venture

Income from unconsolidated joint ventures consists of activity related to our ownership interest in Champ LP. In September 2014, through a wholly owned subsidiary, we acquired a 59% ownership interest in Champ LP following which a wholly-owned subsidiary of Champ LP then acquired a 35% ownership interest in BKB. In May 2017, we sold our remaining ownership interest in Champ LP, to unaffiliated third parties. As such, in 2018 we no longer held any interest in Champ LP.

Net unrealized and realized gain (loss) on sale of assets

During the three and nine months endedSeptember 30, 2017, we sold securities resulting in a net realized loss of $4.1 and$5.1 million, respectively. We have not held any securities since December 2017.

Foreign currency gain and (loss) on derivative instruments

We use forward currency contracts to economically hedge interest and principal payments due under our loans denominated in currencies other than U.S. dollars. We also use interest rate swaps and caps to manage exposure to variable cash flows on portions of our borrowings under secured debt arrangements. Interest rate swap and cap agreements allow us to receive a variable rate cash flow based on LIBOR and pay a fixed rate cash flow, mitigating the impact of this exposure. When foreign currency gain and (loss) on derivative instruments are evaluated on a combined basis, the net impact for the three and nine months endedSeptember 30, 2018 were $2.2 million and $5.2 million, respectively, and the net impact for the three and nine months endedSeptember 30, 2017 were $0.3 million and $(0.1) million, respectively.

Dividends

We have declared the following dividends in 2018:

	Three months ended
Dividends declared per share of:	September 30, 2018		June 30, 2018		March 31, 2018
Common Stock	$	0.46	$	0.46	$	0.46
Series B Preferred Stock	0.50		0.50		0.50
Series C Preferred Stock	0.50		0.50		0.50

Subsequent Events

Refer to "Note 18 - Subsequent Events" to the unaudited condensed consolidated financial statements for disclosure regarding significant transactions that occurred subsequent to September 30, 2018.

Liquidity and Capital Resources

Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain our assets and operations, make distributions to our stockholders and other general business needs. Our cash is used to purchase or originate target assets, repay principal and interest on borrowings, make distributions to stockholders and fund operations. We closely monitor our liquidity position and we believe we have sufficient current liquidity and access to additional liquidity to meet financial obligations for at least the next 12 months.

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Debt-to-Common Equity Ratio

The following table presents our debt-to-common equity ratio:

	September 30, 2018	December 31, 2017
Debt-to-Common Equity Ratio (1)	1.0x	0.9x

———————

(1) Represents total secured debt arrangements and convertible senior notes, less cash and loan proceeds held by servicer to common equity.

Our primary sources of liquidity are as follows:

Cash Generated from Operations

Cash from operations is generally comprised of interest income from our investments, net of any associated financing expense, principal repayments from our investments, net of associated financing repayments, proceeds from the sale of investments, and changes in working capital balances. See “Results of Operations – Investments" above for a summary of interest rates related to our investment portfolio as of September 30, 2018.

Borrowings Under Various Financing Arrangements

JPMorgan Facility

In May 2017, through two indirect wholly-owned subsidiaries, we entered into the JPMorgan Facility, which provides for maximum total borrowing capacity of $1.4 billion, comprised of a $1.25 billion repurchase facility and a $132.0 million asset specific financing and enables us to elect to receive advances in either U.S. dollars, British pounds, or Euros. The repurchase facility matures in June 2020, plus a one-year extension available at our option, subject to certain conditions. The asset specific financing matures in February 2019. Margin calls may occur any time at specified aggregate margin deficit thresholds. We have agreed to provide a limited guarantee of the obligations of our indirect wholly-owned subsidiaries under the JPMorgan Facility.

As of September 30, 2018, we had $1.0 billion (including £38.0 million assuming conversion into U.S. dollars) of borrowings outstanding under the JPMorgan Facility secured by certain of our commercial mortgage loans.

DB Repurchase Facility

In April 2018, through an indirect wholly-owned subsidiary, we entered into the DB Repurchase Facility, which was upsized in September 2018, and provides for advances of up to $1.0 billion for the sale and repurchase of eligible first mortgage loans secured by commercial or multifamily properties located in the United States, United Kingdom and the European Union, and enables us to elect to receive advances in either U.S. dollars, British pounds, or Euros. Additionally, we have a $55.0 million of asset specific financing with Deutsche Bank in connection with financing a first mortgage loan secured by real estate. The repurchase facility matures in March 2020, plus a one-year extension available at our option, subject to certain conditions. The asset specific financing matures in August 2019. Margin calls may occur any time at specified aggregate margin deficit thresholds. We have agreed to provide a limited guarantee of the obligations of our indirect wholly-owned subsidiaries under this facility.

As of September 30, 2018, we had $543.6 million (including £118.3 million assuming conversion into U.S. dollars) of borrowings outstanding under the DB Repurchase Facility secured by certain of our commercial mortgage loans.

Goldman Facility

In November 2017, through an indirect wholly-owned subsidiary, we entered into the Goldman Facility, which provides for advances of up to $300.0 million and matures in November 2019, plus a one-year extension available at our option, subject to certain conditions. Margin calls may occur any time at specified margin deficit thresholds. We have agreed to provide a limited guarantee of the obligations of the seller under the Goldman Facility.

As of September 30, 2018, we had total borrowings of $206.0 million of borrowings outstanding under the Goldman Facility.

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CS Facility - USD

In July 2018, through an indirect wholly-owned subsidiary, we entered into the CS Facility - USD, which provides for advances for the sale and repurchase of eligible commercial mortgage loans secured by real estate. The CS Facility - USD matures six months after either party notifies the other party of intention to terminate. Margin calls may occur any time at specified aggregate margin deficit thresholds. We have agreed to provide a guarantee of the obligations of our indirect wholly-owned subsidiaries under this facility.

As of September 30, 2018, we had total borrowings of $69.9 million of borrowings outstanding under the CS Facility - USD secured by one of our commercial mortgage loans.

CS Facility - GBP

In June 2018, through an indirect wholly-owned subsidiary, we entered into the CS Facility - GBP, which provides for advances for the sale and repurchase of eligible commercial mortgage loans secured by real estate. The CS Facility - GBP matures six months after either party notifies the other party of intention to terminate. Margin calls may occur any time at specified aggregate margin deficit thresholds. We have agreed to provide a guarantee of the obligations of our indirect wholly-owned subsidiaries under this facility.

As of September 30, 2018, we had total borrowings of $144.0 million (£110.5 million assuming conversion into U.S. dollars) of borrowings outstanding under the CS Facility - GBP secured by one of our commercial mortgage loans.

HSBC Facility

In September 2018, through an indirect wholly-owned subsidiary, we entered into the HSBC Facility, which provides for a single asset financing. The facility matures in September 2019 and unless terminated by either party, automatically extends for further periods prior to maturity. Margin calls may occur any time at specified aggregate margin deficit thresholds. We have agreed to provide a guarantee of the obligations of our indirect wholly-owned subsidiaries under this facility.

As of September 30, 2018, we had total borrowings of $49.9 million (£38.3 million assuming conversion into U.S. dollars) of borrowings outstanding under the HSBC Facility secured by one of our commercial mortgage loans.

Convertible Senior Notes

In two separate offerings during 2014, we issued an aggregate principal amount of $254.8 million of the 2019 Notes, for which we received aggregate net proceeds of approximately $248.6 million, after deducting the underwriting discount and estimated offering expenses payable by us.

During the three months ended September 30, 2018, we exchanged or converted $218.8 million in aggregate principal of the 2019 Notes as follows:

(i) on August 2, 2018, we entered into privately negotiated exchange agreements with a limited number of holders of the 2019 Notes pursuant to which we exchanged $206.2 million of the 2019 Notes for an aggregate of (a) 10,020,328 newly issued shares of our common stock, and (b) $39.3 million in cash. We recorded $166.0 million of additional paid-in-capital in the condensed consolidated statement of changes in stockholders' equity in connection with these transactions,

(ii) certain holders elected to convert $12.6 million of the 2019 Notes through multiple transactions for an aggregate of (a) 724,250 newly issued shares of our common stock, and (b) $0.2 million in cash. We recorded $12.4 million of additional paid-in-capital in the condensed consolidated statement of changes in stockholders' equity in connection with these transactions.

During the three and nine months ended September 30, 2018, in connection with the exchanges and conversions of the 2019 Notes, we recorded a loss on early extinguishment of debt of $2.6 million, which includes fees and accelerated amortization of capitalized costs. There was no such loss during the three and nine months ended September 30, 2017.

At September 30, 2018, the outstanding 2019 Notes had a carrying value of $35.5 million and an unamortized discount of $0.5 million.

In two separate offerings during 2017, we issued an aggregate principal amount of $345.0 million of the 2022 Notes, for which we received aggregate net proceeds of approximately $337.5 million, after deducting the underwriting discount and estimated offering expenses.At September 30, 2018, the 2022 Notes had a carrying value of $334.7 million and an unamortized

34

discount of $10.3 million.

Cash Generated from Offerings

During the first quarter of 2018, we completed a follow-on public offering of 15,525,000 shares of our common stock, at a price of $17.77 per share. The aggregate net proceeds from the offering, including proceeds from the sale of the additional shares, were approximately $275.9 million after deducting the underwriting discount and estimated offering expenses.

Other Potential Sources of Financing

Our primary sources of cash currently consist of cash available, which was $99.2 million as of September 30, 2018, principal and interest payments we receive on our portfolio of assets, and available borrowings under our secured debt arrangements. We expect our other sources of cash to consist of cash generated from operations and prepayments of principal received on our portfolio of assets. Such prepayments are difficult to estimate in advance. Depending on market conditions, we may utilize additional borrowings as a source of cash, which may also include additional secured debt arrangements as well as other borrowings such as credit facilities, or conduct additional public and private debt and equity offerings.

We maintains policies relating to our borrowings and use of leverage. See “Leverage Policies” below. In the future, we may seek to raise further equity or debt capital or engage in other forms of borrowings in order to fund future investments or to refinance expiring indebtedness.

We generally intend to hold our target assets as long-term investments, although we may sell certain of our investments in order to manage our interest rate risk and liquidity needs, meet other operating objectives and adapt to market conditions.

To maintain our qualification as a REIT under the Internal Revenue Code, we must distribute annually at least 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gain. These distribution requirements limit our ability to retain earnings and thereby replenish or increase capital for operations.

Leverage Policies

We use leverage for the sole purpose of financing our portfolio and not for the purpose of speculating on changes in interest rates. In addition to our secured debt arrangements, in the future we may access additional sources of borrowings. Our charter and bylaws do not limit the amount of indebtedness we can incur; however, we are limited by certain financial covenants under our secured debt arrangements. Consistent with our strategy of keeping leverage within a prudent range, we expect to, depending upon the composition of our portfolio, maintain our debt-to-common equity ratio at less than 2.0x.

Investment Guidelines

Our current investment guidelines, approved by our board of directors, are comprised of the following:

• no investment will be made that would cause us to fail to qualify as a REIT for U.S. federal income tax purposes;

• no investment will be made that would cause us to register as an investment company under the 1940 Act;

• investments will be predominantly in our target assets;

• no more than 20% of our cash equity (on a consolidated basis) will be invested in any single investment at the time of the investment; and

• until appropriate investments can be identified, the Manager may invest the proceeds of any offering in interest bearing, short-term investments, including money market accounts and/or funds, that are consistent with our intention to qualify as a REIT.

The board of directors must approve any change in these investment guidelines.

Contractual Obligations and Commitments

Our contractual obligations including expected interest payments as of September 30, 2018 are summarized as follows ($ in thousands):

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	Less than 1 year (3)		1 to 3 years (3)		3 to 5 years (3)		More than 5 years (3)		Total
JPMorgan Facility (1)	373,551		708,557		$	—	$	—	$	1,082,108
DB Repurchase Facility (1)	197,556		388,886		—		—		586,442
Goldman Facility (1)	9,739		217,348		—		—		227,087
CS Facility - USD (1)	71,536		—		—		—		71,536
CS Facility - GBP (1)	146,068		—		—		—		146,068
HSBC Facility (1)	50,233		—						50,233
Convertible Senior Notes	53,225		32,775		359,809		—		445,809
Unfunded loan commitments (2)	381,500		474,908		27,770		—		884,178
Total	$	1,283,408	$	1,822,474	$	387,579	$	—	$	3,493,461

———————

(1) Based on the applicable benchmark rates as of September 30, 2018 on the floating rate debt for interest payments due.

(2) Based on our expected funding schedule, which is based upon the Manager’s estimates based upon the best information available to the Manager at the time. There is no assurance that the payments will occur in accordance with these estimates or at all, which could affect our operating results.

(3) Assumes underlying assets are financed through the fully extended maturity date of the facility.

Loan Commitments.    As of September 30, 2018, we had $884.2 million of unfunded loan commitments, comprised of $783.5 million related to our commercial mortgage loan portfolio, and $100.7 million related to our subordinate loan portfolio.

Management Agreement. On September 23, 2009, we entered into the Management Agreement with the Manager pursuant to which the Manager is entitled to receive a management fee and the reimbursement of certain expenses. The table above does not include amounts due under the Management Agreement as those obligations do not have fixed and determinable payments. Pursuant to the Management Agreement, the Manager is entitled to a base management fee calculated and payable quarterly in arrears in an amount equal to 1.5% of our stockholders’ equity (as defined in the Management Agreement), per annum. The Manager will use the proceeds from its management fee in part to pay compensation to its officers and personnel. We do not reimburse the Manager or its affiliates for the salaries and other compensation of their personnel, except for the allocable share of the compensation of (1) our Chief Financial Officer based on the percentage of time spent on our affairs and (2) other corporate finance, tax, accounting, internal audit, legal, risk management, operations, compliance and other non-investment professional personnel of the Manager or its affiliates who spend all or a portion of their time managing our affairs based on the percentage of time devoted by such personnel to our affairs. We are also required to reimburse the Manager for operating expenses related to us incurred by the Manager, including expenses relating to legal, accounting, due diligence and other services. Expense reimbursements to the Manager are made in cash on a monthly basis following the end of each month. Our reimbursement obligation is not subject to any dollar limitation.

The current term of the Management Agreement currently runs through September 29, 2019. Absent certain action by the independent directors of our board of directors, as described below, the Management Agreement will automatically renew on each anniversary for a one-year term. The Management Agreement may be terminated upon expiration of the one-year 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 us 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. Amounts payable under the Management Agreement are not fixed and determinable. Following a meeting by our independent directors in February 2018, which included a discussion of the Manager’s performance and the level of the management fees thereunder, we determined not to terminate the Management Agreement.

Off-balance Sheet Arrangements

We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured investment vehicles, or special purpose or variable interest entities, established to facilitate off-balance sheet arrangements or other contractually narrow or limited purposes. Further, we have not guaranteed any obligations of unconsolidated entities or entered into any commitment to provide additional funding to any such entities.

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Dividends

We intend to continue to make regular quarterly distributions to holders of our common stock. U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of our REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains, and that we pay tax at regular corporate rates to the extent that we annually distributes less than 100% of our net taxable income. We generally intend over time to pay dividends to our stockholders in an amount equal to our net taxable income, if and to the extent authorized by our board of directors. Any distributions we make are at the discretion of our board of directors and depend upon, among other things, our actual results of operations. These results and our ability to pay distributions are affected by various factors, including the net interest and other income from our portfolio, our operating expenses and any other expenditures. If our cash available for distribution is less than our net taxable income, we could be required to sell assets or borrow funds to make cash distributions or we may make a portion of the required distribution in the form of a taxable stock distribution or distribution of debt securities.

As of September 30, 2018, we had 6,770,393 shares of Series B Preferred Stock outstanding, which entitles holders to receive dividends that are payable quarterly in arrears. The Series B Preferred Stock pay cumulative cash dividends: (i) from, and including, the original date of issuance of the Series B Preferred Stock to, but excluding, September 20, 2020, at an initial rate of 8.00% per annum of the $25.00 per share liquidation preference; and (ii) from, and including, September 20, 2020, at the rate per annum equal to the greater of (a) 8.00% and (b) a floating rate equal to the 3-month LIBOR rate as calculated on each applicable date of determination plus 6.46% of the $25.00 liquidation preference. Except under certain limited circumstances, the Series B Preferred Stock is generally not convertible into or exchangeable for any other property or any other securities of the Company at the election of the holders. On or after September 21, 2020, we may, at our option, redeem the shares at a redemption price of $25.00, plus any accrued unpaid distribution through the date of the redemption.

As of September 30, 2018, we had 6,900,000 shares of Series C Preferred Stock outstanding, which entitles holders to receive dividends that are payable quarterly in arrears. The Series C Preferred Stock pay cumulative cash dividends at the rate of 8.00% per annum of the $25.00 per share liquidation preference (equivalent to $2.00 per annum per share) from, and including July 29, 2016 (the “Series C Initial Dividend Date”) and are payable quarterly in equal amounts in arrears on the last day of each April, July, October and January, at the then applicable annual rate. Except under certain limited circumstances, the Series C Preferred Stock is generally not convertible into or exchangeable for any other property or any other securities of the Company at the election of the holders. We may, at our option, redeem the shares at a redemption price of $25.00, plus any accrued unpaid distribution through the date of the redemption.

Non-GAAP Financial Measures

Operating Earnings

For the three and nine months endedSeptember 30, 2018, our Operating Earnings were $58.3 million, or $0.45 per share, and $161.0 million, or $1.31 per share, respectively. For the three and nine months endedSeptember 30, 2017, our Operating Earnings were $49.8 million, or $0.47 per share and $133.0 million, or $1.34 per share. Operating Earnings is a non-GAAP financial measure that we define as net income available to common stockholders, computed in accordance with GAAP, adjusted for (i) equity-based compensation expense (a portion of which may become cash-based upon final vesting and settlement of awards should the holder elect net share settlement to satisfy income tax withholding), (ii) any unrealized gains or losses or other non-cash items included in net income available to common stockholders, (iii) unrealized income from unconsolidated joint ventures, (iv) foreign currency gains (losses) other than realized gains/(losses) related to interest income, (v) the non-cash amortization expense related to the reclassification of a portion of the convertible senior notes to stockholders’ equity in accordance with GAAP, and (vi) provision for loan losses and impairments. Beginning with the quarter ended September 30, 2016, we slightly modified our definition of Operating Earnings to include realized gains (losses) on currency swaps related to interest income on investments denominated in a currency other than U.S. dollars. Operating Earnings may also be adjusted to exclude certain other non-cash items, as determined by the Manager and approved by a majority of our independent directors.

The weighted average diluted shares outstanding used for Operating Earnings has been adjusted from weighted average diluted shares under GAAP to exclude shares issued from a potential conversion of the Notes. Consistent with the treatment of other unrealized adjustments to Operating Earnings, these potentially issuable shares are excluded until a conversion occurs, which we believe is a useful presentation for investors ($ in thousands, except Price).

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	For the three months ended September 30, 2018					For the nine months ended September 30, 2018
Weighted Averages	Face		Price	Shares		Face		Price	Shares
Weighted average diluted shares - GAAP				153,918,435					150,424,889
2019 Notes (1)	$	127,925	$17.28	(7,402,122	)	$	121,010	$17.34	(12,220,679	)
2022 Notes	$	345,000	$19.91	(17,327,970	)	$	345,000	$19.91	(17,327,970	)
Unvested RSUs	—		—	1,593,070					1,617,398
Weighted average diluted shares - Operating Earnings				130,781,413					122,493,638

———————

(1) Face and Price represents the weighted average balances during the period.

Computation of Share Count for Operating Earnings
	Three months ended September 30,		Nine months ended September 30,
	2018	2017	2018	2017
Basic weighted average shares of common stock outstanding	129,188,343	105,446,704	120,876,240	97,546,437
Weighted average unvested RSUs	1,593,070	1,366,017	1,617,398	1,373,252
Weighted average diluted shares - Operating Earnings	130,781,413	106,812,721	122,493,638	98,919,689

In order to evaluate the effective yield of the portfolio, we use Operating Earnings to reflect the net investment income of our portfolio as adjusted to include the net interest expense related to our derivative instruments. Operating Earnings allows us to isolate the net interest expense associated with our swaps in order to monitor and project our full cost of borrowings. We also believe that our investors use Operating Earnings, or a comparable supplemental performance measure, to evaluate and compare the performance of our company and our peers and, as such, we believe that the disclosure of Operating Earnings is useful to our investors. In addition, we have previously disclosed that we have disposed of all of our CMBS as of December 31, 2017 and, as discussed in "Note 9 - Convertible Senior Notes, Net," we recorded a loss on early extinguishment of debt associated with exchanges and conversions of the 2019 Notes. Accordingly, we have disclosed Operating Earnings excluding realized loss and costs from sale of CMBS and loss on early extinguishment of debt because we believe it is useful to investors to present the results of our ongoing operations while excluding the effects associated with the disposal of our CMBS and the loss on early extinguishment of debt, which are non-recurring events and not reflective of our ongoing operations.

A significant limitation associated with Operating Earnings as a measure of our financial performance over any period is that it excludes unrealized gains (losses) from investments. In addition, our presentation of Operating Earnings may not be comparable to similarly-titled measures of other companies, who may use different calculations. As a result, Operating Earnings should not be considered as a substitute for our GAAP net income as a measure of our financial performance or any measure of our liquidity under GAAP.

The table below summarizes the reconciliation from net income available to common stockholders to Operating Earnings ($ in thousands):

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	For the three months ended September 30,						For the nine months ended September 30,
	2018			2017			2018			2017
Net income available to common stockholders	$	55,381		$	57,208		$	146,491		$	121,946
Adjustments:
Equity-based compensation expense	4,048			2,635			11,404			9,887
Unrealized gain on securities	—			(13,488		)	—			(11,830		)
(Gain) loss on derivative instruments	(6,291		)	7,481			(28,798		)	17,916
Foreign currency (gain) loss, net	4,471			(7,850		)	23,906			(18,135		)
Amortization of the convertible senior notes related to equity reclassification	728			769			3,024			1,995
Loss from unconsolidated joint venture	—			—			—			2,847
Provision for loan losses and impairments	—			—			5,000			5,000
Series A preferred stock redemption charge				3,016						3,016
Realized gain from unconsolidated joint venture	—			—			—			346
Total adjustments:	2,956			(7,437		)	14,536			11,042
Operating Earnings	$	58,337		$	49,771		$	161,027		$	132,988
Realized loss and costs from sale of CMBS	—			4,076			—			5,118
Loss on early extinguishment of debt	2,573			—			2,573			—
Operating Earnings excluding realized loss and costs from sale of CMBS and loss on early extinguishment of debt	60,910			53,847			163,600			138,106
Basic and diluted Operating Earnings per share of common stock	$	0.45		$	0.47		$	1.31		$	1.34
Basic and diluted Operating Earnings excluding realized loss and costs from sale of CMBS and loss on early extinguishment of debt per share of common stock	$	0.47		$	0.51		$	1.34		$	1.40
Basic weighted average shares of common stock outstanding	129,188,343			105,446,704			120,876,240			97,546,437
Weighted average diluted shares - Operating Earnings	130,781,413			106,812,721			122,493,638			98,919,689

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

We seek to manage our risks related to the credit quality of our assets, interest rates, liquidity, prepayment speeds and market value, while, at the same time, seeking to provide an opportunity to stockholders to realize attractive risk-adjusted returns through ownership of our capital stock. While risks are inherent in any business enterprise, we seek to quantify and justify risks in light of available returns and to maintain capital levels consistent with the risks we undertake.

Credit Risk

One of our strategic focuses is acquiring assets that we believe to be of high credit quality. We believe this strategy will generally keep our credit losses and financing costs low. However, we are subject to varying degrees of credit risk in connection with our other target assets. We seek to mitigate this risk by seeking to acquire high quality assets, at appropriate prices given anticipated and unanticipated losses, and by deploying a value-driven approach to underwriting and diligence, consistent with the Manager’s historical investment strategy, with a focus on current cash flows and potential risks to cash flow. The Manager seeks to enhance its due diligence and underwriting efforts by accessing the Manager’s knowledge base and industry contacts. Nevertheless, unanticipated credit losses could occur, which could adversely impact our operating results.

Interest Rate Risk

Interest rates are highly sensitive to many factors, including fiscal and monetary policies and domestic and international economic and political considerations, as well as other factors beyond our control. We are subject to interest rate risk in connection with our target assets and our related financing obligations.

To the extent consistent with maintaining our REIT qualification, we seek to manage risk exposure to protect our portfolio of financial assets against the effects of major interest rate changes. We generally seek to manage this risk by:

• attempting to structure our financing agreements to have a range of different maturities, terms, amortizations and interest rate adjustment periods;

• using hedging instruments, interest rate swaps and interest rate caps; and

• to the extent available, using securitization financing to better match the maturity of our financing with the duration of our assets.

The following table projects the impact on our net interest income for the twelve-month period following September 30, 2018, assuming an immediate increase of 50 basis points in the applicable interest rate benchmark by currency ($ in thousands):

			50 basis point increase
Currency	Net floating rate assets subject to interest rate sensitivity		Increase to net interest income (1)		Increase to net interest income (per Share) (1)
USD	$	2,026,142	$	10,131	$	0.08
GBP	314,090		1,570		0.01
EUR	48,253		241		—
Total:	$	2,388,485	$	11,942	$	0.09

———————

(1) Any such hypothetical impact on interest rates on our variable rate borrowings does not consider the effect of any change in overall economic activity that could occur in a rising interest rate environment. Further, in the event of a change in interest rates of that magnitude, we may take actions to further mitigate our exposure to such a change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, this analysis assumes no changes in our financial structure.

