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What changed in Apollo Commercial Real Estate Finance, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Apollo Commercial Real Estate Finance, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+441 added−420 removedSource: 10-K (2024-02-06) vs 10-K (2023-02-08)

Top changes in Apollo Commercial Real Estate Finance, Inc.'s 2023 10-K

441 paragraphs added · 420 removed · 317 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

216 edited+93 added−70 removed126 unchanged
Biggest change(4) Includes $4,347 and $3,106 of General CECL Allowance related to unfunded commitments on commercial mortgage loans, subordinate loans and other lending assets, net in 2022 and 2021, respectively. 54 Apollo Commercial Real Estate Finance, Inc. and Subsidiaries Consolidated Statement of Operations (in thousands—except share and per share data) Year ended December 31, 2022 2021 2020 Net interest income: Interest income from commercial mortgage loans $ 456,513 $ 327,702 $ 309,134 Interest income from subordinate loans and other lending assets 55,590 100,413 118,435 Interest expense (270,525) (162,522) (148,891) Net interest income $ 241,578 $ 265,593 $ 278,678 Revenue from real estate owned operations 62,062 18,917 — Total net revenue $ 303,640 $ 284,510 $ 278,678 Operating expenses: General and administrative expenses (includes equity-based compensation of $18,252, $17,633 and $16,815 in 2022, 2021 and 2020, respectively) $ (29,662) $ (28,845) $ (26,849) Management fees to related party (38,419) (38,160) (39,750) Operating expenses related to real estate owned (52,368) (19,923) — Depreciation and amortization on real estate owned (704) (2,645) — Total operating expenses $ (121,153) $ (89,573) $ (66,599) Other income $ 2,494 $ 3,821 $ 1,604 Realized gain (loss) on investments 18,683 (20,767) (47,632) Decrease (increase) in current expected credit loss allowance, net 17,623 34,773 (125,600) Realized losses and impairments on real estate owned — (550) — Foreign currency translation gain (loss) (116,399) (31,687) 26,916 Gain on foreign currency forward contracts (includes unrealized gains (losses) of $104,159, $46,714 and $(26,499) in 2022, 2021 and 2020, respectively) 146,981 41,674 (9,743) Gain (loss) on interest rate hedging instruments (includes unrealized gains of $7,692, $1,314, and $14,604) 13,363 1,314 (39,247) Net income $ 265,232 $ 223,515 $ 18,377 Preferred dividends (12,272) (12,964) (13,540) Net income available to common stockholders $ 252,960 $ 210,551 $ 4,837 Net income per share of common stock: Basic $ 1.77 $ 1.48 $ 0.01 Diluted $ 1.68 $ 1.46 $ 0.01 Basic weighted-average shares of common stock outstanding 140,534,635 139,869,244 148,004,385 Diluted weighted-average shares of common stock outstanding 165,504,660 168,402,515 148,004,385 Dividend declared per share of common stock $ 1.40 $ 1.40 $ 1.45 55 Apollo Commercial Real Estate Finance, Inc. and Subsidiaries Consolidated Statement of Changes in Stockholders’ Equity (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 December 31, 2019 6,770,393 $ 68 153,537,296 $ 1,535 $ 2,825,317 $ (196,945) $ 2,629,975 Adoption of ASU 2016-13, see Note 2 — — — — — (30,867) (30,867) Capital increase related to Equity Incentive Plan — — 591,203 6 10,321 — 10,327 Repurchase of common stock — — (14,832,632) (148) (127,846) — (127,994) Net income — — — — — 18,377 18,377 Dividends declared on preferred stock - $2.00 per share — — — — — (13,540) (13,540) Dividends declared on common stock - $1.45 per share — — — — — (215,749) (215,749) Balance at December 31, 2020 6,770,393 $ 68 139,295,867 $ 1,393 $ 2,707,792 $ (438,724) $ 2,270,529 Capital increase related to Equity Incentive Plan — — 598,193 6 13,349 — 13,355 Offering costs — — — — (99) — (99) Retirement of Series B Preferred Stock (6,770,393) (68) — — — — (68) Issuance of Series B-1 Preferred Stock 6,770,393 68 — — — — 68 Net income — — — — — 223,515 223,515 Dividends declared on preferred stock - $1.90 per share — — — — — (12,964) (12,964) Dividends declared on common stock - $1.40 per share — — — — — (199,710) (199,710) Balance at December 31, 2021 6,770,393 $ 68 139,894,060 $ 1,399 $ 2,721,042 $ (427,883) $ 2,294,626 Adoption of ASU 2020-06, see Note 2 — — — — (15,408) 11,992 (3,416) Capital increase related to Equity Incentive Plan — — 701,935 7 11,273 — 11,280 Net income — — — — — 265,232 265,232 Dividends declared on preferred stock - $1.81 per share — — — — — (12,272) (12,272) Dividends declared on common stock - $1.40 per share — — — — — (200,946) (200,946) Balance at December 31, 2022 6,770,393 $ 68 140,595,995 $ 1,406 $ 2,716,907 $ (363,877) $ 2,354,504 56 See notes to consolidated financial statements. 57 Apollo Commercial Real Estate Finance, Inc. and Subsidiaries Consolidated Statement of Cash Flows (in thousands) For the year ended December 31, 2022 2021 2020 Cash flows provided by operating activities: Net income $ 265,232 $ 223,515 $ 18,377 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of discount/premium and payment-in-kind interest (50,966) (69,590) (61,745) Amortization of deferred financing costs 12,034 13,740 12,862 Equity-based compensation 18,252 17,633 16,815 Increase (decrease) in current expected credit loss allowance, net (17,623) (34,773) 125,600 Foreign currency (gain) loss 97,330 31,096 (182) Unrealized (gain) loss on derivative instruments (111,851) (48,028) 11,895 Depreciation and amortization 704 2,645 — Loss from unconsolidated joint venture — 161 — Realized (gain) loss and impairments on investments and real estate owned (18,683) 21,317 47,632 Changes in operating assets and liabilities: Proceeds received from payment-in-kind interest 83,731 35,400 — Other assets (22,910) 1,628 (4,667) Origination of subordinate loan, held for sale — (31,200) — Sale of subordinate loan, held for sale — 31,200 — Accounts payable, accrued expenses and other liabilities 12,500 4,464 (1,703) Payable to related party (45) 175 (832) Net cash provided by operating activities 267,705 199,383 164,052 Cash flows used in investing activities: New funding of commercial mortgage loans (3,027,742) (2,780,887) (463,940) Add-on funding of commercial mortgage loans (483,795) (350,926) (321,271) Add-on funding of subordinate loans and other lending assets (113,124) (177,269) (91,447) Proceeds received from the repayment and sale of commercial mortgage loans 1,874,933 1,509,428 662,688 Proceeds received from the repayment of subordinate loans and other lending assets 279,336 303,831 5,563 Origination and exit fees received on commercial mortgage loans, and subordinate loans and other lending assets, net 46,874 42,750 6,847 Proceeds received from the sale of real estate owned, held for sale — 42,356 — Capital expenditures on real estate assets (33,035) (133) — Cash received from hotel title assumption — 4,148 — Increase in collateral related to derivative contracts, net 117,200 49,740 (14,160) Net cash used in investing activities (1,339,353) (1,356,962) (215,720) Cash flows provided by financing activities: Payment of offering costs — (99) — Repurchase of common stock — — (127,994) Proceeds from secured debt arrangements 2,836,372 2,279,691 1,535,130 Repayments of secured debt arrangements (1,453,921) (1,510,236) (1,242,317) Repayments of senior secured term loan principal (8,000) (7,250) (5,000) Repayments of convertible notes (345,000) — Proceeds from issuance of senior secured term loan — 297,000 — Proceeds from issuance of senior secured notes — 500,000 — Proceeds from participations sold — — 33,965 Repayment of debt related to real estate owned — (143,073) — Proceeds related to financing on real estate owned 164,835 — Payment of deferred financing costs (16,494) (23,958) (11,115) Other financing activities (6,972) (4,278) (6,494) Dividends on common stock (200,574) (199,646) (237,751) Dividends on preferred stock (12,272) (12,964) (13,540) Net cash provided by (used in) financing activities 957,974 1,175,187 (75,116) Apollo Commercial Real Estate Finance, Inc. and Subsidiaries Consolidated Statement of Cash Flows (Continued) (in thousands) For the year ended December 31, 2022 2021 2020 Net increase (decrease) in cash and cash equivalents, including cash classified within assets related to real estate owned, held for sale (113,674) 17,608 (126,784) Less increase in cash classified within assets related to real estate owned, held for sale (5,677) — Net increase (decrease) in cash and cash equivalents (119,351) 17,608 (126,784) Cash and cash equivalents, beginning of period 343,106 325,498 452,282 Effects of foreign currency translation on cash and cash equivalents (1,725) — — Cash and cash equivalents, end of period $ 222,030 $ 343,106 $ 325,498 Supplemental disclosure of cash flow information: Interest paid $ 246,370 $ 137,671 $ 129,812 Supplemental disclosure of non-cash financing activities: Dividend declared, not yet paid $ 53,711 $ 52,398 $ 52,768 Change in participation sold $ (1,934) $ 19,760 $ — Change in loan proceeds held by servicer $ (192) $ 3,179 $ 5,649 Deferred financing costs, not yet paid $ — $ — $ 2,596 Transfer of proceeds borrowed under secured credit facilities to Barclays Private Securitization $ — $ — $ 782,006 Restructuring of subordinate loan to commercial mortgage loan $ — $ — $ 68,500 Repayments of payment-in-kind on participation sold $ — $ (27,670) $ — Assumption of real estate $ 270,035 $ 154,300 $ 9,905 Assumption of debt related to real estate owned $ — $ (110,073) $ — Assumption of other assets related to real estate owned $ — $ 1,555 $ — Assumption of accounts payable and other liabilities related to real estate owned $ — $ (4,641) $ — Transfer of assets to assets related to real estate owned, held for sale $ 155,542 $ — $ — Transfer of liabilities to liabilities related to real estate owned, held for sale $ 7,156 $ — $ — Transfer of subordinate loans to real estate owned $ — $ (45,289) $ — Retirement of Series B Preferred Stock $ — $ (169,260) $ — Issuance of Series B-1 Preferred Stock $ — $ 169,260 $ — 58 Apollo Commercial Real Estate Finance, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 1 – Organization Apollo Commercial Real Estate Finance, Inc.
