APOLLO COMMERCIAL REAL ESTATE FINANCE, INC. We make forward-looking statements herein and will make forward-looking statements in future filings with theSEC , 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: the macro- and micro-economic impact of the COVID-19 pandemic; the severity and duration of the COVID-19 pandemic; actions taken by governmental authorities to contain the COVID-19 pandemic or treat its impact; the impact of the COVID-19 pandemic on our financial condition, results of operations, liquidity and capital resources; 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 theU.S. government and governments outside ofthe 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 timing and amount of expected future fundings of unfunded commitments; 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 forU.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 this Quarterly Report on Form 10-Q and our Annual Report. These and other risks, uncertainties and factors, including those described in the annual, quarterly and current reports that we file with theSEC , 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 aMaryland corporation and have elected to be taxed as a REIT forU.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$413.6 billion as ofJune 30, 2020 . The Manager is led by an experienced team of senior real estate professionalswho 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. 32 --------------------------------------------------------------------------------
Current Market Conditions
During the first quarter of 2020, there was a global outbreak of COVID-19, which was declared by theWorld Health Organization as a pandemic. In response to COVID-19,the United States and numerous other countries declared national emergencies, which has led to large scale quarantines as well as restrictions to business deemed non-essential. These responses to COVID-19 have disrupted economic activities and could have a significant continued adverse effect on economic and market conditions, and could result in a recession. As we are still in the midst of the COVID-19 pandemic we are not in a position to estimate the ultimate impact this will have on our business and the economy as a whole. The effects of COVID-19 have adversely impacted the value of our assets, business, financial condition, results of operations and cash flows, and our ability to operate successfully. Some of the factors that impacted us to date and may continue to affect us are outlined in "Item 1A. Risk Factors" of this Quarterly Report on Form 10-Q. Please see "Liquidity and Capital Resources" below for additional discussion surrounding the ongoing impact we expect COVID-19 will have on our liquidity and capital resources. Critical Accounting Policies A summary of our critical accounting policies is set forth in our Annual Report 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 other than the adoption of the CECL Standard, as described in "Note 2 - Summary of Significant Accounting Policies." Results of Operations All non-USD denominated assets and liabilities are translated to USD 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. Loan Portfolio Overview The following table sets forth certain information regarding our commercial real estate debt portfolio as ofJune 30, 2020 ($ in thousands): Weighted Amortized Weighted-Average Average Secured Debt Equity at Description Cost Coupon (1) All-in Arrangements (3) Cost of Funds cost(4) Yield (1)(2) Commercial mortgage loans, net$ 5,343,437 4.8 % 5.3 %$ 3,440,177 2.2 %$ 1,903,260 Subordinate loans and other lending assets, 1,044,400 11.8 % 13.8 % - - 1,044,400 net Total/Weighted-Average$ 6,387,837 5.9 % 6.7 %$ 3,440,177 2.2 %$ 2,947,660 -------
(1) Weighted-Average Coupon and Weighted-Average All-in Yield are based on the
applicable benchmark rates as of
(2) Weighted-Average All-in Yield includes the amortization of deferred
origination fees, loan origination costs and accrual of both extension and
exit fees. Weighted-Average All-in Yield excludes the benefit of forward
points on currency hedges relating to loans denominated in currencies other
than USD.
(3) Gross of deferred financing costs of
(4) Represents loan portfolio at amortized cost less secured debt outstanding.
The following table provides details of our commercial mortgage loan portfolio and subordinate and other lending assets portfolio, on a loan-by-loan basis, as ofJune 30, 2020 ($ in millions): Commercial Mortgage Loan Portfolio Unfunded Construction Fully-extended # Property Type Risk Rating Origination Date Amortized Cost Commitment Loan Maturity Location 1 Urban Retail 3 08/2019$316 $- 09/2024 Manhattan, NY 2 Urban Retail 3 12/2019 307 - 12/2023 London, UK 3 Hotel 3 10/2019 248 50 08/2024 Various 4 Healthcare 3 10/2019 211 28 10/2024 Various 33
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5 Office 3 02/2020 207 - 02/2025 London, UK
6 Industrial 3 01/2019 196 7 02/2024 Brooklyn, NY
Berlin,
7 Office 3 06/2019 195 28 11/2026 Germany
Manhattan,
8 Office 3 10/2018 196 4 10/2021 NY
Urban
9 Predevelopment(1) 5 01/2016 115 - 09/2021 Miami, FL
10 Office 3 09/2019 172 - 09/2023 London, UK
11 Office 3 01/2020 174 113 02/2025 Long Island
City, NY
12 Office 3 11/2017 155 - 01/2023 Chicago, IL
Urban
13 Predevelopment(1) 5 03/2017 127 - 12/2020 Brooklyn, NY
14 Hotel 3 04/2018 152 1 04/2023 Honolulu, HI
Manhattan,
15 Hotel 5 09/2015 144 - 06/2024 NY
16 Hotel 3 05/2018 140 - 06/2023 Miami, FL
Puglia,
17 Hotel 3 08/2019 134 - 08/2024 Italy
18 Office 3 01/2018 132 58 01/2022 Renton, WA
Cincinnati,