Prepayment Risk

Prepayment risk is the risk that principal will be repaid at a different rate than anticipated, causing the return on an asset to be less than expected. In certain cases, we adapt to prepayment risk by stating prepayment penalties in loan agreements.

Market Risk

Commercial mortgage assets are subject to volatility and may be affected adversely by a number of factors, including, but not limited to, national, regional and local economic conditions (which may be adversely affected by industry slowdowns and

40

other factors); local real estate conditions; changes or continued weakness in specific industry segments; construction quality, age and design; demographic factors; and retroactive changes to building or similar codes. In addition, decreases in property values reduce the value of the collateral and the potential proceeds available to a borrower to repay the underlying loans or loans, as the case may be, which could also cause us to suffer losses.

Inflation

Virtually all of our assets and liabilities are interest rate sensitive in nature. As a result, interest rates and other factors influence our performance far more so than does inflation. Changes in interest rates do not necessarily correlate with inflation rates or changes in inflation rates. Our financial statements are prepared in accordance with GAAP and distributions are determined by our board of directors consistent with our obligation to distribute to our stockholders at least 90% of our REIT taxable income, excluding net capital gains and determined without regard to the dividends paid deduction, on an annual basis in order to maintain our REIT qualification. In each case, our activities and balance sheet are measured with reference to historical cost and/or fair market value without considering inflation.

41

Item 4. Controls and Procedures.

Our Chief Executive Officer and Chief Financial Officer, based on their evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) required by paragraph (b) of Rule 13a-15 or Rule 15d-15, have concluded that as of the end of the period covered by this report, our disclosure controls and procedures were effective to give reasonable assurances to the timely collection, evaluation and disclosure of information relating to ARI that would potentially be subject to disclosure under the Exchange Act, and the rules and regulations promulgated thereunder.

During the period ended September 30, 2018, there was no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within ARI to disclose material information otherwise required to be set forth in our periodic reports.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may be involved in various claims and legal actions arising in the ordinary course of business. On June 28, 2018, AmBase Corporation, 111 West 57th Street Manager Funding LLC and 111 West 57th Investment LLC commenced an action captioned AmBase Corporation et al v. ACREFI Mortgage Lending, LLC et al (No. 653251/2018) in New York Supreme Court.  The complaint names as defendants (i) ACREFI Mortgage Lending, LLC, a subsidiary of the Company, (ii) the Company, and (iii) certain funds managed by Apollo, who are co-lenders on a mezzanine loan against the development of a residential condominium building in Manhattan, New York. The plaintiffs allege that the defendants tortiously interfered with the contractual equity put right in 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 allege the loss of a $70.0 million investment as part of total damages of $700.0 million, which includes punitive damages. The defendants moved to dismiss the complaint on August 17, 2018, and the motion was fully briefed in October 2018. Oral argument is scheduled for February 2019.  We believe the claims are without merit and plan to vigorously defend the case.

On January 4, 2017, the United States Department of Justice served a Request for Information and Documents (the

“Request”) on the Company, in connection with a preliminary investigation into certain aspects of our former residential real estate portfolio, which we acquired in connection with the merger of Apollo Residential Mortgage, Inc. with and into the Company and subsequently sold in 2016. The Request sought a range of information in connection with the residential real estate portfolio, including, among other things, information concerning policies, procedures, and practices related to advertising, marketing, identifying, or acquiring residential properties for sale or rent, and various data for all rental and sales contracts executed since January 1, 2012. We fully cooperated with the Department of Justice, and were advised, by a letter dated May 2, 2018, that the Department of Justice did not intend to take any further actions in this matter as it relates to us.

Item 1A. Risk Factors

See our Annual Report on Form 10-K for the year ended December 31, 2017. There have been no material changes to our risk factors during the nine months endedSeptember 30, 2018.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

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Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

None.

Item 6. Exhibits

3.1	Articles of Amendment and Restatement of Apollo Commercial Real Estate Finance, Inc., incorporated by reference to Exhibit 3.1 of the Registrant’s Form S-11, as amended (Registration No. 333-160533).
3.2	Articles Supplementary designating Apollo Commercial Real Estate Finance, Inc.’s 8.00% Fixed-to-Floating Series B Cumulative Redeemable Perpetual Preferred Stock, liquidation preference $25.00 per share, par value $0.01 per share, incorporated by reference to Exhibit 3.1 of the Registrant’s Form 8-K filed on September 23, 2015 (File No.: 001-34452).
3.3	Articles Supplementary designating Apollo Commercial Real Estate Finance, Inc.’s 8.00% Series C Cumulative Redeemable Perpetual Preferred Stock, liquidation preference $25.00 per share, par value $0.01 per share, incorporated by reference to Exhibit 3.1 of the Registrant’s Form 8-K filed on September 1, 2016 (File No.: 001-34452).
3.4	By-laws of Apollo Commercial Real Estate Finance, Inc., incorporated by reference to Exhibit 3.2 of the Registrant’s Form S-4 (Registration No. 333-210632).
4.1	Specimen Stock Certificate of Apollo Commercial Real Estate Finance, Inc., incorporated by reference to Exhibit 4.1 of the Registrant’s Form S-11, as amended (Registration No. 333-160533).
4.2	Specimen Stock Certificate of Apollo Commercial Real Estate Finance, Inc.’s 8.00% Fixed-to-Floating Series B Cumulative Redeemable Perpetual Preferred Stock, liquidation preference $25.00 per share, par value $0.01 per share, incorporated by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K filed on September 23, 2015.
4.3	Form of stock certificate evidencing the 8.00% Series C Cumulative Redeemable Perpetual Preferred Stock, liquidation preference $25.00 per share, par value $0.01 per share, incorporated by reference to Exhibit 4.1 of the Registrant’s Form 8-A filed on August 26, 2016 (File No.: 001-34452).
4.4	Indenture, dated as of March 17, 2014, between the Registrant and Wells Fargo Bank, National Association, as Trustee, incorporated by reference to Exhibit 4.1 of the Registrant’s Form 8-K filed on March 21, 2014 (File No.: 001-34452).
4.5	First Supplemental Indenture, dated as of March 17, 2014, between the Registrant and Wells Fargo Bank, National Association, as Trustee (including the form of 5.50% Convertible Senior Note due 2019), incorporated by reference to Exhibit 4.2 of the Registrant’s Form 8-K filed on March 21, 2014 (File No.: 001-34452).
4.6	Second Supplemental Indenture, dated as of August 21, 2017, between the Registrant and Wells Fargo Bank, National Association, as Trustee (including the form of 4.75% Convertible Senior Note due 2022), incorporated by reference to Exhibit 4.2 of the Registrant’s Form 8-K filed on August 21, 2017 (File No.: 001-34452).
4.7	Third Supplemental Indenture, dated as of October 5, 2018 between the Registrant and Wells Fargo Bank, National Association, as Trustee (including the form of 5.375% Convertible Senior Notes due 2023), incorporated by reference to Exhibit 4.2 of the Registrant's Form 8-K filed on October 5, 2018 (File No.: 001-34452).
10.1*	Form of Exchange Agreement, dated August 2, 2018.
31.1*	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

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31.2*	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of 18 U.S.C. Section 1350 as adopted pursuant to the Sarbanes-Oxley Act of 2002.
101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase
101.DEF*	XBRL Taxonomy Extension Definition Linkbase
101.LAB*	XBRL Taxonomy Extension Label Linkbase
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase

* Filed herewith.

44

SIGNATURES

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

		APOLLO COMMERCIAL REAL ESTATE FINANCE, INC.
October 24, 2018
	By:	/s/ Stuart A. Rothstein
		Stuart A. Rothstein
		President and Chief Executive Officer
		(Principal Executive Officer)
	By:	/s/ Jai Agarwal
		Jai Agarwal
		Chief Financial Officer, Treasurer and Secretary
		(Principal Financial Officer and Principal Accounting Officer)

45

EX-10.1

Exhibit 10.1

FORM OF

EXCHANGE AGREEMENT

[__] (the “Undersigned”), for itself and on behalf of the beneficial owners listed on Exhibit A hereto (“Accounts”) for whom the Undersigned holds contractual and investment authority (each Account, as well as the Undersigned if it is exchanging Existing Notes (as defined below) hereunder, a “Holder”), enters into this Exchange Agreement (the “Agreement”) with Apollo Commercial Real Estate Finance, Inc., a Maryland corporation (the “Company”), on August 2, 2018 pursuant to which the Holders will exchange (the “Exchange”) the Company’s 5.50% Convertible Senior Notes due 2019 (the “Existing Notes”) for the Exchange Consideration (as defined below). The Existing Notes to be exchanged by the Holder in the Exchange are referred to herein as the “Exchanged Notes”.

On and subject to the terms and conditions set forth in this Agreement, the parties hereto agree as follows:

Article I.    Exchange of the Existing Notes for the Exchange Consideration

At the Closing (as defined below), the Undersigned agrees to cause the Holders to exchange and deliver to the Company the Exchanged Notes set forth on Exhibit A hereto, and in exchange therefor the Company agrees to pay or deliver, as applicable, to the Holders, in the aggregate, the sum of:

(a) [___] shares of common stock, par value $0.01 per share, of the Company (the “Common Stock”) in the amounts set forth for each individual Holder on Exhibit A hereto (the “Exchange Shares”); plus

(b) an amount in cash equal to $[___] plus accrued and unpaid interest to, but excluding, the Closing Date (as defined below), together with cash in lieu of any fractional share of Common Stock, in the amounts set forth for each individual Holder on Exhibit A hereto (the “Total Cash Amount” and, together with the Exchange Shares, the “Exchange Consideration”).

The closing of the Exchange (the “Closing”) shall take place at the offices of Clifford Chance US LLP at 10:00 A.M. (New York City time) on August 7, 2018, or at such other time and place as the Company and the Undersigned may mutually agree in writing (the “Closing Date”), subject to the exceptions set forth below. At the Closing, (a) the Holder shall deliver or cause to be delivered to the Company all right, title and interest in and to its Exchanged Notes (and no other consideration) free and clear of any mortgage, lien, pledge, charge, security interest, encumbrance, title retention agreement, option, equity or other adverse claim thereto (collectively, “Liens”), together with any documents of conveyance or transfer required by the Company or Wells Fargo Bank, National Association, as trustee of the Existing Notes (the “Trustee”) to transfer to and confirm all right, title and interest in and to the Exchanged Notes free and clear of any Liens, and (b) the Company shall deliver to each Holder (or, if there are no Accounts, to the Undersigned as the sole Holder) the Exchange Consideration. Delivery of such Exchanged Notes as provided above will be made by each Holder by posting, at or before 10:00 A.M. (New York City time) on the Closing Date, a withdrawal request for such Exchanged Notes through the Deposit or Withdrawal at Custodian (“DWAC”) settlement system of the Depository Trust Company (“DTC”) (it being understood that posting such request on any date before the Closing Date will result in such request expiring unaccepted at the close of business on such date, and such Holder will need to repost such withdrawal request on the Closing Date). The Company will deliver such Exchange Shares, identified by an unrestricted CUSIP number, to the DTC participant identified in Exhibit A hereto, on behalf of each Holder, through the facilities of DTC free and clear of all Liens.

Article II.Covenants, Representations and Warranties of the Holders

Each Holder (and, where specified below, the Undersigned) covenants (solely as to itself), as follows, and makes the following representations and warranties (solely as to itself), each of which is and shall be true and correct on the date hereof and at the Closing, to the Company and J.P. Morgan Securities LLC (the “Agent”), and all such covenants, representations and warranties shall survive the Closing.

Section 2.1Power and Authorization. The Holder is duly organized, validly existing and in good standing under the laws of its state of formation, and has the power, authority and capacity to execute and deliver this Agreement, to perform its obligations hereunder, and to consummate the Exchange contemplated hereby. If the Undersigned is executing this Agreement on behalf of Accounts, (a) the Undersigned has all requisite discretionary and contractual authority to enter into this Agreement on behalf of, and bind, each Account, and (b) Exhibit A hereto is a true, correct and complete list of (i) the name and state of residence of each Account, (ii) the principal amount of such Account’s Exchanged Notes, (iii) the Total Cash Amount to be made to such Account in respect of its Exchanged Notes, and (iv) the Exchange Shares to be delivered to such Account.

Section 2.2Valid and Enforceable Agreement; No Violations. This Agreement has been duly executed and delivered by the Undersigned and constitutes a legal, valid and binding obligation of the Undersigned and the Holder, enforceable against the Undersigned and the Holder in accordance with its terms, except that such enforcement may be subject to (a) bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or other similar laws affecting or relating to enforcement of creditors’ rights generally, and (b) general principles of equity, whether such enforceability is considered in a proceeding at law or in equity (the “Enforceability Exceptions”). This Agreement and consummation of the Exchange will not violate, conflict with or result in a breach of or default under (i) the Undersigned’s or the Holder’s organizational documents, (ii) any note, bond, mortgage, deed, indenture, lien, instrument, contract, agreement, lease or license, whether written or oral, express or implied, to which the Undersigned or the Holder is a party or by which the Undersigned or the Holder or any of their respective assets are bound, or (iii) any laws, regulations or governmental or judicial decrees, injunctions or orders or investment guidelines or restrictions applicable to the Undersigned or the Holder, except for such violations, conflicts or breaches under clauses (ii) and (iii) above that would not, individually or in the aggregate, have a material adverse effect on the financial position, results of operations or prospects of the Undersigned or Holder or on their performance of the obligations under this Agreement or on the consummation of the transactions contemplated hereby.

Section 2.3Title to the Exchanged Notes. The Holder or the Undersigned, as applicable, has been the beneficial owner of the Exchanged Notes continuously since July 15, 2018, is currently the sole beneficial owner of the Exchanged Notes, and at the Closing will be the sole legal and beneficial owner of the Exchanged Notes set forth opposite its name on Exhibit A hereto. The Holder or the Undersigned, as applicable, has good, valid and marketable title to its Exchanged Notes, free and clear of any Liens. The Holder or the Undersigned, as applicable, has not, in whole or in part (a) assigned, transferred, hypothecated, pledged, exchanged or otherwise disposed of any of its Exchanged Notes or its rights in its Exchanged Notes, or (b) given any person or entity any transfer order, power of attorney or other authority of any nature whatsoever with respect to its Exchanged Notes. Upon delivery of such Exchanged Notes to the Company pursuant to the Exchange, such Exchanged Notes shall be free and clear of all Liens created by the Holder. The Exchanged Notes exchanged hereby are not subject to any adverse claims, rights or proxies.

Section 2.4Institutional Accredited Investor and Qualified Institutional Buyer. The Holder is (i) an institutional “accredited investor” within the meaning of Rule 501(a)(1), (2), (3) or (7) of Regulation D promulgated under the Securities Act of 1933, as amended (the “Securities Act”), and (ii) a “qualified institutional buyer” within the meaning of Rule 144A promulgated under the Securities Act. The Holder agrees to furnish any

additional information requested by the Company or any of its affiliates to assure compliance with applicable U.S. federal and state securities laws in connection with the Exchange.

Section 2.5Residence.The Holder is a resident of the state set forth in Exhibit A hereto and is not acquiring the Exchange Shares as a nominee or agent or otherwise for any other person.

Section 2.6Compliance with Laws.The Undersigned will comply with all applicable laws and regulations in effect in any jurisdiction in which the Undersigned, pursuant to the Exchange, purchases, acquires or sells Exchange Shares and will obtain any consent, approval or permission required for such purchases, acquisitions or sales under the laws and regulations of any jurisdiction to which the Undersigned is subject or in which the Undersigned makes such purchases, acquisitions or sales, and the Company shall have no responsibility therefor. The Undersigned shall use commercially reasonable efforts to procure each Holder’s compliance with this Section 2.6.

Section 2.7No Affiliate Status; Etc. The Holder is not, will not be as of the Closing Date, and has not been and will not be during the consecutive three month periods preceding the date hereof or the Closing Date, a director, officer or “affiliate” within the meaning of Rule 144 promulgated under the Securities Act (an “Affiliate”) of the Company. A period of at least one year (calculated in the manner provided in Rule 144(d) under the Securities Act) has elapsed since the Exchanged Notes of the Holder were acquired from the Company or from a person known by the Holder or the Undersigned to be an Affiliate of the Company. The Holder and its Affiliates collectively beneficially own and will beneficially own as of the Closing Date (without giving effect to the Exchange contemplated hereby) (i) less than 5% of the outstanding Common Stock and (ii) less than 5% of the aggregate number of votes that may be cast by holders of those outstanding securities of the Company that entitle the holders thereof to vote generally on all matters submitted to the Company’s stockholders for a vote.

Section 2.8Adequate Information; No Reliance. Each of the Undersigned and the Holder acknowledges and agrees that (a) it has been furnished with all materials it considers relevant to making an investment decision to enter into the Exchange and has had the opportunity to review (and has carefully reviewed) (i) the Company’s filings and submissions with the Securities and Exchange Commission (the “SEC”), including, without limitation, all information filed or furnished pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act” and such filings, collectively, the “Public Filings”), and (ii) this Agreement (including the exhibits thereto) (collectively, the “Materials”), (b) it has had a full opportunity to ask questions of the Company concerning the Company, its business, operations, financial performance, financial condition and prospects, and the terms and conditions of the Exchange, and to obtain from the Company any information that it considers necessary in making an informed investment decision and to verify the accuracy of the information set forth in the Public Filings and the other Materials, (c) it has had the opportunity to consult with its accounting, tax, financial and legal advisors to be able to evaluate the risks involved in the Exchange and to make an informed investment decision with respect to such Exchange, (d) it is not relying, and has not relied, upon any statement, advice (whether accounting, tax, financial, legal or other), representation or warranty made by the Company or any of its affiliates or representatives or any other entity or person (including the Agent), (e) no statement or written material contrary to the Public Filings or the Materials has been made or given to it by or on behalf of the Company, (f ) it is able to fend for itself in the Exchange, (g) it is not relying on any information or statements provided by the Agent in connection with the Exchange and (h) the Company has not (i) given any guarantee or representation as to the potential success, return, effect or benefit (either legal, regulatory, tax, financial, accounting or otherwise) of an investment in the Exchange Shares or (ii) made any representation to it regarding the legality of an investment in the Exchange Shares under applicable investment guidelines, laws or regulations.

Section 2.9Access to Filings; Understanding of Risk. Each of the Undersigned and theHolder is familiar with the business and financial condition and operations of the Company and has conducted its own investigation of the Company and the Exchange Shares. The Holder understands and accepts that the Exchange Shares

to be acquired in the Exchange involve risks, including those described in the Company’s filings with the SEC. Each of the Undersigned and theHolder has such knowledge, skill and experience in business, financial and investment matters that it is capable of evaluating the merits and risks of the Exchange and an investment in the Exchange Shares and has considered the suitability of the Exchange Shares as an investment in light of its own circumstances and financial condition, and the Holder is able to bear the risks associated with an investment in the Exchange Shares. The Holder’s participation in the Exchange was not conditioned by the Company on the Holder’s exchange of a minimum principal amount of Exchanged Notes for the Exchange Consideration and each of the Undersigned and the Holder acknowledges that (a) the terms of the Exchange have been mutually negotiated between the Undersigned (on behalf of each Holder) and the Company and (b) the Undersigned was given a meaningful opportunity to negotiate the terms of the Exchange on behalf of each Holder.

Section 2.10Information.Each of the Undersigned and the Holder acknowledges that no person has been authorized to give any information or to make any representation or warranty concerning the Company or the Exchange other than the information set forth herein in connection with its examination of the Company and the terms of the Exchange and the Exchanged Shares, and the Company does not, and the Agent does not, take any responsibility for, and neither the Company nor the Agent can provide any assurance as to the reliability of, any other information that others may provide to the Undersigned or the Holder.

Section 2.11No Federal or State Review.Each of the Undersigned and the Holder understands that no federal or state agency has passed upon the merits or risks of an investment in the Exchange Shares or made any finding or determination concerning the fairness or advisability of this investment.

Section 2.12No Distribution.The Holder is acquiring the Exchange Shares solely for the Holder’s own beneficial account, for investment purposes, and not with a view to, or for resale in connection with, any distribution of the Exchange Shares. The Holder understands that the Exchange Shares have not been registered under the Securities Act or any state securities laws by reason of specific exemptions under the provisions thereof which depend in part upon the investment intent of the Holder and the accuracy of the other representations made by the Holder in this Agreement. The Holder understands that the Company is relying upon the representations and agreements contained in this Agreement (and any supplemental information) for the purpose of determining whether the Holder’s participation in the Exchange meets the requirements for such exemptions.

Section 2.13No Solicitation. Each of the Undersigned and the Holder acknowledges that it did not become aware of the Exchange through any form of general solicitation or advertising within the meaning of Rule 502 under the Securities Act or otherwise through a “public offering” under Section 4(a)(2) of the Securities Act.

Section 2.14Sanctions, AML.The operations of the Undersigned and the Holder have been conducted at all times in material compliance with all applicable rules and regulations administered or conducted by the U.S. Department of Treasury Office of Foreign Assets Control (“OFAC”), the applicable rules and regulations of the Foreign Corrupt Practices Act (“FCPA”) and all applicable financial recordkeeping and reporting requirements, including those of the Bank Secrecy Act, as amended by Title III of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “USA PATRIOT Act”), and the applicable anti-money laundering statutes of jurisdictions where the Undersigned and each Holder conduct business, the rules and regulations thereunder and any related or similar rules, regulations or guidelines issued, administered or enforced by any governmental agency.

Section 2.15No Trading.Each of the Undersigned and the Holder acknowledges and agrees that it has not transacted, and will not transact, in any securities of the Company, including, but not limited to, any hedging transactions, from the time the Holder was first contacted by the Company, the Agent or any of their advisors

or representatives with respect to the transactions contemplated by this Agreement until after the confidential information (as described in the confirmatory wall-crossing email received by the Holder from the Company, the Agent or of their advisors) is made public or the applicable date specified in such email has passed, except for any such hedging transactions that were performed by personnel otherwise authorized to do so and not aware of the transactions contemplated by this Agreement on the basis of information barriers reasonably implemented, taking into consideration the nature of the Holder’s business, to ensure that such trading is not on the basis of material nonpublic information in compliance with applicable securities laws.

Section 2.16Stop Transfer Instructions.The Holder acknowledges that the Company may issue appropriate stop-transfer instructions to the transfer agent for the Common Stock (the “Transfer Agent”), if any, and may make appropriate notations to the same effect in its books and records to ensure compliance with the provisions of this Article II.

Section 2.17Role of Agent. Each of the Undersigned and the Holder acknowledges that (a) it understands that the Company intends to pay the Agent a fee in respect of the Exchange; (b) there is no investment banker, broker, finder or other intermediary which has been retained by, will be retained by or is authorized to act on behalf of the Holder who might be entitled to any fee or commission from the Company or the Holder upon consummation of the transactions contemplated by this Agreement; (c) it understands that the Company, the Agent and others will rely upon the truth and accuracy of the foregoing representations, warranties and covenants and agrees that if any of the representations and warranties deemed to have been made by it by its participation in the transactions contemplated by this Agreement and acquisition of the Exchange Shares are no longer accurate, the Holder shall promptly notify the Company and the Agent; (d) the Agent has not provided any legal, accounting or tax advice in connection with the Exchange or any advice in relation to selling restrictions and other securities laws matters in any jurisdiction in connection with the Exchange; and (e) the Agent has not acted as a financial advisor or fiduciary to the Holder and that the Agent and its respective directors, officers, employees, representatives and controlling persons have no responsibility for making, and have not made, any independent investigation of the information contained herein or in the Company’s SEC filings and make no representation or warranty to the Holder, express or implied, with respect to the Company, the Exchanged Notes or the Exchange Shares or the accuracy, completeness or adequacy of the information provided to the Holder or any other publicly available information, nor shall any of the foregoing persons be liable for any loss or damages of any kind resulting from the use of the information contained therein or otherwise supplied to the Holder.

Section 2.18Non-Reliance Letter.The Undersigned, on behalf of each Account, will, simultaneously with the execution and delivery of this Agreement, execute and deliver to the Agent, a non-reliance letter in the form attached as Exhibit B hereto.

Section 2.19Further Action. Each of the Undersigned and the Holder agrees that it will, upon request, execute and deliver any additional documents deemed by the Company, Trustee or Transfer Agent to be necessary or desirable to complete the Exchange.

Section 2.20Withholding. The Company and its agents shall be entitled to deduct and withhold from any consideration payable pursuant to this Agreement such amounts as may be required to be deducted or withheld under applicable law, and shall be provided with an IRS Form W–9 or an appropriate type of IRS Form W–8, as applicable, in order to establish whether such Holder is entitled to an exemption from (or reduction in the rate of) withholding. To the extent any such amounts are withheld and remitted to the appropriate taxing authority, such amounts shall be treated for all purposes as having been paid to the Holder to whom such amounts otherwise would have been paid.