Biggest change(5) Includes $4,017 and $4,347 of General CECL Allowance related to unfunded commitments on commercial mortgage loans, subordinate loans and other lending assets, net in 2023 and 2022, respectively. 56 Apollo Commercial Real Estate Finance, Inc. and Subsidiaries Consolidated Statement of Operations (in thousands—except share and per share data) Year ended December 31, 2023 2022 2021 Net interest income: Interest income from commercial mortgage loans $ 701,002 $ 456,513 $ 327,702 Interest income from subordinate loans and other lending assets 17,280 55,590 100,413 Interest expense (466,110) (270,525) (162,522) Net interest income $ 252,172 $ 241,578 $ 265,593 Revenue from real estate owned operations 92,419 62,062 18,917 Total net revenue $ 344,591 $ 303,640 $ 284,510 Operating expenses: General and administrative expenses (includes equity-based compensation of $17,444, $18,252 and $17,633 in 2023, 2022 and 2021, respectively) $ (29,520) $ (29,662) $ (28,845) Management fees to related party (37,978) (38,419) (38,160) Operating expenses related to real estate owned (72,759) (52,368) (19,923) Depreciation and amortization on real estate owned (8,248) (704) (2,645) Total operating expenses $ (148,505) $ (121,153) $ (89,573) Other income, net $ 4,616 $ 2,494 $ 3,821 Net realized gain (loss) on investments (86,604) 18,683 (20,767) Gain on extinguishment of debt 495 — — Decrease (increase) in current expected credit loss allowance, net (59,428) 17,623 34,773 Realized losses and impairments on real estate owned — — (550) Foreign currency translation gain (loss) 52,031 (116,399) (31,687) Gain (loss) on foreign currency forward contracts (includes unrealized gains (losses) of $(91,434), $104,159 and $46,714 in 2023, 2022 and 2021 respectively) (48,213) 146,981 41,674 Gain (loss) on interest rate hedging instruments (includes unrealized gains (losses) of $(10,098), $7,692 and $1,314 in 2023, 2022 and 2021, respectively) (414) 13,363 1,314 Net income before taxes $ 58,569 $ 265,232 $ 223,515 Income tax provision (442) — — Net income $ 58,127 $ 265,232 $ 223,515 Preferred dividends (12,272) (12,272) (12,964) Net income available to common stockholders $ 45,855 $ 252,960 $ 210,551 Net income per share of common stock: Basic $ 0.29 $ 1.77 $ 1.48 Diluted $ 0.29 $ 1.68 $ 1.46 Basic weighted-average shares of common stock outstanding 141,281,286 140,534,635 139,869,244 Diluted weighted-average shares of common stock outstanding 141,281,286 165,504,660 168,402,515 Dividend declared per share of common stock $ 1.40 $ 1.40 $ 1.40 57 Apollo Commercial Real Estate Finance, Inc. and Subsidiaries Consolidated Statement of Changes in Stockholders’ Equity (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 December 31, 2020 6,770,393 $ 68 139,295,867 $ 1,393 $ 2,707,792 $ (438,724) $ 2,270,529 Capital increase related to Equity Incentive Plan — — 598,193 6 13,349 — 13,355 Offering costs — — — — (99) — (99) Retirement of Series B Preferred Stock (6,770,393) (68) — — — — (68) Issuance of Series B-1 Preferred Stock 6,770,393 68 — — — — 68 Net income — — — — — 223,515 223,515 Dividends declared on preferred stock - $1.90 per share — — — — — (12,964) (12,964) Dividends declared on common stock and RSUs - $1.40 per share — — — — — (199,710) (199,710) Balance at December 31, 2021 6,770,393 $ 68 139,894,060 $ 1,399 $ 2,721,042 $ (427,883) $ 2,294,626 Adoption of ASU 2020-06, see Note 2 — — — — (15,408) 11,992 (3,416) Capital increase related to Equity Incentive Plan — — 701,935 7 11,273 — 11,280 Net income — — — — — 265,232 265,232 Dividends declared on preferred stock - $1.81 per share — — — — — (12,272) (12,272) Dividends declared on common stock and RSUs - $1.40 per share — — — — — (200,946) (200,946) Balance at December 31, 2022 6,770,393 $ 68 140,595,995 $ 1,406 $ 2,716,907 $ (363,877) $ 2,354,504 Capital increase related to Equity Incentive Plan — — 762,610 8 10,581 — 10,589 Net income — — — — — 58,127 58,127 Dividends declared on preferred stock - 1.81 per share — — — — — (12,272) (12,272) Dividends declared on common stock and RSUs - $1.40 per share — — — — — (202,215) (202,215) Balance at December 31, 2023 6,770,393 $ 68 141,358,605 $ 1,414 $ 2,727,488 $ (520,237) $ 2,208,733 See notes to consolidated financial statements. 58 Apollo Commercial Real Estate Finance, Inc. and Subsidiaries Consolidated Statement of Cash Flows (in thousands) For the year ended December 31, 2023 2022 2021 Cash flows from operating activities: Net income $ 58,127 $ 265,232 $ 223,515 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of discount/premium and payment-in-kind interest (30,845) (50,966) (69,590) Amortization of deferred financing costs 15,962 12,034 13,740 Equity-based compensation 17,444 18,252 17,633 Increase (decrease) in current expected credit loss allowance, net 59,428 (17,623) (34,773) Foreign currency (gain) loss (40,922) 97,330 31,096 Unrealized loss (gain) on foreign currency contracts 91,434 (104,159) (46,714) Unrealized loss (gain) on interest rate hedging instruments 10,098 (7,692) (1,314) Depreciation and amortization on real estate owned 8,248 704 2,645 Loss from unconsolidated joint venture — — 161 Gain on extinguishment of debt (495) — — Net realized loss (gain) on investment 86,604 (18,683) 21,317 Changes in operating assets and liabilities: Proceeds received from payment-in-kind interest 15,407 83,731 35,400 Other assets (13,367) (22,910) 1,628 Payment for interest rate cap (2,317) — — Origination of subordinate loan, held for sale — — (31,200) Sale of subordinate loan, held for sale — — 31,200 Accounts payable, accrued expenses and other liabilities (769) 12,500 4,464 Payable to related party (175) (45) 175 Net cash provided by operating activities $ 273,862 $ 267,705 199,383 Cash flows from investing activities: New funding of commercial mortgage loans (456,167) (3,027,742) (2,780,887) Add-on funding of commercial mortgage loans (376,060) (483,795) (350,926) Increase (decrease) in collateral related to derivative contracts, net (112,800) 117,200 49,740 Add-on funding of subordinate loans and other lending assets (96,879) (113,124) (177,269) Capital expenditures on real estate assets (72,631) (33,035) (133) Proceeds received from the repayment and sale of commercial mortgage loans 1,093,181 1,874,933 1,509,428 Proceeds received from the repayment of subordinate loans and other lending assets 75,271 279,336 303,831 Origination and exit fees received on commercial mortgage loans, and subordinate loans and other lending assets, net 13,936 46,874 42,750 Cash received from hotel title assumption 569 — 4,148 Proceeds received from the sale of real estate owned, held for sale — — 42,356 Net cash provided by (used in) investing activities $ 68,420 $ (1,339,353) $ (1,356,962) Cash flows from financing activities: Payment of offering costs — — (99) Proceeds from secured debt arrangements 806,843 2,836,372 2,279,691 Repayments of secured debt arrangements (679,339) (1,453,921) (1,510,236) Repayments of senior secured term loan principal (8,000) (8,000) (7,250) Repayments and repurchases of convertible notes (229,506) (345,000) — Proceeds from issuance of senior secured term loan — — 297,000 Proceeds from issuance of senior secured notes — — 500,000 Proceeds related to financing on real estate owned — 164,835 — Repayment of debt related to real estate owned — — (143,073) Payment of deferred financing costs (12,212) (16,494) (23,958) Payment of withholding tax on RSU delivery (6,855) (6,972) (4,278) Dividends on common stock (202,019) (200,574) (199,646) Dividends on preferred stock (12,272) (12,272) (12,964) Net cash provided by (used in) financing activities $ (343,360) $ 957,974 $ 1,175,187 See notes to consolidated financial statements. 59 Apollo Commercial Real Estate Finance, Inc. and Subsidiaries Consolidated Statement of Cash Flows (Continued) (in thousands) For the year ended December 31, 2023 2022 2021 Net increase (decrease) in cash and cash equivalents, including cash classified within assets related to real estate owned, held for sale $ (1,078) $ (113,674) 17,608 Decrease (increase) in cash classified within assets related to real estate owned, held for sale 5,100 (5,677) — Net increase (decrease) in cash and cash equivalents $ 4,022 $ (119,351) $ 17,608 Cash and cash equivalents beginning of period 222,030 343,106 325,498 Effects of foreign currency translation on cash and cash equivalents (614) (1,725) — Cash and cash equivalents end of period $ 225,438 $ 222,030 $ 343,106 Supplemental disclosure of cash flow information: Interest paid $ 443,626 $ 246,370 $ 137,671 Income tax paid 795 — — Supplemental disclosure of non-cash financing activities: Dividend declared, not yet paid $ 53,407 $ 53,711 $ 52,398 Change in participation sold (25,130) (1,934) 19,760 Repayments of payment-in-kind on participation sold — — (27,670) Change in loan proceeds held by servicer 2,900 (192) 3,179 Assumption of real estate 75,000 270,035 154,300 Assumption of other assets related to real estate owned 2,827 — 1,555 Assumption of accounts payable, accrued expenses and other liabilities related to real estate owned (3,396) — 4,641 Assumption of debt related to real estate owned — — (110,073) Transfer of assets to assets related to real estate owned, held for sale 79,021 155,542 — Transfer of assets related to real estate owned, held for sale to assets related to real estate owned held for investment, net 151,676 — — Transfer of assets related to real estate owned, held for sale to other assets 4,357 — — Transfer of liabilities to liabilities related to real estate owned, held for sale 1,438 7,156 — Transfer of liabilities related to real estate owned, held for sale to accounts payable, accrued expenses and other liabilities 7,163 — — Transfer of subordinate loan to subordinate loan, held for sale — — (45,289) Retirement of Series B Preferred Stock — — (169,260) Issuance of Series B-1 Preferred Stock — — 169,260 See notes to consolidated financial statements. 60 Apollo Commercial Real Estate Finance, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 1 – Organization Apollo Commercial Real Estate Finance, Inc.
The subordinate loans, by virtue of being the first loss position, are required to absorb losses prior to the senior position(s) being impacted, resulting in a higher percentage allowance attributable to the subordinate loan. The General CECL Allowance on unfunded loan commitments is time-weighted based on our expected commitment to fund such obligations.
The subordinate loans, by virtue of being the first loss position, are required to absorb losses prior to the senior position(s) being impacted, resulting in a higher percentage allowance attributable to the subordinate loan. The General CECL Allowance on unfunded loan commitments is time-weighted based on our expected commitment to fund such obligations.
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.
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.
The entity was deemed to be a VIE and we determined that we are not the primary beneficiary of that VIE as we do not have the power to direct the entity's activities.
The entity was deemed to be a VIE and we determined that we are not the primary beneficiary of that VIE as we do not have the power to direct the entity's activities.
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.
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.
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.
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.
These future commitments are funded over the term of each loan, subject in certain cases to an expiration date. (2) For floating rate loans, based on applicable benchmark rates as of the specified dates. For loans placed on non-accrual the interest rate used in 67 calculating weighted-average cash coupon is 0%. (3) Assumes all extension options are exercised.
These future commitments are funded over the term of each loan, subject in certain cases to an expiration date. (2) For floating rate loans, based on applicable benchmark rates as of the specified dates. For loans placed on non-accrual, the interest rate used in calculating weighted-average cash coupon is 0%. (3) Assumes all extension options are exercised.
The following loan sales occurred in 2021: 74 In the fourth quarter of 2021, we sold our interest in a $31.2 million subordinate loan secured by a residential-for-sale inventory property located in Boston, MA. We determined that this transaction qualifies as a sale and accounted for it as such. We recorded no gain or loss related to this sale.
The following loan sales occurred in 2021: In the fourth quarter of 2021, we sold our interest in a $31.2 million subordinate loan secured by a residential-for-sale inventory property located in Boston, MA. We determined that this transaction qualifies as a sale and accounted for it as such. We recorded no gain or loss related to this sale.
During the third quarter of 2021, a vehicle managed by an affiliate of the Manager transferred its Junior Mezzanine B Loan position to the Company and in connection with this transfer, one of the property’s subordinate capital providers paid the vehicle a price representing the original principal balance on the Junior Mezzanine B Loan position with the vehicle agreeing to forego its accrued interest on the Junior Mezzanine B Loan.
During the third quarter of 2021, a vehicle managed by an affiliate of the Manager transferred its Junior Mezzanine B Loan position to the Company and in connection with this transfer, one of the property’s subordinate capital providers paid the vehicle a price representing the original principal balance on the Junior 89 Mezzanine B Loan position with the vehicle agreeing to forego its accrued interest on the Junior Mezzanine B Loan.
Through our wholly owned 76 subsidiaries, we hold a 100% equity ownership interest in the joint venture and our partner is only entitled to profit upon achievement of certain returns under our joint venture agreement. Concurrently with taking title to the property, we obtained $164.8 million in construction financing on the property.
Through our wholly owned subsidiaries, we hold a 100% equity ownership interest in the joint venture and our partner is only entitled to profit upon achievement of certain returns under our joint venture agreement. Concurrently with taking title to the property, we obtained $164.8 million in construction financing on the property.
Interest incurred in accordance with secured debt arrangements is recorded as interest expense. Securitization/Sale and Financing Arrangements We periodically sell our financial assets, such as commercial mortgage loans, subordinate loans and other lending assets. In connection with these transactions, we may retain or acquire senior or subordinated interests in the related assets.
Interest incurred in accordance with secured debt arrangements is recorded as interest expense. 65 Securitization/Sale and Financing Arrangements We periodically sell our financial assets, such as commercial mortgage loans, subordinate loans and other lending assets. In connection with these transactions, we may retain or acquire senior or subordinated interests in the related assets.
Specifically, a property’s operating results and any cash reserves are analyzed and used to assess (i) whether cash from operations is sufficient to cover the debt service requirements currently and into the future, (ii) the ability of the borrower to refinance the loan and/or (iii) the liquidation value of the underlying collateral.
Specifically, a property’s operating results and any cash 73 reserves are analyzed and used to assess (i) whether cash from operations is sufficient to cover the debt service requirements currently and into the future, (ii) the ability of the borrower to refinance the loan and/or (iii) the liquidation value of the underlying collateral.
We recognized $3.7 million of shared appreciation fees for the year ended December 31, 2021 related to a first mortgage loan secured by a portfolio of residential-for-rent assets located in the United States, which is recorded in other income in the consolidated statement of operations.
We recognized $3.7 million of shared appreciation fees for the year ended December 31, 2021 related to a first mortgage loan secured by a portfolio of residential-for-rent assets located in the United States, which is recorded in other income in our consolidated statement of operations.
Note 9 – Senior Secured Notes, Net In June 2021, we issued $500.0 million of 4.625% Senior Secured Notes due 2029 (the "2029 Notes"), for which we received net proceeds of $495.0 million, after deducting initial purchasers' discounts and commissions. The 2029 Notes will mature on June 15, 2029, unless earlier repurchased or redeemed.
Note 9 – Senior Secured Notes, Net In June 2021, we issued $500.0 million of 4.625% 2029 Notes, for which we received net proceeds of $495.0 million, after deducting initial purchasers' discounts and commissions. The 2029 Notes will mature on June 15, 2029, unless earlier repurchased or redeemed.
Note 10 – Convertible Senior Notes, Net In two separate offerings during 2017, we issued an aggregate principal amount of $345.0 million of 4.75% Convertible Senior Notes due 2022 (the "2022 Notes"), for which we received $337.5 million, after deducting the underwriting discount and offering expenses.
Note 10 – Convertible Senior Notes, Net In two separate offerings during 2017, we issued an aggregate principal amount of $345.0 million of 4.75% 2022 Notes, for which we received $337.5 million, after deducting the underwriting discount and offering expenses.
These forward contracts were executed to economically fix the USD amounts of foreign denominated cash flows expected to be received by us related to foreign denominated loan investments. 83 The agreements with our derivative counterparties require that we post collateral to secure net liability positions.
These forward contracts were executed to economically fix the USD amounts of foreign denominated cash flows expected to be received by us related to foreign denominated loan investments. The agreements with our derivative counterparties require that we post collateral to secure net liability positions.
Secured Debt Arrangements Secured debt arrangements are accounted for as financing transactions, unless they meet the criteria for sale accounting. 63 Loans financed through a secured debt arrangement remain on our consolidated balance sheets as an asset and cash received from the purchaser is recorded on our consolidated balance sheets as a liability.
Secured Debt Arrangements Secured debt arrangements are accounted for as financing transactions, unless they meet the criteria for sale accounting. Loans financed through a secured debt arrangement remain on our consolidated balance sheets as an asset and cash received from the purchaser is recorded on our consolidated balance sheets as a liability.
Note 15 – Share-Based Payments On September 23, 2009, our board of directors approved the Apollo Commercial Real Estate Finance, Inc. 2009 Equity Incentive Plan ("2009 LTIP") and on April 16, 2019, our board of directors approved the Amended and Restated Apollo Commercial Real Estate Finance, Inc. 2019 Equity Incentive Plan ("2019 LTIP," and together with the 2009 LTIP, the "LTIPs"), which amended and restated the 2009 LTIP.
Note 16 – Share-Based Payments On September 23, 2009, our board of directors approved the Apollo Commercial Real Estate Finance, Inc. 2009 Equity Incentive Plan ("2009 LTIP") and on April 16, 2019, our board of directors approved the Amended and Restated Apollo Commercial Real Estate Finance, Inc. 2019 Equity Incentive Plan ("2019 LTIP," and together with the 2009 LTIP, the "LTIPs"), which amended and restated the 2009 LTIP.
Assets and Liabilities Related to Real Estate Owned In order to maximize recovery against a defaulted loan, we may assume legal title or physical possession of the underlying collateral through foreclosure or the execution of a deed in lieu of foreclosure.
Assets and Liabilities Related to Real Estate Owned 63 In order to maximize recovery against a defaulted loan, we may assume legal title or physical possession of the underlying collateral through foreclosure or the execution of a deed-in-lieu of foreclosure.
We recognized a realized gain of $43.6 million, recorded within realized gain (loss) on investments on our consolidated statement of operations, which reflects the difference between the fair value of the property and the carrying value of the loan at the time of acquisition.
We recognized a realized gain of $43.6 million, recorded within realized gain (loss) on investments on our consolidated statement of operations, which reflects the difference between the fair value of the property and the 77 carrying value of the loan at the time of acquisition.
Share-based Payments 64 We account for share-based compensation to our independent directors, to the Manager and to employees of the Manager and its affiliates using the fair value-based methodology prescribed by GAAP.