19 Retail center(1) 5 11/2014 103 - 09/2020 OH
Residential-for-sale:
20 inventory 3 03/2018 121 - 03/2021 London, UK
Manhattan,
21 Office 3 10/2018 129 57 Y 10/2023 NY
Residential-for-sale:
22 construction 3 12/2019 128 21 Y 01/2023 Boston, MA
23 Hotel 3 03/2017 105 - 03/2022 Atlanta, GA
24 Hotel 3 11/2018 100 - 12/2023 Vail, CO
Manhattan,
25 Hotel 3 12/2017 90 - 12/2022 NY
26 Office 3 03/2018 91 - 04/2023 Chicago, IL
Residential-for-sale: Manhattan,
27 inventory 3 12/2019 82 - 07/2021 NY
Culver City,
28 Office 3 04/2019 86 73 Y 09/2025 CA
29 Office 3 12/2017 74 45 07/2022 London, UK
30 Mixed Use 3 12/2019 72 1 12/2024 London, UK
Residential-for-sale: Manhattan,
31 construction 3 12/2018 70 107 Y 12/2023 NY
32 Multifamily 3 04/2014 68 - 07/2023 Various
Manhattan,
33 Hotel 3 08/2019 67 - 09/2022 NY
Scottsdale,
34 Hotel 3 04/2018 64 - 05/2023 AZ
Los Angeles,
35 Urban Predevelopment 3 12/2016 53 - 06/2022 CA
36 Hotel 3 09/2019 60 - 10/2024 Miami, FL
Residential-for-sale: Manhattan,
37 construction 3 01/2018 65 15 Y 01/2023 NY
38 Hotel 3 12/2019 59 - 01/2025 Tucson, AZ
39 Multifamily 3 11/2014 54 - 11/2021 Various
40 Hotel 3 05/2019 52 - 06/2024 Chicago, IL
Cleveland,
41 Multifamily 3 02/2020 50 1 03/2024 OH
St. Thomas,
42 Hotel 3 12/2015 42 - 08/2024 USVI
Residential-for-sale: Hallandale
43 construction 3 12/2018 52 50 Y 01/2024 Beach, FL
Pittsburgh,
44 Hotel(1) 5 02/2018 29 - 03/2023 PA
Edinburgh,
45 Office 3 12/2019 32 3 12/2022 Scotland
Residential-for-sale: Manhattan,
46 inventory 3 05/2018 24 - 03/2021 NY
Residential-for-sale: Manhattan,
47 inventory 3 06/2018 16 - 07/2021 NY
48 Residential-for-sale: 5 02/2014 3 - 04/2021
inventory(1) Bethesda, MD
49 Mixed Use 3 12/2019 4 764 Y 06/2025 London, UK
General CECL
Allowance N/A (23)
Sub total /
Weighted-Average
Commercial Mortgage
Loans 3.1 $5,343 $1,426 3.2 Years
Subordinate Loan and Other Lending Asset Portfolio
Unfunded Fully-extended
# Property Type Risk Rating Origination Date Amortized Cost Commitment Construction Loan Maturity Location
34
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Residential-for-sale:
1 construction(2) 3 06/2015
Residential-for-sale:
2 construction 3 12/2017 104 13 Y 06/2022 Manhattan, NY 3 Office 3 01/2019 100 - 12/2025 Manhattan, NY 4 Healthcare 3 01/2019 76 - 01/2024 Various
Residential-for-sale:
5 construction(2) 3 11/2017 71 - Y 12/2020
Residential-for-sale:
6 construction 3 12/2017 70 - Y 04/2023 Los Angeles, CA 7 Multifamily 3 10/2015 69 - 04/2021 Manhattan, NY 8 Healthcare(3) 3 07/2019 51 - 06/2024 Various 9 Mixed Use 3 01/2017 42 - 02/2027 Cleveland, OH
Residential-for-sale:
10 inventory 3 10/2016 36 - 10/2020 Manhattan, NY 11 Mixed Use 3 02/2019 36 - Y 12/2022 London, UK 12 Industrial 2 05/2013 32 - 05/2023 Various 13 Mixed Use 3 12/2018 27 24 Y 12/2023 Brooklyn, NY 14 Hotel 3 06/2015 24 - 07/2025 Phoenix, AZ 15 Hotel 3 06/2018 20 - 06/2023 Las Vegas, NV 16 Multifamily 3 05/2018 19 - 05/2028 Cleveland, OH 17 Healthcare(3) 3 02/2019 17 - 01/2034 Various 18 Office 3 07/2013 14 - 07/2022 Manhattan, NY 19 Hotel(1) 5 06/2015 13 - 12/2022 Washington, DC 20 Hotel 4 05/2017 8 - 06/2027 Anaheim, CA 21 Office 3 08/2017 8 - 09/2024 Troy, MI 22 Mixed Use 3 07/2012 7 - 08/2022 Chapel Hill, NC General CECL Allowance (22) Sub total / Weighted-Average Subordinate Loans and Other Lending Assets 3.0$1,044 $37 2.7 Years Total / Weighted-Average Loan Portfolio 3.1$6,387 $1,463 3.1 Years ------- (1) Amortized cost for these loans is net of the recorded provisions for loan losses. (2) Both loans are secured by the same property. (3) Single Asset, Single Borrower CMBS. Our average asset and debt balances for the six months endedJune 30, 2020 were ($ in thousands): Average month-end balances for the six months ended June 30, 2020 Description Assets Related debt Commercial mortgage loans, net $ 5,621,528 $
3,362,222
Subordinate loans and other lending assets, net 1,061,237 - Investment Activity During the six months endedJune 30, 2020 , we committed$562.0 million of capital to loans ($447.4 million of which was funded during the six months endedJune 30, 2020 ). In addition, during the six months endedJune 30, 2020 , we funded$223.0 million for loans closed prior to 2020, and received$398.4 million in repayments and sales. Net Income (Loss) Available to Common Stockholders For the three months endedJune 30, 2020 and 2019 our net income available to common stockholders was$56.8 million , or$0.36 per diluted share of common stock, and$56.5 million , or$0.37 per diluted share of common stock, respectively. For the six months endedJune 30, 2020 and 2019, our net income (loss) available to common stockholders was$(74.4) million , or$(0.50) per diluted share of common stock, and$117.4 million , or$0.80 per diluted share of common stock, respectively. Operating Results The following table sets forth information regarding our consolidated results of operations and certain key operating 35 --------------------------------------------------------------------------------
metrics ($ in thousands):
Three months ended June 30, 2020 vs 2019
Six months ended
2020 2019 2020 2019
Net interest income:
Interest income from
commercial mortgage $ 75,641 $ 77,458 $ (1,817 ) $ 157,496 $ 155,744 $ 1,752
loans
Interest income from
subordinate loans 32,616 41,043 (8,427 ) 66,634 81,882 (15,248 )
and other lending
assets
Interest expense (37,498 ) (33,511 ) (3,987 ) (78,703 ) (69,806 ) (8,897 )
Net interest income 70,759 84,990 (14,231 ) 145,427 167,820 (22,393 )
Operating expenses:
General and
administrative (6,425 ) (6,574 ) 149 (12,956 ) (12,725 ) (231 )
expenses
