What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-02-19 compared with 2020-02-14 · 235 added, 400 removed, 147 unchanged (81% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion in conjunction with the sections of this report entitled "Forward-Looking

Statements," "Risk Factors" and "Selected Financial Data," along with the historical consolidated financial statements including related notes, included in this report.

Through our Structured Business, we invest in a diversified portfolio of structured finance assets in the multifamily, single-family rental and

commercial real estate markets, primarily consisting of bridge and mezzanine loans, including junior participating interests in first mortgages, preferred and direct equity.

We may also directly

acquire real property and invest in real estate-related notes and certain mortgage-related securities.

Through our Agency Business, we originate, sell and service a range of multifamily finance

products through GSE, HUD and CMBS programs and our own Private Label loans.

We retain the servicing rights and asset management responsibilities on substantially all loans we originate and sell under

the GSE and HUD programs and intend to do the same for our Private Label loans.

We were previously externally managed and advised by ACM and on May 31, 2017 we exercised our option to fully

internalize our management team and terminate the existing management agreement.

You should read the following discussion in conjunction with the sections of this report entitled “Forward-Looking Statements,” “Risk Factors” and “Selected Financial Data,” along with the historical consolidated financial statements including related notes, included in this report.

Through our Structured Business, we invest in a diversified portfolio of structured finance assets in the multifamily, single-family rental and commercial real estate markets, primarily consisting of bridge and mezzanine loans, including junior participating interests in first mortgages and preferred and direct equity.

We also invest in real estate-related joint ventures and may directly acquire real property and invest in real estate-related notes and certain mortgage-related securities.

Through our Agency Business, we originate, sell and service a range of multifamily finance products through Fannie Mae and Freddie Mac, Ginnie Mae, FHA and HUD.

We retain the servicing rights and asset management responsibilities on substantially all loans we originate and sell under the GSE and HUD programs.

We are an approved Fannie Mae DUS lender nationally, a Freddie Mac Multifamily Conventional Loan lender, seller/servicer, in New York, New Jersey and Connecticut, a Freddie Mac affordable, manufactured housing, senior housing and SBL lender, seller/servicer, nationally and a HUD MAP and LEAN senior housing/healthcare lender nationally.

We also originate and service permanent financing loans underwritten using the guidelines of our existing agency loans sold to the GSEs, which we refer to as "Private Label"

loans and originate and sell finance products through conduit/commercial mortgage-backed securities ("CMBS") programs.

We pool and securitize the Private Label loans and sell certificates in the securitizations to third-party investors, while retaining the servicing rights and APL certificates of the securitization.

We conduct our operations to qualify as a REIT.

A REIT is generally

not subject to federal income tax on its REIT-taxable income that is distributed to its stockholders, provided that at least 90% of its REIT-taxable income is distributed and provided that certain

other requirements are met.

operating performance is primarily driven by the following factors:

A REIT is generally not subject to federal income tax on its REIT-taxable income that is distributed to its stockholders, provided that at least 90% of its REIT-taxable income is distributed and provided that certain other requirements are met.

Our operating performance is primarily driven by the following factors:

Net interest income earned on our investments.

Net interest income represents the amount by which the interest income earned on

our assets exceeds

the interest expense incurred on our borrowings.

Net interest income represents the amount by which the interest income earned on our assets exceeds the interest expense incurred on our borrowings.

If the yield on our assets increases or the cost or borrowings decreases, this will have a positive impact on earnings.

However, if the yield earned on

our assets decreases or the cost of borrowings increases, this will have a negative impact on earnings.

Net interest income is also directly impacted by the size and performance of our asset

However, if the yield earned on our assets decreases or the cost of borrowings increases, this will have a negative impact on earnings.

Net interest income is also directly impacted by the size and performance of our asset portfolio.

We recognize the bulk of our net interest income from our Structured Business.

Additionally, we recognize net interest income from loans originated through our Agency Business, which are

generally sold within 60 days of origination.

Additionally, we recognize net interest income from loans originated through our Agency Business, which are generally sold within 60 days of origination.

Fees and other revenues recognized from originating, selling and servicing mortgage loans through the GSE and HUD programs.