Share-based Payments We account for share-based compensation to our independent directors, to the Manager and to employees of the Manager and its affiliates using the fair value-based methodology prescribed by GAAP.
Risks and Uncertainties Although more normalized activities have resumed and there has been improved global economic activity due to global and domestic vaccination efforts, there are still various uncertainties around the impact COVID-19 and its variants will have on our business and the economy as a whole, including longer-term macroeconomic effects on supply chains, inflation and labor shortages.
Risks and Uncertainties Although more normalized activities have resumed and there has been improved global economic activity due to global and domestic vaccination efforts, there are still various uncertainties around the impact COVID-19 and its variants had and will continue to have on our business and the economy as a whole, including longer-term macroeconomic effects on supply chains, inflation and labor shortages.
Our most significant estimates include loan loss allowances. Actual results could differ from those estimates. We currently operate in one reporting segment. Principles of Consolidation We consolidate all entities that we control through either majority ownership or voting rights. In addition, we consolidate all VIEs of which we are considered the primary beneficiary.
Our most significant estimates include loan loss allowances. Actual results could differ from those estimates. We currently operate in one reporting segment. Principles of Consolidation We consolidate all entities that we control through either majority ownership or voting rights. In addition, we consolidate all variable interest entities ("VIEs") of which we are considered the primary beneficiary.
See further discussion in "Note 7 - Secured Debt Arrangements, Net." Unconsolidated Joint Ventures 59 In September 2018, we entered a joint venture with Turner Consulting II, LLC ("Turner Consulting"), through an entity which owns the underlying property that secures our loan. Turner Consulting contributed 10% of the venture’s equity and we contributed 90%.
See further discussion in "Note 7 - Secured Debt Arrangements, Net." Unconsolidated Joint Ventures 61 In September 2018, we entered a joint venture with Turner Consulting II, LLC ("Turner Consulting"), through an entity which owns the underlying property that secures our loan. Turner Consulting contributed 10% of the venture’s equity and we contributed 90%.
(4) The fair value of the residential collateral was determined by making certain projections and assumptions with respect to future performance and a discount rate of 10%. We cease accruing interest on loans if we deem the interest to be uncollectible with any previously accrued uncollected interest on the loan charged to interest income in the same period.
(3) The fair value of the residential collateral was determined by making certain projections and assumptions with respect to future performance and a discount rate of 10%. We cease accruing interest on loans if we deem the interest to be uncollectible with any previously accrued uncollected interest on the loan charged to interest income in the same period.
We account for participations sold as secured borrowings on our consolidated balance sheet with both assets and non-recourse liabilities because the participations do not qualify as a sale under ASC 860, "Transfers and Servicing." The income earned on the participations sold is recorded as interest income and an identical amount is recorded as interest expense in our consolidated statements of operations.
We account for participations sold as secured borrowings on our consolidated balance sheet with both assets and non-recourse liabilities because the participations do not qualify as a sale under ASC 860. The income earned on the participations sold is recorded as interest income and an identical amount is recorded as interest expense in our consolidated statements of operations.
We have elected to treat certain consolidated subsidiaries and may in the future elect to treat newly formed subsidiaries, as taxable REIT subsidiaries. Taxable REIT subsidiaries may participate in non-real estate related activities and/or perform noncustomary services for tenants and are subject to U.S. federal and state income tax at regular corporate tax rates.
We have elected to treat certain consolidated subsidiaries and may in the future elect to treat newly formed subsidiaries, as taxable REIT subsidiaries. Taxable REIT subsidiaries may participate in non-real estate related activities and/or perform non-customary services for tenants and are subject to U.S. federal and state income tax at regular corporate tax rates.
The following loan sale occurred in 2022: During the third quarter of 2022, we transferred a portion of our unfunded commitment of £293.4 million ($327.7 million assuming conversion into USD) in a commercial mortgage loan secured by a mixed use property located in London, United Kingdom to entities managed by affiliates of the Manager.
The following loan sales occurred in 2022: During the third quarter of 2022, we transferred a portion of our unfunded commitment of £293.4 million ($327.7 million assuming conversion into USD) in a commercial mortgage loan secured by a mixed use property located in London, United Kingdom to entities managed by affiliates of the Manager.
On August 3, 2022, we acquired legal title of the property through a deed-in-lieu of foreclosure and accounted for the asset acquisition in accordance with ASC 805, "Business Combinations." At that time, our amortized cost basis in the commercial mortgage loan was $226.5 million.
On August 3, 2022, we acquired legal title of the property through a deed-in-lieu of foreclosure and accounted for the asset acquisition in accordance with ASC 805. At that time, our amortized cost basis in the commercial mortgage loan was $226.5 million.
(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.
(3) 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 of both December 31, 2022 and 2021, we had no restricted cash on our consolidated balance sheets. Classification of Investments and Valuations of Financial Instruments Our investments consist primarily of commercial mortgage loans, subordinate loans, and other lending assets that are classified as held-to-maturity.
As of both December 31, 2023 and 2022, we had no restricted cash on our consolidated balance sheets. Classification of Investments and Valuations of Financial Instruments Our investments consist primarily of commercial mortgage loans, subordinate loans, and other lending assets that are classified as held-to-maturity.
The annual historical loss rate was further adjusted to reflect our expectations of the macroeconomic environment for a reasonable and supportable forecast period. The shortened four quarter forecast period was adopted at the onset of COVID-19 pandemic in response to heightened macroeconomic uncertainty brought by the pandemic.
The annual historical loss rate was further adjusted to reflect our expectations of the macroeconomic environment for a reasonable and supportable forecast period. At the onset of the COVID-19 pandemic in 2020, we adopted a shortened four quarter forecast period in response to heightened macroeconomic uncertainty brought by the pandemic.
See further discussion in "Note 4 – Commercial Mortgage, Subordinate Loans and Other Lending Assets, Net." In October 2020, we entered a joint venture with CCOF Design Venture, LLC ("CCOF"), which owns the underlying properties that secured our first mortgage loan.
See further discussion in "Note 4 – Commercial Mortgage, Subordinate Loans and Other Lending Assets, Net." In October 2020, we entered a joint venture with CCOF Design Venture, LLC ("CCOF"), which owned the underlying properties that secured our first mortgage loan.
Covenants The 2029 Notes include certain covenants including a requirement that we maintain a ratio of total unencumbered assets to total pari-passu indebtedness of at least 1.20:1. As of December 31, 2022 and December 31, 2021, we were in compliance with all covenants.
Covenants The 2029 Notes include certain covenants including a requirement that we maintain a ratio of total unencumbered assets to total pari-passu indebtedness of at least 1.20:1. As of December 31, 2023 and December 31, 2022, we were in compliance with all covenants.
Loans classified as held for sale are stated at the lower of amortized cost or fair value, in accordance with GAAP. As of both December 31, 2022 and 2021, there were no loans classified as held for sale on our consolidated balance sheets.
Loans classified as held for sale are stated at the lower of amortized cost or fair value, in accordance with GAAP. As of both December 31, 2023 and 2022, there were no loans classified as held for sale on our consolidated balance sheets.
Note 14 – 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.
Note 15 – 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.
We derived an annual historical loss rate based on a commercial mortgage-backed securities ("CMBS") database with historical losses from 1998 through the fourth quarter of 2022 provided by a third party, Trepp LLC. We applied various filters 70 to arrive at a CMBS dataset most analogous to our current portfolio from which to determine an appropriate historical loss rate.
We derived an annual historical loss rate based on a commercial mortgage-backed securities ("CMBS") database with historical losses from 1998 through the fourth quarter of 2023 provided by a third party, Trepp LLC. We applied various filters to arrive at a CMBS dataset most analogous to our current portfolio from which to determine an appropriate historical loss rate.
The current market exchange rates are determined by using market spot rates, forward rates and interest rate curves for the underlying countries. Our Fx forwards are classified as Level II in the fair value hierarchy.
The current market exchange rates are determined by using market spot rates, forward rates and interest rate curves for the underlying countries. Our foreign exchange forwards are classified as Level II in the fair value hierarchy.
The modified loan terms as discussed above have been reflected in our calculation of CECL for the quarter ended December 31, 2022. R efer to "CECL" section above for additional information regarding our calculation of CECL allowance.
The modified loan terms as discussed above have been reflected in our calculation of CECL for the quarter ended December 31, 2023. R efer to "CECL" section above for additional information regarding our calculation of CECL Allowance.
As of both December 31, 2022 and 2021, we were in a net asset position with all of our derivative counterparties and did not have any collateral posted under these derivative contracts.
As of both December 31, 2023 and 2022, we were in a net asset position with all of our derivative counterparties and did not have any collateral posted under these derivative contracts.
At the time of acquisition, we determined the fair value of the real estate assets to be $154.3 million. No impairments have been recorded as of December 31, 2022 or December 31, 2021.
At the time of acquisition, we determined the fair value of the real estate assets to be $154.3 million. No impairments have been recorded as of December 31, 2023 or December 31, 2022.
(4) $4.3 million and $3.1 million of the General CECL Allowance for 2022 and 2021, respectively, is excluded from this table because it relates to unfunded commitments and has been recorded as a liability under accounts payable, accrued expenses and other liabilities in our consolidated balance sheets. 68 Risk Rating We assess the risk factors of each loan and assign a risk rating based on a variety of factors, including, without limitation, loan to value ("LTV") ratio, debt yield, property type, geographic and local market dynamics, physical condition, cash flow volatility, leasing and tenant profile, loan structure and exit plan, and project sponsorship.
(4) $4.0 million and $4.3 million of the General CECL Allowance for 2023 and 2022, respectively, is excluded from this table because it relates to unfunded commitments and has been recorded as a liability under accounts payable, accrued expenses and other liabilities in our consolidated balance sheets. 70 Risk Rating We assess the risk factors of each loan and assign a risk rating based on a variety of factors, including, without limitation, loan to value ("LTV") ratio, debt yield, property type, geographic and local market dynamics, physical condition, cash flow volatility, leasing and tenant profile, loan structure and exit plan, and project sponsorship.
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 65 speeds, credit risk and others. Level III — Prices are determined using significant unobservable 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. 67 Level III — Prices are determined using significant unobservable inputs.
If the credit of the underlying collateral value decreases, the amount of leverage to us may be reduced. As of December 31, 2022 and December 31, 2021, t he weighted average haircut under our secured debt arrangements was approxi mately 31.2% and 30.2%, respectively. Our secured credit facilities do not contain capital markets-based mark-to-market provisions.
If the credit of the underlying collateral value decreases, the amount of leverage to us may be reduced. As of December 31, 2023 and December 31, 2022, t he weighted average haircut under our secured debt arrangements was approxi mately 31.6% and 31.2%, respectively. Our secured credit facilities do not contain capital markets-based mark-to-market provisions.
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 our consolidated statement of changes in stockholders' equity. The adjustment was $7.0 million, $4.4 million, and $6.5 million for the years ended December 31, 2022, 2021 and 2020 respectively.
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 our consolidated statement of changes in stockholders' equity. The adjustment was $6.9 million, $7.0 million and $4.4 million for the years ended December 31, 2023, 2022 and 2021, respectively.
The term of the Management Agreement was automatically renewed for a successive one-year term on September 29, 2022 and will automatically renew on each anniversary thereafter.
The term of the Management Agreement was automatically renewed for a successive one-year term on September 29, 2023 and will automatically renew on each anniversary thereafter.
We have made an accounting policy election to exclude accrued interest receivable ($65.4 million and $41.2 million as of December 31, 2022 and 2021, respectively), included in other assets on our consolidated balance sheets, from the amortized cost basis of the related commercial mortgage loans and subordinate loans and other lending assets in determining the General CECL Allowance, as any uncollectible accrued interest receivable is written off in a timely manner.
We have made an accounting policy election to exclude accrued interest receivable ($72.4 million and $65.4 million as of December 31, 2023 and 2022, respectively), included in other assets on our consolidated balance sheets, from the amortized cost basis of the related commercial mortgage loans and subordinate loans and other lending assets in determining the General CECL Allowance, as any uncollectible accrued interest receivable is written off in a timely manner.
We were in compliance with the covenants under the Term Loans at December 31, 2022 and December 31, 2021. Interest Rate Cap During the second quarter of 2020, we entered into a three-year interest rate cap to cap LIBOR at 0.75%. This effectively limits the maximum all-in coupon on our 2026 Term Loan to 3.50%.
We were in compliance with the covenants under the Term Loans at December 31, 2023 and December 31, 2022. Interest Rate Cap During the second quarter of 2020, we entered into a three-year interest rate cap to cap LIBOR at 0.75%. This effectively limited the maximum all-in coupon on our 2026 Term Loan to 3.50%.
Estimates of fair value for cash and cash equivalents, convertible senior notes, net, secured debt arrangements net and Term Loans, 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 19 – 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.
Estimates of fair value for cash and cash equivalents, convertible senior notes, net, and Term Loans, 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 20 – Net Income (Loss) 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.
(3) $4.3 million and $3.1 million of the General CECL Allowance for 2022 and 2021, respectively, is excluded from this table because it relates to unfunded commitments and has been recorded as a liability under accounts payable, accrued expenses and other liabilities in our consolidated balance sheets.
(3) $4.0 million and $4.3 million of the General CECL Allowance for 2023 and 2022, respectively, is excluded from this table because it relates to unfunded commitments and has been recorded as a liability under accounts payable, accrued expenses and other liabilities in our consolidated balance sheets.
Certain of our lenders are contractually obligated to fund their ratable portion of these loan commitments over time, while other lenders have some degree of discretion over future loan funding obligations. The total unfunded commitment is expected to be funded over the remaining 3.6 years weighted average tenor of these loans. COVID-19.
Certain of our lenders are contractually obligated to fund their ratable portion of these loan commitments over time, while other lenders have some degree of discretion over future loan funding obligations. The total unfunded commitment is expected to be funded over the remaining 3.2 years weighted average tenor of these loans.
For the years ended December 31, 2022, 2021, and 2020, we paid expenses totaling $5.5 million, $4.0 million and $4.5 million, respectively, related to reimbursements for certain expenses paid by the Manager on our behalf under the Management Agreement.
For the years ended December 31, 2023, 2022, and 2021 we paid expenses totaling $6.4 million, $5.5 million and $4.0 million respectively, related to reimbursements for certain expenses paid by the Manager on our behalf under the Management Agreement.
We also extended the term on all three loans from July 2022 to September 2024. Based on our analysis under ASC 310-20 “Receivables – Nonrefundable Fees and Other Costs” (“ASC 310-20”), we have deemed this refinance to be a continuation of our existing loans.