Management fees to (9,957 ) (10,259 ) 302 (20,225 ) (19,872 ) (353 ) related party Total operating (16,382 ) (16,833 ) 451 (33,181 ) (32,597 ) (584 ) expenses Other income 591 484 107 1,351 1,002 349 Realized loss on (16,405 ) (12,513 ) (3,892 ) (16,405 ) (12,513 ) (3,892 ) investments Reversal of (provision for) loan 9,500 15,000 (5,500 ) (140,500 ) 15,000 (155,500 ) losses - Specific CECL Allowance Reversal of (provision for) loan 15,669 - 15,669 (17,796 ) - (17,796 ) losses - General CECL Allowance Foreign currency translation gain 2,559 (7,777 ) 10,336 (35,390 ) (883 ) (34,507 ) (loss) Gain (loss) on foreign currency (2,995 ) 11,186 (14,181 ) 67,496 4,466 63,030 forwards Loss on interest rate hedging (3,095 ) (13,113 ) 10,018 (38,643 ) (13,113 ) (25,530 ) instruments Net income (loss)$ 60,201 $ 61,424 $ (1,223 ) $ (67,641 ) $ 129,182 $ (196,823 )
Net Interest Income
Net interest income decreased by$14.2 million and$22.4 million during the three and six months endedJune 30, 2020 , respectively, as compared to the same periods in 2019. The decrease was primarily due to (i) a 2.08% and 1.59% decrease in average one-month LIBOR, respectively, for the three and six months endedJune 30, 2020 compared toJune 30, 2019 , (ii) loans with an aggregate principal balance of$583.8 million being on cost recovery or non-accrual status as ofJune 30, 2020 compared to$199.1 million atJune 30, 2019 , (iii) an increase in interest expense due to an increase in our net debt balance of$1.6 billion for the three and six months endedJune 30, 2020 compared toJune 30, 2019 , and (iv) a significant increase in under earning liquidity in the form of cash and cash equivalents sinceMarch 2020 compared to in 2019. This decrease was offset by (i) a$1.2 billion increase in loan principal balance as ofJune 30, 2020 compared to the same date in 2019 and (ii) in the money LIBOR floors on several of our loans. We recognized PIK interest of$12.4 million and$24.8 million for the three and six months endedJune 30, 2020 , respectively, and$14.6 million and$29.1 million for the three and six months endedJune 30, 2019 , respectively. We recognized$0 and$0.2 million in pre-payment penalties and accelerated fees for the three and six months endedJune 30, 2020 , respectively, and$0 and$3.7 million for the three and six months endedJune 30, 2019 , respectively. Operating Expenses General and administrative expenses 36 -------------------------------------------------------------------------------- General and administrative expenses decreased by$0.1 million for the three months endedJune 30, 2020 compared to the same period in 2019. The decrease was primarily driven by a$0.1 million decrease in general operating expenses. General and administrative expenses increased by$0.2 million for the six months endedJune 30, 2020 compared to the same period in 2019. The increase was primarily due to a$0.3 million increase in non-cash restricted stock and RSU amortization related to shares of common stock awarded under the LTIPs. This was offset by a$0.1 million decrease in general operating expenses. Management fees to related party Management fee expense decreased by$0.3 million during the three months endedJune 30, 2020 as compared to the same periods in 2019. The decrease is primarily attributable to a decrease in our stockholders' equity (as defined in the Management Agreement) as a result of our repurchase of 5,795,976 shares during the six months endedJune 30, 2020 (as described in "Note 14 - Stockholders' Equity"). Management fees increased by$0.4 million during the six months endedJune 30, 2020 as compared to the same period in 2019. The increase is primarily attributable to an increase in our stockholders' equity (as defined in the Management Agreement) as a result of a higher weighted-average basic share count during the six months endedJune 30, 2020 . 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." Reversal of (provision for) loan losses - General CECL Allowance The General CECL Allowance decreased by$15.7 million during the three months endedJune 30, 2020 and increased by$17.8 million during the six months endedJune 30, 2020 . For the six months endedJune 30, 2020 , the increase is primarily related to a more negative view of estimated future macroeconomic conditions, primarily due to COVID-19 and, for the three months endedJune 30, 2020 , the decrease is primarily related to an improvement in our view of estimated future market conditions. Other factors that contributed to the reversal atJune 30, 2020 were seasoning of the portfolio and loan sales that occurred during the quarter. Refer to "Note 2 - Summary of Significant Accounting Policies" and "Note 4 - Commercial Mortgage, Subordinate Loans and Other Lending Assets, Net" for additional information related to our General CECL Allowance. Reversal of (provision for) loan losses - Specific CECL Allowance During the three months endedJune 30, 2020 , we increased the Specific CECL Allowance, on two loans which had an existing Specific CECL Allowance, for an aggregate of$5.5 million and reversed$15.0 million of a previously recorded Specific CECL Allowance. During the six months endedJune 30, 2020 , we recorded Specific CECL Allowances on five loans, totaling$155.5 million , partially offset by a$15.0 million reversal of a previously recorded allowance. Refer to "Note 4 - Commercial Mortgage, Subordinate Loans and Other Lending Assets, Net" for additional information related to our Specific CECL Allowance. Foreign currency gain and (loss) on derivative instruments We use forward currency contracts to economically hedge