Revenue recognized from

the origination and sale of mortgage loans consists of gains on sale of loans (net of any direct loan origination costs incurred), commitment fees, broker fees, loan assumption fees and loan

origination fees.

Revenue recognized from the origination and sale of mortgage loans consists of gains on sale of loans (net of any direct loan origination costs incurred), commitment fees, broker fees, loan assumption fees and loan origination fees.

These gains and fees are collectively referred to as gain on sales, including fee-based services, net.

We record income from MSRs at the time of commitment to the borrower, which

represents the fair value of the expected net future cash flows associated with the rights to service mortgage loans that we originate, with the recognition of a corresponding asset upon sale.

record servicing revenue which consists of fees received for servicing mortgage loans, net of amortization on the MSR assets recorded.

Although we have long-established relationships with the GSE and

HUD agencies, our operating performance would be negatively impacted if our business relationships with these agencies deteriorate.

We record income from MSRs at the time of commitment to the borrower, which represents the fair value of the expected net future cash flows associated with the rights to service mortgage loans that we originate, with the recognition of a corresponding asset upon sale.

We also record servicing revenue which consists of fees received for servicing mortgage loans, net of amortization on the MSR assets recorded.

Although we have long-established relationships with the GSE and HUD agencies, our operating performance would be negatively impacted if our business relationships with these agencies deteriorate.

Additionally, we also recognize revenue from originating, selling and servicing our Private Label loans.

Income earned from our structured transactions.

Our structured transactions are primarily comprised of investments in equity

affiliates, which

represent unconsolidated joint venture investments formed to acquire, develop and/or sell real estate-related assets.

If interest rates continue to rise, it is likely that income from these

investments will continue to be significantly impacted, particularly from our investment in a residential mortgage banking business, since rising interest rates generally decrease the demand for

residential real estate loans and the number of loan originations.

Our structured transactions are primarily comprised of investments in equity affiliates, which represent unconsolidated joint venture investments formed to acquire, develop and/or sell real estate-related assets.

Operating results from these investments can be difficult to predict and can vary significantly period-to-period.

If interest rates were to rise, it is likely that income from these investments would be significantly and negatively impacted, particularly from our investment in a residential mortgage banking business, since rising interest rates generally decrease the demand for residential-real estate loans

and the number of loan originations.

In addition, we periodically receive distributions from our equity investments.

It is difficult to forecast the timing of

payments, which can be substantial in any given quarter.

It is difficult to forecast the timing of such payments, which can be substantial in any given quarter.

We account for structured transactions within our Structured Business.

Credit quality of our loans and investments, including our servicing portfolio.

Effective portfolio management is essential to

performance and value of our loan and investment and servicing portfolios.

Effective portfolio management is essential to maximize the performance and value of our loan and investment and servicing portfolios.

Maintaining the credit quality of the loans in our portfolios is of critical importance.

Loans that do not perform in

accordance with their terms may have a negative impact on earnings and liquidity.

Loans that do not perform in accordance with their terms may have a negative impact on earnings and liquidity.

COVID-19 Impact.

The global outbreak of COVID-19 that began in early 2020 has forced many countries, including the U.S., to declare national emergencies, to institute "stay-at-home"

orders, to close financial markets and to restrict operations of non-essential businesses.

Such actions are creating significant disruptions in global supply chains, and adversely impacting many industries.

COVID-19 could have a continued and prolonged adverse impact on economic and market conditions and could trigger a period of global economic slowdown.

The impact of COVID-19 on companies is evolving rapidly, and the extent and duration of the economic fallout from this pandemic, both globally and to our business, remain unclear and present risk with respect to our financial condition, results of operations, liquidity, and ability to pay distributions.

We expect the effects of the COVID-19 pandemic to continue to negatively impact our financial performance and operating results during 2021.

Significant Developments During 2020

Capital Markets Activity.

We raised $713.5 million of capital, primarily through public offerings of our common stock,

issuances of senior

debt and convertible senior debt.

We used a significant portion of the net proceeds from these capital raises to make investments related to our business, to redeem higher cost convertible senior debt

and for general corporate purposes.