We also extended the term on all three loans from July 2022 to September 2024, including a one-year extension. Based on our analysis under ASC 310-20 “Receivables – Nonrefundable Fees and Other Costs” (“ASC 310-20”), we have deemed this refinance to be a continuation of our existing loans.
With respect to the amortization of the discount on the liability component of the Convertible Notes as well as the amortization of deferred financing costs, we reported additional non-cash interest expense of approximately $2.5 million, $6.3 million and $6.0 million for the years ended December 31, 2022, 2021, and 2020, respectively.
With respect to the amortization of the discount on the liability component of the Convertible Notes as well as the amortization of deferred financing costs, we reported additional non-cash interest expense of approximately $1.2 million, $2.5 million, and $6.3 million for the years ended December 31, 2023, 2022, and 2021, respectively.
The collateral assets of the securitization are included in commercial mortgage loans, net on our consolidated balance sheets. The liabilities of the securitization to the senior noteholders, excluding the notes held by us, are included in secured debt arrangements, net on our consolidated balance sheet.
The collateral assets of the securitization are included in commercial mortgage loans, net on our consolidated balance sheets. The liabilities of the securitization to the senior note holders, excluding the notes held by us, are included in secured debt arrangements, net on our consolidated balance sheet.
Our major tax jurisdictions are U.S. federal, New York State and New York City and the statute of limitations is open for all jurisdictions for the years 2019 through 2022. We do not have any unrecognized tax benefits and do not expect a change in our position for unrecognized tax benefits in the next 12 months.
Our major tax jurisdictions are U.S. federal, New York State and New York City and the statute of limitations is open for all jurisdictions for the years 2020 through 2023. We do not have any unrecognized tax benefits and do not expect a change in our position for unrecognized tax benefits in the next 12 months.
In connection with this sale, we transferred our remaining unfunded commitment of £19.1 million ($25.3 million assuming conversion into USD at time of transfer). The participation interest sold is subordinate to our remaining £72.9 million ($88.1 million assuming conversion into USD) first mortgage loan and is accounted for as a secured borrowing on our consolidated balance sheet.
In connection with this sale, we transferred our remaining unfunded commitment of £19.1 million ($25.3 million assuming conversion into USD at time of transfer). The participation interest sold was subordinate to our first mortgage loan and was accounted for as a secured borrowing on our consolidated balance sheet.
The following table details our dividend activity: Year ended December 31, Dividends declared per share of: 2022 2021 2020 Common Stock $1.40 $1.40 $1.45 Series B Preferred Stock N/A 1.00 2.00 Series B-1 Preferred Stock 1.81 0.90 N/A ——————— (1) As our aggregate 2022 distributions did not exceed our earnings and profits, $0.1185 of the January 2023 distribution declared in the fourth quarter of 2022, and payable to common stockholders of record as of December 31, 2022, will be treated as a 2022 distribution for U.S. federal income tax purposes.
The following table details our dividend activity: 91 Year ended December 31, Dividends declared per share of: 2023 2022 (1) 2021 Common Stock $1.40 $1.40 $1.40 Series B Preferred Stock N/A N/A $1.00 Series B-1 Preferred Stock $1.81 $1.81 $0.90 ——————— (1) As our aggregate 2022 distributions did not exceed our earnings and profits, $0.1185 of the January 2023 distribution declared in the fourth quarter of 2022, and payable to common stockholders of record as of December 31, 2022, was treated as a 2022 distribution for U.S. federal income tax purposes.
Classification of Loans Loans held to maturity are stated at the principal amount outstanding, adjusted for deferred fees and current allowance for loan losses, if any, in accordance with GAAP. Loans held for sale are classified as such if there is a reasonable expectation to sell them in the short-term following the reporting date.
Classification of Loans Loans held to maturity are stated at the principal amount outstanding, adjusted for deferred fees and current expected credit losses, in accordance with GAAP. Loans held for sale are classified as such if there is a reasonable expectation to sell them in the short-term following the reporting date.
The CECL Standard requires the use of significant judgment to arrive at an estimated credit loss. There is significant uncertainty related to future macroeconomic conditions as the result of COVID-19, including inflation, labor shortages and interest rates.
The CECL Standard requires the use of significant judgment to arrive at an estimated credit loss. There is significant uncertainty related to future macroeconomic conditions, including inflation, labor shortages and interest rates.
The aggregate contractual interest expense was approximately $22.9 million, $28.8 million and $28.8 million for the years ended December 31, 2022, 2021, and 2020, respectively.
The aggregate contractual interest expense was approximately $8.6 million, $22.9 million, and $28.8 million for the years ended December 31, 2023, 2022, and 2021, respectively.
Included in payable to related party on our consolidated balance sheets at December 31, 2022 and 2021 is approximately $9.7 million and $9.8 million, respectively, for base management fees incurred but not yet paid under the Management 86 Agreement.
Included in payable to related party on our consolidated balance sheets at December 31, 2023 and 2022 is approximately $9.6 million and $9.7 million, respectively, for base management fees incurred but not yet paid under the Management Agreement.
Convertible Senior Notes We include our convertible senior notes in our consolidated balance sheets as a liability, net of original issue discount. Discounts are deferred and amortized through the maturity of the notes. Interest paid in accordance with our convertible senior notes is recorded in interest expense.
Discount or transaction expenses are deferred and amortized through the maturity. Interest paid in accordance with our Term Loans is recorded in interest expense. Convertible Senior Notes We include our convertible senior notes in our consolidated balance sheets as a liability, net of original issue discount. Discounts are deferred and amortized through the maturity of the notes.
The amortized cost basis for loans on non-accrual was $468.0 million an d $639.6 million as of December 31, 2022 and December 31, 2021 , respectively. Under certain circumstances, we may apply the cost recovery method under which interest collected on a loan reduces the loan's amortized cost.
The amortized cost basis for loans on non-accrual was $693.7 million an d $468.0 million as of December 31, 2023 and December 31, 2022 , respectively. Under certain circumstances, we may apply the cost recovery method under which interest collected on a loan reduces the loan's amortized cost.
For the remainder of the portfolio, we record a general allowance ("General CECL Allowance", and together with the Specific CECL Allowance, "CECL Allowances"), in accordance with the CECL Standard on a collective basis by assets with similar risk characteristics.
For the remainder of the loan portfolio, we record a general allowance ("General CECL Allowance", and together with Specific CECL Allowance, "CECL Allowances") on a collective basis by assets with similar risk characteristics.
We repaid $5.0 million of principal related to the 2026 Term Loan during each of the years ended December 31, 2022 and 2021, respectively. During the years ended December 31, 2022 and 2021, we repaid $3.0 million and $2.3 million of principal related to the 2028 Term Loan, respectively.
During the years ended December 31, 2023 and 2022, we repaid $5.0 million of principal related to the 2026 Term Loan. During the years ended December 31, 2023 and 2022, we repaid $3.0 million of principal respectively related to the 2028 Term Loan.
(10) As of December 31, 2022 and December 31, 2021, approximately 58% and 50% of the outstanding balance under these secured borrowings were recourse to us. Terms of our secured credit facilities are designed to keep each lender's credit exposure generally constant as a percentage of the underlying value of the assets pledged as security to it.
(12) As of December 31, 2023 and December 31, 2022, approximately 58% of the outstanding balance under these secured borrowings were recourse to us. Terms of our secured credit facilities are designed to keep each lender's credit exposure generally constant as a percentage of the underlying value of the assets pledged as security to the facility.
We use our interest rate cap to manage exposure to variable cash flows on our borrowings under the senior secured term loan by effectively limiting LIBOR from exceeding 0.75%. This effectively limits the maximum all-in coupon on our senior secured term loan to 3.50%.
Our interest rate cap managed our exposure to variable cash flows on our borrowings under the senior secured term loan by effectively limiting LIBOR from exceeding 0.75%. This limited the maximum all-in coupon on our senior secured term loan to 3.50%.
The fair value of our interest rate cap is determined by using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rose above the strike rate of the interest rate cap.
The fair value of our interest rate cap is determined by using the market standard methodology of discounting the future expected cash receipts that occur when variable interest rates rise above the strike rate of the interest rate cap.
Revenue Recognition Interest income on our lending assets is accrued based on the actual coupon rate adjusted for accretion of any purchase discounts, the amortization of any purchase premiums and the accretion of any deferred fees, in accordance with GAAP.
Interest paid in accordance with our convertible senior notes is recorded in interest expense. Revenue Recognition Interest income on our lending assets is accrued based on the actual coupon rate adjusted for accretion of any purchase discounts, the amortization of any purchase premiums and the accretion of any deferred fees, in accordance with GAAP.
As such, during the year ended December 31, 2022, we realized a gain from the interest rate cap in the amount of $5.7 million, which is included in gain (loss) on interest rate hedging instruments in our consolidated statement of operations.
As such, during the year ended December 31, 2023, we realized a gain from the interest rate cap in the amount of $0.6 million, which is included in gain (loss) on interest rate hedging instruments in our consolidated statement of operations.
As of March 1, 2022, the hotel assets and liabilities met the criteria to be classified as held for sale under ASC Topic 360, "Property, Plant, and Equipment." As of March 1, 2022, we ceased recording depreciation on the building and furniture, fixtures, and equipment on the consolidated statement of operations.
As of March 1, 2022, the hotel assets, comprised of land, building, furniture fixtures, and equipment, and accumulated depreciation (collectively "REO Fixed Assets"), and liabilities met the criteria to be classified as held for sale under ASC Topic 360, "Property, Plant, and Equipment." Accordingly, as of March 1, 2022, we ceased recording depreciation on the building and furniture, fixtures, and equipment on the consolidated statement of operations.
Note 8 – Senior Secured Term Loans, Net In May 2019, we entered into a $500.0 million senior secured term loan (the "2026 Term Loan"), which matures in May 2026 and contains restrictions relating to liens, asset sales, indebtedness, and investments in non-wholly owned entities.
Note 8 – Senior Secured Term Loans, Net In May 2019, we entered into a $500.0 million 2026 Term Loan, which matures in May 2026 and contains restrictions relating to liens, asset sales, indebtedness, and investments in non-wholly owned entities. The 2026 Term Loan was issued at a price of 99.5%.
CECL In accordance with ASU 2016-13 "Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments", which we refer to as the "CECL Standard", we record allowances for loans and held-to-maturity debt securities that are deducted from the carrying amount of the assets to present the net carrying value of the amounts expected to be collected on the assets.
CECL In accordance with ASC Topic 326 “Financial Instruments – Credit Losses,” which we refer to as the "CECL Standard", we record allowances for loans and held-to-maturity debt securities that are deducted from the carrying amount of the assets to present the net carrying value of the amounts expected to be collected on the assets.
See further discussion in Note 5 – Assets and Liabilities Related to Real Estate Owned." Barclays Securitization During the second quarter of 2020, we entered into a private securitization with Barclays Bank plc.
See further discussion in "Note 5 – Real Estate Owned." Barclays Securitization During the second quarter of 2020, we entered into a private securitization with Barclays Bank plc.
(2) Includes General CECL Allowance related to unfunded commitments on commercial mortgage loans, net o f $2.9 million and $0.4 million as of December 31, 2022 and December 31, 2021, respectively.
(2) Includes General CECL Allowance related to unfunded commitments on commercial mortgage loans, net o f $2.5 million and $2.9 million as of December 31, 2023 and December 31, 2022, respectively.
The numerator is adjusted for any changes in income or loss that would result from the assumed conversion of these potential shares of common stock. 90 The table below presents the computation of basic and diluted net income per share of common stock for the years ended December 31, 2022, 2021 and 2020 ($ in thousands except per share data): Year ended December 31, 2022 2021 2020 Basic Earnings Net income $ 265,232 $ 223,515 $ 18,377 Less: Preferred dividends (12,272) (12,964) (13,540) Net income available to common stockholders $ 252,960 $ 210,551 $ 4,837 Less: Dividends on participating securities (4,132) (3,877) (3,431) Basic Earnings $ 248,828 $ 206,674 $ 1,406 Diluted Earnings Basic Earnings $ 248,828 $ 206,674 $ 1,406 Add: Dividends on participating securities 4,132 3,877 — Add: Interest expense on Convertible Notes 25,385 35,020 — Diluted Earnings $ 278,345 $ 245,571 $ 1,406 Number of Shares: Basic weighted-average shares of common stock outstanding 140,534,635 139,869,244 148,004,385 Diluted weighted-average shares of common stock outstanding 165,504,660 168,402,515 148,004,385 Earnings Per Share Attributable to Common Stockholders Basic $ 1.77 $ 1.48 $ 0.01 Diluted $ 1.68 $ 1.46 $ 0.01 The dilutive effect to earnings per share is determined using the "if-converted" method whereby interest expense on the outstanding Convertible Notes is added back to the diluted earnings per share numerator, and all of the potentially dilutive shares are included in the diluted earnings per share denominator.
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. 93 The table below presents the computation of basic and diluted net income (loss) per share of common stock for the years ended December 31, 2023, 2022 and 2021 ($ in thousands except per share data): Year ended December 31, 2023 2022 2021 Basic Earnings Net income (loss) $ 58,127 $ 265,232 $ 223,515 Less: Preferred dividends (12,272) (12,272) (12,964) Net income (loss) available to common stockholders $ 45,855 $ 252,960 $ 210,551 Less: Dividends on participating securities (4,353) (4,132) (3,877) Basic Earnings (Loss) $ 41,502 $ 248,828 $ 206,674 Diluted Earnings Basic Earnings (Loss) $ 41,502 $ 248,828 $ 206,674 Add: Dividends on participating securities — 4,132 3,877 Add: Interest expense on Convertible Notes — 25,385 35,020 Diluted Earnings $ 41,502 $ 278,345 $ 245,571 Number of Shares: Basic weighted-average shares of common stock outstanding 141,281,286 140,534,635 139,869,244 Diluted weighted-average shares of common stock outstanding 141,281,286 165,504,660 168,402,515 Earnings (Loss) Per Share Attributable to Common Stockholders Basic $ 0.29 $ 1.77 $ 1.48 Diluted $ 0.29 $ 1.68 $ 1.46 The dilutive effect to earnings per share is determined using the "if-converted" method whereby interest expense on the outstanding Convertible Notes is added back to the diluted earnings per share numerator, and all of the potentially dilutive shares are included in the diluted earnings per share denominator.
In the second quarter of 2022, we reversed the remaining $10 million Specific CECL Allowance as a result of market rent growth and value created from development activities at the underlying property.
As a result of improved market conditions we reversed $20.0 million of Specific CECL Allowance during the second quarter of 2021. In the second quarter of 2022, we reversed the remaining $10.0 million Specific CECL Allowance as a result of market rent growth and value created from development activities at the underlying property.