Article III.Covenants, Representations and Warranties of the Company

The Company covenants as follows, and makes the following representations and warranties, each of which is and shall be true and correct on the date hereof and at the Closing, to the Holders, and all such covenants, representations and warranties shall survive the Closing.

Section 3.1Power and Authorization. The Company is duly incorporated, validly existing and in good standing under the laws of its state of incorporation, and has the power, authority and capacity to execute and deliver this Agreement, to perform its obligations hereunder, and to consummate the Exchange contemplated hereby.

Section 3.2Valid and Enforceable Agreements; No Violations. This Agreement has been duly executed and delivered by the Company and constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except that such enforcement may be subject to the Enforceability Exceptions. This Agreement and consummation of the Exchange will not violate, conflict with or result in a breach of or default under (i) the charter, by-laws or similar organizational documents of the Company, (ii) any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject, or (iii) any law or statute or any judgment, order, rule or regulation of any court or arbitrator or governmental or regulatory authority, except for such violations, conflicts or breaches under clauses (ii) and (iii) above that would not, individually or in the aggregate, have a material adverse effect on the financial position, results of operations or prospects of the Company and its subsidiaries taken as a whole or on its performance of its obligations under this Agreement or on the consummation of the transactions contemplated hereby. The execution of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby do not require the consent, approval, authorization, order, registration or qualification of, or filing (assuming the truth and accuracy of the representations and warranties in Article II and excluding any filing required under the requirements of the Exchange Act) with, any governmental authority, non-governmental regulatory authorities (including the New York Stock Exchange), other than the filing with the New York Stock Exchange of any applications in connection with Section 3.5 below.

Section 3.3No Default.Neither the Company nor any of its subsidiaries is (i) in violation of its charter or by-laws or similar organizational documents; (ii) in default, and, to the knowledge of the Company (having made due and reasonable enquiry), no event has occurred that, with notice or lapse of time or both, would constitute such a default, in the performance or observance of any term, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject; or (iii) in violation of any law or statute or any judgment, order, rule or regulation of any court or arbitrator or governmental or regulatory authority (including, without limitation, the rules and regulations of the New York Stock Exchange), in each case, applicable to the Company, except, in the case of clauses (ii) and (iii) above, for any such conflict, breach or violation that would not, individually or in the aggregate, have a material adverse effect on the financial position or results of operations or prospects of the Company and its subsidiaries taken as a whole.

Section 3.4Validity of Underlying Common Stock. The Exchange Shares (a) have been duly authorized and, upon delivery, will be fully paid and non-assessable, (b) will be issued without any legends that restrict the transfer of such Exchange Shares under the U.S. federal securities laws and (c) will not be subject to any preemptive, participation, rights of first refusal or other similar rights. Upon delivery of such Exchange Shares to the Holder pursuant to the Exchange, such Exchange Shares shall be free and clear of all Liens created by the Company.

Section 3.5Listing Approval. At the Closing, the Exchange Shares shall have been approved for listing on the New York Stock Exchange, subject to official notice of issuance.

Section 3.6Exchange. The terms of the Exchange (a) have been mutually negotiated between the Undersigned (on behalf of each Holder) and the Company and (b) the Undersigned was given a meaningful opportunity to negotiate the terms of the Exchange on behalf of each Holder.

Section 3.7Securities Act Matters. The Exchange is exempt from the registration and prospectus-delivery requirements of the Securities Act and, assuming the accuracy of the Holder’s representations and warranties in Article II above, including with respect to the Holder’s holding period and affiliate status, the Exchange Shares to be delivered to the Holder’s account pursuant to this Agreement will not be subject to restrictions on transfer under the Securities Act (and will not have any restrictive legends on such Exchange Shares).

Section 3.8Disclosure. The Company is not aware of any material non-public information regarding the Company, other than the fact and proposed terms of the Exchange and all reports and other documents filed by the Company with the SEC pursuant to the Exchange Act when considered as a whole (with the more recent such reports and documents deemed to amend and supersede inconsistent statements contained in any earlier such reports and documents), do not contain any untrue statement of a material fact or any omission of a material fact necessary to make the statements therein, in the light of the circumstances in which they were made, not misleading, other than the fact and proposed terms of the Exchange. At or prior to 9:00 A.M. (New York City time) on the Business Day immediately following the date hereof, the Company will issue a publicly available press release and/or file with the SEC a Current Report on Form 8-K disclosing all material terms of the transactions contemplated hereby as well as any other material non-public information disclosed by the Company or its representatives to the Undersigned, the Holder or their respective representatives (to the extent not previously publicly disclosed). Subsequent to the disclosure referred to in the prior sentence, neither the Company nor any of its representatives have disclosed any material non-public information to the Undersigned, the Holder or their respective representatives.

Section 3.9Investment Company.The Company is not and, after giving effect to the transactions contemplated by this Agreement, will not be required to register as an “investment company” or an entity “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940, as amended, and the rules and regulations of the SEC thereunder.

Section 3.10Further Action.The Company will, upon request, execute and deliver any additional documents deemed by the Trustee or the Transfer Agent to be reasonably necessary to complete the transactions contemplated by this Agreement.

Article IV.Miscellaneous

Section 4.1Entire Agreement. This Agreement and any documents and agreements executed in connection with the Exchange embody the entire agreement and understanding of the parties hereto with respect to the subject matter hereof and supersede all prior and contemporaneous oral or written agreements, representations, warranties, contracts, correspondence, conversations, memoranda and understandings between or among the parties or any of their agents, representatives or affiliates relative to such subject matter, including, without limitation, any term sheets, emails or draft documents.

Section 4.2Construction. References in the singular shall include the plural, and vice versa, unless the context otherwise requires. References in the masculine shall include the feminine and neuter, and vice versa, unless the context otherwise requires. Headings in this Agreement are for convenience of reference only and shall not

limit or otherwise affect the meanings of the provisions hereof. Neither party, nor its respective counsel, shall be deemed the drafter of this Agreement for purposes of construing the provisions of this Agreement, and all language in all parts of this Agreement shall be construed in accordance with its fair meaning, and not strictly for or against either party.

Section 4.3Expenses. All costs and expenses incurred in connection with this Agreement shall be paid by the party incurring such cost or expense

Section 4.4Reliance by Agent. The Agent, acting as exchange advisor to the Company, may rely on each representation and warranty of the Company, the Undersigned and the Holder made herein or pursuant to the terms hereof with the same force and effect as if such representation or warranty were made directly to the Agent. The Agent shall be a third-party beneficiary of this Agreement to the extent provided in this Section 4.4.

Section 4.5Notices. All notices and other communications to the Company provided for herein shall be in writing and shall be deemed to have been duly given if delivered personally or sent by registered or certified mail, return receipt requested, postage prepaid to the following addresses, or in the case of the undersigned, the address provided on the signature page below (or such other address as either party shall have specified by notice in writing to the other):

If to the Company:     Apollo Commercial Real Estate Finance, Inc.
            c/o Apollo Global Management, LLC
            9 West 57th Street, 43rd Floor
            New York, New York 10019

Section 4.6Waiver, Amendment. Neither this Agreement nor any provisions hereof shall be modified, changed, discharged or terminated except by an instrument in writing, signed by the party against whom any waiver, change, discharge or termination is sought.

Section 4.7Assignability. Neither this Agreement nor any right, remedy, obligation or liability arising hereunder or by reason hereof shall be assignable by either the Company or the Undersigned without the prior written consent of the other party.

Section 4.8Governing Law. This Agreement shall in all respects be construed in accordance with and governed by the substantive laws of the State of New York, without reference to its choice of law rules.

Section 4.9Waiver of Jury Trial. THE UNDERSIGNED IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY LEGAL PROCEEDING ARISING OUT OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.

Section 4.10Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. Any counterpart or other signature hereon delivered by facsimile shall be deemed for all purposes as constituting good and valid execution and delivery of this Agreement by such party.

Section 4.11Release. The Undersigned and each Holder, and each of their respective partners, members, affiliates, directors, officers, employees, controlling persons, agents, representatives, successors and assigns (collectively, the “Releasing Parties”) shall be deemed to have released and forever discharged to the fullest extent permitted by law, the Company, the trustee of the Exchanged Notes and their respective affiliates, and each of their respective directors, officers, employees, agents and controlling persons (collectively, the “Released Parties”) of and

from any and all claims which the Releasing Parties, or any of them, now have, ever had, or hereafter shall or may have, against the Released Parties, or any of them, for, upon or by reason of any matter, cause or thing whatsoever arising out of or related to the Exchanged Notes. The Releasing Parties expressly acknowledge that they have had the opportunity to be advised by independent legal counsel and hereby waive and relinquish, and do so understanding and acknowledging the significance and consequence of such specific waiver, all rights and benefits in respect of the Exchanged Notes.

Section 4.12Confidentiality. Until the earlier of (x) 9:00 A.M. (New York City time) on the Business Day immediately following the date hereof or (y) the Company making the press release or Form 8-K filing contemplated in Section 3.8 or other public announcement about the Exchange, the Undersigned and each Holder will maintain the confidentiality of the Exchange and the terms of the Exchange.

Section 4.13Severability. If any term or provision of this Agreement is invalid, illegal or unenforceable in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such term or provision in any other jurisdiction.

Section 4.14Termination. The Company may terminate this Agreement if there has occurred any breach by the Undersigned or a Holder of any covenant, representation or warranty set forth in Article II. The Undersigned or a Holder may terminate this Agreement if (1) there has occurred any breach by the Company of any covenant, representation or warranty set forth in Article III or (2) the Closing has not occurred by August 10, 2018.

[Signature Page Follows]

IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed as of the date first above written.

The Company

Apollo Commercial Real Estate Finance, Inc.

By:

Name:

Title:

The Undersigned

[___], in its capacities described in the first paragraph hereof

By:

Name:

Title:

Address for Notices:

______________________________

 
______________________________ 
______________________________

EXHIBIT A

EXCHANGING BENEFICIAL OWNERS

Name of Beneficial Owner and State of Residence	Aggregate Principal Amount of Exchanged Notes	Exchange Shares	Cash Payment for Fractional Shares	Total Cash Amount	DTC Participant Number of DTC Participant through Which the Exchanged Notes Will Be Delivered	DTC Participant Number of DTC Participant to Which the Exchange Shares Will Be Credited	Payment Instructions for Total Cash Amount
[Name] [State of Residence]	$[__]	[__]	$[__]	$[__]	[__]	[__]	[__]

EXHIBIT B

NON-RELIANCE LETTER

J.P. Morgan Securities LLC
383 Madison Avenue
New York
NY 10178

Re: Exchange for 5.50% Convertible Senior Notes due 2019 (the “Exchanged Notes”) issued by Apollo Commercial Real Estate Finance, Inc. (the “Company”) for cash and shares of common stock, par value $0.001 per share, of the Company (the “ExchangeShares”, and such exchange transaction, the “Exchange”)

Ladies and Gentlemen:

We, the undersigned, refer to the Exchange Agreement entered into between us and the Company, dated on or about the date hereof, in relation to the Exchange (the “Exchange Agreement”). Capitalized terms used but not otherwise defined herein shall have the meanings given to them in the Exchange Agreement.

In connection with the Exchange, on behalf of ourselves and each Account, we represent, warrant, agree and acknowledge as follows:

1. The undersigned has all requisite discretionary and contractual authority to enter into this letter agreement on behalf of, and bind, each Account.

2. No disclosure or offering document has been prepared in connection with the Exchange by J.P. Morgan Securities LLC or any of its affiliates (“J.P. Morgan”).

3. (a) Each Holder has conducted its own investigation of the Company, the Exchanged Notes and the Exchange Shares and has not relied on any statements or other information provided by J.P. Morgan concerning the Company or the Exchange Shares or the Exchange, (b) each Holder has had access to, and an adequate opportunity to review, financial and other information as it deems necessary to make its decision to subscribe to the Exchange, (c) each Holder has been offered the opportunity to ask questions of the Company and received answers thereto, as it deemed necessary in connection with its decision to subscribe to the Exchange, and (d) each Holder has made its own assessment and has satisfied itself concerning the relevant tax and other economic considerations relevant to its investment in the Exchange Shares.

4. J.P. Morgan and its directors, officers, employees, representatives and controlling persons have made no independent investigation with respect to the Company, the Exchanged Notes or the Exchange Shares, or the accuracy, completeness or adequacy of any information supplied to each Holder by the Company.

5. In connection with the Exchange, J.P. Morgan has not acted as financial advisor or fiduciary to the undersigned or any Holder.

6. Each Holder is both (i) an institutional “accredited investor” within the meaning of Rule 501(a)(1), (2), (3) or (7) of Regulation D promulgated under the Securities Act of 1933, as amended (the “Securities Act”), and (ii) a “qualified institutional buyer” within the meaning of Rule 144A promulgated under the Securities Act. Each Holder is aware that the issuance and delivery to it of the Exchange Shares are being made in reliance on a private placement exemption from registration under the Securities Act and is acquiring the Exchange Shares for its own account or for an account over which the Holder exercises sole discretion for another qualified institutional buyer or accredited investor.

7. Each Holder has the expertise and commercial sophistication to enable it to evaluate the transactions contemplated in connection with the Exchange for itself or with such advisors as it deems necessary in its sole discretion; has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its prospective investment in the Exchange Shares; and has the ability to bear the economic risks of its prospective investment and can afford the complete loss of such investment.

8. The Exchange Shares have not been registered under the Securities Act or any other applicable securities laws, and are being offered for exchange in transactions not requiring registration under the Securities Act.

Very truly yours,

[NAME OF INVESTOR]

By:

Name:

Title:

Date: ___________________, 2018

EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, Stuart A. Rothstein, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Apollo Commercial Real Estate Finance, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 24, 2018	By:	/s/ Stuart A. Rothstein
	Name:	Stuart A. Rothstein
	Title:	President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, Jai Agarwal, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Apollo Commercial Real Estate Finance, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 24, 2018	By:	/s/ Jai Agarwal
	Name:	Jai Agarwal
	Title:	Chief Financial Officer, Treasurer and Secretary

EX-32.1

Exhibit 32.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER

PURSUANT TO

18 U.S. C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned, the President and Chief Executive Officer of Apollo Commercial Real Estate Finance, Inc. (the “Company”), hereby certifies on the date hereof, pursuant to 18 U.S.C. 1350(a), as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002, that the Quarterly Report on Form 10-Q for the period ended September 30, 2018 (the “Form 10-Q”), filed concurrently herewith by the Company, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: October 24, 2018	By:	/s/ Stuart A. Rothstein
	Name:	Stuart A. Rothstein
	Title:	President and Chief Executive Officer

The undersigned, the Chief Financial Officer, Treasurer and Secretary of Apollo Commercial Real Estate Finance, Inc. (the “Company”), hereby certifies on the date hereof, pursuant to 18 U.S.C. 1350(a), as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002, that the Quarterly Report on Form 10-Q for the period ended September 30, 2018 (the “Form 10-Q”), filed concurrently herewith by the Company, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: October 24, 2018	By:	/s/ Jai Agarwal
	Name:	Jai Agarwal
	Title:	Chief Financial Officer, Treasurer and Secretary

Pursuant to the Securities and Exchange Commission Release 33-8238, dated June 5, 2003, this certification is being furnished and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended or incorporated by reference in any registration statement of the Company filed under the Securities Act of 1933, as amended.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2018	Oct. 23, 2018
Document And Entity Information [Abstract]
Document type	10-Q
Amendment flag	false
Document period end date	Sep. 30, 2018
Document fiscal year focus	2018
Document fiscal period focus	Q3
Trading symbol	ARI
Entity registrant name	Apollo Commercial Real Estate Finance, Inc.
Entity central index key	0001467760
Current fiscal year end date	--12-31
Entity filer category	Large Accelerated Filer
Emerging growth company	false
Small business entity	false
Entity common stock, shares outstanding (in shares)		133,853,565

XML

Condensed Consolidated Balance Sheets (Unaudited) - USD ($)	Sep. 30, 2018	Dec. 31, 2017
Assets:
Cash	$ 99,188,000	$ 77,671,000
Commercial mortgage loans and subordinate loans, net	4,828,046,000	3,679,758,000
Loan proceeds held by servicer	0	302,756,000
Other assets	31,894,000	28,420,000
Derivative assets, net	15,341,000	0
Total Assets	4,974,469,000	4,088,605,000
Liabilities:
Secured debt arrangements, net (net of deferred financing costs of $16,746 and $14,348 in 2018 and 2017, respectively)	1,996,871,000	1,330,847,000
Convertible senior notes, net	370,174,000	584,897,000
Derivative liabilities, net	0	5,644,000
Accounts payable, accrued expenses and other liabilities	79,538,000	70,906,000
Payable to related party	9,515,000	8,168,000
Total Liabilities	2,456,098,000	2,000,462,000
Commitments and Contingencies (see Note 15)
Stockholders’ Equity:
Common stock, $0.01 par value, 450,000,000 shares authorized, 133,765,392 and 107,121,235 shares issued and outstanding in 2018 and 2017, respectively	1,338,000	1,071,000
Additional paid-in-capital	2,630,468,000	2,170,078,000
Accumulated deficit	(113,572,000)	(83,143,000)
Total Stockholders’ Equity	2,518,371,000	2,088,143,000
Total Liabilities and Stockholders’ Equity	4,974,469,000	4,088,605,000
Commercial Mortgage Portfolio Segment [Member]
Assets:
Commercial mortgage loans and subordinate loans, net	3,723,550,000	2,653,826,000
Subordinate Mortgage Portfolio Segment [Member]
Assets:
Commercial mortgage loans and subordinate loans, net	1,104,496,000	1,025,932,000
Series B Preferred Stock [Member]
Stockholders’ Equity:
Preferred stock	68,000	68,000
Series C Preferred Stock [Member]
Stockholders’ Equity:
Preferred stock	$ 69,000	$ 69,000

XML

Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Deferred financing costs	$ 16,746	$ 14,348
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized (in shares)	50,000,000	50,000,000
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	450,000,000	450,000,000
Common stock, shares issued (in shares)	133,765,392	107,121,235
Common shares outstanding (in shares)	133,765,392	107,121,235
Series B Preferred Stock [Member]
Preferred stock, shares issued (in shares)	6,770,393	6,770,393
Preferred stock, shares outstanding (in shares)	6,770,393	6,770,393
Preferred stock, aggregate liquidation preference	$ 169,260	$ 169,260
Series C Preferred Stock [Member]
Preferred stock, shares issued (in shares)	6,900,000	6,900,000
Preferred stock, shares outstanding (in shares)	6,900,000	6,900,000
Preferred stock, aggregate liquidation preference	$ 172,500	$ 172,500
Commercial Mortgage Portfolio Segment [Member]
Loans pledged as collateral	$ 3,245,600	$ 2,148,368

XML

Condensed Consolidated Statement of Operations (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Net interest income:
Interest income from commercial mortgage loans	$ 71,179	$ 41,203	$ 188,434	$ 112,690
Interest income from subordinate loans	37,308	47,268	105,236	121,298
Interest income from securities	0	2,625	0	13,379
Interest expense	(31,007)	(19,855)	(82,184)	(56,089)
Net interest income	77,480	71,241	211,486	191,278
Operating expenses:
General and administrative expenses (includes equity-based compensation of $4,048 and $11,404 in 2018 and $2,635 and $9,887 of equity-based compensation in 2017, respectively)	(5,843)	(4,629)	(16,493)	(15,587)
Management fees to related party	(9,515)	(8,309)	(26,620)	(23,484)
Total operating expenses	(15,358)	(12,938)	(43,113)	(39,071)
Loss from unconsolidated joint venture	0	0	0	(2,847)
Other income	427	359	973	710
Provision for loan losses and impairments	0	0	(5,000)	(5,000)
Realized loss on sale of assets	0	(4,076)	0	(5,118)
Unrealized gain on securities	0	13,488	0	11,830
Foreign currency gain (loss)	(4,050)	7,763	(23,574)	17,848
Loss on early extinguishment of debt	(2,573)	0	(2,573)	0
Gain (loss) on derivative instruments (includes unrealized gains (losses) of $5,045 and $20,986 in 2018 and $(7,302) and $(17,626) in 2017, respectively)	6,291	(7,481)	28,797	(17,916)
Net income	62,217	68,356	166,996	151,714
Preferred dividends	(6,836)	(11,148)	(20,505)	(29,768)
Net income available to common stockholders	$ 55,381	$ 57,208	$ 146,491	$ 121,946
Net income per share of common stock:
Basic (in dollars per share)	$ 0.42	$ 0.54	$ 1.19	$ 1.23
Diluted (in dollars per share)	$ 0.40	$ 0.54	$ 1.14	$ 1.23
Basic weighted average shares of common stock outstanding (in shares)	129,188,343	105,446,704	120,876,240	97,546,437
Diluted weighted average shares of common stock outstanding (in shares)	153,918,435	106,812,721	150,424,889	98,919,689
Dividend declared per share of common stock (in dollars per share)	$ 0.46	$ 0.46	$ 1.38	$ 1.38

XML

Condensed Consolidated Statement of Operations (Unaudited) (Parenthetical) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Income Statement [Abstract]
General and administrative expenses, equity-based compensation	$ 4,048	$ 2,635	$ 11,404	$ 9,887
Unrealized gain (loss) on derivatives	$ 5,045	$ (7,302)	$ 20,986	$ (17,626)

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Condensed Consolidated Statement of Comprehensive Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Statement of Comprehensive Income [Abstract]
Net income available to common stockholders	$ 55,381	$ 57,208	$ 146,491	$ 121,946
Foreign currency translation adjustment	0	0	0	3,811
Comprehensive income	$ 55,381	$ 57,208	$ 146,491	$ 125,757

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Condensed Consolidated Statement of Changes in Stockholders' Equity (Unaudited) - 9 months ended Sep. 30, 2018 - USD ($) $ in Thousands	Total	Preferred Stock [Member]	Common Stock [Member]	Additional Paid In Capital [Member]	Accumulated Deficit [Member]
Stockholders' equity, beginning balance (in shares) at Dec. 31, 2017		13,670,393	107,121,235
Stockholders' equity, beginning balance at Dec. 31, 2017	$ 2,088,143	$ 137	$ 1,071	$ 2,170,078	$ (83,143)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Capital increase related to Equity Incentive Plan (in shares)			374,580
Capital increase related to Equity Incentive Plan	6,677		$ 5	6,672
Issuance of common stock (in shares)			15,525,000
Issuance of common stock	275,879		$ 155	275,724
Exchange of convertible senior notes for common stock (in shares)			10,744,577
Exchange of convertible senior notes for common stock	178,566		$ 107	178,459
Offering costs	(465)			(465)
Net income	166,996				166,996
Dividends declared on preferred stock	(20,505)				(20,505)
Dividends declared on common stock - $0.46 per share	(176,920)				(176,920)
Stockholders' equity, ending balance (in shares) at Sep. 30, 2018		13,670,393	133,765,392
Stockholders' equity, ending balance at Sep. 30, 2018	$ 2,518,371	$ 137	$ 1,338	$ 2,630,468	$ (113,572)

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Condensed Consolidated Statement of Changes in Stockholders' Equity (Unaudited) (Parenthetical)	9 Months Ended
	Sep. 30, 2018 $ / shares
Statement of Stockholders' Equity [Abstract]
Dividends declared on common stock (in dollars per share)	$ 0.46

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Condensed Consolidated Statement of Cash Flows (Unaudited) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017
Cash flows (used in) provided by operating activities:
Net income	$ 166,996	$ 151,714
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of discount/premium and PIK	(46,103)	(15,491)
Amortization of deferred financing costs	8,204	4,464
Equity-based compensation	6,672	7,551
Unrealized gain on securities	0	(11,830)
Provision for loan losses and impairment	5,000	5,000
Loss from unconsolidated joint venture	0	2,259
Foreign currency (gain) loss	22,162	(16,940)
Unrealized (gain) loss on derivative instruments	(20,986)	17,564
Loss on early extinguishment of debt	2,573	0
Realized loss on derivative instruments	0	289
Realized loss on sale of assets	0	5,118
Changes in operating assets and liabilities:
Proceeds received from PIK	75,652	0
Other assets	(8,476)	(28,893)
Accounts payable, accrued expenses and other liabilities	8,087	(8,623)
Payable to related party	1,347	1,295
Net cash (used in) provided by operating activities	221,128	113,477
Cash flows used in investing activities:
New funding of commercial mortgage loans	(1,382,440)	(505,323)
Add-on funding of commercial mortgage loans	(90,201)	(76,244)
New funding of subordinate loans	(207,683)	(365,500)
Add-on funding of subordinate loans	(84,852)	(110,003)
Proceeds and payments received on commercial mortgage loans	356,865	17,062
Proceeds and payments received on subordinate loans	463,524	221,478
Funding of derivative instruments	0	(201)
Origination and exit fees received on commercial mortgage and subordinate loans	32,473	13,047
Funding of unconsolidated joint venture	0	(726)
Funding of other assets	0	(1,379)
(Increase) decrease in collateral held related to derivative contracts	4,930	(14,262)
Payments and proceeds received on securities	0	288,781
Proceeds from sale of investments in unconsolidated joint venture	0	24,498
Net cash (used in) provided by investing activities	(907,384)	(508,772)
Cash flows from financing activities:
Proceeds from issuance of common stock	275,879	249,021
Redemption of preferred stock	0	(86,250)
Payment of offering costs	(199)	(359)
Proceeds from secured debt arrangements	1,623,186	866,548
Repayments of secured debt arrangements	(941,662)	(727,691)
Proceeds from issuance of convertible senior notes	0	227,700
Exchanges and conversions of convertible senior notes	(40,461)	0
Repayments of participations sold	0	(85,081)
Payment of deferred financing costs	(11,545)	(8,585)
Dividends on common stock	(176,920)	(136,404)
Dividends on preferred stock	(20,505)	(26,752)
Net cash (used in) provided by financing activities	707,773	272,147
Net increase (decrease) in cash and cash equivalents	21,517	(123,148)
Cash and restricted cash, beginning of period	77,671	263,453
Cash and restricted cash, end of period	99,188	140,305
Supplemental disclosure of cash flow information:
Interest paid	77,219	44,303
Supplemental disclosure of non-cash financing activities:
Exchange of convertible senior notes for common stock	178,567	0
Dividend declared, not yet paid	68,536	55,916
Offering costs payable	$ 265	$ 41

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Organization

9 Months Ended

Sep. 30, 2018

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization

Organization

Apollo Commercial Real Estate Finance, Inc. (together with its consolidated subsidiaries, is referred to throughout this report as the “Company,” “ARI,” “we,” “us” and “our”) is a corporation that has elected to be taxed as a real estate investment trust (“REIT”) for U.S. federal income tax purposes and primarily originates, acquires, invests in and manages performing commercial first mortgage loans, subordinate financings, and other commercial real estate-related debt investments. These asset classes are referred to as our target assets.