See Note 11 and Note 17 for details.

● We raised $524.7 million of capital through issuances of senior unsecured debt and common stock issuances through a public offering and an “At-The-Market” equity offering sales agreement with JMP Securities LLC (“JMP”).

We used a significant portion of the net proceeds to redeem secured indebtedness and make investments and also used $37.7 million to purchase OP Units and common shares;

● We filed a shelf registration statement as a "well-known seasoned issuer,"

which registered an unlimited and indeterminate amount of debt or equity securities for future issuance and sale.

The shelf registration statement was declared effective upon filing.

Financing Activity.

We closed our eleventh and twelfth collateralized securitization vehicles (CLO XI and CLO XII) totaling $1.29 billion of

real estate related assets and cash, of which $1.07 billion of investment grade notes were issued to third party investors and $120.7 million of below investment-grade notes and a

$97.1 million equity interest in the portfolio were retained by us;

We completed the unwind of CLO VI and CLO VII, redeeming $529.3 million of outstanding notes which were repaid primarily from

refinancing the remaining assets within our existing financing facilities (including CLO XI and CLO XII), as well as with cash held by CLO VI and CLO VII;

We increased the capacity in our credit facilities and repurchase agreements by approximately $1.00 billion, primarily from new

facilities entered into in our Structured Business.

Note 11 for details of our financing activity.

We raised our quarterly common dividend three times during 2019 to $0.30 per share, an 11% increase over the dividend

declared in the

fourth quarter of 2018 of $0.27 per share.

● We closed our thirteenth collateralized securitization vehicle (CLO XIII) totaling $800.0 million of real estate related assets and cash, of which $668.0 million of investment grade notes were issued to third party investors and $70.0 million of below investment-grade notes and a $62.0 million equity interest in the portfolio were retained by us;

● We closed our first Private Label multifamily mortgage loan securitization totaling $727.2 million and retained the APL certificates totaling $63.6 million;

● We completed the unwind of CLO VIII, redeeming $282.9 million of outstanding notes which were repaid primarily from refinancing the remaining assets within our existing financing facilities (including CLO XIII), as well as with cash held by CLO VIII;

● We completed the unwind of our $70.0 million Luxembourg commercial real estate debt fund (“Debt Fund”) and redeemed all the outstanding notes with a portion of the proceeds from our senior unsecured notes issued in March 2020;

● We increased the capacity of our credit facilities and repurchase agreements by approximately $420.0 million primarily by increasing the capacity of existing facilities.

Adoption of Current Expected Credit Losses (“CECL”).

The new CECL guidance, which we adopted on January 1, 2020, requires companies to estimate the expected lifetime credit loss of an asset over its contractual term with quarterly updates.

During 2020, we recorded a $74.6 million net credit loss provision under CECL.

See Note 2 for details.

Agency Business Activity.

Loan originations and sales totaled $4.81 billion and $4.40 billion, respectively;

Our fee-based servicing portfolio grew 8% to $20.06 billion from $18.60 billion at December 31, 2018;

In the second half of 2019, we began originating and servicing permanent financing loans underwritten using the guidelines of our existing

agency loans (our Private Label loans);

during 2019, we originated $401.2 million in loans under this new product, which is included in the total loan originations noted above.

● Loan originations and sales totaled $6.71 billion and $6.59 billion, respectively, and our fee-based servicing portfolio grew 23% to $24.63 billion from $20.06 billion at December 31, 2019.

Our loan sales and servicing portfolio totals include the Private Label loans sold and securitized in May 2020;

● We recorded losses on derivative instruments totaling $58.3 million, primarily related to our over-the-counter interest rate swap futures (“Swap Futures”) held to hedge interest rate exposure on our Private Label loans until they are securitized.

Structured Business Activity.

Our Structured loan and investment portfolio grew 30% to $4.28 billion on loan originations totaling $2.80 billion, partially

offset by loan runoff totaling $1.75 billion;

During 2019, we began underwriting loans for single-family rental portfolios and originated $108.4 million under this new product, which

is included in the total loan originations noted above.