(2) Other Europe includes Italy (5.4%), Germany (4.9%), Spain (3.8%), Sweden (2.8%) and Ireland (0.7%) in 2022 and Germany (6.1%), Sweden (3.6%), Spain (3.3%), Italy (2.6%), and Ireland (0.8%) in 2021. (3) Other includes Northeast (5.5%), Southwest (2.3%), Mid-Atlantic (1.4%) and Other (0.3%) in 2022 and Southwest (3.5%), Mid-Atlantic (1.6%), Northeast (1.5%), and Other (0.3%) in 2021.
(2) Other Europe includes Germany (7.4%), Italy (4.9%), Spain (4.2%), Sweden (2.9%), Ireland (0.5%) and the Netherlands (0.2%) in 2023 and Italy (5.4%), Germany (4.9%), Spain (3.8%), Sweden (2.8%) and Ireland (0.7%) in 2022. (3) Other includes Northeast (5.0%), Southwest (1.7%), Mid-Atlantic (1.1%) and Other (1.1%) in 2023 and Northeast (5.5%), Southwest (2.3%), Mid-Atlantic (1.4%) and Other (0.3%) in 2022.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAlso, as a result of this competition, we may not be able to take advantage of attractive opportunities from time to time, and we can offer no assurance that we will be able to identify and acquire assets that are consistent with our objectives. 8 Cybersecurity risks and cyber incidents may adversely affect our business by causing a disruption to our operations, a compromise or corruption of our confidential information, a misappropriation of funds, and/or damage to our business relationships, all of which could negatively impact our financial results.
Biggest changeAlso, as a result of this competition, we may not be able to take advantage of attractive opportunities from time to time, and we can offer no assurance that we will be able to identify and acquire assets that are consistent with our objectives.
Certain provisions of the Maryland General Corporation Law ("MGCL") may have the effect of deterring a third party from making a proposal to acquire us or of impeding a change in control under circumstances that otherwise could provide the holders of our common stock with the opportunity to realize a premium over the then-prevailing market price of our common stock including: • "business combination" provisions of the MGCL that, subject to limitations, prohibit certain business combinations between us and an "interested stockholder" (defined generally as any person who beneficially owns 10% or more of our then outstanding voting stock or an affiliate or associate of ours who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of our then outstanding voting stock) or an affiliate thereof for five years after the most recent date on which the stockholder becomes an interested stockholder and, thereafter, impose fair price and/or supermajority stockholder voting requirements on these combinations; • "control share" provisions of the MGCL that provide that a holder of "control shares" of a Maryland corporation (defined as shares which, when aggregated with all other shares controlled by the stockholder (except solely by virtue of a revocable proxy), entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a "control share acquisition" (defined as the direct or indirect acquisition of ownership or control of issued and outstanding "control shares") has no voting rights with respect to such shares 12 except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding votes entitled to be cast by the acquirer of control shares, our officers and personnel who are also directors; and • "unsolicited takeover" provisions of the MGCL that permit our board of directors, without stockholder approval and regardless of what is currently provided in our charter or bylaws, to implement takeover defenses, some of which (for example, a classified board) we do not yet have.
Certain provisions of the Maryland General Corporation Law ("MGCL") may have the effect of deterring a third party from making a proposal to acquire us or of impeding a change in control under circumstances that otherwise could provide the holders of our common stock with the opportunity to realize a premium over the then-prevailing market price of our common stock including: • "business combination" provisions of the MGCL that, subject to limitations, prohibit certain business combinations between us and an "interested stockholder" (defined generally as any person who beneficially owns 10% or more of our then outstanding voting stock or an affiliate or associate of ours who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of our then outstanding voting stock) or an affiliate thereof for five years after the most recent date on which the stockholder becomes an interested stockholder and, thereafter, impose fair price and/or supermajority stockholder voting requirements on these combinations; • "control share" provisions of the MGCL that provide that a holder of "control shares" of a Maryland corporation (defined as shares which, when aggregated with all other shares controlled by the stockholder (except solely by virtue of a revocable proxy), entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a "control share acquisition" (defined as the direct or indirect acquisition of ownership or control of issued and outstanding "control shares") has no voting rights with respect to such shares except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding votes entitled to be cast by the acquirer of control shares, our officers and personnel who are also directors; and • "unsolicited takeover" provisions of the MGCL that permit our board of directors, without stockholder approval and regardless of what is currently provided in our charter or bylaws, to implement takeover defenses, some of which (for example, a classified board) we do not yet have.
In general, Rule 3a-7 excludes from the 1940 Act issuers that limit their activities as follows: • the issuer issues securities, the payment of which depends primarily on the cash flow from "eligible assets," which are assets that by their terms convert into cash within a finite time period; • the securities sold are fixed-income securities rated investment grade by at least one rating agency except that fixed- income securities which are unrated or rated below investment grade may be sold to institutional accredited investors and any securities may be sold to "qualified institutional buyers" and to persons involved in the organization 13 or operation of the issuer; • the issuer acquires and disposes of eligible assets (1) only in accordance with the agreements pursuant to which the securities are issued and (2) so that the acquisition or disposition does not result in a downgrading of the issuer’s fixed-income securities and (3) the primary purpose of which is not recognizing gains or decreasing losses resulting from market value changes; and • unless the issuer is issuing only commercial paper, the issuer appoints an independent trustee, takes reasonable steps to transfer to the trustee an ownership or perfected security interest in the eligible assets, and meets rating agency requirements for commingling of cash flows.
In general, Rule 3a-7 excludes from the 1940 Act issuers that limit their activities as follows: • the issuer issues securities, the payment of which depends primarily on the cash flow from "eligible assets," which are assets that by their terms convert into cash within a finite time period; • the securities sold are fixed-income securities rated investment grade by at least one rating agency except that fixed- income securities which are unrated or rated below investment grade may be sold to institutional accredited investors and any securities may be sold to "qualified institutional buyers" and to persons involved in the organization or operation of the issuer; • the issuer acquires and disposes of eligible assets (1) only in accordance with the agreements pursuant to which the securities are issued and (2) so that the acquisition or disposition does not result in a downgrading of the issuer’s fixed-income securities and (3) the primary purpose of which is not recognizing gains or decreasing losses resulting from market value changes; and • unless the issuer is issuing only commercial paper, the issuer appoints an independent trustee, takes reasonable steps to transfer to the trustee an ownership or perfected security interest in the eligible assets, and meets rating agency requirements for commingling of cash flows.
Net operating income of an income-producing property can be affected by, among other things: tenant mix, success of tenant businesses, property management decisions, property location and condition, competition from comparable types of properties (including properties located in opportunity zones), changes in laws that increase operating expense or limit rents that may be charged, any need to address environmental contamination at the property, the occurrence of any uninsured casualty at the property, changes in national, regional or local economic conditions and/or specific industry segments, declines in regional or local real estate values, declines in regional or local rental or occupancy rates, increases in interest rates, real estate tax rates and other operating expenses, changes in governmental rules, regulations and fiscal policies, environmental, climate and other ESG-related legislation and tax legislation, acts of God, regional, national or global outbreaks, epidemics and pandemics, geopolitical events, terrorism, social unrest, civil disturbances or other calamities.
Net operating income of an income- 20 producing property can be affected by, among other things: tenant mix, success of tenant businesses, property management decisions, property location and condition, competition from comparable types of properties (including properties located in opportunity zones), changes in laws that increase operating expense or limit rents that may be charged, any need to address environmental contamination at the property, the occurrence of any uninsured casualty at the property, changes in national, regional or local economic conditions and/or specific industry segments, declines in regional or local real estate values, declines in regional or local rental or occupancy rates, increases in interest rates, real estate tax rates and other operating expenses, changes in governmental rules, regulations and fiscal policies, environmental, climate and other ESG-related legislation and tax legislation, acts of God, regional, national or global outbreaks, epidemics and pandemics, geopolitical events, terrorism, social unrest, civil disturbances or other calamities.
Under these provisions, any income that we generate from transactions intended to hedge our interest rate exposure or currency fluctuations 30 will be excluded from gross income for purposes of the REIT 75% and 95% gross income tests if the instrument hedges either (i) interest rate risk on liabilities used to carry or acquire real estate assets, (ii) currency fluctuations with respect to items of income that qualify for purposes of the REIT 75% or 95% gross income tests or assets that generate such income, or (iii) an instrument that hedges risks described in clause (i) or (ii) for a period following the extinguishment of the liability or the disposition of the asset that was previously hedged by the instrument, and, in each case, such instrument is properly identified under applicable Treasury Regulations.
Under these provisions, any income that we generate from transactions intended to hedge our interest rate exposure or currency fluctuations will be excluded from gross income for purposes of the REIT 75% and 95% gross income tests if the instrument hedges either (i) interest rate risk on liabilities used to carry or acquire real estate assets, (ii) currency fluctuations with respect to items of income that qualify for purposes of the REIT 75% or 95% gross income tests or assets that generate such income, or (iii) an instrument that hedges risks described in clause (i) or (ii) for a period following the extinguishment of the liability or the disposition of the asset that was previously hedged by the instrument, and, in each case, such instrument is properly identified under applicable Treasury Regulations.
In addition, we have agreed to indemnify the Manager, its officers, stockholders, members, managers, directors, personnel, any person controlling or controlled by the Manager and any person providing services to the Manager (including Apollo) with respect to all expenses, losses, damages, liabilities, demands, charges and claims arising from acts of the Manager not constituting bad faith, willful misconduct, gross negligence, or reckless disregard of duties, performed in good faith in accordance with and pursuant to the Management Agreement.
In addition, we have agreed to indemnify the Manager, its officers, stockholders, members, managers, directors, personnel, any person controlling or controlled by the Manager and any 24 person providing services to the Manager (including Apollo) with respect to all expenses, losses, damages, liabilities, demands, charges and claims arising from acts of the Manager not constituting bad faith, willful misconduct, gross negligence, or reckless disregard of duties, performed in good faith in accordance with and pursuant to the Management Agreement.
Our access to sources of financing depends upon a number of factors over which it has little or no control, including: • general market conditions; • the market’s view of the quality of our assets; • the market’s perception of our growth potential; • our eligibility to participate in and access capital from programs established by the U.S. government; • our current and potential future earnings and cash distributions; and • the market price of the shares of our common stock.
Our access to sources of financing depends upon a number of factors over which it has little or no control, including: • general market conditions; • the market’s view of the quality of our assets; • the market’s perception of our growth potential; • our eligibility to participate in and access capital from programs established by the U.S. government; • our current and potential future earnings and cash distributions; and 15 • the market price of the shares of our common stock.
Conversely, if we avoid involvement with such industries or activities, we may limit our capital deployment opportunities to an extent that adversely affects our business. Further, significant physical effects of climate change including extreme weather events such as hurricanes or floods can also have an adverse impact on real estate assets that secure our loans or that we own.
Conversely, if we avoid involvement with such industries or activities, we may limit our capital deployment opportunities to an extent that adversely affects our business. 11 Further, significant physical effects of climate change including extreme weather events such as hurricanes or floods can also have an adverse impact on real estate assets that secure our loans or that we own.
Our compliance with the REIT income and quarterly asset requirements also depends upon our ability to successfully manage the composition of our income and assets on an ongoing basis. Moreover, new legislation, court decisions or administrative guidance, in each case possibly with retroactive effect, may make it more difficult 27 or impossible for us to qualify as a REIT.
Our compliance with the REIT income and quarterly asset requirements also depends upon our ability to successfully manage the composition of our income and assets on an ongoing basis. Moreover, new legislation, court decisions or administrative guidance, in each case possibly with retroactive effect, may make it more difficult or impossible for us to qualify as a REIT.
As a result, we could have "excess inclusion income." Certain categories of stockholders, such as non-U.S. stockholders eligible for treaty or other benefits, stockholders with net operating losses, and certain tax-exempt stockholders that are subject to unrelated business income tax, could be subject to increased taxes on a portion of their dividend income from us that is attributable to any such excess inclusion income.
As a result, we could have "excess inclusion income." Certain categories of stockholders, such as non-U.S. 29 stockholders eligible for treaty or other benefits, stockholders with net operating losses, and certain tax-exempt stockholders that are subject to unrelated business income tax, could be subject to increased taxes on a portion of their dividend income from us that is attributable to any such excess inclusion income.
We compete with other REITs, specialty finance companies, savings and loan associations, banks, mortgage bankers, insurance companies, mutual funds, institutional investors, investment banking firms, financial institutions, governmental bodies and other entities. In addition, other REITs with similar asset acquisition objectives, including others that may be organized in the future, compete with us in acquiring assets and obtaining financing.
We compete with other REITs, specialty finance companies, savings and loan associations, banks, mortgage bankers, insurance companies, mutual funds, 8 institutional investors, investment banking firms, financial institutions, governmental bodies and other entities. In addition, other REITs with similar asset acquisition objectives, including others that may be organized in the future, compete with us in acquiring assets and obtaining financing.
Even if we are not targeted directly, cyberattacks on the U.S. and foreign governments, financial markets, financial institutions, or other businesses, including borrowers, vendors, software creators, cybersecurity service providers, and other third parties with whom we do business, may occur, and such events could disrupt our normal business operations and networks in the future.
Even if we are not targeted directly, cyberattacks on the U.S. and foreign governments, financial markets, financial institutions, or other businesses, including borrowers, vendors, software creators, cybersecurity service providers, and other third parties with whom we do business and rely, may occur, and such events could disrupt our normal business operations and networks in the future.
The successful securitization of our portfolio investments might expose us to losses as the commercial real estate investments in which we do not sell interests will tend to be those that are riskier and 17 more likely to generate losses. Securitization financings could also restrict our ability to sell assets when it would otherwise be advantageous to do so.
The successful securitization of our portfolio investments might expose us to losses as the commercial real estate investments in which we do not sell interests will tend to be those that are riskier and more likely to generate losses. Securitization financings could also restrict our ability to sell assets when it would otherwise be advantageous to do so.
B Notes reflect similar credit risks to comparably rated commercial mortgage-backed securities ("CMBS"). However, since each transaction is privately negotiated, B Notes can vary in their structural characteristics and risks. For example, the rights of holders of B Notes to control the process following a borrower default may be limited in certain investments.
B Notes reflect similar credit risks to comparably rated commercial mortgage-backed securities ("CMBS"). However, since each 21 transaction is privately negotiated, B Notes can vary in their structural characteristics and risks. For example, the rights of holders of B Notes to control the process following a borrower default may be limited in certain investments.