interest and principal payments due under our loans denominated in currencies other than USD. When foreign currency gain and (loss) on derivative instruments are evaluated on a combined basis, the net impact for the three and six months endedJune 30, 2020 was$(0.4) million and$32.1 million , respectively, and the net impact for the three and six months endedJune 30, 2019 was$3.4 million and$3.6 million , respectively. Loss on interest rate hedges In connection with the senior secured term loan, we had previously entered into an interest rate swap to fix LIBOR at 2.12% effectively fixing our all-in coupon on the senior secured term loan at 4.87%. During the second quarter of 2020 we terminated the interest rate swap and recognized a realized loss of$53.9 million . Subsequent to the termination of the interest rate swap in the second quarter of 2020, we entered into a three-year interest rate cap to cap LIBOR at 0.75%. This effectively limits the maximum all-in coupon on our senior secured term loan to 3.50%. During the three and six months endedJune 30, 2020 , the interest rate cap had an unrealized gain of$0.7 million . Dividends The following table details our dividend activity: 37 -------------------------------------------------------------------------------- Three months ended Six months ended Dividend declared per share of: June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019 Common Stock$0.35 $0.46 $0.75 $0.92 Series B Preferred Stock 0.50 0.50 1.00 1.00 Series C Preferred Stock N/A 0.2223 N/A 0.7223 Subsequent Events Refer to "Note 18 - Subsequent Events" to the accompanying condensed consolidated financial statements for disclosure regarding significant transactions that occurred subsequent toJune 30, 2020 . 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. As ofJune 30, 2020 , we had$1.1 billion of corporate debt and$3.4 billion of asset specific financings. We have no corporate debt maturities untilAugust 2022 . As ofJune 30, 2020 , we had$487 million of cash on hand and$31.4 million of approved and undrawn capacity from our secured debt arrangements. In addition, we have a significant amount of unencumbered loan assets. In light of COVID-19 and its severe impact on the economy we have taken steps to increase our cash balances in order to maintain an adequate level of liquidity to meet future outflows. As the duration and severity of COVID-19 remain unknown, so does the impact it will have on our borrowers, lenders, and the economy as a whole. We will continue to closely monitor developments related to COVID-19 as it relates to our liquidity position and financial obligations. At this time we believe we have sufficient liquidity and access to additional liquidity to meet financial obligations for at least the next 12 months. Debt-to-Equity Ratio The following table presents our debt-to-equity ratio: June 30, 2020 December 31, 2019 Debt to Equity Ratio (1) 1.7 1.4
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(1) Represents total debt less cash and loan proceeds held by servicer to total stockholders' 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 - Loan Portfolio Overview" above for a summary of interest rates related to our investment portfolio as ofJune 30, 2020 . Borrowings Under Various Financing Arrangements JPMorgan Facility InNovember 2019 , through three indirect wholly-owned subsidiaries, we entered into a Sixth Amended and Restated Master Repurchase Agreement withJPMorgan Chase Bank, National Association . The JPMorgan Facility allows for$1.3 billion of maximum borrowings (with amounts borrowed in British pounds and Euros converted toU.S. dollars for purposes of calculating availability based on the greater of the spot rate as of the initial financing under the corresponding mortgage loan and the then-current spot rate) and matures inJune 2022 and has two one-year extensions available at our option, which are subject to certain conditions. The JPMorgan Facility enables us to elect to receive advances inU.S. dollars, GBP, or EUR. Margin calls may occur any time at specified aggregate margin deficit thresholds. As ofJune 30, 2020 , we had$1.2 billion (including £75.6 million and €60.0 million assuming conversion into USD) of borrowings outstanding under the JPMorgan Facility secured by certain of our commercial mortgage loans. DB Facility InMarch 2020 , through an indirect wholly-owned subsidiary, we entered into a Third Amended and Restated Master Repurchase Agreement with Deutsche Bank AG,Cayman Islands Branch,London Branch, which provides for 38 -------------------------------------------------------------------------------- advances of up to$1.0 billion for the sale and repurchase of eligible first mortgage loans secured by commercial or multifamily properties located inthe United States ,United Kingdom and theEuropean Union , and enables us to elect to receive advances in USD, GBP, or EUR. The repurchase facility matures inMarch 2021 , and has two one-year extensions available at our option, subject to certain conditions. Margin calls may occur any time at specified aggregate margin deficit thresholds. As ofJune 30, 2020 , we had$509.8 million of borrowings outstanding under the DB Facility secured by certain of our commercial mortgage loans. Goldman Facility InNovember 2017 , through an indirect wholly-owned subsidiary, we entered into a master repurchase and securities contract agreement withGoldman Sachs Bank USA , which provides advances up to$500.0 million and matures inNovember 2020 , and has one one-year extension available at our option, subject to certain