● Our Structured loan and investment portfolio grew 28% to $5.48 billion on loan originations totaling $2.43 billion, partially offset by loan runoff totaling $1.21 billion;

● We recorded income of $75.7 million and received $43.2 million of cash distributions from our residential mortgage business joint venture.

We raised our quarterly common dividend for the past three consecutive quarters to $0.33 per share, a 10% increase over the dividend declared in the fourth quarter of 2019 of $0.30 per share.

Current Market Conditions, Risks and Recent Trends

Our ability to execute our business strategy, particularly the growth of our Structured Business portfolio of loans and investments, depends on

many factors, including our ability to access capital and financing on favorable terms.

The past economic downturn had a significant negative impact on both us and our borrowers and limited our

ability for growth.

If similar economic conditions recur in the future, it may limit our options for raising capital and obtaining financing on favorable terms and may also adversely impact the

creditworthiness of our borrowers which could result in their inability to repay their loans.

rely on the capital markets to generate capital for financing the growth of our business.

While we have been successful in generating capital through the debt and equity markets over

the past several years, there can be no assurance that we will continue to have access to such markets.

If we were to experience a prolonged downturn in the stock or credit markets, it could cause us

to seek alternative sources of potentially less attractive financing, and may require us to adjust our business plan accordingly.

trend in recent years of the Federal Reserve gradually increasing the federal funds rate was reversed in 2019 as they reduced the rate three times from 5.50% at the beginning of 2019

to the current rate of 4.75%.

While lower interest rates generally have a positive impact on origination volume as borrowers look to refinance loans to take advantage of lower rates, our net interest

income may be negatively impacted as higher yielding loans are paid off and replaced with lower yielding loans.

To date, we have not been significantly impacted by rate changes and do not anticipate a

significant decline in origination volume or profitability as interest rates remain at relatively low levels.

However, we cannot be certain that such a trend will continue as the number, timing, and

magnitude of additional increases or decreases by the Federal Reserve, combined with other macroeconomic and market factors, may have a different effect on the commercial real estate market and on us.

Trump administration continues to focus on several issues that could impact interest rates and the U.S.

While there is uncertainty regarding the specifics and timing of any

future policy changes, any such actions could impact our business.

are a national originator with Fannie Mae and Freddie Mac, and the GSEs remain the most significant providers of capital to the multifamily market.

In September 2019, the FHFA

announced a revised cap structure to its previously released GSE 2019 Scorecard.

The loan origination caps for both Fannie Mae and Freddie Mac were adjusted to $100 billion for each enterprise

for a combined total of $200 billion ("2019/2020 Caps") and will run for a five-quarter period through the end of 2020.

The 2019/2020 Caps apply to all multifamily business and has no

As discussed throughout this report, the COVID-19 pandemic has impacted the global economy in an unprecedented way, swiftly halting activity across many industries, and causing significant disruption and liquidity constraints in many market segments, including the financial services, real estate and credit markets.

The impact of COVID-19 on companies continues to evolve, and the extent and duration of the economic fallout from this pandemic remains unclear.

COVID-19 could have a continued and prolonged adverse impact on economic and market conditions and could trigger a period of global economic slowdown.

Adverse economic conditions have and may continue to result in declining real estate values, increased payment delinquencies and defaults and increased loan modifications and foreclosures, all of which could significantly impact our results of operations, financial condition, business prospects and our ability to make distributions to our stockholders.

The pandemic has caused a dislocation in the capital markets resulting in a reduction of available liquidity.

Many commercial mortgage REITs are suffering from the reduced available liquidity as access to capital is critical to grow their business.

Despite this reduction in liquidity, subsequent to the first quarter of 2020 we raised $233.6 million through two private placement debt offerings and common stock issuances through a public offering and our “At-The-Market” equity offering sales agreements.

Our Agency Business requires limited capital to grow, as originations are financed through warehouse facilities for generally up to 60 days before the loans are sold, therefore, this lack of liquidity has not and should not, impact our ability to grow this business.

However, our Structured Business is more reliant on the capital markets to grow, and therefore, a lack of liquidity could limit our ability to grow this business.