Securities eligible for future sale may have adverse effects on the market price of our common stock. 14 Subject to applicable law, our board of directors has the authority, without further stockholder approval, to issue additional authorized shares of common stock and securities convertible into or exchangeable for our common stock on the terms and for the consideration it deems appropriate.
Securities eligible for future sale may have adverse effects on the market price of our common stock. Subject to applicable law, our board of directors has the authority, without further stockholder approval, to issue additional authorized shares of common stock and securities convertible into or exchangeable for our common stock on the terms and for the consideration it deems appropriate.
Accordingly, any change in these laws or regulations, changes in their interpretation, or newly enacted laws or regulations and any failure by us to comply with these laws or regulations, could require changes to 9 certain of our business practices, negatively impact our operations, cash flow or financial condition, impose additional costs on us or otherwise adversely affect our business.
Accordingly, any change in these laws or regulations, changes in their interpretation, or newly enacted laws or regulations and any failure by us to comply with these laws or regulations, could require changes to certain of our business practices, negatively impact our operations, cash flow or financial condition, impose additional costs on us or otherwise adversely affect our business.
We may be required to report taxable income for certain investments in excess of the economic income we ultimately realize 29 from them. We may acquire debt instruments in the secondary market for less than their face amount. The amount of such discount will generally be treated as "market discount" for U.S. federal income tax purposes.
We may be required to report taxable income for certain investments in excess of the economic income we ultimately realize from them. We may acquire debt instruments in the secondary market for less than their face amount. The amount of such discount will generally be treated as "market discount" for U.S. federal income tax purposes.
We may not find a suitable replacement for the Manager if the Management Agreement is terminated, or if key personnel leave the employment of the Manager or Apollo or otherwise become unavailable to us. 26 We do not have any employees and we rely completely on the Manager to provide us with investment and advisory services.
We may not find a suitable replacement for the Manager if the Management Agreement is terminated, or if key personnel leave the employment of the Manager or Apollo or otherwise become unavailable to us. We do not have any employees and we rely completely on the Manager to provide us with investment and advisory services.
Therefore, in order to avoid the prohibited transactions tax, we may choose not to engage in certain sales of loans, other than through a TRS, and we may be required to limit the structures we use for our securitization transactions, even though such sales or structures might otherwise be beneficial for us.
Therefore, in order to avoid the prohibited transactions tax, we may choose not to engage in certain sales of loans, other than through a TRS, and we may be required to limit the structures we use for our securitization transactions, even though such sales or structures might otherwise 30 be beneficial for us.
Such systems may fail to operate properly or become disabled as a result of cyber incidents. Any failure or interruption of the systems of Apollo or any other counterparties that we rely on could cause delays or other problems and could have a material adverse effect on our operating results.
Such systems may fail to operate properly or become disabled as a result of cyber incidents. Any failure or interruption of the 9 systems of Apollo or any other counterparties that we rely on could cause delays or other problems and could have a material adverse effect on our operating results.
We cannot assure prospective investors that such claims will not arise or that we will not be subject to significant liability if a claim of this type did arise. 19 Any credit ratings assigned to our assets will be subject to ongoing evaluations and revisions and we cannot assure stockholders that those ratings will not be downgraded.
We cannot assure prospective investors that such claims will not arise or that we will not be subject to significant liability if a claim of this type did arise. Any credit ratings assigned to our assets will be subject to ongoing evaluations and revisions and we cannot assure stockholders that those ratings will not be downgraded.
We expect any of our subsidiaries relying on Section 3(c)(5)(C) to rely on guidance published by the SEC staff to determine which assets are qualifying assets and which assets are real estate related under this exclusion to the extent such guidance is available.
We expect any of our subsidiaries relying on Section 3(c)(5)(C) to rely on guidance published by the SEC staff to determine which assets are qualifying assets and which 12 assets are real estate related under this exclusion to the extent such guidance is available.
The Manager may be unable to operate us within the parameters that allow the Manager to be exempt from regulation as a commodity pool operator, which would subject us to additional regulation and compliance requirements, and could materially adversely affect our business and financial condition.
The Manager may be unable to operate us within the parameters that allow the Manager to be exempt from regulation as a 10 commodity pool operator, which would subject us to additional regulation and compliance requirements, and could materially adversely affect our business and financial condition.
To preserve our REIT qualification, among other purposes, our charter generally prohibits any person from directly or indirectly owning more than 9.8% in value or in number of shares, whichever is more restrictive, of the outstanding 15 shares of our capital stock or more than 9.8% in value or in number of shares, whichever is more restrictive, of the outstanding shares of our common stock.
To preserve our REIT qualification, among other purposes, our charter generally prohibits any person from directly or indirectly owning more than 9.8% in value or in number of shares, whichever is more restrictive, of the outstanding shares of our capital stock or more than 9.8% in value or in number of shares, whichever is more restrictive, of the outstanding shares of our common stock.
The Manager has great latitude within the broad investment guidelines in determining the types of assets that are proper for us, and how such loans and investments are financed or hedged, which could result in returns that are substantially below expectations or that result in losses.
The Manager has great 25 latitude within the broad investment guidelines in determining the types of assets that are proper for us, and how such loans and investments are financed or hedged, which could result in returns that are substantially below expectations or that result in losses.
In addition, in order to qualify as a REIT, we must distribute to our stockholders, each calendar year, at least 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gain.
In addition, in order to qualify as a REIT, we must distribute to our stockholders, each calendar year, at least 90% of our 27 REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gain.
If we cannot meet these requirements, the lender could accelerate our indebtedness, increase the interest rate on advanced funds and terminate our ability to borrow funds from them, which could materially and adversely affect our financial condition and ability to implement our business plan.
If we cannot meet these 16 requirements, the lender could accelerate our indebtedness, increase the interest rate on advanced funds and terminate our ability to borrow funds from them, which could materially and adversely affect our financial condition and ability to implement our business plan.
Further, we may face other restrictions on our ability to liquidate an interest in a business entity to the extent that we or the Manager have or could be attributed with material, non-public information regarding such business entity.
Further, we may face other restrictions 19 on our ability to liquidate an interest in a business entity to the extent that we or the Manager have or could be attributed with material, non-public information regarding such business entity.
When we engage in secured debt arrangements, we sell securities to lenders (i.e., secured debt arrangement counterparties) and receive cash from the lenders. The lenders are obligated to resell the same securities back to us at the end of the term of the transaction.
When we engage in secured debt arrangements, we sell securities to lenders (i.e., secured debt arrangement counterparties) and receive cash from the lenders. The lenders are obligated to resell the same securities back to us at the end of 17 the term of the transaction.
The U.S. government, the U.S. Federal Reserve, the U.S. Treasury, the SEC and other governmental and regulatory bodies have taken or are taking various actions involving intervention in the economic and financial system and regulatory reform of the oversight of financial markets.
The U.S. government, the U.S. Federal Reserve, the U.S. Treasury Department, the SEC and other governmental and regulatory bodies have taken or are taking various actions involving intervention in the economic and financial system and regulatory reform of the oversight of financial markets.
In either case, and in other cases, our obligations under the 2023 Notes and the 2029 Notes and the indentures could increase the cost of acquiring us or otherwise discourage a third party from acquiring us or removing incumbent management.
In either case, and in other cases, our obligations under the 2029 Notes and the indentures could increase the cost of acquiring us or otherwise discourage a third party from acquiring us or removing incumbent management.
Our business may be adversely affected if our reputation, the reputation of the Manager or Apollo, or the reputation of counterparties with whom we associate is harmed. We may be harmed by reputational issues and adverse publicity relating to us, the Manager or Apollo.
Our business may be adversely affected if our reputation, the reputation of the Manager or Apollo, or the reputation of 26 counterparties with whom we associate is harmed. We may be harmed by reputational issues and adverse publicity relating to us, the Manager or Apollo.
ACREFI TRS, ARM TRS, and ACREFI III TRS and any other domestic TRSs 28 we own will be subject to U.S. federal, state and local corporate taxes, and ACRE Debt TRS and any other non-U.S. TRS could be subject to U.S. or non-U.S. taxes.
ACREFI TRS, ARM TRS, and ACREFI III TRS and any other domestic TRSs we own will be subject to U.S. federal, state and local corporate taxes, and ACRE Debt TRS and any other non-U.S. TRS could be subject to U.S. or non-U.S. taxes.
Co-investors may have economic or other business interests or goals which are inconsistent with our business interests or goals, and may be in a position to take actions contrary to our policies or objectives.
Co-investors may have 23 economic or other business interests or goals which are inconsistent with our business interests or goals, and may be in a position to take actions contrary to our policies or objectives.
The 1940 Act defines a majority-owned subsidiary of a person as a company with 50% or more of the outstanding voting securities of which are owned by such person, or by another company which is a majority-owned subsidiary of such person.
The 1940 Act defines a majority- 13 owned subsidiary of a person as a company with 50% or more of the outstanding voting securities of which are owned by such person, or by another company which is a majority-owned subsidiary of such person.
The term of the Management Agreement was automatically renewed for a successive one-year term on September 29, 2022 and will automatically renew on each anniversary thereafter; provided, however, that either we, under the certain limited circumstances described above that would require us to pay the fee described above, or the Manager may terminate the Management Agreement annually upon 180 days prior notice.
The term of the Management Agreement was automatically renewed for a successive one-year term on September 29, 2023 and will automatically renew on each anniversary thereafter; provided, however, that either we, under the certain limited circumstances described above that would require us to pay the fee described above, or the Manager may terminate the Management Agreement annually upon 180 days prior notice.
RISKS RELATED TO OUR FINANCING Our access to sources of financing may be limited and thus our ability to potentially enhance our returns may be adversely affected.
RISKS RELATED TO OUR FINANCING AND HEDGING Our access to sources of financing may be limited and thus our ability to potentially enhance our returns may be adversely affected.
None of we, the Manager or Apollo has experienced any material breach of cybersecurity. However, we can provide no assurance that the networks and systems that we, the Manager, Apollo or our third-party service providers have established or use will be effective.
None of us, the Manager or Apollo have experienced any material breach of cybersecurity. However, we can provide no assurance that the networks and systems that we, the Manager, Apollo or our third-party service providers have established or use will be effective.
Use of the name by other 25 parties or the termination of our license agreement may harm our business.
Use of the name by other parties or the termination of our license agreement may harm our business.
The extent of the impact of the COVID-19 pandemic and any other pandemic on us will depend on many factors, including the duration and scope of the public health emergency, the actions taken by governmental authorities to contain COVID-19 and other future pandemics and their financial and economic impact, the implementation of travel advisories and restrictions, the efficacy and availability of vaccines, disparities in vaccination rates and vaccine hesitancy, the rise of new variants and the severity of such variants the impact of the public health emergency on overall supply and demand, goods and services, consumer confidence and levels of economic activity and the extent of its disruption to global, regional, and local supply chains and economic markets, all of which are uncertain and difficult to assess.
The extent of the impact of future pandemics and other major health issues will depend on many factors, including the duration and scope of the public health emergency, the actions taken by governmental authorities to contain future pandemics and their financial and economic impact, the implementation of travel advisories and restrictions, the efficacy and availability of vaccines, disparities in vaccination rates and vaccine hesitancy, the rise of new variants and the severity of such variants the impact of the public health emergency on overall supply and demand, goods and services, consumer confidence and levels of economic activity and the extent of its disruption to global, regional, and local supply chains and economic markets, all of which are uncertain and difficult to assess.
If that partnership or limited liability company owned nonqualifying assets, earned nonqualifying income, or earned prohibited transaction income, we may not be able to satisfy all of the REIT income or asset tests or could be subject to prohibited transaction tax.
If that partnership or limited liability company owned non-qualifying assets, earned non-qualifying income, or earned prohibited transaction income, we may not be able to satisfy all of the REIT income or asset tests or could be subject to prohibited transaction tax.
In addition, we have jointly elected with each of ACREFI I TRS, Inc. ("ACREFI TRS"), a Delaware corporation that is indirectly wholly owned by us, ARM TRS, LLC ("ARM TRS"), a Delaware corporation that is indirectly wholly owned by us, ACREFI II TRS, Ltd.
In addition, we have jointly elected with each of ACREFI I TRS, Inc. ("ACREFI TRS"), a Delaware corporation that is indirectly wholly owned by us, ARM TRS, LLC ("ARM TRS"), a Delaware limited liability company that is indirectly wholly owned by us, ACREFI II TRS, Ltd.
Changes in interest rates will affect our operating results as such changes will affect the interest we receive on any floating rate interest (such as LIBOR, SOFR or any other replacement rate) bearing assets and the financing cost of our floating rate debt, as well as our interest rate swap that we may utilize for hedging purposes.
Changes in interest rates will affect our operating results as such changes will affect the interest we receive on any floating rate interest (such as SOFR or SONIA) bearing assets and the financing cost of our floating rate debt, as well as our interest rate swap that we may utilize for hedging purposes.
Income from hedging transactions that do not meet these requirements will generally constitute nonqualifying income for purposes of both the REIT 75% and 95% gross income tests.
Income from hedging transactions that do not meet these requirements will generally constitute non-qualifying income for purposes of both the REIT 75% and 95% gross income tests.
In the event we own a mezzanine loan that does not meet the safe harbor, the IRS could challenge such loan’s treatment as a real estate asset for purposes of the REIT asset and income tests and, if such a challenge were sustained, we could fail to qualify as a REIT, unless we are able to qualify for a statutory REIT "savings" provision, which may require us to pay a significant penalty tax to maintain our REIT qualification.
In the event we own a mezzanine loan that does not meet the safe harbor, or a loan that has undergone a "significant modification," the IRS could challenge such loan’s treatment as a real estate asset for purposes of the REIT asset and income tests and, if such a challenge were sustained, or if such loan otherwise adversely impacted our REIT asset and income tests, we could fail to qualify as a REIT, unless we are able to qualify for a statutory REIT "savings" provision, which may require us to pay a significant penalty tax to maintain our REIT qualification.
Investments in countries outside the United States may subject us to risks of multiple and conflicting tax laws and regulations, and other laws and regulations that may make foreclosure and the exercise of other remedies in the case of default more difficult or costly compared to U.S. assets as well as political and economic instability abroad, and concerns regarding the stability of the sovereign debt of certain European countries, and other geopolitical issues, including the ongoing conflicts among Russia, Belarus and Ukraine and the severe economic sanctions and export controls imposed by the U.S. and other governments against Russia, Belarus and Russian or Belarusian interests any of which factors could adversely affect our receipt of returns on and distributions from these assets.