We were formed in Maryland on June 29, 2009, commenced operations on September 29, 2009 and are externally managed and advised by ACREFI Management, LLC (the “Manager”), an indirect subsidiary of Apollo Global Management, LLC (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.

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Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2018

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements include our accounts and those of our consolidated subsidiaries. All intercompany amounts have been eliminated. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Our most significant estimates include loan loss reserves and impairment. 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, 2017, as filed with the Securities and Exchange Commission (the “SEC”). In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary to present fairly our financial position, results of operations and cash flows have been included. Our results of operations for the three and nine months ended September 30, 2018 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.

Recent Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board ("FASB") issued ASU 2018-13 "Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement" ("ASU 2018-13"). ASU 2018-13 changes the fair value measurement disclosure requirements of ASC 820 "Fair Value Measurement" by adding, eliminating, and modifying certain disclosure requirements. ASU 2018-13 is effective for all entities for fiscal years beginning after December 15, 2019 and requires application of the prospective method of transition. We are currently assessing the impact the guidance will have on our condensed consolidated financial statements.

In June 2018, the FASB issued ASU 2018-07 "Compensation - Stock Compensation (Topic 718): Improvements to Nonemployees Share-Based Payment Accounting" ("ASU 2018-07"). The intention of ASU 2018-07 is to expand the scope of Topic 718 to include share-based payment transactions in exchange for goods and services from nonemployees. These share-based payments will now be measured at grant-date fair value of the equity instrument issued. Upon adoption, only liability-classified awards that have not been settled and equity-classified awards for which a measurement date has not been established should be remeasured through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. ASU 2018-07 is effective for fiscal years beginning after December 15, 2019 and is applied retrospectively. We are currently assessing the impact the guidance will have on our condensed consolidated financial statements.

In August 2017, the FASB issued ASU 2017-12 "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities” ("ASU 2017-12"). The intention of ASU 2017-12 is to align an entity’s financial reporting for hedging activities with the economic objectives of those activities. Upon adoption of ASU 2017-12, the cumulative ineffectiveness previously recognized on existing cash flow and net investment hedges will be adjusted and removed from beginning retained earnings and placed in accumulated other comprehensive income (loss). We note that this guidance will not have a material impact on our condensed consolidated financial statements. ASU 2017-12 is effective for fiscal years beginning after December 15, 2018 and is applied retrospectively.

In November 2016, the FASB issued ASU 2016-18 “Statement of Cash Flows (Topic 230): Restricted Cash” ("ASU 2016-18"). ASU 2016-18 is intended to clarify how entities present restricted cash in the statement of cash flows. The guidance requires entities to show the changes in the total of cash and cash equivalents and restricted cash in the statement of cash flows. As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash in the statement of cash flows. When cash and cash equivalents and restricted cash are presented in more than one line item on the balance sheet, the new guidance requires a reconciliation of the totals in the statement of cash flows to the related captions in the balance sheet. This reconciliation can be presented either on the face of the statement of cash flows or in the notes to the financial statements. ASU 2016-18 is effective for fiscal years beginning after December 15, 2017 and is to be applied retrospectively. We early adopted ASU 2016-18 on June 30, 2017, which changed our condensed consolidated statement of cash flows and related disclosures for all periods presented. The following is a reconciliation of our cash, cash equivalents, and restricted cash to the total presented in our condensed consolidated statement of cash flows for the nine months ended September 30, 2018 and September 30, 2017, respectively ($ in thousands):

	Balance at September 30, 2018		Balance at September 30, 2017
Cash	$	99,188	$	140,229
Restricted cash	—		76
Total cash and restricted cash shown in the condensed consolidated statement of cash flows	$	99,188	$	140,305

In June 2016, the FASB issued ASU 2016-13 “Financial Instruments - Credit Losses - Measurement of Credit Losses on Financial Instruments (Topic 326)" ("ASU 2016-13"). ASU 2016-13 significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income.  The guidance will replace the “incurred loss” approach under existing guidance with an “expected loss” model for instruments measured at amortized cost and require entities to record allowances for available-for-sale debt securities rather than reduce the carrying amount, as they do today under the other-than-temporary impairment model. It also simplifies the accounting model for purchased credit-impaired debt securities and loans. The guidance is effective for fiscal years beginning after December 15, 2019 and is to be adopted through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. While we are currently evaluating the impact ASU 2016-13 will have on our condensed consolidated financial statements, we expect that the adoption will result in higher provisions for potential loan losses.

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Fair Value Disclosure

9 Months Ended

Sep. 30, 2018

Fair Value Disclosures [Abstract]

Fair Value Disclosure

Fair Value Disclosure

GAAP establishes a hierarchy of valuation techniques based on the observability of the 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 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 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. We 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 values of our 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 (or payments) 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 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.  Our 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 our financial instruments were categorized as of September 30, 2018 and December 31, 2017 ($ in thousands): 

	Fair Value as of September 30, 2018								Fair Value as of December 31, 2017
	Level I		Level II		Level III		Total		Level I		Level II			Level III		Total
Derivative assets (liabilities), net	$	—	$	15,341	$	—	$	15,341	$	—	$	(5,644	)	$	—	$	(5,644	)

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Securities

9 Months Ended

Sep. 30, 2018

Investments, Debt and Equity Securities [Abstract]

Securities

Securities

We previously held CMBS, which were all sold in 2017. During the three and nine months ended September 30, 2017, we sold CMBS (Fair Value Option) resulting in a net realized loss of $4.1 million and $5.1 million, respectively.

During the three and nine months ended September 30, 2017, CMBS (Held-to-Maturity) of $146.5 million was fully repaid. We did not hold any CMBS (Held-to-Maturity) during the three and nine months ended September 30, 2018.

During the three and nine months ended September 30, 2017, we recorded interest income from securities of $2.6 million and $13.4 million, respectively. For the three months ended September 30, 2017, there was no interest income from CMBS (Held-to-Maturity) and $2.6 million of interest income from CMBS (Fair Value Option). For the nine months ended September 30, 2017, there was $4.2 million of interest income from CMBS (Held-to-Maturity) and $9.2 million of interest income from CMBS (Fair Value Option).

To conform to the 2018 presentation of the condensed consolidated statement of cash flows, we reclassified (i) $146.5 million of payments received on securities, held-to-maturity, (ii) $128.9 million of proceeds from sale of securities, and (iii) $13.3 million of payments received on securities, and combined the line items into payments and proceeds received on securities.

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Commercial Mortgage and Subordinate Loans, Net

9 Months Ended

Sep. 30, 2018

Receivables [Abstract]

Commercial Mortgage and Subordinate Loans, Net

Commercial Mortgage and Subordinate Loans, Net

Our loan portfolio was comprised of the following at September 30, 2018 and December 31, 2017 ($ in thousands):

Loan Type	September 30, 2018		December 31, 2017
Commercial mortgage loans, net	$	3,723,550	$	2,653,826
Subordinate loans, net	1,104,496		1,025,932
Total loans, net	$	4,828,046	$	3,679,758

Our loan portfolio consisted of 90% and 88% floating rate loans, based on amortized cost, as of September 30, 2018 and December 31, 2017, respectively.

Activity relating to our loan investment portfolio, for the nine months endedSeptember 30, 2018, was as follows ($ in thousands):

	Principal Balance			Deferred Fees/Other Items (1)			Provision for Loan Loss (2)			Carrying Value
December 31, 2017	$	3,706,169		$	(9,430	)	$	(16,981	)	$	3,679,758
New loan fundings	1,590,123			—			—			1,590,123
Add-on loan fundings (3)	175,053			—			—			175,053
Loan repayments	(601,041		)	—			—			(601,041		)

Unrealized gain (loss) on foreign currency translation	(35,412		)	(21		)	—			(35,433		)
Provision for loan loss (2)	—			—			(5,000		)	(5,000		)
Deferred fees and other items (1)	—			(24,596		)	—			(24,596		)
PIK interest, amortization of fees and other items (1)	29,944			19,238			—			49,182
September 30, 2018	$	4,864,836		$	(14,809	)	$	(21,981	)	$	4,828,046

———————

(1) Other items primarily consist of purchase discounts or premiums, exit fees and deferred origination expenses.

(2)In addition to the $22.0 million provision for loan loss, we recorded an impairment of $3.0 million against an investment previously recorded under other assets on our condensed consolidated balance sheet.

(3) Represents fundings for loans closed prior to 2018.

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

	September 30, 2018			December 31, 2017
Number of loans	68			59
Principal balance	$	4,864,836		$	3,706,169
Carrying value	$	4,828,046		$	3,679,758
Unfunded loan commitments (1)	$	884,178		$	435,627
Weighted-average cash coupon (2)	8.2		%	8.4		%

———————

(1) Unfunded loan commitments are primarily funded to finance property improvements or lease-related expenditures by the borrowers. 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.

The table below details the property type of the properties securing the loans in our portfolio at the dates indicated ($ in thousands):

	September 30, 2018				December 31, 2017
Property Type	Carrying Value		% of Portfolio		Carrying Value		% of Portfolio
Hotel	$	1,229,460	25.5	%	$	645,056	17.6	%
Residential-for-sale: inventory (1)	602,826		12.5	%	92,438		2.5	%
Residential-for-sale: construction (1)	385,303		8.0	%	349,739		9.5	%
Urban Predevelopment	677,440		14.0	%	654,736		17.8	%
Office	520,926		10.8	%	513,830		14.0	%
Multifamily	450,017		9.3	%	465,057		12.6	%
Mixed Use	320,984		6.6	%	354,640		9.6	%
Healthcare	255,588		5.3	%	173,870		4.7	%
Retail Center	202,031		4.2	%	198,913		5.4	%
Other	151,471		3.1	%	154,141		4.2	%
Industrial	32,000		0.7	%	77,338		2.1	%
Total	$	4,828,046	100.0	%	$	3,679,758	100.0	%

(1) To conform to the current period’s presentation, loans with a combined carrying value of $442.2 million classified as residential-for-sale as of December 31, 2017 were broken out into $349.8 million of residential-for-sale: construction and $92.4 million of residential-for-sale: inventory.

The table below details the geographic distribution of the properties securing the loans in our portfolio at the dates indicated ($ in thousands):

	September 30, 2018				December 31, 2017
Geographic Location	Carrying Value		% of Portfolio		Carrying Value		% of Portfolio
Manhattan, NY	$	1,365,211	28.3	%	$	1,173,833	31.9	%
Brooklyn, NY	332,372		6.9	%	357,611		9.7	%
Northeast	37,410		0.8	%	100,536		2.7	%
Midwest	800,196		16.6	%	683,380		18.6	%
Southeast	608,925		12.6	%	531,582		14.4	%
West	522,818		10.8	%	227,024		6.2	%
Mid Atlantic	213,881		4.4	%	191,976		5.2	%
Southwest	115,683		2.4	%	33,615		0.9	%
United Kingdom	706,342		14.6	%	303,488		8.3	%
Other International	125,208		2.6	%	76,713		2.1	%
Total	$	4,828,046	100.0	%	$	3,679,758	100.0	%

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 ratio ("LTV"), 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 has been impaired

The following table allocates the carrying value of our loan portfolio based on our internal risk ratings at the dates indicated ($ in thousands):

	September 30, 2018					December 31, 2017
Risk Rating	Number of Loans	Carrying Value		% of Loan Portfolio		Number of Loans	Carrying Value		% of Loan Portfolio
1	—	$	—	—	%	—	$	—	—	%
2	5	340,237		7	%	5	399,326		10	%
3	60	4,254,383		88	%	51	3,034,358		83	%
4	1	171,127		4	%	1	168,208		5	%
5	2	62,299		1	%	2	77,866		2	%
	68	$	4,828,046	100	%	59	$	3,679,758	100	%

We evaluate our loans for possible impairment on a quarterly basis. We regularly evaluate 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 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 property’s liquidation value. 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 loan loss 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. An allowance for loan loss is established when it is deemed probable that we will not be able to collect all amounts due according to the contractual terms of the loan.

We recorded a $10.0 million loan loss provision and impairment against a commercial mortgage loan secured by a fully-built, for-sale residential condominium units located in Bethesda, MD. This was comprised of (i) $5.0 million loan loss recorded during the second quarter of 2018, and (ii) $2.0 million loan loss provision and $3.0 million of impairment recorded during the second quarter of 2017. The impairment was recorded on an investment previously recorded under other assets on our condensed consolidated balance sheet. The loan loss provision and impairment were based on the difference between fair value of the underlying collateral, and the carrying value of the loan (prior to the loan loss provision and related impairment). Fair value of the collateral was determined using a discounted cash flow analysis. The significant unobservable inputs used in determining the collateral value were sales price per square foot and discount rate which were an average of $662 dollars per square foot across properties and 15%, respectively. Effective April 1, 2017, we ceased accruing all interest associated with the loan and accounts for the loan on a cost-recovery basis (all proceeds are applied towards the loan balance). As of September 30, 2018 and December 31, 2017, this loan was assigned a risk rating of 5.

During 2016, we recorded a loan loss provision of $10.0 million on a commercial mortgage loan and $5.0 million on a contiguous subordinate loan secured by a multifamily property located in Williston, ND. The loan loss provision was based on the difference between fair value of the underlying collateral, and the carrying value of the loan (prior to the loan loss provision). Fair value of the collateral was determined using a discounted cash flow analysis. The significant unobservable inputs used in determining the collateral value were terminal capitalization rate and discount rate which were 11% and 10%, respectively. We ceased accruing interest associated with the loan and only recognize interest income upon receipt of cash. As of September 30, 2018 and December 31, 2017, this loan was assigned a risk rating of 5.

We evaluate modifications to our loan portfolio to determine if the modifications constitute a troubled debt restructuring ("TDR"), under ASC Topic 310, “Receivables." During the second quarter of 2018, we determined that a modification of one commercial mortgage loan with a principal balance of $169.0 million constituted a TDR as the interest rate spread was reduced from 5.5% over LIBOR to 3.0% over LIBOR. As of September 30, 2018 and December 31, 2017, this loan was assigned a risk rating of 4. The entity that we are a part of and owns the underlying property was deemed to be a variable interest entity ("VIE") and it was determined that we are not the primary beneficiary of that VIE.

During the three months ended September 30, 2018, we sold a $75.0 million ($17.7 million funded) subordinate position of our $265.0 million loans for the construction of an office campus in Renton, Washington. As of September 30, 2018, our exposure to the property is limited to a $190.0 million ($65.5 million funded) mortgage loan. This transaction was evaluated under ASC 860 - Transfers and Servicing and we determined that it qualifies as a sale and accounted for as such.

As of September 30, 2018 and December 31, 2017, the aggregate loan loss provision was $17.0 million and $5.0 million for commercial mortgage loans and subordinate loans, respectively.

We recognized payment-in-kind ("PIK") interest of $10.2 million and $29.9 million for the three and nine months endedSeptember 30, 2018, respectively, and $5.3 million and $19.3 million for the three and nine months endedSeptember 30, 2017, respectively.

We recognized pre-payment penalties and accelerated fees of $0.2 million and $1.8 million for the three and nine months ended September 30, 2018, respectively. For the three and nine months endedSeptember 30, 2017, we recognized pre-payment penalties of $3.6 million and $4.0 million, respectively.

Loan Proceeds Held by Servicer

Loan proceeds held by servicer represents principal payments held by our third-party loan servicer as of the balance sheet date which were remitted to us subsequent to the balance sheet date. Loan proceeds held by servicer was$302.8 millionas of December 31, 2017. There were no loan proceeds held by servicer as of September 30, 2018.

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Loan Proceeds Held by Servicer

9 Months Ended

Sep. 30, 2018

Receivables [Abstract]

Loan Proceeds Held by Servicer

Commercial Mortgage and Subordinate Loans, Net

Our loan portfolio was comprised of the following at September 30, 2018 and December 31, 2017 ($ in thousands):

Loan Type	September 30, 2018		December 31, 2017
Commercial mortgage loans, net	$	3,723,550	$	2,653,826
Subordinate loans, net	1,104,496		1,025,932
Total loans, net	$	4,828,046	$	3,679,758

Our loan portfolio consisted of 90% and 88% floating rate loans, based on amortized cost, as of September 30, 2018 and December 31, 2017, respectively.

Activity relating to our loan investment portfolio, for the nine months endedSeptember 30, 2018, was as follows ($ in thousands):

	Principal Balance			Deferred Fees/Other Items (1)			Provision for Loan Loss (2)			Carrying Value
December 31, 2017	$	3,706,169		$	(9,430	)	$	(16,981	)	$	3,679,758
New loan fundings	1,590,123			—			—			1,590,123
Add-on loan fundings (3)	175,053			—			—			175,053
Loan repayments	(601,041		)	—			—			(601,041		)

Unrealized gain (loss) on foreign currency translation	(35,412		)	(21		)	—			(35,433		)
Provision for loan loss (2)	—			—			(5,000		)	(5,000		)
Deferred fees and other items (1)	—			(24,596		)	—			(24,596		)
PIK interest, amortization of fees and other items (1)	29,944			19,238			—			49,182
September 30, 2018	$	4,864,836		$	(14,809	)	$	(21,981	)	$	4,828,046

———————

(1) Other items primarily consist of purchase discounts or premiums, exit fees and deferred origination expenses.

(2)In addition to the $22.0 million provision for loan loss, we recorded an impairment of $3.0 million against an investment previously recorded under other assets on our condensed consolidated balance sheet.

(3) Represents fundings for loans closed prior to 2018.

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

	September 30, 2018			December 31, 2017
Number of loans	68			59
Principal balance	$	4,864,836		$	3,706,169
Carrying value	$	4,828,046		$	3,679,758
Unfunded loan commitments (1)	$	884,178		$	435,627
Weighted-average cash coupon (2)	8.2		%	8.4		%

———————

(1) Unfunded loan commitments are primarily funded to finance property improvements or lease-related expenditures by the borrowers. 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.

The table below details the property type of the properties securing the loans in our portfolio at the dates indicated ($ in thousands):

	September 30, 2018				December 31, 2017
Property Type	Carrying Value		% of Portfolio		Carrying Value		% of Portfolio
Hotel	$	1,229,460	25.5	%	$	645,056	17.6	%
Residential-for-sale: inventory (1)	602,826		12.5	%	92,438		2.5	%
Residential-for-sale: construction (1)	385,303		8.0	%	349,739		9.5	%
Urban Predevelopment	677,440		14.0	%	654,736		17.8	%
Office	520,926		10.8	%	513,830		14.0	%
Multifamily	450,017		9.3	%	465,057		12.6	%
Mixed Use	320,984		6.6	%	354,640		9.6	%
Healthcare	255,588		5.3	%	173,870		4.7	%
Retail Center	202,031		4.2	%	198,913		5.4	%
Other	151,471		3.1	%	154,141		4.2	%
Industrial	32,000		0.7	%	77,338		2.1	%
Total	$	4,828,046	100.0	%	$	3,679,758	100.0	%

(1) To conform to the current period’s presentation, loans with a combined carrying value of $442.2 million classified as residential-for-sale as of December 31, 2017 were broken out into $349.8 million of residential-for-sale: construction and $92.4 million of residential-for-sale: inventory.

The table below details the geographic distribution of the properties securing the loans in our portfolio at the dates indicated ($ in thousands):

	September 30, 2018				December 31, 2017
Geographic Location	Carrying Value		% of Portfolio		Carrying Value		% of Portfolio
Manhattan, NY	$	1,365,211	28.3	%	$	1,173,833	31.9	%
Brooklyn, NY	332,372		6.9	%	357,611		9.7	%
Northeast	37,410		0.8	%	100,536		2.7	%
Midwest	800,196		16.6	%	683,380		18.6	%
Southeast	608,925		12.6	%	531,582		14.4	%
West	522,818		10.8	%	227,024		6.2	%
Mid Atlantic	213,881		4.4	%	191,976		5.2	%
Southwest	115,683		2.4	%	33,615		0.9	%
United Kingdom	706,342		14.6	%	303,488		8.3	%
Other International	125,208		2.6	%	76,713		2.1	%
Total	$	4,828,046	100.0	%	$	3,679,758	100.0	%

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 ratio ("LTV"), 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 has been impaired

The following table allocates the carrying value of our loan portfolio based on our internal risk ratings at the dates indicated ($ in thousands):

	September 30, 2018					December 31, 2017
Risk Rating	Number of Loans	Carrying Value		% of Loan Portfolio		Number of Loans	Carrying Value		% of Loan Portfolio
1	—	$	—	—	%	—	$	—	—	%
2	5	340,237		7	%	5	399,326		10	%
3	60	4,254,383		88	%	51	3,034,358		83	%
4	1	171,127		4	%	1	168,208		5	%
5	2	62,299		1	%	2	77,866		2	%
	68	$	4,828,046	100	%	59	$	3,679,758	100	%

We evaluate our loans for possible impairment on a quarterly basis. We regularly evaluate 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 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 property’s liquidation value. 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 loan loss 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. An allowance for loan loss is established when it is deemed probable that we will not be able to collect all amounts due according to the contractual terms of the loan.

We recorded a $10.0 million loan loss provision and impairment against a commercial mortgage loan secured by a fully-built, for-sale residential condominium units located in Bethesda, MD. This was comprised of (i) $5.0 million loan loss recorded during the second quarter of 2018, and (ii) $2.0 million loan loss provision and $3.0 million of impairment recorded during the second quarter of 2017. The impairment was recorded on an investment previously recorded under other assets on our condensed consolidated balance sheet. The loan loss provision and impairment were based on the difference between fair value of the underlying collateral, and the carrying value of the loan (prior to the loan loss provision and related impairment). Fair value of the collateral was determined using a discounted cash flow analysis. The significant unobservable inputs used in determining the collateral value were sales price per square foot and discount rate which were an average of $662 dollars per square foot across properties and 15%, respectively. Effective April 1, 2017, we ceased accruing all interest associated with the loan and accounts for the loan on a cost-recovery basis (all proceeds are applied towards the loan balance). As of September 30, 2018 and December 31, 2017, this loan was assigned a risk rating of 5.

During 2016, we recorded a loan loss provision of $10.0 million on a commercial mortgage loan and $5.0 million on a contiguous subordinate loan secured by a multifamily property located in Williston, ND. The loan loss provision was based on the difference between fair value of the underlying collateral, and the carrying value of the loan (prior to the loan loss provision). Fair value of the collateral was determined using a discounted cash flow analysis. The significant unobservable inputs used in determining the collateral value were terminal capitalization rate and discount rate which were 11% and 10%, respectively. We ceased accruing interest associated with the loan and only recognize interest income upon receipt of cash. As of September 30, 2018 and December 31, 2017, this loan was assigned a risk rating of 5.

We evaluate modifications to our loan portfolio to determine if the modifications constitute a troubled debt restructuring ("TDR"), under ASC Topic 310, “Receivables." During the second quarter of 2018, we determined that a modification of one commercial mortgage loan with a principal balance of $169.0 million constituted a TDR as the interest rate spread was reduced from 5.5% over LIBOR to 3.0% over LIBOR. As of September 30, 2018 and December 31, 2017, this loan was assigned a risk rating of 4. The entity that we are a part of and owns the underlying property was deemed to be a variable interest entity ("VIE") and it was determined that we are not the primary beneficiary of that VIE.

During the three months ended September 30, 2018, we sold a $75.0 million ($17.7 million funded) subordinate position of our $265.0 million loans for the construction of an office campus in Renton, Washington. As of September 30, 2018, our exposure to the property is limited to a $190.0 million ($65.5 million funded) mortgage loan. This transaction was evaluated under ASC 860 - Transfers and Servicing and we determined that it qualifies as a sale and accounted for as such.

As of September 30, 2018 and December 31, 2017, the aggregate loan loss provision was $17.0 million and $5.0 million for commercial mortgage loans and subordinate loans, respectively.