In our Structured Business, 81% of our portfolio is in multifamily assets with most of these loans containing interest reserves and/or replenishment obligations by our borrowers.

The federal government, Fannie Mae and Freddie Mac have made certain forbearance and non-eviction programs available to borrowers and tenants should they need to counteract any short-term pressure on their properties from COVID-19 and its impact on the economy.

For borrowers, in order to qualify for a forbearance, they need to demonstrate they have been adversely affected by the pandemic and their ability to make their loan payments has been impacted.

All loan and rent payments that are suspended remain the obligations of the borrowers and tenants.

As of December 31, 2020, our Agency Business had approved forbearances related to approximately 0.5% of our $18.27 billion Fannie Mae DUS portfolio and approximately 5.2% of our $4.88 billion Freddie Mac portfolio.

We are closely monitoring and managing the requests for forbearances and there could potentially be additional economic stress during 2021.

Interest rates have trended downward during 2020 and remain at historically low levels.

While lower interest rates generally have a positive impact on origination volume as borrowers look to refinance loans to take advantage of lower rates, our net interest income may be negatively impacted as higher yielding loans are paid off and replaced with lower yielding loans.

However, we are somewhat insulated from decreasing interest rates, since a large portion of our structured loan portfolio has LIBOR floors, which could increase our net interest income in the future if rates remain at these historically low levels.

Conversely, if interest rates were to rise, it could negatively impact our net interest income.

An increase in rates would cause an increase in interest expense as most of our debt is variable.

However, since a large portion of our structured loan portfolio has LIBOR floors that are in the money, any increase in interest income due to rising interest rates is not likely to be as substantial as the corresponding increase in interest expense.

We are a national originator with Fannie Mae and Freddie Mac, and the GSEs remain the most significant providers of capital to the multifamily market.

In November 2020, the FHFA released the 2020 Scorecard which established Fannie Mae’s and Freddie Mac’s loan origination caps at $70 billion each, for a combined total opportunity of $140 billion, and will run for a four-quarter period through the end of 2021.

The new caps apply to all multifamily business, have no exclusions and mandate that 50% be directed towards mission driven business or affordable housing.

Our originations with the GSEs are highly profitable executions as they provide significant gains from the sale of our loans, non-cash gains related to MSRs and servicing revenues.

Therefore, a decline in our GSE originations could

negatively impact our financial results.

Therefore, a decline in our GSE originations could negatively impact our financial results.

We are unsure whether the FHFA will impose stricter limitations on GSE multifamily production volume in the future.

commercial real estate markets remain strong, but uncertainty remains as a result of global market instability, the current political climate and other matters and their potential

impact on the U.S.

economy and commercial real estate markets.

In addition, the growth in multifamily rental rates seen over the past few years are showing signs of stabilizing.

If real estate values

decline and/or rent growth subsides, it may limit our new mortgage loan originations since borrowers often use increases in the value of, and revenues produced from, their existing properties to

support the purchase or investment in additional properties.

Declining real estate values may also significantly increase the likelihood that we will incur losses on our loans in the event of default

because the value of our collateral may be insufficient to cover our cost on the loan.

Any sustained period of increased payment delinquencies, foreclosures or losses could adversely affect both our

net interest income from loans as well as our

to originate, sell and securitize loans, which would significantly impact our results of operations, financial condition, business prospects and our ability to make distributions to our

stockholders.

economic environment over the past few years has seen continued improvement in commercial real estate values, which has generally increased payoffs and reduced the credit exposure in

our loan and investment portfolio.

We have made, and continue to make, modifications and extensions to loans when it is economically feasible to do so.

In some cases, a modification is a more viable

alternative to foreclosure proceedings when a borrower cannot comply with loan terms.

In doing so, lower borrower interest rates, combined with non-performing loans, would lower our net interest

margins when comparing interest income to our costs of financing.

However, over the past several years, the levels of modifications and delinquencies have generally declined as property values have

increased and borrowers' access to financing has improved.

If the markets were to deteriorate and the U.S.

experienced a prolonged economic downturn, we believe there could be additional loan

modifications and delinquencies, which may result in reduced net interest margins and additional losses throughout our sector.