Investments in countries outside the United States may subject us to risks of multiple and conflicting tax laws and regulations, and other laws and regulations that may make foreclosure and the exercise of other remedies in the case of default more difficult or costly compared to U.S. assets as well as political and economic instability abroad, and concerns regarding the stability of the sovereign debt of certain European countries, and other geopolitical issues, including the ongoing conflicts between Israel and Hamas, as well as further escalation of tensions between Israel and various countries in the Middle East and North Africa, and among Russia, Belarus and Ukraine and the severe economic sanctions and export controls imposed by the U.S. and other governments against Russia, Belarus and Russian or Belarusian interests any of which factors could adversely affect our receipt of returns on and distributions from these assets.
For example, in response to recent inflationary pressure, the U.S. Federal Reserve and other global central banks have raised interest rates in 2022 and have indicated likely further interest rate increases. This could adversely affect the returns on our assets, which might reduce earnings and, in turn, cash available for distribution to our stockholders.
For example, in response to recent inflationary pressure, the U.S. Federal Reserve and other global central banks have raised interest rates in 2022 and 2023. This could adversely affect the returns on our assets, which might reduce earnings and, in turn, cash available for distribution to our stockholders.
Our assets include loans that are denominated in currencies other than USD or are secured by assets located outside the United States. As of December 31, 2022, $4.0 billion, or 46.1%, of our assets (by carrying value) were comprised of such loans.
Our assets include loans that are denominated in currencies other than USD or are secured by assets located outside the United States. As of December 31, 2023, $4.4 billion, or 52.0%, of our assets (by carrying value) were comprised of such loans.
Credit facilities and secured debt arrangements that we may use to finance our assets may require us to provide additional collateral or pay down debt. As of December 31, 2022, we had secured debt arrangements in place, with an aggregate borrowing capacity of approximately $6.2 billion.
Credit facilities and secured debt arrangements that we may use to finance our assets may require us to provide additional collateral or pay down debt. As of December 31, 2023, we had secured debt arrangements in place, with an aggregate borrowing capacity of approximately $7.0 billion.
Our charter authorizes us, and our bylaws and indemnification agreements entered into with each of our directors and executive officers require us, to the maximum extent permitted by Maryland law, to indemnify and, without requiring a preliminary determination of their ultimate entitlement to indemnification, to pay or reimburse defense costs and other expenses of each of our directors and officers in the defense of any proceeding to which he or she is made, or threatened to be made, a party by reason of his or her service to us.
Our charter limits the liability of our present and former directors and officers to us and our stockholders for money damages to the maximum extent permitted under Maryland law. 14 Our charter authorizes us, and our bylaws and indemnification agreements entered into with each of our directors and executive officers require us, to the maximum extent permitted by Maryland law, to indemnify and, without requiring a preliminary determination of their ultimate entitlement to indemnification, to pay or reimburse defense costs and other expenses of each of our directors and officers in the defense of any proceeding to which he or she is made, or threatened to be made, a party by reason of his or her service to us.
Real estate is subject to various risks, including: • acts of God, including earthquakes, floods and other natural disasters, which may result in uninsured losses; • acts of war or terrorism, including the consequences of terrorist attacks; • pandemics or other calamities that may affect tenants' ability to pay their rent; • adverse changes in national and local economic and market conditions; • changes in governmental laws and regulations, fiscal policies and zoning ordinances and the related costs of compliance with laws and regulations, fiscal policies and ordinances; • costs of remediation and removal of hazardous substances and liabilities associated with environmental conditions, which liabilities may be imposed without regard to whether the owner or operator knew of, or was responsible for, the release of such hazardous substance, and which may also adversely affect our ability to sell the property; and • the potential for uninsured or under-insured property losses. 23 If any of these or similar events occurs, it may reduce our return from an affected property or investment and reduce or eliminate our ability to pay dividends to stockholders.
Real estate is subject to various risks, including: • acts of God, including earthquakes, floods and other natural disasters, which may result in uninsured losses; • acts of war or terrorism, including the consequences of terrorist attacks; • pandemics or other calamities that may affect tenants' ability to pay their rent; • adverse changes in national and local economic and market conditions; • changes in governmental laws and regulations, fiscal policies and zoning ordinances and the related costs of compliance with laws and regulations, fiscal policies and ordinances; • costs of remediation and removal of hazardous substances and liabilities associated with environmental conditions, which liabilities may be imposed without regard to whether the owner or operator knew of, or was responsible for, the release of such hazardous substance, and which may also adversely affect our ability to sell the property; and • the potential for uninsured or under-insured property losses.
The Biden Administration is likely to take a more active approach to banking and financial regulation than the prior Trump Administration, particularly to promote policy goals involving climate change, racial equity, ESG matters, consumer financial protection and infrastructure, which could affect our business and operations if enacted. However, with a Republican majority in the U.S.
The Biden Administration has taken a more active approach to banking and financial regulation than the prior Trump Administration, and may take further actions particularly to promote policy goals involving climate change, racial equity, ESG matters, consumer financial protection and infrastructure, among others, which could affect our business and operations if enacted. However, with a Republican majority in the U.S.
We may enter into hedging transactions that could expose us to contingent liabilities in the future and adversely impact our financial condition. 18 Subject to maintaining our qualification as a REIT, we may enter into hedging transactions that could require us to fund cash payments in certain circumstances (e.g., the early termination of the hedging instrument caused by an event of default or other early termination event, or the decision by a counterparty to request margin securities it is contractually owed under the terms of the hedging instrument).
Subject to maintaining our qualification as a REIT, we may enter into hedging transactions that could require us to fund cash payments in certain circumstances (e.g., the early termination of the hedging instrument caused by an event of default or other early termination event, or the decision by a counterparty to request margin securities it is contractually owed under the terms of the hedging instrument).
We have not adopted any limit on such investments. 22 These investments will also subject us to the risks inherent with real estate-related investments, including the risks described with respect to commercial properties and similar risks, including: • risks of delinquency and foreclosure, and risks of loss in the event thereof; • the dependence upon the successful operation of, and net income from, real property; • risks generally incident to interests in real property; and • risks specific to the type and use of a particular property.
These investments will also subject us to the risks inherent with real estate-related investments, including the risks described with respect to commercial properties and similar risks, including: • risks of delinquency and foreclosure, and risks of loss in the event thereof; • the dependence upon the successful operation of, and net income from, real property; • risks generally incident to interests in real property; and • risks specific to the type and use of a particular property.
The current regulatory environment may be impacted by recent and potential future legislative developments, such as amendments to key provisions of the Dodd-Frank Act.
The current regulatory environment may be impacted by recent and potential future legislative developments, such as amendments to key provisions of the Dodd-Frank Act, as well as future political developments, such as federal election outcomes.
The CECL Standard may create more volatility in the level of our allowance for loan losses. If we are required to materially increase our level of allowance for loan losses for any reason, such increase could adversely affect our business, financial condition and results of operations. Our assets may be concentrated and are subject to risk of default.
If we are required to materially increase our level of allowance for loan losses for any reason, such increase could adversely affect our business, financial condition and results of operations. Our assets may be concentrated and are subject to risk of default.
We believe that our, Apollo's and the Manager's ability to operate, our level of business activity and the profitability of our business, as well as the values of, and the cash flows from, the assets we own, have been, and may continue to be impacted by the effects of COVID-19 and could in the future be impacted by another pandemic or other major public health issues.
We believe that our, Apollo's and the Manager's ability to operate, our level of business activity and the profitability of our business, as well as the values of, and the cash flows from, the assets we own, could be impacted by the effects of future pandemics or other major public health issues.
Assets that are not rated or are rated non-investment grade have a higher risk of default than investment grade rated assets and therefore may result in losses to us.
Assets that are not rated or are rated non-investment grade have a higher risk of default than investment grade rated assets and therefore may result in losses to us. We have not adopted any limit on such investments.
It is possible, however, that the IRS could assert that we did not own the assets during the term of the secured debt arrangement, in which case we could fail to qualify as a REIT. The failure of a mezzanine loan to qualify as a real estate asset could adversely affect our ability to qualify as a REIT.
It is possible, however, that the IRS could assert that we did not own the assets during the term of the secured debt arrangement, in which case we could fail to qualify as a REIT.
Accordingly, we and our service providers may be unable to anticipate these techniques or to implement adequate security barriers or other preventative measures, and thus it is impossible for us and our service providers to entirely mitigate this risk. Our business depends on the communications and information systems of Apollo and other third-party service providers.
Accordingly, we and our service providers may be unable to anticipate these techniques or to implement adequate security barriers or other preventative measures, and thus it is impossible for us and our service providers to entirely mitigate this risk.
We cannot assure stockholders that we will be able to continue to identify additional assets that meet our investment objectives, that the Manager’s due diligence processes will uncover all relevant facts regarding such assets, that we will be successful in consummating any additional opportunities we identify or that the assets we acquire in the future will yield attractive risk-adjusted returns.
RISKS RELATED TO OUR ASSETS We cannot assure stockholders that we will be successful in consummating additional opportunities we identify which would likely materially affect our business, financial condition, liquidity and results of operations. 18 We cannot assure stockholders that we will be able to continue to identify additional assets that meet our investment objectives, that the Manager’s due diligence processes will uncover all relevant facts regarding such assets, that we will be successful in consummating any additional opportunities we identify or that the assets we acquire in the future will yield attractive risk-adjusted returns.
Certain provisions in the 2023 Notes and the 2029 Notes and the indentures governing the 2023 Notes and the 2029 Notes could make it more difficult or more expensive for a third party to acquire us.
Certain provisions in the indentures governing the 2029 Notes could delay or prevent an otherwise beneficial takeover or takeover attempt of us. Certain provisions in the 2029 Notes and the indentures governing the 2029 Notes could make it more difficult or more expensive for a third party to acquire us.
In addition, if a takeover constitutes a make-whole fundamental change, we may be required to increase the conversion rate for holders who convert their notes in connection with such takeover.
For example, if a takeover would constitute a fundamental change, holders of the 2029 Notes will have the right to require us to repurchase their notes in cash. In addition, if a takeover constitutes a make-whole fundamental change, we may be required to increase the conversion rate for holders who convert their notes in connection with such takeover.
Rising inflation could have an adverse impact on any floating rate debt we have incurred and may incur in the future, and our general and administrative expenses, as these costs could increase at a rate higher than our interest income and other revenue. In response to recent inflationary pressure, the U.S.
Inflation in the United States may continue at an elevated level in the near-term, which could have an adverse impact on any floating rate debt we have incurred and may incur in the future, and our general and administrative expenses, as these costs could increase at a rate higher than our interest income and other revenue.
The commercial mortgage loans and other commercial real estate-related loans we acquire are subject to delinquency, foreclosure and loss, any or all of which could result in losses to us. 21 Commercial mortgage loans are secured by residential-for-rent or commercial property and are subject to risks of delinquency and foreclosure, and risks of loss are greater than similar risks associated with mortgage loans made on the security of one to four family residential properties.
Commercial mortgage loans are secured by residential-for-rent or commercial property and are subject to risks of delinquency and foreclosure, and risks of loss are greater than similar risks associated with mortgage loans made on the security of one to four family residential properties.
Federal Reserve and other global central banks have raised interest rates in 2022 and have indicated likely further interest rate increases. To the extent our borrowing costs increase faster than the interest income earned from our floating-rate loans, such increases may adversely affect our cash flows. Our real estate assets are subject to risks particular to real property.
To the extent our borrowing costs increase faster than the interest income earned from our floating-rate loans, such increases may adversely affect our cash flows. Our real estate assets are subject to risks particular to real property.
Foreclosure of a commercial mortgage loan can be an expensive and lengthy process which could have a substantial negative effect on our anticipated return on the foreclosed mortgage loan. B Notes and mezzanine loans we acquire may be subject to losses.
Foreclosure of a commercial mortgage loan can be an expensive and lengthy process which could have a substantial negative effect on our anticipated return on the foreclosed mortgage loan. We may need to foreclose on certain of the loans we originate or acquire and may take title to the properties securing such loans.
We have and may continue to acquire and originate mezzanine loans, which are loans secured by equity interests in a partnership or limited liability company that directly or indirectly owns real property.
The failure of a loan, including a mezzanine loan or modified loan, to qualify as a real estate asset could adversely affect our ability to qualify as a REIT. 28 We have and may continue to acquire and originate mezzanine loans, which are loans secured by equity interests in a partnership or limited liability company that directly or indirectly owns real property.
For example, in response to recent inflationary pressure, the U.S. Federal Reserve and other global central banks have raised interest rates in 2022 and have indicated likely further interest rate increases. Any such increases would increase our borrowers' interest payments and for certain borrowers may lead to defaults and losses to us.
For example, in response to inflationary pressure, the U.S. Federal Reserve and other global central banks raised interest rates in 2022 and 2023. These increases have increased our borrowers' interest payments and for certain borrowers may lead to defaults and losses to us. Such increases could also adversely affect commercial real estate property values.
Our estimates and judgments are based on a number of factors, including (1) whether cash from operations is sufficient to cover the debt service requirements currently and into the future, (2) the ability of the borrower to refinance the loan and (3) the property’s liquidation value, all of which remain uncertain and are subjective.
Our estimates and judgments are based on a number of factors, including (1) micro- and macro-economic conditions, (2) market volatility, (3) cash flows from operations or sales velocity projections of the underlying property, (4) sponsors’ continued progress towards executing on their business plans, (5) whether cash from operations is sufficient to cover the debt service requirements currently and into the future, (6) the ability of the borrower to refinance the loan and (7) the underlying property’s liquidation value, all of which remain uncertain and are subjective.
To the extent that we cannot meet our debt service obligations, we risk the loss of some or all of our assets to foreclosure or sale to satisfy our debt obligations.
To the extent that we cannot meet our debt service obligations, we risk the loss of some or all of our assets to foreclosure or sale to satisfy our debt obligations. We may increase the amount of leverage we use in our financing strategy, which would subject us to greater risk of loss.
We may increase the amount of leverage we use in our financing strategy, which would subject us to greater risk of loss. 16 Our charter and bylaws do not limit the amount of indebtedness we can incur; although we are limited by certain financial covenants under our secured debt arrangements and the 2029 Notes.
Our charter and bylaws do not limit the amount of indebtedness we can incur; although we are limited by certain financial covenants under our secured debt arrangements and the 2029 Notes. We may increase the amount of leverage we utilize at any time without approval of our stockholders.
To the extent such other Apollo vehicles or other vehicles that may be organized in the future seek to acquire or divest of the same target assets as us, the scope of opportunities otherwise available to us may be adversely affected and/or reduced. 24 The Manager and Apollo have an investment allocation policy in place that is intended to ensure that every Apollo vehicle, including us, is treated in a manner that, over time, is fair and equitable.
To the extent such other Apollo vehicles or other vehicles that may be organized in the future seek to acquire or divest of the same target assets as us, the scope of opportunities otherwise available to us may be adversely affected and/or reduced.