conditions. Margin calls may occur any time at specified margin deficit thresholds. As ofJune 30, 2020 , we had$354.6 million of borrowings outstanding under the Goldman Facility secured by certain of our commercial mortgage loans. CS Facility - USD InJuly 2018 , through an indirect wholly-owned subsidiary, we entered into a Master Repurchase Agreement with Credit Suisse AG, acting through itsCayman Islands Branch and Alpine Securitization Ltd , which provides for advances for the sale and repurchase of eligible commercial mortgage loans secured by real estate. The CS Facility - USD has an "evergreen" feature such that the facility continues unless terminated at any time by Credit Suisse with six months' notice. Margin calls may occur any time at specified aggregate margin deficit thresholds. As ofJune 30, 2020 , we had$321.5 million of borrowings outstanding under the CS Facility - USD secured by certain of our commercial mortgage loans. CS Facility - GBP InJune 2018 , through an indirect wholly-owned subsidiary, we entered into a Global Master Repurchase Agreement withCredit Suisse Securities (Europe) Limited , which provides for advances for the sale and repurchase of eligible commercial mortgage loans secured by real estate. The CS Facility - GBP has an "evergreen" feature such that the facility continues unless terminated at any time by Credit Suisse with six months' notice. Margin calls may occur any time at specified aggregate margin deficit thresholds. As ofJune 30, 2020 , we had$84.6 million (£68.2 million assuming conversion into USD) of borrowings outstanding under the CS Facility - GBP secured by one commercial mortgage loan. HSBC Facility - USD InOctober 2019 , through an indirect wholly-owned subsidiary, we entered into a secured debt arrangement withHSBC Bank plc , which provides for a single asset financing. The facility is scheduled to mature inJanuary 2021 . Margin calls may occur any time at specified aggregate margin thresholds. As ofJune 30, 2020 , we had$47.2 million of borrowings under the HSBC Facility - USD secured by one commercial mortgage loan. HSBC Facility - GBP InSeptember 2018 , through an indirect wholly-owned subsidiary, we entered into a secured debt arrangement withHSBC Bank plc , which provided for a single asset financing. The facility matured and was repaid inJune 2020 in connection with the repayment of the underlying loan. HSBC Facility - EUR InJuly 2019 , through an indirect wholly-owned subsidiary, we entered into a secured debt arrangement withHSBC Bank plc , which provides for a single asset financing. The facility matures inJuly 2021 . Margin calls may occur any time at specified aggregate margin deficit thresholds. As ofJune 30, 2020 , we had$150.6 million (€134.1 million assuming conversion into USD) of borrowings outstanding under the HSBC Facility - EUR secured by one commercial mortgage loan. 39
-------------------------------------------------------------------------------- Barclays Facility - USD InMarch 2020 , through an indirect wholly-owned subsidiary, we entered into a secured debt arrangement pursuant to a Master Repurchase Agreement with Barclays Bank plc. The Barclays Facility - USD allows for$200.0 million of maximum borrowings and initially matures inMarch 2023 with extensions available at our option, subject to certain conditions. Margin calls may occur any time at specified aggregate margin deficit thresholds. As ofJune 30, 2020 , we had$35.2 million of borrowings outstanding under the Barclays Facility - USD secured by one commercial mortgage loan. Barclays Facility - GBP/EUR Beginning inOctober 2019 , through an indirect wholly-owned subsidiary, we entered into five secured debt arrangements pursuant to a Global Master Repurchase Agreement with Barclays Bank plc. InJune 2020 , all assets previously financed pursuant to this facility were refinanced under the Barclays Private Securitization. Barclays Private Securitization InJune 2020 , through a newly formed entity, we entered into a private securitization with Barclays Bank plc. Barclays Bank plc retained$782.0 million senior notes from the securitization. This Barclays Private Securitization finances the loans that were previously financed under the Barclays Facility - GBP/EUR. In addition, we pledged an additional commercial mortgage loan with an outstanding principal balance of £26.0 million and pledged additional collateral of a financed loan of €5.3 million (totaling$38.2 million in USD). The securitization eliminates daily margining provisions and grants us significant discretion to modify certain terms of the underlying collateral including waiving certain loan-level covenant breaches and deferring or waiving of debt service payments for up to 18 months. The securitization includes LTV based covenants with significant headroom to existing levels that are also subject to a six-month holiday throughDecember 2020 . These deleveraging requirements are based on significant declines in the value of the collateral as determined by an annual third-party (engaged by us) appraisal process tied to the provisions of the underlying loan agreements. We believe this provides us with both cushion and predictability to avoid sudden unexpected outcomes and material repayment requirements. In addition to the pledge of the additional collateral noted above, we paid down the previous financing by €16.5 million (totaling$18.5 million in USD) and agreed to increase the financing spreads by 0.25%. The table below provides the borrowings outstanding and weighted-average fully-extended maturities by currency for the assets financed under the Barclays Private Securitization ($ in thousands): Fully-Extended Borrowings outstanding Maturity(1) Total/Weighted-Average GBP$644,397 November 2023 Total/Weighted-Average EUR 137,609 May 2021(2) Total/Weighted-Average Securitization$782,006 July