Changes in Financial Condition

Assets – Comparison of balances at December 31, 2020 to December 31, 2019:

Our Structured loan and investment portfolio balance was $4.28 billion and $3.28 billion at December 31, 2019 and 2018,

respectively.

Our Structured loan and investment portfolio balance was $5.48 billion and $4.28 billion at December 31, 2020 and 2019, respectively.

This increase was primarily due to loan originations exceeding loan payoffs and paydowns by $1.23 billion.

See below for details.

portfolio had a weighted average current interest pay rate of 5.98% and 7.02% at December 31, 2019 and 2018, respectively.

Including certain fees earned and costs associated

with the structured portfolio, the weighted average current interest rate was 6.68% and 7.66% at December 31, 2019 and 2018, respectively.

Advances on our financing facilities totaled

$3.93 billion and $2.89 billion at December 31, 2019 and 2018, respectively, with a weighted average funding cost of 3.82% and 4.66%, respectively, which excludes financing costs.

Our portfolio had a weighted average current interest pay rate of 5.23% and 5.98% at December 31, 2020 and 2019, respectively.

Including certain fees earned and costs associated with the structured portfolio, the weighted average current interest rate was 5.80% and 6.68% at December 31, 2020 and 2019, respectively.

Advances on our financing facilities totaled $4.92 billion and $3.93 billion at December 31, 2020 and 2019, respectively, with a weighted average funding cost of 2.64% and 3.82%, respectively, which excludes financing costs.

Including financing costs, the weighted average funding rate was 3.03% and 4.35% at December 31, 2020 and 2019, respectively.

from our Structured Business portfolio is comprised of the following ($ in thousands):

Activity from our Structured Business portfolio is comprised of the following ($ in thousands):

Year Ended December 31,

2 unchanged sentences

Weighted average interest rate

(1) We committed to fund six SFR build-to-rent bridge loans totaling $197.8 million in the third and fourth quarters of 2020.

Loans paid-off / paid-down

3 unchanged sentences

Number of loans

held-for-sale from the Agency Business increased $379.7 million, primarily related to $401.2 million of Private Label loan originations.

Our Agency Business loan

originations and loan sales during 2019 are noted in the following table (in thousands).

Our GSE loans are generally sold within

while our Private Label loans are expected to be sold and securitized within 180 days from the loan origination date.

Loans held-for-sale from the Agency Business increased $125.6 million, primarily related to loan originations exceeding sales by $124.2 million as noted in the following table (in thousands).

Loan sales includes $727.2 million of Private Label loans which were sold in connection with our first Private Label multifamily mortgage loan securitization in the second quarter of 2020.

Private Label

held-to-maturity increased $12.3 million, primarily due to the purchase of $20.0 million of single-family rental ("SFR") bonds, partially offset by principal

payments received from underlying loan payoffs from our B Piece bonds.

in equity affiliates increased $20.2 million, primarily due to investments in two new joint ventures totaling $13.3 million, and income from our investment in a

residential mortgage banking business of $7.2 million.

See Note 8 for details.

from related party increased $9.4 million, primarily due to funds from payoffs to be remitted by our affiliated servicing operations related to real estate transactions at the

end of the reporting period.

These amounts were remitted to us in early 2020.

assets increased $39.7 million, primarily due to the adoption of ASU 2016-02, which required us to record an operating lease ROU asset (see Note 2 for details), an

increase in interest and fee receivables and the 2019 purchase of over-the-counter interest rate swap futures ("Swap Futures").

Capitalized mortgage servicing rights increased $93.6 million, primarily due to MSRs recorded on new loan originations, partially offset by amortization and write-offs.

Our capitalized mortgage servicing rights represent the estimated value of our rights to service mortgage loans for others.

At December 31, 2020, the weighted average estimated life remaining of our MSRs was 8.6 years.

Investments in equity affiliates increased $32.5 million, due to income from our investment in a residential mortgage banking business of $75.7 million, partially offset by $43.2 million in cash distributions received from the same investment.