We recognized payment-in-kind ("PIK") interest of $10.2 million and $29.9 million for the three and nine months endedSeptember 30, 2018, respectively, and $5.3 million and $19.3 million for the three and nine months endedSeptember 30, 2017, respectively.

We recognized pre-payment penalties and accelerated fees of $0.2 million and $1.8 million for the three and nine months ended September 30, 2018, respectively. For the three and nine months endedSeptember 30, 2017, we recognized pre-payment penalties of $3.6 million and $4.0 million, respectively.

Loan Proceeds Held by Servicer

Loan proceeds held by servicer represents principal payments held by our third-party loan servicer as of the balance sheet date which were remitted to us subsequent to the balance sheet date. Loan proceeds held by servicer was$302.8 millionas of December 31, 2017. There were no loan proceeds held by servicer as of September 30, 2018.

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Other Assets

9 Months Ended

Sep. 30, 2018

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

Other Assets

Other Assets

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

	September 30, 2018		December 31, 2017
Interest receivable	$	31,255	$	23,101
Collateral deposited under derivative agreements	—		4,930
Other	639		389
Total	$	31,894	$	28,420

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Secured Debt Arrangements, Net

9 Months Ended

Sep. 30, 2018

Debt Disclosure [Abstract]

Secured Debt Arrangements, Net

Secured Debt Arrangements, Net

At September 30, 2018 and December 31, 2017, our borrowings had the following secured debt arrangements, maturities and weighted average interest rates ($ in thousands):

	September 30, 2018 (2)						December 31, 2017
	Maximum Amount of Borrowings		Borrowings Outstanding			Maturity (1)	Maximum Amount of Borrowings		Borrowings Outstanding			Maturity (1)	Weighted Average Rate
JPMorgan Facility (USD)	$	1,332,450	$	950,635		June 2021	$	1,393,000	$	944,529		March 2020	USD L + 2.30%
JPMorgan Facility (GBP)	49,550		49,550			June 2021	N/A		N/A			N/A	N/A
DB Repurchase Facility (USD)	900,905		389,525			March 2021	472,090		225,367			March 2020	USD L + 2.56%
DB Repurchase Facility (GBP)	154,095		154,095			March 2021	93,919		93,919			March 2020	GBP L + 2.60%
Goldman Facility	300,000		205,982			November 2020	331,130		81,380			November 2020	USD L + 2.73%
CS Facility (USD)	69,941		69,941			March 2019	N/A		N/A			N/A	N/A
CS Facility (GBP)	143,993		143,993			March 2019	N/A		N/A			N/A	N/A
HSBC Facility (GBP)	49,896		49,896			September 2019	N/A		N/A			N/A	N/A
Sub-total	3,000,830		2,013,617				2,290,139		1,345,195
less: deferred financing costs	N/A		(16,746		)		N/A		(14,348		)		N/A
Total / Weighted Average	$	3,000,830	$	1,996,871			$2,290,139		$1,330,847				USD L + 2.37% /
													GBP L + 2.60%

———————

(1) Maturity date assumes extensions at our option are exercised.

(2) Weighted average rate as of September 30, 2018 was USD L + 2.26% / GBP L + 2.27%.

JPMorgan Facility

In May 2017, through two indirect wholly-owned subsidiaries, we entered into the Fifth Amended and Restated Master Repurchase Agreement with JPMorgan Chase Bank, National Association (as amended, the "JPMorgan Facility"). The JPMorgan Facility provides for maximum total borrowing capacity of $1.4 billion, comprised of a $1.25 billion repurchase facility and a $132.0 million asset specific financing and enables us to elect to receive advances in either U.S. dollars, British pounds ("GBP"), or Euros ("EUR"). The repurchase facility matures in June 2020, plus a one-year extension available at our option, subject to certain conditions. The asset specific financing matures in February 2019. Margin calls may occur any time at specified aggregate margin deficit thresholds. We have agreed to provide a limited guarantee of the obligations of our indirect wholly-owned subsidiaries under the JPMorgan Facility.

As of September 30, 2018, we had $1.0 billion (including £38.0 million assuming conversion into U.S. dollars) of borrowings outstanding under the JPMorgan Facility secured by certain of our commercial mortgage loans.

DB Repurchase Facility

In April 2018, through an indirect wholly-owned subsidiary, we entered into a Second Amended and Restated Master Repurchase Agreement with Deutsche Bank AG, Cayman Islands Branch and Deutsche Bank AG, London Branch (as amended, the "DB Repurchase Facility"), which was upsized in September 2018, and provides for advances of up to $1.0 billion for the sale and repurchase of eligible first mortgage loans secured by commercial or multifamily properties located in the United States, United Kingdom and the European Union, and enables us to elect to receive advances in either U.S. dollars, British pounds, or Euros. Additionally, we have a $55.0 million of asset specific financing with Deutsche Bank in connection with financing a first mortgage loan secured by real estate. The repurchase facility matures in March 2020, plus a one-year extension available at our option, subject to certain conditions. The asset specific financing matures in August 2019. Margin calls may occur any time at specified aggregate margin deficit thresholds. We have agreed to provide a limited guarantee of the obligations of our indirect wholly-owned subsidiaries under this facility.

As of September 30, 2018, we had $543.6 million (including £118.3 million assuming conversion into U.S. dollars) of borrowings outstanding under the DB Repurchase 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"), which provides for advances of up to $300.0 million and matures in November 2019, plus a one-year extension available at our option, subject to certain conditions. Margin calls may occur any time at specified margin deficit thresholds. We have agreed to provide a limited guarantee of the obligations of the seller under the Goldman Facility.

As of September 30, 2018, we had total borrowings of $206.0 million of borrowings outstanding under the Goldman Facility.

CS Facility - USD

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 - USD"), which provides for advances for the sale and repurchase of eligible commercial mortgage loans secured by real estate. The CS Facility - USD matures six months after either party notifies the other party of intention to terminate. Margin calls may occur any time at specified aggregate margin deficit thresholds. We have agreed to provide a guarantee of the obligations of our indirect wholly-owned subsidiaries under this facility.

As of September 30, 2018, we had total borrowings of $69.9 million of borrowings outstanding under the CS Facility - USD secured by one of our commercial mortgage loans.

CS Facility - GBP

In June 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 - GBP"), which provides for advances for the sale and repurchase of eligible commercial mortgage loans secured by real estate. The CS Facility - GBP matures six months after either party notifies the other party of intention to terminate. Margin calls may occur any time at specified aggregate margin deficit thresholds. We have agreed to provide a guarantee of the obligations of our indirect wholly-owned subsidiaries under this facility.

As of September 30, 2018, we had total borrowings of $144.0 million (£110.5 million assuming conversion into U.S. dollars) of borrowings outstanding under the CS Facility - GBP secured by one of our commercial mortgage loans.

HSBC Facility

In September 2018, through an indirect wholly-owned subsidiary, we entered into a secured debt arrangement with HSBC Bank plc (the "HSBC Facility"), which provides for a single asset financing. The facility matures in September 2019 and unless terminated by either party, automatically extends for further periods prior to maturity. Margin calls may occur any time at specified aggregate margin deficit thresholds. We have agreed to provide a guarantee of the obligations of our indirect wholly-owned subsidiaries under this facility.

As of September 30, 2018, we had total borrowings of $49.9 million (£38.3 million assuming conversion into U.S. dollars) of borrowings outstanding under the HSBC Facility secured by one of our commercial mortgage loans.

At September 30, 2018, our borrowings had the following remaining maturities ($ in thousands):

	Less than 1 year (1)		1 to 3 years (1)		3 to 5 years		More than 5 years		Total
JPMorgan Facility	$	334,884	$	665,301	$	—	$	—	$	1,000,185
DB Repurchase Facility	177,164		366,456		—		—		543,620
Goldman Facility	—		205,982		—		—		205,982
CS Facility - USD	69,941		—		—		—		69,941
CS Facility - GBP	143,993		—		—		—		143,993
HSBC Facility	49,896		—		—		—		49,896
Total	$	775,878	$	1,237,739	$	—	$	—	$	2,013,617

———————

(1)Assumes underlying assets are financed through the fully extended maturity date of the facility.

The table below summarizes the outstanding balances at September 30, 2018, as well as the maximum and average month-end balances for the nine months ended September 30, 2018 for our borrowings under secured debt arrangements ($ in thousands).

					For the nine months ended September 30, 2018
	Balance at September 30, 2018		Amortized Cost of collateral at September 30, 2018		Maximum Month-End Balance		Average Month-End Balance
JPMorgan Facility	$	1,000,185	$	1,621,477	$	1,000,854	$	910,138
DB Repurchase Facility	543,620		955,460		707,405		511,259
Goldman Facility	205,982		278,490		236,764		159,010
CS Facility - USD	69,941		99,013		69,941		69,941
CS Facility - GBP	143,993		220,397		145,937		144,540
HSBC Facility	49,896		70,763		49,896		49,896
Total	$	2,013,617	$	3,245,600

We were in compliance with the covenants under each of our secured debt arrangements at September 30, 2018 and December 31, 2017.

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Convertible Senior Notes, Net

9 Months Ended

Sep. 30, 2018

Debt Disclosure [Abstract]

Convertible Senior Notes, Net

Convertible Senior Notes, Net

In two separate offerings during 2014, we issued an aggregate principal amount of $254.8 million of 5.50% Convertible Senior Notes due 2019 (the "2019 Notes"), for which we received aggregate net proceeds of approximately $248.6 million, after deducting the underwriting discount and estimated offering expenses payable by us.

During the three months ended September 30, 2018, we exchanged or converted $218.8 million in aggregate principal of the 2019 Notes as follows:

(i) on August 2, 2018, we entered into privately negotiated exchange agreements with a limited number of holders of the 2019 Notes pursuant to which we exchanged $206.2 million of the 2019 Notes for an aggregate of (a) 10,020,328 newly issued shares of our common stock, and (b) $39.3 million in cash. We recorded $166.0 million of additional paid-in-capital in the condensed consolidated statement of changes in stockholders' equity in connection with these transactions,

(ii) certain holders elected to convert $12.6 million of the 2019 Notes through multiple transactions for an aggregate of (a) 724,250 newly issued shares of our common stock, and (b) $0.2 million in cash. We recorded $12.4 million of additional paid-in-capital in the condensed consolidated statement of changes in stockholders' equity in connection with these transactions.

During the three and nine months ended September 30, 2018, in connection with the exchanges and conversions of the 2019 Notes, we recorded a loss on early extinguishment of debt of $2.6 million, which includes fees and accelerated amortization of capitalized costs. There was no such loss during the three and nine months ended September 30, 2017.

At September 30, 2018, the outstanding 2019 Notes had a carrying value of $35.5 million and an unamortized discount of $0.5 million.

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," and together with the 2019 Notes, the "Notes"), for which we received aggregate net proceeds of approximately $337.5 million, after deducting the underwriting discount and estimated offering expenses.At September 30, 2018, the 2022 Notes had a carrying value of $334.7 million and an unamortized discount of $10.3 million.

The following table summarizes the terms of the Notes ($ in thousands):

	Principal Amount		Coupon Rate		Effective Rate (1)		Conversion Rate (2)	Maturity Date	Remaining Period of Amortization
2019 Notes	$	35,932	5.50	%	6.50	%	58.0421	3/15/2019	0.45 years
2022 Notes	345,000		4.75	%	5.61	%	50.2260	8/23/2022	3.90 years
Total	$	380,932

———————

(1) Effective rate includes the effect of the adjustment for the conversion option (See endnote (2) below), the value of which reduced the initial liability and was recorded in additional paid-in-capital.

(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 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 Notes prior to maturity except in limited circumstances. The closing price of our common stock on September 30, 2018 of $18.87 was greater than the per share conversion price of the 2019 Notes and less than the per share conversion price of the 2022 Notes. As of September 30, 2018, we no longer assert our intent to fully settle the principal amount of the Notes in cash.

In accordance with ASC 470 - Debt, the liability and equity components of convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) is 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 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 us at such time. We measured the fair value of the debt components of the Notes as of their issuance date based on effective interest rates.  As a result, we attributed approximately $22.4 million of the proceeds to the equity component of the Notes ($11.4 million to the 2019 Notes and $11.0 million to the 2022 Notes), which represents the excess proceeds received over the fair value of the liability component of the Notes at the date of issuance. The equity component of the Notes has been reflected within additional paid-in capital in the condensed consolidated balance sheet as of September 30, 2018. The resulting debt discount is being amortized over the period during which the 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 Notes will increase in subsequent reporting periods through the maturity date as the Notes accrete to their par value over the same period.

The aggregate contractual interest expense was approximately $5.5 million and $20.7 million for the three and nine months ended September 30, 2018, respectively, as compared to approximately $4.7 million and $11.7 million for the three and nine months ended September 30, 2017, respectively. With respect to the amortization of the discount on the liability component of the Notes as well as the amortization of deferred financing costs, we reported additional non-cash interest expense of approximately $1.2 million and $4.9 million for the three and nine months ended September 30, 2018, respectively, as compared to approximately $1.2 million and $3.0 million for the three and nine months ended September 30, 2017, respectively.

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Derivatives, Net

9 Months Ended

Sep. 30, 2018

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives, Net

Derivatives, Net

We use forward currency contracts to economically hedge interest and principal payments due under our loans denominated in currencies other than U.S. dollars.

We have entered into a series of forward contracts to sell an amount of foreign currency (British pound and Euro) for an agreed upon amount of U.S. dollars at various dates through November 2020. These forward contracts were executed to economically fix the U.S. dollar 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 foreign exchange (“Fx”) forwards as of September 30, 2018:

Type of Derivative	September 30, 2018
	Number of Contracts	Aggregate Notional Amount (in thousands)	Notional Currency	Maturity
Fx Contracts - GBP	35	274,309	GBP	October 2018 - November 2020
Fx Contracts - EUR	1	42,247	EUR	October 2018

The following table summarizes our non-designated Fx forwards as of December 31, 2017:

Type of Derivative	December 31, 2017
	Number of Contracts	Aggregate Notional Amount (in thousands)	Notional Currency	Maturity
Fx Contracts - GBP	24	177,077	GBP	January 2018- November 2020

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 the condensed consolidated statements of operations related to our derivatives for the three and nine months endedSeptember 30, 2018 and 2017 ($ in thousands):

		Amount of gain (loss) recognized in income						Amount of gain (loss) recognized in income
		Three months ended September 30,						Nine months ended September 30,
	Location of Gain (Loss) Recognized in Income	2018			2017			2018			2017
Forward currency contracts	Gain (loss) on derivative instruments - unrealized	$	5,046		$	(7,308	)	$	20,987		$	(17,629	)
Forward currency contracts	Gain (loss) on derivative instruments - realized	1,246			(179		)	7,811			(290		)
Interest rate caps(1)	Gain (loss) on derivative instruments - unrealized	(1		)	6			(1		)	3
Total		$	6,291		$	(7,481	)	$	28,797		$	(17,916	)

———————

(1) With a notional amount of $36.2 million and $41.5 million at September 30, 2018, and 2017, respectively.

The following table summarizes the gross asset and liability amounts related to our derivatives at September 30, 2018 and December 31, 2017 ($ in thousands).

	September 30, 2018							December 31, 2017
	Gross Amount of Recognized Assets		Gross Amounts Offset in the Condensed Consolidated Balance Sheet			Net Amounts of Assets Presented in the Condensed Consolidated Balance Sheet		Gross Amount of Recognized Liabilities			Gross Amounts Offset in the Condensed Consolidated Balance Sheet		Net Amounts of Assets (Liabilities) Presented in the Condensed Consolidated Balance Sheet
Interest rate caps	$	1	$	—		$	1	$	—		$	1	$	1
Forward currency contracts	15,708		(368		)	15,340		(5,645		)	—		(5,645		)
Total derivative instruments	$	15,709	$	(368	)	$	15,341	$	(5,645	)	$	1	$	(5,644	)

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Accounts Payable, Accrued Expenses and Other Liabilities

9 Months Ended

Sep. 30, 2018

Payables and Accruals [Abstract]

Accounts Payable, Accrued Expenses and Other Liabilities

Accounts Payable, Accrued Expenses and Other Liabilities

The following table details the components of our accounts payable, accrued expense and other liabilities ($ in thousands):

	September 30, 2018		December 31, 2017
Accrued dividends payable	$	68,544	$	56,576
Accrued interest payable	6,540		12,796
Accounts payable and other liabilities	4,454		1,534
Total	$	79,538	$	70,906

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Related Party Transactions

9 Months Ended

Sep. 30, 2018

Related Party Transactions [Abstract]

Related Party Transactions

Related Party Transactions

Management Agreement

In connection with our initial public offering in September 2009, we entered into a management agreement (the “Management Agreement”) with the Manager, which describes the services to be provided by the Manager and its compensation for those services. The Manager is responsible for managing our day-to-day operations, subject to the direction and oversight of our board of directors.

Pursuant to the terms of the Management Agreement, the Manager is paid a base management fee equal to 1.5% per annum of our stockholders’ equity (as defined in the Management Agreement), calculated and payable (in cash) quarterly in arrears.

The current term of the Management Agreement was renewed during the period and expires on September 29, 2019 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 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 2018, 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 $9.5 million and $26.6 million in base management fees under the Management Agreement for the three and nine months ended September 30, 2018, respectively, as compared to approximately $8.3 million and $23.5 million for the three and nine months ended September 30, 2017, respectively.

In addition to the base management fee, we are also responsible for reimbursing the Manager for certain expenses paid by the Manager on our behalf or for certain services provided by the Manager to us.

For the three and nine months endedSeptember 30, 2018, we paid expenses totaling $0.6 million and $1.8 million, respectively, related to reimbursements for certain expenses paid by the Manager on our behalf under the Management Agreement. For the three and nine months ended September 30, 2017, we paid expenses totaling $0.1 million and $0.2 million, respectively, related to reimbursements for certain expenses paid by the Manager on our behalf under the Management Agreement. Expenses incurred by the Manager and reimbursed by us are reflected in the respective condensed consolidated statement of operations expense category or the condensed consolidated balance sheet based on the nature of the item.

Included in payable to related party on the condensed consolidated balance sheet at September 30, 2018 and December 31, 2017 are approximately $9.5 million and $8.2 million, respectively, for base management fees incurred but not yet paid under the Management Agreement.

Unconsolidated Joint Venture

In September 2014, through a wholly owned subsidiary, we 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 Bremer Kreditbank AG ("BKB"). In May 2017, we sold our remaining ownership interest in Champ LP, to unaffiliated third parties. As such, in 2018 we no longer held any interest in Champ LP.

Loans receivable

In June, 2017, we increased our outstanding loan commitment through the acquisition of an additional $25.0 million of interests in an existing subordinate loan from a fund managed by an affiliate of the Manager, increasing our total outstanding loan commitment to $100.0 million. Furthermore, in September 2017 we funded an additional $25.0 million to acquire a portion of the same pre-development subordinate loan from a fund managed by an affiliate of the Manager, increasing our total outstanding loan commitment to $125.0 million. In May 2018, we increased our outstanding principal balance through the acquisition of an additional $28.2 million interest in the same subordinate loan from a fund managed by an affiliate of the Manager. The pre-development subordinate loan is for the construction of a residential condominium building in New York, New York and is part of a $300.0 million subordinate loan.

In June, 2018, we increased our outstanding loan commitment through the acquisition of £4.8 million ($6.4 million assuming conversion into U.S. dollars) pari-passu interest in an existing subordinate loan from a fund managed by an affiliate of the Manager. The subordinate loan is secured by a healthcare portfolio located in the United Kingdom.

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Share-Based Payments

9 Months Ended

Sep. 30, 2018

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Share-Based Payments

Share-Based Payments

On September 23, 2009, our board of directors approved the Apollo Commercial Real Estate Finance, Inc., 2009 Equity Incentive Plan (as amended from time to time, 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 our common stock (on a fully diluted basis). The LTIP is administered by the compensation committee of our board of directors (the “Compensation Committee”) and all grants under the LTIP must be approved by the Compensation Committee.

We recognized stock-based compensation expense of $4.0 million and $11.4 million for the three and nine months ended September 30, 2018, respectively, related to restricted stock and RSU vesting, as compared to $2.6 million and $9.9 million for the three and nine months ended September 30, 2017, respectively, related to restricted stock and RSU vesting.

The following table summarizes the grants, vesting and forfeitures of restricted common stock and RSUs during the nine months endedSeptember 30, 2018:

	Type	Restricted Stock		RSUs		Grant Date Fair Value ($ in thousands)
Outstanding at December 31, 2017		105,561		1,632,746
	Grant	28,070		7,100		634
	Vested	(24,840	)	(807	)	N/A
	Forfeiture	—		(44,739	)	N/A
Outstanding at September 30, 2018		108,791		1,594,300

Below is a summary of restricted stock and RSU vesting dates as of September 30, 2018: 

Vesting Year	Restricted Stock	RSU	Total Awards
2018	43,094	738,581	781,675
2019	60,803	557,394	618,197
2020	4,894	295,957	300,851
2021	—	2,368	2,368
Total	108,791	1,594,300	1,703,091

At September 30, 2018, we had unrecognized compensation expense of approximately $1.1 million and $19.6 million, respectively, related to the vesting of restricted stock awards and RSUs noted in the table above.

RSU Deliveries

During the three and nine months endedSeptember 30, 2018, we delivered 514 and 346,510 shares of common stock for 807 and 604,484 vested RSUs, respectively. We allow RSU participants to settle their tax liabilities with a reduction of their share delivery from the originally granted and vested RSUs. The amount, when agreed to by the participant, results in a cash payment to the Manager related to this tax liability and a corresponding adjustment to additional paid in capital on the condensed consolidated statement of changes in stockholders' equity. The adjustment was $4.7 million for the nine months endedSeptember 30, 2018, and is included as a reduction of capital related to our equity incentive plan in the condensed consolidated statement of changes in stockholders' equity. There was no adjustment for the three months ended September 30, 2018.

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Stockholders' Equity

9 Months Ended

Sep. 30, 2018

Equity [Abstract]

Stockholders' Equity

Stockholders’ Equity

Our authorized capital stock consists of 450,000,000 shares of common stock, $0.01 par value per share and 50,000,000 shares of preferred stock, $0.01 par value per share. As of September 30, 2018, 133,765,392 shares of common stock were issued and outstanding, 6,770,393 shares of 8.00% Fixed-to-Floating Series B Cumulative Redeemable Perpetual Preferred Stock ("Series B Preferred Stock") were issued and outstanding and 6,900,000 shares of 8.00% Series C Cumulative Redeemable Perpetual Preferred Stock ("Series C Preferred Stock") were issued and outstanding.

Dividends. During 2018, we declared the following dividends:

	Three months ended
Dividend declared per share of:	September 30, 2018	June 30, 2018	March 31, 2018
Common Stock	$0.46	$0.46	$0.46
Series B Preferred Stock	0.50	0.50	0.50
Series C Preferred Stock	0.50	0.50	0.50

Common Stock Offerings. During the first quarter of 2018, we completed a follow-on public offering of 15,525,000 shares of our common stock, at a price of $17.77 per share. The aggregate net proceeds from the offering, including proceeds from the sale of the additional shares, were approximately $275.9 million after deducting the underwriting discount and estimated offering expenses.

During the third quarter of 2018, we issued 10,744,577 shares of our common stock related to exchanges and conversions of the 2019 Notes. Refer to "Note 9 - Convertible Senior Notes, Net" for a further discussion on the exchanges and conversions of the 2019 Notes.

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2018

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

Legal Proceedings. From time to time, we may be involved in various claims and legal actions arising in the ordinary course of business. On June 28, 2018, AmBase Corporation, 111 West 57th Street Manager Funding LLC and 111 West 57th Investment LLC commenced an action captioned AmBase Corporation et al v. ACREFI Mortgage Lending, LLC et al (No. 653251/2018) in New York Supreme Court.  The complaint names as defendants (i) ACREFI Mortgage Lending, LLC, a subsidiary of the Company, (ii) the Company, and (iii) certain funds managed by Apollo, who are co-lenders on a mezzanine loan against the development of a residential condominium building in Manhattan, New York. The plaintiffs allege that the defendants tortiously interfered with the contractual equity put right in 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 allege the loss of a $70.0 million investment as part of total damages of $700.0 million, which includes punitive damages. The defendants moved to dismiss the complaint on August 17, 2018, and the motion was fully briefed in October 2018. Oral argument is scheduled for February 2019.  We believe the claims are without merit and plan to vigorously defend the case.

On January 4, 2017, the United States Department of Justice served a Request for Information and Documents (the

“Request”) on the Company, in connection with a preliminary investigation into certain aspects of our former residential real estate portfolio, which we acquired in connection with the merger of Apollo Residential Mortgage, Inc. with and into the Company and subsequently sold in 2016. The Request sought a range of information in connection with the residential real estate portfolio, including, among other things, information concerning policies, procedures, and practices related to advertising, marketing, identifying, or acquiring residential properties for sale or rent, and various data for all rental and sales contracts executed since January 1, 2012. We fully cooperated with the Department of Justice, and were advised, by a letter dated May 2, 2018, that the Department of Justice did not intend to take any further actions in this matter as it relates to us.