2023
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(1) Assumes underlying loans extend to fully extended maturity and extensions at our option are exercised. (2) The EUR portion of the Barclays Private Securitization has an "evergreen" feature such that the facility continues for one year and can be terminated by either party on certain dates with, depending on the date of notice, a minimum of nine to twelve months' notice. As ofJune 30, 2020 , we had$782.0 million (£519.6 million and €122.5 million assuming conversion into USD) of borrowings outstanding under the Barclays Private Securitization secured by certain of our commercial mortgage loans. Debt Covenants The guarantees related to our secured debt arrangements contain the following financial covenants (i) tangible net worth must be greater than$1.25 billion plus 75% of the net cash proceeds of any equity issuance afterMarch 31, 2017 (ii) our ratio of total indebtedness to tangible net worth cannot be greater than 3.75:1; and (iii) our liquidity cannot be less than an amount equal to the greater of 5% of total recourse indebtedness or$30.0 million . Under these covenants, our General CECL Allowance is added back to our tangible net worth calculation. Senior Secured Term Loan InMay 2019 , we entered into the$500.0 million senior secured term loan. During the six months endedJune 30 , 40
-------------------------------------------------------------------------------- 2020, we repaid$2.5 million of principal related to the senior secured term loan. The senior secured term loan bears interest at LIBOR plus 2.75% and was issued at a price of 99.5%. The outstanding balance as ofJune 30, 2020 was$495.0 million . The senior secured term loan matures inMay 2026 and contains restrictions relating to liens, asset sales, indebtedness, and investments in non-wholly owned entities. The senior secured term loan includes the following financial covenants: (i) our ratio of total recourse debt to tangible net worth cannot be greater than 3:1; and (ii) our ratio of total unencumbered assets to total pari-passu indebtedness must be at least 1.25:1. Convertible Senior Notes In two separate offerings during 2017, we issued an aggregate principal amount of$345.0 million of 4.75% Convertible Senior Notes due 2022, for which we received$337.5 million , after deducting the underwriting discount and offering expenses. AtJune 30, 2020 , the 2022 Notes had a carrying value of$339.0 million and an unamortized discount of$6.0 million . During the fourth quarter of 2018, we issued$230.0 million of 5.375% Convertible Senior Notes due 2023, for which we received$223.7 million after deducting the underwriting discount and offering expenses. AtJune 30, 2020 , the 2023 Notes had a carrying value of$224.5 million and an unamortized discount of$5.5 million . Cash Generated from Equity Offerings During the second quarter of 2019, we completed a follow-on public offering of 17,250,000 shares of our common stock, including shares issued pursuant to the underwriters' option to purchase additional shares, at a price of$18.27 per share. The aggregate net proceeds from the offering were$314.8 million after deducting offering expenses. InMarch 2020 , our board of directors approved a stock repurchase program for up to an aggregate of$150.0 million of our common stock. During the six months endedJune 30, 2020 , we repurchased 5,795,976 shares of our common stock under this program at a weighted-average price of$7.96 per share. Other Potential Sources of Financing Our primary sources of cash currently consist of cash available, which was$487.2 million as ofJune 30, 2020 , 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. As ofJune 30, 2020 we also held$1.1 billion of unencumbered assets, consisting of$35.8 million of senior mortgages and$1.1 billion of mezzanine loans. We maintain 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 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 and senior secured term loan, we access additional sources of borrowings. Our charter and bylaws do not limit the amount of indebtedness we can incur; however, we are subject to and carefully monitor the limits placed on us by our credit providers and those that assign ratings on our Company.
At
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portfolio given built-in inherent structural leverage. Consequently, depending
on our portfolio mix, our debt-to-equity ratio may exceed our previously
disclosed thresholds.
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
• 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 or waiver to these investment guidelines. Contractual Obligations and Commitments Our contractual obligations including expected interest payments as ofJune 30, 2020 are summarized as follows ($ in thousands): More Less than 1 2 to 3 3 to 5 than 5 year (1) 1 to 2 years(1)
years (1) years (1) years (1) Total
Secured debt arrangements(1)(2)
19,673 19,524 19,375 38,343 515,890 612,805 Convertible senior notes
28,750 28,750 359,881 234,121 - 651,502
Unfunded loan commitments (3) 564,550 596,686 169,738 4,268 - 1,335,242
Total $ 1,035,689 $ 1,681,159 $ 1,381,691 $ 1,624,820 $ 515,890 $ 6,239,249
-------(1) Assumes underlying assets are financed through the fully extended maturity
date of the secured debt arrangement.