The inaccuracy of any such opinions, advice or statements may adversely affect our REIT qualification and result in significant corporate-level tax. Item 1B. Unresolved Staff Comments. None. Item 2. Properties Our principal executive office is located at 9 West 57th Street, New York, New York 10019, telephone 212-515-3200.
The inaccuracy of any such opinions, advice or statements may adversely affect our REIT qualification and result in significant corporate-level tax. Item 1B. Unresolved Staff Comments. None.
As a result, our ability to vary our portfolio in response to changes in economic and other conditions may be relatively limited, which could adversely affect our results of operations and financial condition. The expected discontinuance of the London interbank offered rate ("LIBOR") and transition to alternative reference rates may adversely impact our borrowings and assets.
As a result, our ability to vary our portfolio in response to changes in economic and other conditions may be relatively limited, which could adversely affect our results of operations and financial condition. Allowances for loan losses are difficult to estimate.
These claims would be subject to significant delay and, if and when received, may be substantially less than the damages we actually incur.
These claims would be subject to significant delay and, if and when received, may be substantially less than the damages we actually incur. We may enter into hedging transactions that could expose us to contingent liabilities in the future and adversely impact our financial condition.
Major public health issues, including the ongoing COVID-19 pandemic, and related disruptions in the U.S. and global economy and financial markets could adversely impact or disrupt our financial condition and results of operations. 10 In recent years, the outbreaks of a number of diseases, including avian influenza, H1N1, and other viruses have increased the risk of a pandemic or major public health issues.
The long term impact from major public health events and related disruptions in the U.S. and global economy and financial markets could adversely impact or disrupt our financial condition and results of operations.
Recent macroeconomic trends, including inflation and rising interest rates, may adversely affect our business, financial condition and results of operations. Throughout 2022, inflation in the United States has accelerated and is currently expected to continue at an elevated level in the near-term.
Recent macroeconomic trends, including inflation and higher interest rates, may adversely affect our business, financial condition and results of operations.
We face a number of risks associated with climate change including both transition and physical risks.
Climate change and regulatory and other efforts to reduce potential climate change impacts and the increased focus on ESG issues could adversely affect our business. We face a number of risks associated with climate change including both transition and physical risks.
In addition, we record a general reserve in accordance with the CECL Standard on the remainder of the loan portfolio (“General CECL Allowance").
For additional information regarding our Specific CECL Allowance, refer to " Specific CECL Allowance " under "Note 4 - Commercial Mortgage Loans, Subordinate Loans and Other Lending Assets, Net" in our consolidated financial statements. In addition, we record a general reserve in accordance with the CECL Standard on the remainder of the loan portfolio ("General CECL Allowance").

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Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings From time to time, we may be involved in various claims and legal actions arising in the ordinary course of business. Refer to "Note 17 - Commitments and Contingencies" for further detail regarding legal proceedings . 31 Item 4. Mine Safety Disclosures Not Applicable. 32 PART II
Biggest changeItem 3. Legal Proceedings From time to time, we may be involved in various claims and legal actions arising in the ordinary course of business. Refer to "Note 18 - Commitments and Contingencies" for further detail regarding legal proceedings . Item 4. Mine Safety Disclosures Not Applicable. 33 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe graph assumes that $100 was invested on December 31, 2017 in our common stock, the S&P 500 and the BBREMTG Index and that all dividends were reinvested without the payment of any commissions.
Biggest changeThe graph assumes that $100 was invested on December 31, 2018 in our common stock, the S&P 500 and the BBREMTG Index and that all dividends were reinvested without the payment of any commissions. There can be no assurance that the performance of our shares will continue in line with the same or similar trends depicted in the graph below.
Stockholder Return Performance The following graph is a comparison of the cumulative total stockholder return on shares of our common stock, the Standard & Poor's 500 (the "S&P 500"), and the Bloomberg REIT Mortgage Index (the "BBREMTG Index"), a published industry index, from December 31, 2017 to December 31, 2022.
Stockholder Return Performance The following graph is a comparison of the cumulative total stockholder return on shares of our common stock, the Standard & Poor's 500 (the "S&P 500"), and the Bloomberg REIT Mortgage Index (the "BBREMTG Index"), a published industry index, from December 31, 2018 to December 31, 2023.
Recent Purchases of Equity Securities We did not repurchase any of our equity securities during the three months ended December 31, 2022. 34 Item 6. [Reserved] Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with our financial statements and accompanying notes included in
Recent Purchases of Equity Securities We did not repurchase any of our equity securities during the three months or year ended December 31, 2023. 35 Item 6. [Reserved] Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with our financial statements and accompanying notes included in
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information Our common stock is listed on the New York Stock Exchange, under the symbol "ARI." On February 7, 2023, the last sales price for our common stock on the New York Stock Exchange was $12.31 per share.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information Our common stock is listed on the New York Stock Exchange, under the symbol "ARI." On February 5, 2024, the last sales price for our common stock on the New York Stock Exchange was $11.00 per share.
Holders As of February 7, 2023, we had 470 registered holders of our common stock. The 470 holders of record include Cede & Co., which holds shares as nominee for The Depository Trust Company, which itself holds shares on behalf of the beneficial owners of our common stock.
Holders As of February 5, 2024, we had 445 registered holders of our common stock. The 445 holders of record include Cede & Co., which holds shares as nominee for The Depository Trust Company, which itself holds shares on behalf of the beneficial owners of our common stock.
Period Ending 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 Apollo Commercial Real Estate Finance, Inc. 100.00 99.93 121.05 86.53 112.19 104.59 S&P 500 100.00 95.44 125.24 148.27 190.79 156.21 BBREMTG Index 100.00 97.09 120.03 93.38 109.82 83.05 33 Recent Sales of Unregistered Securities None.
Period Ending 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 Apollo Commercial Real Estate Finance, Inc. 100.00 121.05 86.53 112.19 104.59 130.04 S&P 500 100.00 125.24 148.27 190.79 156.21 197.23 BBREMTG Index 100.00 120.03 93.38 109.82 83.05 95.08 34 Recent Sales of Unregistered Securities None.
Removed
There can be no assurance that the performance of our shares will continue in line with the same or similar trends depicted in the graph below .

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeThis required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s estimate of the provision for loan loss. 52 How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the determination of the fair value for those assets in which the borrower or sponsor exhibit signs of financial difficulty as part of estimation of the CECL allowance included the following, among others: • We tested the operating effectiveness of controls over management’s review of the fair value analysis including controls over management’s review of the assumptions used within the fair value analysis including, but not limited to, discount rate and capitalization rate and the inputs used within the fair value analysis.
Biggest changeHow the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the determination of the fair value for those assets in which the borrower or sponsor exhibit signs of financial difficulty as part of estimation of the CECL allowance included the following, among others: • We tested the operating effectiveness of controls over management’s review of the fair value analysis including controls over management’s review of the assumptions used within the fair value analysis including, but not limited to, discount rate and capitalization rate and the inputs used within the fair value analysis.
New York, New York Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Apollo Commercial Real Estate Finance, Inc. and subsidiaries (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of operations, changes in stockholders' equity, and cash flows, for each of the three years in the period ended December 31, 2022, and the related notes and the schedule listed in the Index at Item 8 (collectively referred to as the "financial statements").
New York, New York Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Apollo Commercial Real Estate Finance, Inc. and subsidiaries (the "Company") as of December 31, 2023 and 2022, the related consolidated statements of operations, changes in stockholders' equity, and cash flows, for each of the three years in the period ended December 31, 2023, and the related notes and the schedule listed in the Index at Item 8 (collectively referred to as the "financial statements").
Market Risk Commercial mortgage assets are subject to volatility and may be affected adversely by a number of factors, including, but 49 not limited to, national, regional and local economic conditions (which may be adversely affected by industry slowdowns and other factors); local real estate conditions; changes or continued weakness in specific industry segments; construction quality, age and design; demographic factors; retroactive changes to building or similar codes; pandemics; natural disasters and other acts of god.
Market Risk 51 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 other factors); local real estate conditions; changes or continued weakness in specific industry segments; construction quality, age and design; demographic factors; retroactive changes to building or similar codes; pandemics; natural disasters and other acts of god.
In accordance with the practical expedient approach, the loan loss provision is determined to be the difference between the fair value of the underlying collateral and the carrying value of the loan prior to the loan loss allowance.
In accordance with the practical expedient approach, the loan loss allowance is determined to be the difference between the fair value of the underlying collateral and the carrying value of the loan prior to the loan loss allowance.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate 51 because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate 53 because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
These inputs include, but are not limited to, debt service coverage ratio, occupancy, and microeconomic and macroeconomic conditions that could impact the property. • We evaluated the Company’s determination of fair value by performing the following: – With the assistance of our fair value specialists, we evaluated the reasonableness of the (1) valuation methodology; (2) significant assumptions made, including whether the significant inputs used in the model were appropriate and consistent with what market participants would use to value the collateral; and (3) mathematical accuracy of the overall valuation model – We tested the underlying data used to develop the fair value to determine that the information used in the analysis was accurate and complete – We performed a sensitivity analysis when deemed necessary based on results of other audit procedures performed for comparison to the Company’s fair value analysis – We considered whether events or transactions that occurred after the balance sheet date but before the completion of the audit affect the conclusions reached on the fair value measures and disclosures /s/ DELOITTE & TOUCHE LLP New York, New York February 8, 2023 We have served as the Company's auditor since 2009. 53 PART I - FINANCIAL INFORMATION
These inputs include, but are not limited to, debt service coverage ratio, occupancy, and microeconomic and macroeconomic conditions that could impact the property. • We evaluated the Company’s determination of fair value by performing the following: – With the assistance of our fair value specialists, we evaluated the reasonableness of the (1) valuation methodology; (2) significant assumptions made, including whether the significant inputs used in the model were appropriate and consistent with what market participants would use to value the collateral; and (3) mathematical accuracy of the overall valuation model – We tested the underlying data used to develop the fair value to determine that the information used in the analysis was accurate and complete – We performed a sensitivity analysis when deemed necessary based on results of other audit procedures performed for comparison to the Company’s fair value analysis – We considered whether events or transactions that occurred after the balance sheet date but before the completion of the audit affect the conclusions reached on the fair value measures and disclosures /s/ DELOITTE & TOUCHE LLP New York, New York February 6, 2024 We have served as the Company's auditor since 2009. 55 PART I - FINANCIAL INFORMATION
Significant judgments are required in determining the loan loss provision, including estimates and assumptions regarding the value of the underlying collateral and other estimates. We identified the estimation of the fair value of the underlying collateral of loans as a critical audit matter because of the significant estimates and assumptions required by management to evaluate the Company’s fair value analysis.
Significant judgments are required in determining the loan loss allowance, including estimates and assumptions regarding the value of the underlying collateral and other estimates. We identified the estimation of the fair value of the underlying collateral of loans as a critical audit matter because of the significant estimates and assumptions required by management to evaluate the Company’s fair value analysis.
We also have audited the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
We also have audited the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
Index to Consolidated Financial Statements and Schedule Report of Independent Registered Public Accounting Firm (PCAOB ID NO.34) 51 Consolidated Balance Sheets as of December 31, 202 2 and 202 1 54 Consolidated Statements of Operations for the years ended December 31, 202 2 , 202 1 , and 2021 55 Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 202 2 , 2021 , and 2021 56 Consolidated Statement of Cash Flows for the years ended December 31, 202 2 , 202 1 and 2 02 1 58 Notes to Consolidated Financial Statements 59 Schedule Schedule IV—Mortgage Loans on Real Estate 92 All other schedules are omitted because they are not required or the required information is shown in the financial statements or notes thereto. 50 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholders and the Board of Directors of Apollo Commercial Real Estate Finance, Inc.
Index to Consolidated Financial Statements and Schedule Report of Independent Registered Public Accounting Firm (PCAOB ID NO.34) 53 Consolidated Balance Sheets as of December 31, 2023 and 2022 56 Consolidated Statements of Operations for the years ended December 31, 202 3 , 202 2 , and 2021 57 Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 202 3 , 202 2 , and 2021 58 Consolidated Statement of Cash Flows for the years ended December 31, 202 3 , 202 2 and 2021 59 Notes to Consolidated Financial Statements 61 Schedule Schedule IV—Mortgage Loans on Real Estate 95 All other schedules are omitted because they are not required or the required information is shown in the financial statements or notes thereto. 52 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of Apollo Commercial Real Estate Finance, Inc.
The following table estimates the hypothetical impact on our net interest income for the twelve-month period following December 31, 2022, assuming an immediate increase or decrease of 50 basis points in the applicable interest rate benchmark by currency ($ in thousands, except per share data): 50 basis point increase 50 basis point decrease Currency Net floating rate assets subject to interest rate sensitivity Increase to net interest income (1)(2) Increase to net interest income (per share) (1)(2) Decrease to net interest income (1)(2) Decrease to net interest income (per share) (1)(2) USD $ 822,564 $ 5,665 $ 0.04 $ (5,115) $ (0.04) GBP 708,076 3,540 0.03 (3,540) (0.03) EUR 449,527 2,248 0.02 (2,248) (0.02) SEK 49,613 248 — (248) — Total: $ 2,029,780 $ 11,701 $ 0.09 $ (11,151) $ (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 or falling interest rate environment.
The following table estimates the hypothetical impact on our net interest income for the twelve-month period following December 31, 2023, assuming an immediate increase or decrease of 50 basis points in the applicable interest rate benchmark by currency ($ in thousands, except per share data): 50 basis point increase 50 basis point decrease Currency Net floating rate assets subject to interest rate sensitivity Increase to net interest income (1)(2) Increase to net interest income (per share) (1)(2) Decrease to net interest income (1)(2) Decrease to net interest income (per share) (1)(2) USD $ 207,063 $ 1,035 $ 0.01 $ (1,035) $ (0.01) GBP 836,192 2,347 0.02 (2,347) (0.02) EUR 140,688 2,083 0.01 (2,083) (0.01) SEK 49,618 248 — (248) — Total: $ 1,233,561 $ 5,713 $ 0.04 $ (5,713) $ (0.04) ——————— (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 or falling interest rate environment.
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. Market volatility has been particularly heightened due to the COVID-19 pandemic.
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.
Removed
COVID-19 and its variants have disrupted economic activities and could have a continued significant adverse effect on economic and market conditions including rising inflation, increases in interest rates, limited lending from financial institutions, depressed asset values, and limited market liquidity. Inflation Virtually all of our assets and liabilities are interest rate sensitive in nature.
Added
This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when 54 performing audit procedures to evaluate the reasonableness of management’s estimate of the allowance for loan loss.

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