Loan Commitments. As described in "Note 5 - Commercial Mortgage and Subordinate Loans, Net," at September 30, 2018, we had $884.2 million of unfunded commitments related to our commercial mortgage and subordinate loan portfolios.

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Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2018

Fair Value Disclosures [Abstract]

Fair Value of Financial Instruments

Fair Value of Financial Instruments

The following table presents the carrying value and estimated fair value of our financial instruments not carried at fair value on the condensed consolidated balance sheet at September 30, 2018 and December 31, 2017 ($ in thousands):

	September 30, 2018						December 31, 2017
	Carrying Value			Estimated Fair Value			Carrying Value			Estimated Fair Value
Cash	$	99,188		$	99,188		$	77,671		$	77,671
Commercial first mortgage loans, net	3,723,550			3,720,475			2,653,826			2,657,262
Subordinate loans, net	1,104,496			1,098,632			1,025,932			1,029,390
Secured debt arrangements	(2,013,617		)	(2,013,617		)	(1,345,195		)	(1,345,195		)
2019 Notes	(35,477		)	(39,660		)	(251,935		)	(267,506		)
2022 Notes	(334,697		)	(345,863		)	(332,962		)	(350,175		)

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 convertible senior notes, 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."

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Net Income (Loss) per Share

9 Months Ended

Sep. 30, 2018

Earnings Per Share [Abstract]

Net Income (Loss) per Share

Net Income per Share

ASC 260 "Earnings per share" requires the use of the two-class method of computing earnings per share for all periods presented for each class of common stock and participating security as if all earnings for the period had been distributed. Under the two-class method, during periods of net income, the net income is first reduced for dividends declared on all classes of securities to arrive at undistributed earnings. During periods of net losses, the net loss is reduced for dividends declared on participating securities only if the security has the right to participate in the earnings of the entity and an objectively determinable contractual obligation to share in net losses of the entity.

The remaining earnings are allocated to common stockholders and participating securities to the extent that each security shares in earnings as if all of the earnings for the period had been distributed. Each total is then divided by the applicable number of shares to arrive at basic earnings per share. For the diluted earnings, the denominator includes all outstanding shares of common stock and all potential shares of common stock assumed issued if they are dilutive. The numerator is adjusted for any changes in income or loss that would result from the assumed conversion of these potential shares of common stock.

The table below presents the computation of basic and diluted net income per share of common stock for the three and nine months endedSeptember 30, 2018 and 2017 ($ in thousands except per share data):

	For the three months ended September 30,						For the nine months ended September 30,
	2018			2017			2018			2017
Basic Earnings
Net income	$	62,217		$	68,356		$	166,996		$	151,714
Less: Preferred dividends	(6,836		)	(11,148		)	(20,505		)	(29,768		)
Net income available to common stockholders	$	55,381		$	57,208		$	146,491		$	121,946
Less: Dividends on participating securities	(733		)	(620		)	(2,215		)	(1,884		)
Basic Earnings	$	54,648		$	56,588		$	144,276		$	120,062
Diluted Earnings
Net income	$	62,217		$	68,356		$	166,996		$	151,714
Less: Preferred dividends	(6,836		)	(11,148		)	(20,505		)	(29,768		)
Net income available to common stockholders	$	55,381		$	57,208		$	146,491		$	121,946
Add: Interest expense on Notes	6,746			N/A			25,607			N/A
Diluted Earnings	$	62,127		$	57,208		$	172,098		$	121,946
Number of Shares:
Basic weighted average shares of common stock outstanding	129,188,343			105,446,704			120,876,240			97,546,437
Diluted weighted average shares of common stock outstanding	153,918,435			106,812,721			150,424,889			98,919,689
Earnings Per Share Attributable to common stockholders
Basic	$	0.42		$	0.54		$	1.19		$	1.23
Diluted	$	0.40		$	0.54		$	1.14		$	1.23

Prior to the three months ended September 30, 2018, we asserted our intent and ability to settle the principal amount of the Notes in cash and, as a result, the Notes did not have any impact on our diluted earnings per share. As of September 30, 2018, we no longer assert our intent to fully settle the principal amount of the Notes in cash upon conversion. Accordingly, the dilutive effect to earnings per share for the current year periods is determined using the "if-converted" method whereby interest expense on the outstanding Notes is added back to the diluted earnings per share numerator and all of the potentially dilutive shares are included in the diluted earnings per share denominator. For the three and nine months endedSeptember 30, 2018, 24,730,092 and 29,548,649 weighted average potentially issuable shares from the Notes, respectively, were included in the dilutive earnings per share denominator. Refer to "Note 9 - Convertible Senior Notes, Net" for further discussion.

For the three and nine months endedSeptember 30, 2018, 1,593,070 and 1,617,398 weighted average unvested RSUs, respectively, were excluded from the calculation of diluted net income per share because the effect was anti-dilutive. For the three and nine months endedSeptember 30, 2017, 1,366,017 and 1,373,252 weighted average unvested RSUs, respectively, were excluded from the calculation of diluted net income per share because the effect was anti-dilutive.

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Subsequent Events

9 Months Ended

Sep. 30, 2018

Subsequent Events [Abstract]

Subsequent Events

Subsequent Events

Investment activity.  Subsequent to the end of the quarter, we committed capital of $387.0 million, $273.2 million of which was funded at closing, of first mortgage loans.

In addition, we funded approximately $23.9 million for loans closed prior to the quarter.

Loan Repayments. Subsequent to the end of the quarter, we received approximately $180.9 million from loan repayments.

On October 5, 2018, we completed a public offering of $230.0 million aggregate principal amount of 5.375% Convertible Senior Notes due 2023 (the "2023 Notes"), which included $30.0 million due to underwriters’ exercise in full of their option to purchase additional 2023 Notes. The public offering generated net proceeds of approximately $223.7 million, after deducting the underwriting discount and offering expenses. The 2023 Notes bear interest at a rate of 5.375% per annum. The conversion rate is initially equal to 48.7187 shares of common stock per $1,000 principal amount of notes, which is equivalent to a conversion price of approximately $20.53 per share of common stock, representing an approximate 10% conversion premium to the closing price of our common stock of $18.66 per share on October 2, 2018.

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Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2018

Accounting Policies [Abstract]

Basis of Presentation

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 loan loss reserves and impairment. 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, 2017, as filed with the Securities and Exchange Commission (the “SEC”). In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary to present fairly our financial position, results of operations and cash flows have been included. Our results of operations for the three and nine months ended September 30, 2018 are not necessarily indicative of the results to be expected for the full year or any other future period.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board ("FASB") issued ASU 2018-13 "Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement" ("ASU 2018-13"). ASU 2018-13 changes the fair value measurement disclosure requirements of ASC 820 "Fair Value Measurement" by adding, eliminating, and modifying certain disclosure requirements. ASU 2018-13 is effective for all entities for fiscal years beginning after December 15, 2019 and requires application of the prospective method of transition. We are currently assessing the impact the guidance will have on our condensed consolidated financial statements.

In June 2018, the FASB issued ASU 2018-07 "Compensation - Stock Compensation (Topic 718): Improvements to Nonemployees Share-Based Payment Accounting" ("ASU 2018-07"). The intention of ASU 2018-07 is to expand the scope of Topic 718 to include share-based payment transactions in exchange for goods and services from nonemployees. These share-based payments will now be measured at grant-date fair value of the equity instrument issued. Upon adoption, only liability-classified awards that have not been settled and equity-classified awards for which a measurement date has not been established should be remeasured through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. ASU 2018-07 is effective for fiscal years beginning after December 15, 2019 and is applied retrospectively. We are currently assessing the impact the guidance will have on our condensed consolidated financial statements.

In August 2017, the FASB issued ASU 2017-12 "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities” ("ASU 2017-12"). The intention of ASU 2017-12 is to align an entity’s financial reporting for hedging activities with the economic objectives of those activities. Upon adoption of ASU 2017-12, the cumulative ineffectiveness previously recognized on existing cash flow and net investment hedges will be adjusted and removed from beginning retained earnings and placed in accumulated other comprehensive income (loss). We note that this guidance will not have a material impact on our condensed consolidated financial statements. ASU 2017-12 is effective for fiscal years beginning after December 15, 2018 and is applied retrospectively.

In November 2016, the FASB issued ASU 2016-18 “Statement of Cash Flows (Topic 230): Restricted Cash” ("ASU 2016-18"). ASU 2016-18 is intended to clarify how entities present restricted cash in the statement of cash flows. The guidance requires entities to show the changes in the total of cash and cash equivalents and restricted cash in the statement of cash flows. As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash in the statement of cash flows. When cash and cash equivalents and restricted cash are presented in more than one line item on the balance sheet, the new guidance requires a reconciliation of the totals in the statement of cash flows to the related captions in the balance sheet. This reconciliation can be presented either on the face of the statement of cash flows or in the notes to the financial statements. ASU 2016-18 is effective for fiscal years beginning after December 15, 2017 and is to be applied retrospectively. We early adopted ASU 2016-18 on June 30, 2017, which changed our condensed consolidated statement of cash flows and related disclosures for all periods presented. The following is a reconciliation of our cash, cash equivalents, and restricted cash to the total presented in our condensed consolidated statement of cash flows for the nine months ended September 30, 2018 and September 30, 2017, respectively ($ in thousands):

	Balance at September 30, 2018		Balance at September 30, 2017
Cash	$	99,188	$	140,229
Restricted cash	—		76
Total cash and restricted cash shown in the condensed consolidated statement of cash flows	$	99,188	$	140,305

In June 2016, the FASB issued ASU 2016-13 “Financial Instruments - Credit Losses - Measurement of Credit Losses on Financial Instruments (Topic 326)" ("ASU 2016-13"). ASU 2016-13 significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income.  The guidance will replace the “incurred loss” approach under existing guidance with an “expected loss” model for instruments measured at amortized cost and require entities to record allowances for available-for-sale debt securities rather than reduce the carrying amount, as they do today under the other-than-temporary impairment model. It also simplifies the accounting model for purchased credit-impaired debt securities and loans. The guidance is effective for fiscal years beginning after December 15, 2019 and is to be adopted through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. While we are currently evaluating the impact ASU 2016-13 will have on our condensed consolidated financial statements, we expect that the adoption will result in higher provisions for potential loan losses.

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Summary of Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2018

Accounting Policies [Abstract]

Schedule of Cash, Cash Equivalents and Restricted Cash

The following is a reconciliation of our cash, cash equivalents, and restricted cash to the total presented in our condensed consolidated statement of cash flows for the nine months ended September 30, 2018 and September 30, 2017, respectively ($ in thousands):

	Balance at September 30, 2018		Balance at September 30, 2017
Cash	$	99,188	$	140,229
Restricted cash	—		76
Total cash and restricted cash shown in the condensed consolidated statement of cash flows	$	99,188	$	140,305

Schedule of Cash, Cash Equivalents and Restricted Cash

The following is a reconciliation of our cash, cash equivalents, and restricted cash to the total presented in our condensed consolidated statement of cash flows for the nine months ended September 30, 2018 and September 30, 2017, respectively ($ in thousands):

	Balance at September 30, 2018		Balance at September 30, 2017
Cash	$	99,188	$	140,229
Restricted cash	—		76
Total cash and restricted cash shown in the condensed consolidated statement of cash flows	$	99,188	$	140,305

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Fair Value Disclosure (Tables)

9 Months Ended

Sep. 30, 2018

Fair Value Disclosures [Abstract]

Summary of Levels in Fair Value Hierarchy of Financial Instruments

The following table summarizes the levels in the fair value hierarchy into which our financial instruments were categorized as of September 30, 2018 and December 31, 2017 ($ in thousands): 

	Fair Value as of September 30, 2018								Fair Value as of December 31, 2017
	Level I		Level II		Level III		Total		Level I		Level II			Level III		Total
Derivative assets (liabilities), net	$	—	$	15,341	$	—	$	15,341	$	—	$	(5,644	)	$	—	$	(5,644	)

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Commercial Mortgage and Subordinate Loans, Net (Tables)

9 Months Ended

Sep. 30, 2018

Receivables [Abstract]

Schedule of Loan Portfolio

Our loan portfolio was comprised of the following at September 30, 2018 and December 31, 2017 ($ in thousands):

Loan Type	September 30, 2018		December 31, 2017
Commercial mortgage loans, net	$	3,723,550	$	2,653,826
Subordinate loans, net	1,104,496		1,025,932
Total loans, net	$	4,828,046	$	3,679,758

Activity Related to Loan Investment Portfolio

Activity relating to our loan investment portfolio, for the nine months endedSeptember 30, 2018, was as follows ($ in thousands):

	Principal Balance			Deferred Fees/Other Items (1)			Provision for Loan Loss (2)			Carrying Value
December 31, 2017	$	3,706,169		$	(9,430	)	$	(16,981	)	$	3,679,758
New loan fundings	1,590,123			—			—			1,590,123
Add-on loan fundings (3)	175,053			—			—			175,053
Loan repayments	(601,041		)	—			—			(601,041		)

Unrealized gain (loss) on foreign currency translation	(35,412		)	(21		)	—			(35,433		)
Provision for loan loss (2)	—			—			(5,000		)	(5,000		)
Deferred fees and other items (1)	—			(24,596		)	—			(24,596		)
PIK interest, amortization of fees and other items (1)	29,944			19,238			—			49,182
September 30, 2018	$	4,864,836		$	(14,809	)	$	(21,981	)	$	4,828,046

———————

(1) Other items primarily consist of purchase discounts or premiums, exit fees and deferred origination expenses.

(2)In addition to the $22.0 million provision for loan loss, we recorded an impairment of $3.0 million against an investment previously recorded under other assets on our condensed consolidated balance sheet.

(3) Represents fundings for loans closed prior to 2018.

Schedule of Overall Statistics for the Loan Portfolio

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

	September 30, 2018			December 31, 2017
Number of loans	68			59
Principal balance	$	4,864,836		$	3,706,169
Carrying value	$	4,828,046		$	3,679,758
Unfunded loan commitments (1)	$	884,178		$	435,627
Weighted-average cash coupon (2)	8.2		%	8.4		%

———————

(1) Unfunded loan commitments are primarily funded to finance property improvements or lease-related expenditures by the borrowers. 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.

Schedule of Mortgage Loans on Real Estate

The table below details the property type of the properties securing the loans in our portfolio at the dates indicated ($ in thousands):

	September 30, 2018				December 31, 2017
Property Type	Carrying Value		% of Portfolio		Carrying Value		% of Portfolio
Hotel	$	1,229,460	25.5	%	$	645,056	17.6	%
Residential-for-sale: inventory (1)	602,826		12.5	%	92,438		2.5	%
Residential-for-sale: construction (1)	385,303		8.0	%	349,739		9.5	%
Urban Predevelopment	677,440		14.0	%	654,736		17.8	%
Office	520,926		10.8	%	513,830		14.0	%
Multifamily	450,017		9.3	%	465,057		12.6	%
Mixed Use	320,984		6.6	%	354,640		9.6	%
Healthcare	255,588		5.3	%	173,870		4.7	%
Retail Center	202,031		4.2	%	198,913		5.4	%
Other	151,471		3.1	%	154,141		4.2	%
Industrial	32,000		0.7	%	77,338		2.1	%
Total	$	4,828,046	100.0	%	$	3,679,758	100.0	%

(1) To conform to the current period’s presentation, loans with a combined carrying value of $442.2 million classified as residential-for-sale as of December 31, 2017 were broken out into $349.8 million of residential-for-sale: construction and $92.4 million of residential-for-sale: inventory.

The table below details the geographic distribution of the properties securing the loans in our portfolio at the dates indicated ($ in thousands):

	September 30, 2018				December 31, 2017
Geographic Location	Carrying Value		% of Portfolio		Carrying Value		% of Portfolio
Manhattan, NY	$	1,365,211	28.3	%	$	1,173,833	31.9	%
Brooklyn, NY	332,372		6.9	%	357,611		9.7	%
Northeast	37,410		0.8	%	100,536		2.7	%
Midwest	800,196		16.6	%	683,380		18.6	%
Southeast	608,925		12.6	%	531,582		14.4	%
West	522,818		10.8	%	227,024		6.2	%
Mid Atlantic	213,881		4.4	%	191,976		5.2	%
Southwest	115,683		2.4	%	33,615		0.9	%
United Kingdom	706,342		14.6	%	303,488		8.3	%
Other International	125,208		2.6	%	76,713		2.1	%
Total	$	4,828,046	100.0	%	$	3,679,758	100.0	%

Carrying Value of Loan Portfolio Based on Internal Risk Ratings

The following table allocates the carrying value of our loan portfolio based on our internal risk ratings at the dates indicated ($ in thousands):

	September 30, 2018					December 31, 2017
Risk Rating	Number of Loans	Carrying Value		% of Loan Portfolio		Number of Loans	Carrying Value		% of Loan Portfolio
1	—	$	—	—	%	—	$	—	—	%
2	5	340,237		7	%	5	399,326		10	%
3	60	4,254,383		88	%	51	3,034,358		83	%
4	1	171,127		4	%	1	168,208		5	%
5	2	62,299		1	%	2	77,866		2	%
	68	$	4,828,046	100	%	59	$	3,679,758	100	%

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Other Assets (Tables)

9 Months Ended

Sep. 30, 2018

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

Schedule of Components of Other Assets

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

	September 30, 2018		December 31, 2017
Interest receivable	$	31,255	$	23,101
Collateral deposited under derivative agreements	—		4,930
Other	639		389
Total	$	31,894	$	28,420

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Secured Debt Arrangements, Net (Tables)

9 Months Ended

Sep. 30, 2018

Debt Disclosure [Abstract]

Weighted Average Maturities and Interest Rates of Borrowings

At September 30, 2018 and December 31, 2017, our borrowings had the following secured debt arrangements, maturities and weighted average interest rates ($ in thousands):

	September 30, 2018 (2)						December 31, 2017
	Maximum Amount of Borrowings		Borrowings Outstanding			Maturity (1)	Maximum Amount of Borrowings		Borrowings Outstanding			Maturity (1)	Weighted Average Rate
JPMorgan Facility (USD)	$	1,332,450	$	950,635		June 2021	$	1,393,000	$	944,529		March 2020	USD L + 2.30%
JPMorgan Facility (GBP)	49,550		49,550			June 2021	N/A		N/A			N/A	N/A
DB Repurchase Facility (USD)	900,905		389,525			March 2021	472,090		225,367			March 2020	USD L + 2.56%
DB Repurchase Facility (GBP)	154,095		154,095			March 2021	93,919		93,919			March 2020	GBP L + 2.60%
Goldman Facility	300,000		205,982			November 2020	331,130		81,380			November 2020	USD L + 2.73%
CS Facility (USD)	69,941		69,941			March 2019	N/A		N/A			N/A	N/A
CS Facility (GBP)	143,993		143,993			March 2019	N/A		N/A			N/A	N/A
HSBC Facility (GBP)	49,896		49,896			September 2019	N/A		N/A			N/A	N/A
Sub-total	3,000,830		2,013,617				2,290,139		1,345,195
less: deferred financing costs	N/A		(16,746		)		N/A		(14,348		)		N/A
Total / Weighted Average	$	3,000,830	$	1,996,871			$2,290,139		$1,330,847				USD L + 2.37% /
													GBP L + 2.60%

———————

(1) Maturity date assumes extensions at our option are exercised.

(2) Weighted average rate as of September 30, 2018 was USD L + 2.26% / GBP L + 2.27%.

Remaining Maturities of Borrowings

At September 30, 2018, our borrowings had the following remaining maturities ($ in thousands):

	Less than 1 year (1)		1 to 3 years (1)		3 to 5 years		More than 5 years		Total
JPMorgan Facility	$	334,884	$	665,301	$	—	$	—	$	1,000,185
DB Repurchase Facility	177,164		366,456		—		—		543,620
Goldman Facility	—		205,982		—		—		205,982
CS Facility - USD	69,941		—		—		—		69,941
CS Facility - GBP	143,993		—		—		—		143,993
HSBC Facility	49,896		—		—		—		49,896
Total	$	775,878	$	1,237,739	$	—	$	—	$	2,013,617

———————

(1)Assumes underlying assets are financed through the fully extended maturity date of the facility.

Schedule of Outstanding, Maximum and Average Balances of Debt

The table below summarizes the outstanding balances at September 30, 2018, as well as the maximum and average month-end balances for the nine months ended September 30, 2018 for our borrowings under secured debt arrangements ($ in thousands).

					For the nine months ended September 30, 2018
	Balance at September 30, 2018		Amortized Cost of collateral at September 30, 2018		Maximum Month-End Balance		Average Month-End Balance
JPMorgan Facility	$	1,000,185	$	1,621,477	$	1,000,854	$	910,138
DB Repurchase Facility	543,620		955,460		707,405		511,259
Goldman Facility	205,982		278,490		236,764		159,010
CS Facility - USD	69,941		99,013		69,941		69,941
CS Facility - GBP	143,993		220,397		145,937		144,540
HSBC Facility	49,896		70,763		49,896		49,896
Total	$	2,013,617	$	3,245,600

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Convertible Senior Notes, Net (Tables)

9 Months Ended

Sep. 30, 2018

Debt Disclosure [Abstract]

Schedule of Convertible Senior Notes

The following table summarizes the terms of the Notes ($ in thousands):

	Principal Amount		Coupon Rate		Effective Rate (1)		Conversion Rate (2)	Maturity Date	Remaining Period of Amortization
2019 Notes	$	35,932	5.50	%	6.50	%	58.0421	3/15/2019	0.45 years
2022 Notes	345,000		4.75	%	5.61	%	50.2260	8/23/2022	3.90 years
Total	$	380,932

———————

(1) Effective rate includes the effect of the adjustment for the conversion option (See endnote (2) below), the value of which reduced the initial liability and was recorded in additional paid-in-capital.

(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 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.

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Derivatives, Net (Tables)

9 Months Ended

Sep. 30, 2018

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Summary of Non-Designated Foreign Exchange Forwards

The following table summarizes our non-designated foreign exchange (“Fx”) forwards as of September 30, 2018:

Type of Derivative	September 30, 2018
	Number of Contracts	Aggregate Notional Amount (in thousands)	Notional Currency	Maturity
Fx Contracts - GBP	35	274,309	GBP	October 2018 - November 2020
Fx Contracts - EUR	1	42,247	EUR	October 2018

The following table summarizes our non-designated Fx forwards as of December 31, 2017:

Type of Derivative	December 31, 2017
	Number of Contracts	Aggregate Notional Amount (in thousands)	Notional Currency	Maturity
Fx Contracts - GBP	24	177,077	GBP	January 2018- November 2020

Summary of Amounts Recognized on Consolidated Statements of Operations Related to Company's Derivatives

The following table summarizes the amounts recognized on the condensed consolidated statements of operations related to our derivatives for the three and nine months endedSeptember 30, 2018 and 2017 ($ in thousands):

		Amount of gain (loss) recognized in income						Amount of gain (loss) recognized in income
		Three months ended September 30,						Nine months ended September 30,
	Location of Gain (Loss) Recognized in Income	2018			2017			2018			2017
Forward currency contracts	Gain (loss) on derivative instruments - unrealized	$	5,046		$	(7,308	)	$	20,987		$	(17,629	)
Forward currency contracts	Gain (loss) on derivative instruments - realized	1,246			(179		)	7,811			(290		)
Interest rate caps(1)	Gain (loss) on derivative instruments - unrealized	(1		)	6			(1		)	3
Total		$	6,291		$	(7,481	)	$	28,797		$	(17,916	)

———————

(1) With a notional amount of $36.2 million and $41.5 million at September 30, 2018, and 2017, respectively.

Summarizes Gross Asset and Liability Amounts Related to Derivatives

The following table summarizes the gross asset and liability amounts related to our derivatives at September 30, 2018 and December 31, 2017 ($ in thousands).