(2) Based on the applicable benchmark rates as of
rate debt for interest payments due.
(3) 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. Refer to
"Note 15- Commitments and Contingencies" for further detail regarding
unfunded loan commitments.
Loan Commitments. As of June 30, 2020 , we had $1.5 billion of unfunded loan
commitments, comprised of $1.4 billion related to our commercial mortgage loan
portfolio, and $37.0 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 will expire on September 29, 2020 .
Absent certain action by the independent directors of our board of directors, as
described below, the Management Agreement will automatically renew
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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 2020 ,
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.
Forward Currency Contracts. 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 (GBP and EUR) for an agreed upon
amount of U.S. dollars at various dates through December 2024 . 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. Refer to "Note 10- Derivatives, Net" to the
accompanying condensed consolidated financial statements for details regarding
our forward currency contracts.
Interest Rate Swap and Cap. In connection with the senior secured term loan, we
previously entered into an interest rate swap to fix LIBOR at 2.12%, effectively
fixing our all-in coupon on the senior secured term loan at 4.87%. During the
second quarter of 2020 we terminated our interest rate swap due to significant
decrease in LIBOR and recognized a realized loss on the accompanying condensed
consolidated statement of operations. Subsequently, in June 2020 , we entered
into an interest rate cap for approximately $1.1 million . We use our interest
rate cap to manage exposure to variable cash flows on our borrowings under our
senior secured term loan by effectively limiting LIBOR from exceeding 0.75%.
Refer to "Note 10- Derivatives, Net" to the accompanying condensed consolidated
financial statements for details regarding our interest rate cap.
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.
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 distribute
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 June 30, 2020 , 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, which are payable quarterly in equal amounts in arrears on the 15th
day of each January, April, July and October: (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 of our securities 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
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redemption.
InJune 2019 , we redeemed all 6,900,000 shares of Series C Preferred Stock outstanding. Holders of the Series C Preferred Stock received the redemption price of$25.00 plus accumulated but unpaid dividends to the redemption date of$0.2223 . Non-GAAP Financial Measures Operating Earnings For the three and six months endedJune 30, 2020 , our Operating Earnings were$(11.3) million , or$(0.07) per share, and$51.4 million , or$0.33 per share, respectively, as compared to$56.6 million , or$0.38 per share, and$125.0 million , or$0.88 per share, respectively, for the same periods in the prior year. 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 (a) realized gains/(losses) related to interest income, and (b) forward point gains/(losses) realized on our foreign currency hedges, (v) the non-cash amortization expense related to the reclassification of a portion of the Notes to stockholders' equity in accordance with GAAP, and (vi) provision for loan losses. 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 per weighted-average diluted share 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. We believe that excluding shares issued in connection with a potential conversion of the Notes from our computation of Operating Earnings per weighted-average diluted share is useful to investors for various reasons, including the following: (i) conversion of Notes to shares requires both the holder of a Note to elect to convert the Note and for us to elect to settle the conversion in the form of shares; (ii) future conversion decisions by Note holders will be based on our stock price in the future, which is presently not determinable; (iii) the exclusion of shares issued in connection with a potential conversion of the Notes from the computation of Operating Earnings per weighted-average diluted share is consistent with how we treat other unrealized items in our computation of Operating Earnings per weighted-average diluted share; and (iv) we believe that when evaluating our operating performance, investors and potential investors consider our Operating Earnings relative to our actual distributions, which are based on shares outstanding and not shares that might be issued in the future. The table below summarizes the reconciliation from weighted-average diluted shares under GAAP to the weighted-average diluted shares used for Operating Earnings ($ in thousands, except Price): Three months ended
2020 2019 2020 2019
Weighted-Averages Face Price Shares Shares Shares Shares
Weighted-average diluted
shares - GAAP 182,083,702 174,101,234 152,735,852 169,418,177
2019 Notes(1) $ 13,170 $17.17 - - - (767,093 )
2022 Notes $ 345,000 $19.91 (17,327,970 ) (17,327,970 ) - (17,327,970 )
2023 Notes $ 230,000 $20.53 (11,205,301 ) (11,205,301 ) - (11,205,301 )
Unvested RSUs N/A N/A - 1,846,173 2,017,080 1,847,860
Weighted-average diluted
shares - Operating Earnings 153,550,431 147,414,136 154,752,932 141,965,673
-------
(1) Face represents the weighted-average balance for the six months ended
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Computation of Share Count for Operating Earnings
Three months ended June 30, Six months ended June 30,
2020 2019 2020 2019
Basic weighted-average shares of
common stock outstanding 151,523,513 145,567,963 152,735,852 140,117,813
Weighted-average unvested RSUs 2,026,918 1,846,173 2,017,080 1,847,860
Weighted-average diluted shares
- Operating Earnings 153,550,431 147,414,136 154,752,932 141,965,673
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 income or expense related to our derivative
instruments. Forward points effectively convert our foreign rate exposure to USD
LIBOR, which we believe is a better reflection of our operating results and we
believe the inclusion of the resulting gain or loss in Operating Earnings is
useful to our investors. Operating Earnings allows us to isolate the net
interest income or expense associated with our swaps and caps in order to
monitor and project our full cost of borrowings.