	September 30, 2018							December 31, 2017
	Gross Amount of Recognized Assets		Gross Amounts Offset in the Condensed Consolidated Balance Sheet			Net Amounts of Assets Presented in the Condensed Consolidated Balance Sheet		Gross Amount of Recognized Liabilities			Gross Amounts Offset in the Condensed Consolidated Balance Sheet		Net Amounts of Assets (Liabilities) Presented in the Condensed Consolidated Balance Sheet
Interest rate caps	$	1	$	—		$	1	$	—		$	1	$	1
Forward currency contracts	15,708		(368		)	15,340		(5,645		)	—		(5,645		)
Total derivative instruments	$	15,709	$	(368	)	$	15,341	$	(5,645	)	$	1	$	(5,644	)

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Accounts Payable, Accrued Expenses and Other Liabilities (Tables)

9 Months Ended

Sep. 30, 2018

Payables and Accruals [Abstract]

Schedule of Accounts Payable, Accrued Expense and Other Liabilities

The following table details the components of our accounts payable, accrued expense and other liabilities ($ in thousands):

	September 30, 2018		December 31, 2017
Accrued dividends payable	$	68,544	$	56,576
Accrued interest payable	6,540		12,796
Accounts payable and other liabilities	4,454		1,534
Total	$	79,538	$	70,906

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Share-Based Payments (Tables)

9 Months Ended

Sep. 30, 2018

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Summary of Grants, Exchanges and Forfeitures of Restricted Stock and RSUs

The following table summarizes the grants, vesting and forfeitures of restricted common stock and RSUs during the nine months endedSeptember 30, 2018:

	Type	Restricted Stock		RSUs		Grant Date Fair Value ($ in thousands)
Outstanding at December 31, 2017		105,561		1,632,746
	Grant	28,070		7,100		634
	Vested	(24,840	)	(807	)	N/A
	Forfeiture	—		(44,739	)	N/A
Outstanding at September 30, 2018		108,791		1,594,300

Below is a summary of restricted stock and RSU vesting dates as of September 30, 2018: 

Vesting Year	Restricted Stock	RSU	Total Awards
2018	43,094	738,581	781,675
2019	60,803	557,394	618,197
2020	4,894	295,957	300,851
2021	—	2,368	2,368
Total	108,791	1,594,300	1,703,091

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Stockholders' Equity (Tables)

9 Months Ended

Sep. 30, 2018

Equity [Abstract]

Stockholders' Equity

During 2018, we declared the following dividends:

	Three months ended
Dividend declared per share of:	September 30, 2018	June 30, 2018	March 31, 2018
Common Stock	$0.46	$0.46	$0.46
Series B Preferred Stock	0.50	0.50	0.50
Series C Preferred Stock	0.50	0.50	0.50

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Fair Value of Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2018

Fair Value Disclosures [Abstract]

Carrying Value and Estimated Fair Value of Company's Financial Instruments

The following table presents the carrying value and estimated fair value of our financial instruments not carried at fair value on the condensed consolidated balance sheet at September 30, 2018 and December 31, 2017 ($ in thousands):

	September 30, 2018						December 31, 2017
	Carrying Value			Estimated Fair Value			Carrying Value			Estimated Fair Value
Cash	$	99,188		$	99,188		$	77,671		$	77,671
Commercial first mortgage loans, net	3,723,550			3,720,475			2,653,826			2,657,262
Subordinate loans, net	1,104,496			1,098,632			1,025,932			1,029,390
Secured debt arrangements	(2,013,617		)	(2,013,617		)	(1,345,195		)	(1,345,195		)
2019 Notes	(35,477		)	(39,660		)	(251,935		)	(267,506		)
2022 Notes	(334,697		)	(345,863		)	(332,962		)	(350,175		)

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Net Income (Loss) per Share (Tables)

9 Months Ended

Sep. 30, 2018

Earnings Per Share [Abstract]

Basic and Diluted Net Income per Share of Common Stock Using Two-Class Method

The table below presents the computation of basic and diluted net income per share of common stock for the three and nine months endedSeptember 30, 2018 and 2017 ($ in thousands except per share data):

	For the three months ended September 30,						For the nine months ended September 30,
	2018			2017			2018			2017
Basic Earnings
Net income	$	62,217		$	68,356		$	166,996		$	151,714
Less: Preferred dividends	(6,836		)	(11,148		)	(20,505		)	(29,768		)
Net income available to common stockholders	$	55,381		$	57,208		$	146,491		$	121,946
Less: Dividends on participating securities	(733		)	(620		)	(2,215		)	(1,884		)
Basic Earnings	$	54,648		$	56,588		$	144,276		$	120,062
Diluted Earnings
Net income	$	62,217		$	68,356		$	166,996		$	151,714
Less: Preferred dividends	(6,836		)	(11,148		)	(20,505		)	(29,768		)
Net income available to common stockholders	$	55,381		$	57,208		$	146,491		$	121,946
Add: Interest expense on Notes	6,746			N/A			25,607			N/A
Diluted Earnings	$	62,127		$	57,208		$	172,098		$	121,946
Number of Shares:
Basic weighted average shares of common stock outstanding	129,188,343			105,446,704			120,876,240			97,546,437
Diluted weighted average shares of common stock outstanding	153,918,435			106,812,721			150,424,889			98,919,689
Earnings Per Share Attributable to common stockholders
Basic	$	0.42		$	0.54		$	1.19		$	1.23
Diluted	$	0.40		$	0.54		$	1.14		$	1.23

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Summary of Significant Accounting Policies - Additional Information (Details)	9 Months Ended
	Sep. 30, 2018 Segment
Accounting Policies [Abstract]
Number of business segments	1

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Summary of Significant Accounting Policies - Cash, Cash Equivalents and Restricted Cash (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017	Sep. 30, 2017	Dec. 31, 2016
Accounting Policies [Abstract]
Cash	$ 99,188	$ 77,671	$ 140,229
Restricted cash	0		76
Total cash and restricted cash shown in the condensed consolidated statement of cash flows	$ 99,188	$ 77,671	$ 140,305	$ 263,453

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Fair Value Disclosure - Summarizes Levels in Fair Value Hierarchy of Financial Instruments (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative assets (liabilities), net	$ 15,341	$ 0
Estimate of Fair Value [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative assets (liabilities), net	15,341	(5,644)
Level 1 [Member] | Estimate of Fair Value [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative assets (liabilities), net	0	0
Level 2 [Member] | Estimate of Fair Value [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative assets (liabilities), net	15,341	(5,644)
Level 3 [Member] | Estimate of Fair Value [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative assets (liabilities), net	$ 0	$ 0

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Securities (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Debt Securities, Available-for-sale [Line Items]
Realized loss on sale of securities		$ 4,100,000		$ 5,100,000
Proceeds from payments received on held-to-maturity securities		146,500,000		146,500,000
Interest income from securities	$ 0	2,625,000	$ 0	13,379,000
Payments and proceeds received on securities			0	288,781,000
Commercial Mortgage Backed Securities [Member]
Debt Securities, Available-for-sale [Line Items]
Interest income from securities		2,600,000		13,400,000
CMBS (Held-to-maturity Securities) [Member]
Debt Securities, Available-for-sale [Line Items]
Interest income from securities		0		4,200,000
(CBMS) Fair Value Option [Member]
Debt Securities, Available-for-sale [Line Items]
Interest income from securities		$ 2,600,000		$ 9,200,000
Restatement Adjustment [Member]
Debt Securities, Available-for-sale [Line Items]
Proceeds from payments received on held-to-maturity securities			(146,500,000)
Payments and proceeds received on securities			128,900,000
Payments received on securities reclassified			$ 13,300,000

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Commercial Mortgage and Subordinate Loans, Net - Loan Portfolio (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying value	$ 4,828,046	$ 3,679,758
Commercial Mortgage Portfolio Segment [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying value	3,723,550	2,653,826
Subordinate Mortgage Portfolio Segment [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carrying value	$ 1,104,496	$ 1,025,932

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Commercial Mortgage and Subordinate Loans, Net - Activity Relating to Loan Investment Portfolio (Details) - USD ($) $ in Thousands	3 Months Ended			9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Jun. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Principal Balance
Loan repayments				$ (356,865)	$ (17,062)
Provision for Loan Loss
Provision for loan losses	$ 0	$ 0		(5,000)	$ (5,000)
Commercial Mortgage and Subordinated Portfolio Segment [Member]
Principal Balance
Principal balance, beginning				3,706,169
New loan fundings				1,590,123
Add-on loan fundings				175,053
Loan repayments				(601,041)
Unrealized gain (loss) on foreign currency translation				(35,412)
PIK interest, amortization of fees and other items				29,944
Principal balance, ending	4,864,836			4,864,836
Deferred Fees/Other Items
Deferred fees/other items, beginning				(9,430)
Unrealized gain (loss) on foreign currency translation				(21)
Deferred fees and other items				(24,596)
PIK interest, amortization of fees and other items				19,238
Deferred fees/other items, ending	(14,809)			(14,809)
Provision for Loan Loss
Provision for loans, beginning				(16,981)
Provision for loan losses				(5,000)
Provision for loans, ending	(21,981)			(21,981)
Carrying Value
Carrying value, beginning balance				3,679,758
Unrealized gain (loss) on foreign currency translation				(35,433)
Deferred fees and other items				(24,596)
PIK interest, amortization of fees and other items				49,182
Carrying value, ending balance	$ 4,828,046			4,828,046
Other Assets [Member] | Commercial Mortgage and Subordinated Portfolio Segment [Member]
Carrying Value
Impairment			$ 3,000	$ 3,000

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Commercial Mortgage and Subordinate Loans, Net - Additional Information (Details) $ in Thousands	3 Months Ended				9 Months Ended		12 Months Ended		15 Months Ended
	Sep. 30, 2018 USD ($) $ / ft²	Jun. 30, 2018 USD ($) loan	Sep. 30, 2017 USD ($)	Jun. 30, 2017 USD ($)	Sep. 30, 2018 USD ($) $ / ft²	Sep. 30, 2017 USD ($)	Dec. 31, 2017 USD ($)	Dec. 31, 2016 USD ($)	Jun. 30, 2018 USD ($)	Mar. 31, 2018
Financing Receivable, Allowance for Credit Losses [Line Items]
Percentage of loan portfolio					100.00%		100.00%
Provision for loan losses and impairment	$ 0		$ 0		$ 5,000	$ 5,000
Carrying value	4,828,046				4,828,046		$ 3,679,758
Payment in kind interest	10,200		5,300		29,900	19,300
Proceeds from pre-payment penalties or accelerated fees	200		$ 3,600		1,800	$ 4,000
Commercial Mortgage and Subordinated Portfolio Segment [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Provision for loan losses and impairment					5,000
Commercial Mortgage Portfolio Segment [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Provision for loan losses and impairment					17,000		17,000
Carrying value	3,723,550				3,723,550		2,653,826
Subordinate Mortgage Portfolio Segment [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Provision for loan losses and impairment					5,000		5,000
Carrying value	1,104,496				1,104,496		$ 1,025,932
Residential Condominium - Bethesda, MD [Member] | Commercial Mortgage and Subordinated Portfolio Segment [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loan loss provision and impairment									$ 10,000
Provision for loan losses and impairment		$ 5,000		$ 2,000
Multifamily - Williston, ND [Member] | Commercial Mortgage Portfolio Segment [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Provision for loan losses and impairment								$ 10,000
Multifamily - Williston, ND [Member] | Subordinate Mortgage Portfolio Segment [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Provision for loan losses and impairment								$ 5,000
Office Campus - Renton, WA [Member] | Subordinate Mortgage Portfolio Segment [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Proceeds from sale of loan	75,000
Proceeds from sale of loan, amount funded	17,700
Carrying value	265,000				265,000
Exposure to mortgage loan	190,000				190,000
Exposure to mortgage loan, amount funded	$ 65,500				65,500
Other Assets [Member] | Commercial Mortgage and Subordinated Portfolio Segment [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Impairment				$ 3,000	$ 3,000
Floating Rate Loan [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Percentage of loan portfolio					90.00%		88.00%
Dollars per square foot [Member] | Residential Condominium - Bethesda, MD [Member] | Commercial Mortgage Portfolio Segment [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loan collateral, measurement input | $ / ft²	662				662
Discount rate [Member] | Commercial Mortgage Portfolio Segment [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loan collateral, measurement input								0.10
Discount rate [Member] | Residential Condominium - Bethesda, MD [Member] | Commercial Mortgage Portfolio Segment [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loan collateral, measurement input	0.15				0.15
Terminal capitalization rate [Member] | Commercial Mortgage Portfolio Segment [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loan collateral, measurement input								0.11
Contractual Interest Rate Reduction [Member] | Commercial Mortgage Portfolio Segment [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Number of loans restructured | loan		1
Unpaid principal balance of loan restructured		$ 169,000							$ 169,000
Contractual Interest Rate Reduction [Member] | London Interbank Offered Rate (LIBOR) [Member] | Commercial Mortgage Portfolio Segment [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Basis spread on variable rate		3.00%							3.00%	5.50%

XML

Commercial Mortgage and Subordinate Loans, Net - Statistics for Loan Portfolio (Details) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2018 USD ($) loan	Dec. 31, 2017 USD ($) loan
Receivables [Abstract]
Number of loans | loan	68	59
Principal balance	$ 4,864,836	$ 3,706,169
Carrying value	$ 4,828,046	3,679,758
Unfunded loan commitments		$ 435,627
Weighted-average cash coupon	8.20%	8.40%

XML

Commercial Mortgage and Subordinate Loans, Net - Schedule of Mortgage Loans by Property Type and Geographic Distribution (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2018	Dec. 31, 2017
Loans and Leases Receivable Disclosure [Line Items]
Carrying value	$ 4,828,046	$ 3,679,758
% of Portfolio	100.00%	100.00%
Hotel [Member]
Loans and Leases Receivable Disclosure [Line Items]
Carrying value	$ 1,229,460	$ 645,056
% of Portfolio	25.50%	17.60%
Residential-for Sale [Member]
Loans and Leases Receivable Disclosure [Line Items]
Carrying value		$ 442,200
Residential-for-sale: inventory [Member]
Loans and Leases Receivable Disclosure [Line Items]
Carrying value	$ 602,826	$ 92,438
% of Portfolio	12.50%	2.50%
Residential-for-sale: construction [Member]
Loans and Leases Receivable Disclosure [Line Items]
Carrying value	$ 385,303	$ 349,739
% of Portfolio	8.00%	9.50%
Urban Predevelopment [Member]
Loans and Leases Receivable Disclosure [Line Items]
Carrying value	$ 677,440	$ 654,736
% of Portfolio	14.00%	17.80%
Office [Member]
Loans and Leases Receivable Disclosure [Line Items]
Carrying value	$ 520,926	$ 513,830
% of Portfolio	10.80%	14.00%
Multifamily [Member]
Loans and Leases Receivable Disclosure [Line Items]
Carrying value	$ 450,017	$ 465,057
% of Portfolio	9.30%	12.60%
Mixed Use [Member]
Loans and Leases Receivable Disclosure [Line Items]
Carrying value	$ 320,984	$ 354,640
% of Portfolio	6.60%	9.60%
Healthcare [Member]
Loans and Leases Receivable Disclosure [Line Items]
Carrying value	$ 255,588	$ 173,870
% of Portfolio	5.30%	4.70%
Retail Center [Member]
Loans and Leases Receivable Disclosure [Line Items]
Carrying value	$ 202,031	$ 198,913
% of Portfolio	4.20%	5.40%
Other [Member]
Loans and Leases Receivable Disclosure [Line Items]
Carrying value	$ 151,471	$ 154,141
% of Portfolio	3.10%	4.20%
Industrial [Member]
Loans and Leases Receivable Disclosure [Line Items]
Carrying value	$ 32,000	$ 77,338
% of Portfolio	0.70%	2.10%
Manhattan, NY [Member]
Loans and Leases Receivable Disclosure [Line Items]
Carrying value	$ 1,365,211	$ 1,173,833
% of Portfolio	28.30%	31.90%
Brooklyn, NY [Member]
Loans and Leases Receivable Disclosure [Line Items]
Carrying value	$ 332,372	$ 357,611
% of Portfolio	6.90%	9.70%
Northeast [Member]
Loans and Leases Receivable Disclosure [Line Items]
Carrying value	$ 37,410	$ 100,536
% of Portfolio	0.80%	2.70%
Midwest [Member]
Loans and Leases Receivable Disclosure [Line Items]
Carrying value	$ 800,196	$ 683,380
% of Portfolio	16.60%	18.60%
Southeast [Member]
Loans and Leases Receivable Disclosure [Line Items]
Carrying value	$ 608,925	$ 531,582
% of Portfolio	12.60%	14.40%
West [Member]
Loans and Leases Receivable Disclosure [Line Items]
Carrying value	$ 522,818	$ 227,024
% of Portfolio	10.80%	6.20%
Mid Atlantic [Member]
Loans and Leases Receivable Disclosure [Line Items]
Carrying value	$ 213,881	$ 191,976
% of Portfolio	4.40%	5.20%
Southwest [Member]
Loans and Leases Receivable Disclosure [Line Items]
Carrying value	$ 115,683	$ 33,615
% of Portfolio	2.40%	0.90%
UNITED KINGDOM
Loans and Leases Receivable Disclosure [Line Items]
Carrying value	$ 706,342	$ 303,488
% of Portfolio	14.60%	8.30%
Other International [Member]
Loans and Leases Receivable Disclosure [Line Items]
Carrying value	$ 125,208	$ 76,713
% of Portfolio	2.60%	2.10%

XML

Commercial Mortgage and Subordinate Loans, Net - Allocation of Carrying Value of Loan Portfolio Based on Internal Risk Ratings (Details) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2018 USD ($) loan	Dec. 31, 2017 USD ($) loan
Financing Receivable, Recorded Investment [Line Items]
Number of Loans | loan	68	59
Carrying value | $	$ 4,828,046	$ 3,679,758
% of Portfolio	100.00%	100.00%
1 [Member]
Financing Receivable, Recorded Investment [Line Items]
Number of Loans | loan	0	0
Carrying value | $	$ 0	$ 0
% of Portfolio	0.00%	0.00%
2 [Member]
Financing Receivable, Recorded Investment [Line Items]
Number of Loans | loan	5	5
Carrying value | $	$ 340,237	$ 399,326
% of Portfolio	7.00%	10.00%
3 [Member]
Financing Receivable, Recorded Investment [Line Items]
Number of Loans | loan	60	51
Carrying value | $	$ 4,254,383	$ 3,034,358
% of Portfolio	88.00%	83.00%
4 [Member]
Financing Receivable, Recorded Investment [Line Items]
Number of Loans | loan	1	1
Carrying value | $	$ 171,127	$ 168,208
% of Portfolio	4.00%	5.00%
5 [Member]
Financing Receivable, Recorded Investment [Line Items]
Number of Loans | loan	2	2
Carrying value | $	$ 62,299	$ 77,866
% of Portfolio	1.00%	2.00%

XML

Loan Proceeds Held by Servicer (Details) - USD ($)	Sep. 30, 2018	Dec. 31, 2017
Receivables [Abstract]
Loan proceeds held by servicer	$ 0	$ 302,756,000

XML

Other Assets (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]
Interest receivable	$ 31,255	$ 23,101
Collateral deposited under derivative agreements	0	4,930
Other	639	389
Other Assets	$ 31,894	$ 28,420

XML

Secured Debt Arrangements, Net - Weighted Average Maturities and Interest Rates of Borrowings (Details)	9 Months Ended	12 Months Ended
	Sep. 30, 2018 USD ($)	Dec. 31, 2017 USD ($)	Sep. 30, 2018 GBP (£)	Dec. 31, 2017 GBP (£)
Debt Instrument [Line Items]
Borrowings outstanding	$ 1,996,871,000	$ 1,330,847,000
less: deferred financing costs	(16,746,000)	(14,348,000)
Line of Credit [Member]
Debt Instrument [Line Items]
Maximum Amount of Borrowings	3,000,830,000	2,290,139,000
Borrowings outstanding	1,996,871,000	1,330,847,000
less: deferred financing costs	$ (16,746,000)	$ (14,348,000)
Line of Credit [Member] | London Interbank Offered Rate (LIBOR) [Member] | Weighted Average [Member]
Debt Instrument [Line Items]
Weighted Average Rate	2.26%	2.37%
Line of Credit [Member] | GBP London Interbank Offered Rate (LIBOR) [Member] | Weighted Average [Member]
Debt Instrument [Line Items]
Weighted Average Rate	2.27%	2.60%
Line of Credit [Member] | JP Morgan Chase, DB Repurchase Facility, Goldman Sachs, Credit Suisse and HSBC Facilities [Member]
Debt Instrument [Line Items]
Maximum Amount of Borrowings	$ 3,000,830,000	$ 2,290,139,000
Borrowings outstanding	2,013,617,000	$ 1,345,195,000
Line of Credit [Member] | JP Morgan Facility [Member] | London Interbank Offered Rate (LIBOR) [Member] | Weighted Average [Member]
Debt Instrument [Line Items]
Weighted Average Rate		2.30%
Line of Credit [Member] | Deutsche Bank Repurchase Facility [Member]
Debt Instrument [Line Items]
Maximum Amount of Borrowings	1,000,000,000
Borrowings outstanding	543,600,000		£ 118,300,000
Line of Credit [Member] | Deutsche Bank Repurchase Facility [Member] | London Interbank Offered Rate (LIBOR) [Member] | Weighted Average [Member]
Debt Instrument [Line Items]
Weighted Average Rate		2.56%
Line of Credit [Member] | Deutsche Bank Repurchase Facility [Member] | GBP London Interbank Offered Rate (LIBOR) [Member] | Weighted Average [Member]
Debt Instrument [Line Items]
Weighted Average Rate		2.60%
Line of Credit [Member] | Goldman Facility [Member]
Debt Instrument [Line Items]
Maximum Amount of Borrowings	300,000,000	$ 331,130,000
Borrowings outstanding	205,982,000	$ 81,380,000
Line of Credit [Member] | Goldman Facility [Member] | London Interbank Offered Rate (LIBOR) [Member] | Weighted Average [Member]
Debt Instrument [Line Items]
Weighted Average Rate		2.73%
USD | Line of Credit [Member] | JP Morgan Facility [Member]
Debt Instrument [Line Items]
Maximum Amount of Borrowings	1,332,450,000	$ 1,393,000,000
Borrowings outstanding	950,635,000	944,529,000
USD | Line of Credit [Member] | Deutsche Bank Repurchase Facility [Member]
Debt Instrument [Line Items]
Maximum Amount of Borrowings	900,905,000	472,090,000
Borrowings outstanding	389,525,000	$ 225,367,000
USD | Line of Credit [Member] | Credit Suisse Facility [Member]
Debt Instrument [Line Items]
Maximum Amount of Borrowings	69,941,000
Borrowings outstanding	69,941,000
GBP | Line of Credit [Member] | JP Morgan Facility [Member]
Debt Instrument [Line Items]
Maximum Amount of Borrowings	49,550,000
Borrowings outstanding	49,550,000
GBP | Line of Credit [Member] | Deutsche Bank Repurchase Facility [Member]
Debt Instrument [Line Items]
Maximum Amount of Borrowings | £			154,095,000	£ 93,919,000
Borrowings outstanding | £			154,095,000	£ 93,919,000
GBP | Line of Credit [Member] | Credit Suisse Facility [Member]
Debt Instrument [Line Items]
Maximum Amount of Borrowings	143,993,000
Borrowings outstanding	143,993,000		£ 110,500,000
GBP | Line of Credit [Member] | HSBC Facility [Member]
Debt Instrument [Line Items]
Maximum Amount of Borrowings	49,896,000
Borrowings outstanding	$ 49,896,000

XML

Secured Debt Arrangements, Net - Additional Information (Details)	1 Months Ended			9 Months Ended
	Jul. 31, 2018	Jun. 30, 2018 USD ($) subsidiary	Nov. 30, 2017	Sep. 30, 2018 USD ($)	Sep. 30, 2018 GBP (£)	Dec. 31, 2017 USD ($)	Dec. 31, 2017 GBP (£)
Debt Instrument [Line Items]
Borrowings outstanding				$ 1,996,871,000		$ 1,330,847,000
Line of Credit [Member]
Debt Instrument [Line Items]
Maximum borrowing under facility				3,000,830,000		2,290,139,000
Securities sold under agreements to repurchase, gross				2,013,617,000
Borrowings outstanding				1,996,871,000		1,330,847,000
Line of Credit [Member] | JP Morgan Facility [Member]
Debt Instrument [Line Items]
Securities sold under agreements to repurchase, gross				$ 1,000,185,000
Line of Credit [Member] | DB Repurchase Facility [Member]
Debt Instrument [Line Items]
Extension option				1 year
Maximum borrowing under facility				$ 1,000,000,000
Securities sold under agreements to repurchase, gross				543,620,000
Borrowings outstanding				543,600,000	£ 118,300,000
Line of Credit [Member] | Goldman Sachs Repurchase Facility [Member]
Debt Instrument [Line Items]
Extension option			1 year
Maximum borrowing under facility				300,000,000		331,130,000
Securities sold under agreements to repurchase, gross				205,982,000
Borrowings outstanding				205,982,000		81,380,000
Line of Credit [Member] | Credit Suisse Facility [Member]
Debt Instrument [Line Items]
Term after either party notifies the other party of intention to terminate		6 months
Line of Credit [Member] | HSBC Facility [Member]
Debt Instrument [Line Items]
Securities sold under agreements to repurchase, gross				49,896,000
Line of credit, amount outstanding				49,900,000	38,300,000
JP Morgan Facility [Member] | Line of Credit [Member] | JP Morgan Facility [Member]
Debt Instrument [Line Items]
Number of subsidiaries | subsidiary		2
Amended and Restated JPMorgan Facility [Member] | Line of Credit [Member] | JP Morgan Facility [Member]
Debt Instrument [Line Items]
Extension option		1 year
Maximum borrowing under facility		$ 1,382,000
Securities sold under agreements to repurchase, gross				1,000,000,000	38,000,000
Repurchase Facility [Member] | Line of Credit [Member] | JP Morgan Facility [Member]
Debt Instrument [Line Items]
Maximum borrowing under facility		1,250,000
Asset Specific Financing [Member] | Line of Credit [Member] | JP Morgan Facility [Member]
Debt Instrument [Line Items]
Maximum borrowing under facility		$ 132,000,000
Asset Specific Financing [Member] | Line of Credit [Member] | DB Repurchase Facility [Member]
Debt Instrument [Line Items]
Line of credit, amount outstanding				55,000,000
USD | Line of Credit [Member] | JP Morgan Facility [Member]
Debt Instrument [Line Items]
Maximum borrowing under facility				1,332,450,000		1,393,000,000
Borrowings outstanding				950,635,000		944,529,000
USD | Line of Credit [Member] | DB Repurchase Facility [Member]
Debt Instrument [Line Items]
Maximum borrowing under facility				900,905,000		472,090,000
Borrowings outstanding				389,525,000		$ 225,367,000
USD | Line of Credit [Member] | Credit Suisse Facility [Member]
Debt Instrument [Line Items]
Maximum borrowing under facility				69,941,000
Securities sold under agreements to repurchase, gross				69,941,000
Borrowings outstanding				69,941,000
Term after either party notifies the other party of intention to terminate	6 months
GBP | Line of Credit [Member] | JP Morgan Facility [Member]
Debt Instrument [Line Items]
Maximum borrowing under facility				49,550,000
Borrowings outstanding				49,550,000
GBP | Line of Credit [Member] | DB Repurchase Facility [Member]
Debt Instrument [Line Items]
Maximum borrowing under facility | £					154,095,000		£ 93,919,000
Borrowings outstanding | £					154,095,000		£ 93,919,000
GBP | Line of Credit [Member] | Credit Suisse Facility [Member]
Debt Instrument [Line Items]
Maximum borrowing under facility				143,993,000
Securities sold under agreements to repurchase, gross				143,993,000
Borrowings outstanding				143,993,000	£ 110,500,000
GBP | Line of Credit [Member] | HSBC Facility [Member]
Debt Instrument [Line Items]
Maximum borrowing under facility				49,896,000
Borrowings outstanding				$ 49,896,000