As discussed in "Note 10 - Derivatives" we terminated our interest rate swap,
which we used to manage exposure to variable cash flows on our borrowings under
our senior secured term loan, in the second quarter of 2020 and recorded a
realized loss in the condensed consolidated statement of operations. As of June
30, 2020 , there are no interest rate swaps on our condensed consolidated balance
sheet. In addition, as discussed in "Note 4 - Commercial Mortgage, Subordinate
Loans and Other Lending Assets, Net," we recorded a net realized loss on the
sale of three construction loans and, in connection with a troubled debt
restructuring, on one hotel loan.
We believe it is useful to our investors to also present Operating Earnings
excluding realized loss on investments and realized loss on interest rate swap
to reflect our operating results because our operating results are primarily
comprised of earning interest income on our investments net of borrowing and
administrative costs, which are our ongoing operations. We believe that our
investors use Operating Earnings and Operating Earnings excluding realized loss
on investments and realized loss on interest rate swap, 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 and Operating Earnings excluding realized loss on investments and
realized loss on interest rate swap is useful to our investors.
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, that 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 (loss) available
to common stockholders to Operating Earnings and Operating Earnings excluding
realized loss on investments and realized loss on interest rate swap ($ in
thousands):
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Three months ended June 30 ,
Six months ended
2020 2019 2020 2019
Net income (loss) available to
$ 117,428
Adjustments:
Equity-based compensation expense 4,252 4,294 8,515 8,195 Unrealized (gain) loss on interest (50,018 ) 13,113 (14,470 ) 13,113 rate swap (Gain) loss on currency forwards 2,995 (11,186 ) (67,496 ) (4,466 ) Foreign currency (gain) loss, net (2,559 ) 7,777 35,390 883 Unrealized gain on interest rate cap (738 ) - (738 ) - Realized gains relating to interest income on foreign currency hedges, 1,088 325 1,344 744
net
Realized gains relating to forward points on foreign currency hedges, 1,318 44 3,489 2,476
net
Amortization of the convertible senior notes related to equity 765 721 1,519 1,630
reclassification
Provision for (reversal of) loan (25,169 ) (15,000 ) 158,296 (15,000 ) losses Total adjustments: (68,066 ) 88 125,849 7,575 Operating Earnings$ (11,250 ) $ 56,593 $ 51,438 $ 125,003 Realized loss on investments 16,405 12,513 16,405 12,513 Realized loss on interest rate swap 53,851 - 53,851 - Operating Earnings excluding realized loss on investments and$ 59,006 $ 69,106 $ 121,694 $ 137,516 realized loss on interest rate swap Diluted Operating Earnings per share$ (0.07 ) $ 0.38 $ 0.33 $ 0.88 of common stock (1) Diluted Operating Earnings excluding realized loss on investments and $ 0.38$ 0.47 $ 0.79 $ 0.97 realized loss on interest rate swap Basic weighted-average shares of 151,523,513 145,567,963 152,735,852 140,117,813 common stock outstanding Weighted-average diluted shares - 153,550,431 147,414,136 154,752,932 141,965,673 Operating Earnings ------- (1) For the computation of diluted Operating Earnings per share of common stock and diluted Operating Earnings excluding realized loss on investments and realized loss on interest rate swap per share of common stock, for the three months endedJune 30, 2020 ,$8.7 million of interest expense related to the Notes is not deducted from the numerator and the potentially dilutive shares related to the Notes are excluded from the denominator, while there is no such impact for the six months endedJune 30, 2020 . For the computation of diluted Operating Earnings per share of common stock and diluted Operating Earnings excluding realized loss on investments and realized loss on interest rate swap per share of common stock, for the three and six months endedJune 30, 2019 ,$7.9 million and$16.4 million , respectively, of interest expense related to the Notes is not deducted from the numerator and the potentially dilutive shares related to the Notes are excluded from the denominator.
Book Value Per Share
The table below calculates our book value per share ($ in thousands, except per
share data):
June 30, 2020 December 31, 2019
Stockholders' Equity $ 2,365,506 $ 2,629,975
Series B Preferred Stock
(Liquidation Preference) (169,260 ) (169,260 )
Common Stockholders' Equity $ 2,196,246 $ 2,460,715
Common Stock 148,326,806 153,537,296
Book value per share $ 14.81 $ 16.03
The table below shows the changes in our book value per share:
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Book value per share
Book value per share at December 31, 2019 $ 16.03
Net unrealized gain on currency hedges
0.20
Repurchase of common stock
0.25
Decrease in fair value on interest rate swap (0.27 ) Vesting and delivery of RSUs (0.07 ) Other (0.01 ) Book value per share atJune 30, 2020 prior to CECL Allowances $
16.13
Specific CECL Allowance $
(1.01 )
Book value per share at
$ 15.12
General CECL Allowance $ (0.31 ) Book value per share at June 30, 2020 $
14.81
We believe that presenting book value per share with sub-totals prior to the
CECL Allowances is useful for investors for various reasons, including, among
other things, the calculations for our financial covenants related to tangible
net worth and debt-to-equity under our secured debt arrangements and senior
secured term loan permit us to add the General CECL Allowance to our GAAP
stockholders' equity. Given our lenders consider book value per share prior to
the General CECL Allowance as an important metric related to our debt covenants,
we believe disclosing book value per share prior to the General CECL Allowance
is important to investors such that they have the same visibility.
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