XML

Secured Debt Arrangements, Net - Remaining Maturities of Borrowings (Details) - Line of Credit [Member] $ in Thousands	Sep. 30, 2018 USD ($)
Line of Credit Facility [Line Items]
Less than 1 year	$ 775,878
1 to 3 years	1,237,739
3 to 5 years	0
More than 5 years	0
Total	2,013,617
JP Morgan Facility [Member]
Line of Credit Facility [Line Items]
Less than 1 year	334,884
1 to 3 years	665,301
3 to 5 years	0
More than 5 years	0
Total	1,000,185
DB Repurchase Facility [Member]
Line of Credit Facility [Line Items]
Less than 1 year	177,164
1 to 3 years	366,456
3 to 5 years	0
More than 5 years	0
Total	543,620
Goldman Facility [Member]
Line of Credit Facility [Line Items]
Less than 1 year	0
1 to 3 years	205,982
3 to 5 years	0
More than 5 years	0
Total	205,982
HSBC Facility [Member]
Line of Credit Facility [Line Items]
Less than 1 year	49,896
1 to 3 years	0
3 to 5 years	0
More than 5 years	0
Total	49,896
USD | CS Facility [Member]
Line of Credit Facility [Line Items]
Less than 1 year	69,941
1 to 3 years	0
3 to 5 years	0
More than 5 years	0
Total	69,941
GBP | CS Facility [Member]
Line of Credit Facility [Line Items]
Less than 1 year	143,993
1 to 3 years	0
3 to 5 years	0
More than 5 years	0
Total	$ 143,993

XML

Secured Debt Arrangements, Net - Summary of Outstanding Balances, Maximum and Average Balances of Borrowings (Details) - Line of Credit [Member] $ in Thousands	9 Months Ended
	Sep. 30, 2018 USD ($)
Line of Credit Facility [Line Items]
Securities sold under agreements to repurchase, gross	$ 2,013,617
Amortized Cost of Collateral	3,245,600
JP Morgan Facility [Member]
Line of Credit Facility [Line Items]
Securities sold under agreements to repurchase, gross	1,000,185
Amortized Cost of Collateral	1,621,477
Maximum Month-End Balance	1,000,854
Average Month-End Balance	910,138
DB Repurchase Facility [Member]
Line of Credit Facility [Line Items]
Securities sold under agreements to repurchase, gross	543,620
Amortized Cost of Collateral	955,460
Maximum Month-End Balance	707,405
Average Month-End Balance	511,259
Goldman Facility [Member]
Line of Credit Facility [Line Items]
Securities sold under agreements to repurchase, gross	205,982
Amortized Cost of Collateral	278,490
Maximum Month-End Balance	236,764
Average Month-End Balance	159,010
HSBC Facility [Member]
Line of Credit Facility [Line Items]
Securities sold under agreements to repurchase, gross	49,896
Amortized Cost of Collateral	70,763
Maximum Month-End Balance	49,896
Average Month-End Balance	49,896
USD | CS Facility [Member]
Line of Credit Facility [Line Items]
Securities sold under agreements to repurchase, gross	69,941
Amortized Cost of Collateral	99,013
Maximum Month-End Balance	69,941
Average Month-End Balance	69,941
GBP | CS Facility [Member]
Line of Credit Facility [Line Items]
Securities sold under agreements to repurchase, gross	143,993
Amortized Cost of Collateral	220,397
Maximum Month-End Balance	145,937
Average Month-End Balance	$ 144,540

XML

Convertible Senior Notes, Net (Details)				2 Months Ended	3 Months Ended		9 Months Ended		12 Months Ended
	Aug. 02, 2018 USD ($) shares	Aug. 18, 2014 USD ($)	Mar. 17, 2014 USD ($)	Sep. 30, 2018 USD ($) $ / shares shares	Sep. 30, 2018 USD ($) $ / shares shares	Sep. 30, 2017 USD ($)	Sep. 30, 2018 USD ($) $ / shares shares	Sep. 30, 2017 USD ($)	Dec. 31, 2017 USD ($) offering	Dec. 31, 2014 USD ($) offering
Debt Instrument [Line Items]
Proceeds from issuance of convertible senior notes							$ 0	$ 227,700,000
Cash payment for debt redemption							40,461,000	0
Loss on early extinguishment of debt					$ 2,573,000	$ 0	2,573,000	0
Convertible senior notes, net				$ 370,174,000	$ 370,174,000		$ 370,174,000		$ 584,897,000
Share price (in dollars per share) | $ / shares				$ 18.87	$ 18.87		$ 18.87
Exchange of convertible senior notes for common stock							$ 178,566,000
2019 Notes [Member]
Debt Instrument [Line Items]
Loss on early extinguishment of debt					$ 2,600,000	0	2,600,000	0
Convertible Debt [Member]
Debt Instrument [Line Items]
Principal amount				$ 380,932,000	380,932,000		380,932,000
Conversion rate basis, principal amount							1,000
Convertible Debt [Member] | 2019 Notes [Member]
Debt Instrument [Line Items]
Number of debt offerings issued | offering										2
Principal amount			$ 35,932,000							$ 254,800,000.0
Coupon rate			5.50%							5.50%
Proceeds from issuance of convertible senior notes										$ 248,600,000
Principal amount redeemed	$ 206,200,000			12,600,000	218,800,000
Cash payment for debt redemption	$ 39,300,000			200,000
Convertible senior notes, net				35,500,000	35,500,000		35,500,000
Unamortized discount				500,000	500,000		500,000
Effective rate			6.50%
Conversion rate			0.0580421
Remaining period of amortization (years)			5 months 12 days
Interest expense on debt					5,500,000	4,700,000	20,700,000	11,700,000
Additional non-cash interest expense					1,200,000	$ 1,200,000	4,900,000	$ 3,000,000
Convertible Debt [Member] | 2022 Notes [Member]
Debt Instrument [Line Items]
Number of debt offerings issued | offering									2
Principal amount		$ 345,000,000							$ 345,000,000.0
Coupon rate		4.75%							4.75%
Proceeds from issuance of convertible senior notes									$ 337,500,000
Convertible senior notes, net				334,700,000	334,700,000		334,700,000
Unamortized discount				$ 10,300,000	$ 10,300,000		$ 10,300,000
Effective rate		5.61%
Conversion rate		0.0502260
Remaining period of amortization (years)		3 years 10 months 24 days
Common Stock [Member]
Debt Instrument [Line Items]
Exchange of convertible senior notes for common stock (in shares) | shares							10,744,577
Exchange of convertible senior notes for common stock							$ 107,000
Common Stock [Member] | Convertible Debt [Member] | 2019 Notes [Member]
Debt Instrument [Line Items]
Exchange of convertible senior notes for common stock (in shares) | shares	10,020,328			724,250	10,744,577
Additional Paid In Capital [Member]
Debt Instrument [Line Items]
Exchange of convertible senior notes for common stock							178,459,000
Additional Paid In Capital [Member] | Convertible Debt [Member] | 2019 and 2022 Notes [Member]
Debt Instrument [Line Items]
Exchange of convertible senior notes for common stock							22,400,000
Additional Paid In Capital [Member] | Convertible Debt [Member] | 2019 Notes [Member]
Debt Instrument [Line Items]
Exchange of convertible senior notes for common stock	$ 166,000,000			$ 12,400,000			11,400,000
Additional Paid In Capital [Member] | Convertible Debt [Member] | 2022 Notes [Member]
Debt Instrument [Line Items]
Exchange of convertible senior notes for common stock							$ 11,000,000

XML

Derivatives, Net - Summary of Non-Designated Foreign Exchange Forwards (Details) - Not Designated as Hedging Instrument [Member] - Forward Currency Contract [Member]	Sep. 30, 2018 GBP (£) contract	Dec. 31, 2017 GBP (£) contract
GBP
Derivative [Line Items]
Number of Contracts | contract	35	24
Aggregate Notional Amount (in thousands) | £	£ 274,309,000	£ 177,077
EUR
Derivative [Line Items]
Number of Contracts | contract	1
Aggregate Notional Amount (in thousands) | £	£ 42,247,000

XML

Derivatives, Net - Summary of Amounts Recognized on Consolidated Statements of Operations Related to Company's Derivatives (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Derivative Instruments, Gain (Loss) [Line Items]
Gain (loss) on derivative instruments - unrealized			$ 20,986	$ (17,564)
Gain (loss) on derivative instruments - realized			0	(289)
Gain (loss) on derivative instruments	$ 6,291	$ (7,481)	28,797	(17,916)
Forward Currency Contract [Member] | Gain (Loss) on Derivative Instruments [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Gain (loss) on derivative instruments - unrealized	5,046	(7,308)	20,987	(17,629)
Gain (loss) on derivative instruments - realized	1,246	(179)	7,811	(290)
Interest Rate Cap [Member] | Gain (Loss) on Derivative Instruments [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Gain (loss) on derivative instruments - unrealized	(1)	6	(1)	3
Notional amount	$ 36,200	$ 41,500	$ 36,200	$ 41,500

XML

Derivatives, Net - Summarizes Gross Asset and Liability Amounts Related to Derivatives (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Derivative Asset [Abstract]
Gross Amount of Recognized Assets	$ 15,709
Gross Amounts Offset in the Condensed Consolidated Balance Sheet	(368)
Net Amounts of Assets Presented in the Condensed Consolidated Balance Sheet	15,341	$ 0
Derivative Liability [Abstract]
Gross Amount of Recognized Liabilities		(5,645)
Gross Amounts Offset in the Condensed Consolidated Balance Sheet		1
Net Amounts of Assets (Liabilities) Presented in the Condensed Consolidated Balance Sheet	0	(5,644)
Interest Rate Cap [Member]
Derivative Asset [Abstract]
Gross Amount of Recognized Assets	1
Gross Amounts Offset in the Condensed Consolidated Balance Sheet	0
Net Amounts of Assets Presented in the Condensed Consolidated Balance Sheet	1
Derivative Liability [Abstract]
Gross Amount of Recognized Liabilities		0
Gross Amounts Offset in the Condensed Consolidated Balance Sheet		1
Net Amounts of Assets (Liabilities) Presented in the Condensed Consolidated Balance Sheet		1
Forward Currency Contract [Member]
Derivative Asset [Abstract]
Gross Amount of Recognized Assets	15,708
Gross Amounts Offset in the Condensed Consolidated Balance Sheet	(368)
Net Amounts of Assets Presented in the Condensed Consolidated Balance Sheet	$ 15,340
Derivative Liability [Abstract]
Gross Amount of Recognized Liabilities		(5,645)
Gross Amounts Offset in the Condensed Consolidated Balance Sheet		0
Net Amounts of Assets (Liabilities) Presented in the Condensed Consolidated Balance Sheet		$ (5,645)

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Accounts Payable, Accrued Expenses and Other Liabilities (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Payables and Accruals [Abstract]
Accrued dividends payable	$ 68,544	$ 56,576
Accrued interest payable	6,540	12,796
Accounts payable and other liabilities	4,454	1,534
Total	$ 79,538	$ 70,906

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Related Party Transactions (Details) $ in Thousands, £ in Millions	1 Months Ended					3 Months Ended		9 Months Ended
	Jun. 30, 2018 USD ($)	Jun. 30, 2018 GBP (£)	May 31, 2018 USD ($)	Sep. 30, 2017 USD ($)	Jun. 30, 2017 USD ($)	Sep. 30, 2018 USD ($)	Sep. 30, 2017 USD ($)	Sep. 30, 2018 USD ($)	Sep. 30, 2017 USD ($)	Dec. 31, 2017 USD ($)	Sep. 30, 2014
Related Party Transaction [Line Items]
Related party expenses						$ 9,515	$ 8,309	$ 26,620	$ 23,484
Base management fees incurred but not yet paid						9,515		9,515		$ 8,168
Commercial mortgage loans and subordinate loans, net						4,828,046		$ 4,828,046		3,679,758
Limited Liability Company [Member]
Related Party Transaction [Line Items]
Rate of management fees								1.50%
Extension period								1 year
Voting requirement to termination management agreement, percentage								66.66%
Period of termination								180 days
Termination vote threshold rate, percentage								300.00%
Termination fee calculation period								24 months
Limited Liability Company [Member] | Management Fees [Member]
Related Party Transaction [Line Items]
Base management fees incurred but not yet paid						9,500		$ 9,500		8,200
Limited Liability Company [Member] | Reimbursements [Member]
Related Party Transaction [Line Items]
Related party expenses						600	100	1,800	200
Champ Limited Partnership [Member] | Subsidiaries [Member]
Related Party Transaction [Line Items]
Indirect ownership interest from limited partnership											59.00%
KBC Bank Deutschland AG [Member] | Champ LP [Member]
Related Party Transaction [Line Items]
Indirect ownership interest from limited partnership											35.00%
Commercial Mortgage Portfolio Segment [Member]
Related Party Transaction [Line Items]
Commercial mortgage loans and subordinate loans, net						$ 3,723,550		$ 3,723,550		$ 2,653,826
Commercial Mortgage Portfolio Segment [Member] | Affiliated Entity [Member]
Related Party Transaction [Line Items]
Payments to acquire loans receivable	$ 6,400	£ 4.8	$ 28,200	$ 25,000	$ 25,000
Commercial mortgage loans and subordinate loans, net			$ 300,000	$ 125,000	$ 100,000		$ 125,000		$ 125,000

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Share-Based Payments - Additional Information (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Sep. 23, 2009
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Recognized stock-based compensation expense	$ 4,048,000	$ 2,635,000	$ 11,404,000	$ 9,887,000
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized stock-based compensation expense	1,100,000		1,100,000
RSU [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized stock-based compensation expense	$ 19,600,000		$ 19,600,000
LTIP [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Percentage of issued and outstanding shares of common stock provides for grants of restricted common stock, restricted stock units and other equity-based awards					7.50%
Common stock, shares delivered	514		346,510
LTIP [Member] | RSU [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock units vested	807		604,484
Adjustments to additional paid in capital, income tax deficiency from share-based compensation	$ 0		$ 4,700,000

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Share-Based Payments - Summary of Grants, Exchanges and Forfeitures of Restricted Stock and RSUs (Details) - LTIP [Member] $ in Thousands	9 Months Ended
	Sep. 30, 2018 USD ($) shares
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]
Grant Date Fair Value | $	$ 634
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]
Outstanding, beginning balance (in shares)	105,561
Grant (in shares)	28,070
Vested (in shares)	(24,840)
Forfeitures (in shares)	0
Outstanding, ending balance (in shares)	108,791
RSU [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]
Outstanding, beginning balance (in shares)	1,632,746
Grant (in shares)	7,100
Vested (in shares)	(807)
Forfeitures (in shares)	(44,739)
Outstanding, ending balance (in shares)	1,594,300

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Share-Based Payments - Summary of Restricted Stock and RSU Vesting Dates (Details) - LTIP [Member]	Sep. 30, 2018 shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares vesting (in shares)	1,703,091
2018 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares vesting (in shares)	781,675
2019 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares vesting (in shares)	618,197
2020 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares vesting (in shares)	300,851
2021 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares vesting (in shares)	2,368
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares vesting (in shares)	108,791
Restricted Stock [Member] | 2018 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares vesting (in shares)	43,094
Restricted Stock [Member] | 2019 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares vesting (in shares)	60,803
Restricted Stock [Member] | 2020 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares vesting (in shares)	4,894
Restricted Stock [Member] | 2021 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares vesting (in shares)	0
RSU [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares vesting (in shares)	1,594,300
RSU [Member] | 2018 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares vesting (in shares)	738,581
RSU [Member] | 2019 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares vesting (in shares)	557,394
RSU [Member] | 2020 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares vesting (in shares)	295,957
RSU [Member] | 2021 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares vesting (in shares)	2,368

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Stockholders' Equity - Additional Information (Details) - USD ($) $ / shares in Units, $ in Millions		2 Months Ended	3 Months Ended		9 Months Ended
	Aug. 02, 2018	Sep. 30, 2018	Sep. 30, 2018	Mar. 31, 2018	Sep. 30, 2018	Dec. 31, 2017
Class of Stock [Line Items]
Common stock, shares authorized (in shares)		450,000,000	450,000,000		450,000,000	450,000,000
Common stock, par value (in dollars per share)		$ 0.01	$ 0.01		$ 0.01	$ 0.01
Preferred stock, shares authorized (in shares)		50,000,000	50,000,000		50,000,000	50,000,000
Preferred stock, par value (in dollars per share)		$ 0.01	$ 0.01		$ 0.01	$ 0.01
Common stock, shares issued (in shares)		133,765,392	133,765,392		133,765,392	107,121,235
Common shares outstanding (in shares)		133,765,392	133,765,392		133,765,392	107,121,235
Proceeds from issuance of common stock, net of offering costs				$ 275.9
Series B Preferred Stock [Member]
Class of Stock [Line Items]
Preferred stock, shares issued (in shares)		6,770,393	6,770,393		6,770,393	6,770,393
Preferred stock, shares outstanding (in shares)		6,770,393	6,770,393		6,770,393	6,770,393
Preferred stock dividend percentage					8.00%
Series C Preferred Stock [Member]
Class of Stock [Line Items]
Preferred stock, shares issued (in shares)		6,900,000	6,900,000		6,900,000	6,900,000
Preferred stock, shares outstanding (in shares)		6,900,000	6,900,000		6,900,000	6,900,000
Preferred stock dividend percentage					8.00%
Common Stock [Member]
Class of Stock [Line Items]
Issuance of stock (in shares)					15,525,000
Exchange of convertible senior notes for common stock (in shares)					10,744,577
Common Stock [Member] | Follow-on public offering [Member]
Class of Stock [Line Items]
Issuance of stock (in shares)				15,525,000
Price per share of issued stock (in dollars per share)				$ 17.77
2019 Notes [Member] | Convertible Debt [Member] | Common Stock [Member]
Class of Stock [Line Items]
Exchange of convertible senior notes for common stock (in shares)	10,020,328	724,250	10,744,577

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Stockholders' Equity - Dividends Declared (Details) - $ / shares	3 Months Ended				9 Months Ended
	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Class of Stock [Line Items]
Dividends declared (in dollars per share)	$ 0.46			$ 0.46	$ 1.38	$ 1.38
Common stock [Member]
Class of Stock [Line Items]
Dividends declared (in dollars per share)	0.46	$ 0.46	$ 0.46
Series B Preferred Stock [Member]
Class of Stock [Line Items]
Dividends declared (in dollars per share)	0.5	0.5	0.5
Series C Preferred Stock [Member]
Class of Stock [Line Items]
Dividends declared (in dollars per share)	$ 0.5	$ 0.5	$ 0.5

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Commitments and Contingencies (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2018	Dec. 31, 2017
Schedule of Equity Method Investments [Line Items]
Total damages including punitive	$ 70,000
Damages sought by plaintiff	700,000
Unfunded loan commitments		$ 435,627
Commercial Mortgage and Subordinated Portfolio Segment [Member]
Schedule of Equity Method Investments [Line Items]
Unfunded loan commitments	$ 884,178

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Fair Value of Financial Instruments - Carrying Value and Estimated Fair Value of Company's Financial Instruments (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Carrying Value [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Cash	$ 99,188	$ 77,671
Carrying Value [Member] | Level 3 [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Secured debt arrangements	(2,013,617)	(1,345,195)
Estimate of Fair Value Measurement [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Cash	99,188	77,671
Estimate of Fair Value Measurement [Member] | Level 3 [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Secured debt arrangements	(2,013,617)	(1,345,195)
Commercial Mortgage Portfolio Segment [Member] | Carrying Value [Member] | Level 3 [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	3,723,550	2,653,826
Commercial Mortgage Portfolio Segment [Member] | Estimate of Fair Value Measurement [Member] | Level 3 [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	3,720,475	2,657,262
Subordinate Mortgage Portfolio Segment [Member] | Carrying Value [Member] | Level 3 [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	1,104,496	1,025,932
Subordinate Mortgage Portfolio Segment [Member] | Estimate of Fair Value Measurement [Member] | Level 3 [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	1,098,632	1,029,390
2019 Notes [Member] | Carrying Value [Member] | Level 3 [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Notes	(35,477)	(251,935)
2019 Notes [Member] | Estimate of Fair Value Measurement [Member] | Level 3 [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Notes	(39,660)	(267,506)
2022 Notes [Member] | Carrying Value [Member] | Level 3 [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Notes	(334,697)	(332,962)
2022 Notes [Member] | Estimate of Fair Value Measurement [Member] | Level 3 [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Notes	$ (345,863)	$ (350,175)

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Net Income (Loss) per Share - Basic and Diluted Net Income per Share of Common Stock Using Two-Class Method (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Basic Earnings
Net income	$ 62,217	$ 68,356	$ 166,996	$ 151,714
Preferred dividends	(6,836)	(11,148)	(20,505)	(29,768)
Net income available to common stockholders	55,381	57,208	146,491	121,946
Less: Dividends on participating securities	(733)	(620)	(2,215)	(1,884)
Basic Earnings	54,648	56,588	144,276	120,062
Diluted Earnings
Add: Interest expense on Notes	6,746		25,607
Diluted Earnings	62,127	57,208	172,098	121,946
Basic weighted average shares of common stock outstanding	$ 55,381	$ 57,208	$ 146,491	$ 121,946
Number of Shares:
Basic weighted average shares of common stock outstanding (in shares)	129,188,343	105,446,704	120,876,240	97,546,437
Diluted weighted average shares of common stock outstanding (in shares)	153,918,435	106,812,721	150,424,889	98,919,689
Earnings Per Share Attributable to common stockholders
Basic (in dollars per share)	$ 0.42	$ 0.54	$ 1.19	$ 1.23
Diluted (in dollars per share)	$ 0.40	$ 0.54	$ 1.14	$ 1.23

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Net Income (Loss) Per Share - Additional Information (Details) - shares	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Effect of dilutive securities - Convertible Notes (in shares)	24,730,092		29,548,649
RSU [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Unvested RSUs (in shares)	1,593,070	1,366,017	1,617,398	1,373,252

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Subsequent Events (Details)		1 Months Ended	9 Months Ended
	Oct. 05, 2018 USD ($) $ / shares	Oct. 24, 2018 USD ($)	Sep. 30, 2018 USD ($) $ / shares	Sep. 30, 2017 USD ($)	Oct. 02, 2018 $ / shares
Subsequent Event [Line Items]
Proceeds from issuance of convertible senior notes			$ 0	$ 227,700,000
Share price (in dollars per share) | $ / shares			$ 18.87
Subsequent Event [Member]
Subsequent Event [Line Items]
Proceeds from loan repayments		$ 180,900,000
Commercial Mortgage Portfolio Segment [Member]
Subsequent Event [Line Items]
Funded amount of mortgages			$ 23,900,000
Commercial Mortgage Portfolio Segment [Member] | Subsequent Event [Member]
Subsequent Event [Line Items]
Original face amount		387,000,000
Funded amount of mortgages		$ 273,200,000
Convertible Debt [Member]
Subsequent Event [Line Items]
Principal amount			$ 380,932,000
2023 Notes [Member] | Convertible Debt [Member] | Subsequent Event [Member]
Subsequent Event [Line Items]
Principal amount	$ 230,000,000.0
Proceeds from issuance of convertible senior notes	$ 223,700,000
Stated interest rate	5.375%
Conversion rate	0.0487187
Conversion price (in dollars per share) | $ / shares	$ 20.53
Conversion premium (as a percent)	10.00%
Common Stock [Member] | Subsequent Event [Member]
Subsequent Event [Line Items]
Share price (in dollars per share) | $ / shares					$ 18.66
Over-Allotment Option [Member] | 2023 Notes [Member] | Convertible Debt [Member] | Subsequent Event [Member]
Subsequent Event [Line Items]
Principal amount	$ 30,000,000.0