Real estate owned decreased $11.7 million, primarily due to the sale of our hotel property.

Other assets increased $56.3 million, primarily due to an increase in our operating lease right-of-use assets as a result of office lease extensions and the reclassification of our SFR bond from securities held-to-maturity.

Liabilities – Comparison of balances at December 31, 2020 to December 31, 2019:

Credit facilities and repurchase agreements increased $542.7 million, primarily due to funding of new structured loan activity and an

increase in financings on our loans held-for-sale, as a result of Private Label loan originations.

Collateralized

loan obligations increased $536.6 million, primarily due to the issuance of two new CLOs, where we issued $1.07 billion of notes to third party investors,

partially offset by the unwind of two CLOs totaling $529.3 million.

unsecured notes increased $197.3 million, primarily due to the issuances of an additional $200.0 million aggregate principal amount of senior unsecured notes during

Credit facilities and repurchase agreements increased $556.6 million, primarily due to funding of new structured loan activity and loan originations exceeding sales by $124.2 million in our Agency Business as described above, partially offset by a paydown in our securities repurchase facilities that contained margin call provisions.

Collateralized loan obligations increased $387.2 million, primarily due to the issuance of a new CLO, where we issued $668.0 million of notes to third party investors, partially offset by the unwind of a CLO totaling $282.9 million.

We completed the unwind of our $70.0 million Debt Fund.

Senior unsecured notes increased $343.0 million, primarily due to our issuances of $275.0 million of 4.50% notes and $70.8 million of 8.00% notes.

Convertible senior unsecured notes decreased $16.2 million, primarily due to partial redemption of our 5.25% convertible notes.

Allowance for loss-sharing obligations increased $29.7 million, primarily due to the adoption of CECL in the first quarter of 2020.

See Note 2 for details.

senior unsecured notes, net increased $29.4 million, primarily due to the issuance of $264.0 million of 4.75% convertible notes, partially offset by the

exchange of $228.7 million of our 5.25% convertible notes.

to related party was $13.1 million at December 31, 2019 and consisted of loan payoffs, holdbacks and escrows to be remitted to our affiliated servicing operations

related to real estate transactions.

liabilities increased $15.5 million, primarily due to the adoption of ASU 2016-02, which required us to record an operating lease liability, and an increase in certain

accrued expenses (such as accrued compensation and professional fees), partially offset by the payment made in 2019 of the special dividend declared in 2018.

During 2019, we sold 19.8 million shares of our common stock through two public stock offerings and our "At-The-Market" agreement,

raising net proceeds of $260.6 million.

We also issued 4.7 million shares of our common stock in connection with the exchanges of our convertible notes.

We used a portion of the net

proceeds from the first public offering to purchase an aggregate of 0.9 million shares of our common stock from our chief executive officer and ACM during 2019.

We used a portion of the net

proceeds from the second public offering to purchase, in February 2020, an aggregate of 0.7 million shares of our common stock and OP Units from our chief executive officer and ACM.

Note 17 for details of these transactions.

Other liabilities increased $63.3 million, primarily due to an increase in our operating lease liabilities as a result of office lease extensions and an increase in accrued compensation.

During 2020, we sold 14,790,121 shares of our common stock through a public offering and our “At-The-Market” agreement and issued 368,498 shares of common stock in connection with settlements of our convertible notes.

We also repurchased 4,184,394 shares of our common stock and OP Units from ACM and certain of its members and repurchased 993,106 shares of our common stock under our share repurchase program.

Distributions

4 unchanged sentences

February 13, 2020

February 1, 2019

January 31, 2020

July 29, 2020

2 unchanged sentences

October 28,2020

dividend declared on February 1, 2019 was for December 1, 2018 through February 28, 2019.

The dividend declared on May 1, 2019 was

for March 1, 2019 through May 31, 2019.

(1) The dividend declared on January 31, 2020 was for December 1, 2019 through February 29, 2020.

The dividend declared on May 1, 2020 was for March 1, 2020 through May 31, 2020.

The dividend declared on July 29, 2020 was for June 1, 2020 through August 31, 2020.

The dividend declared on

October 30, 2019 was for September 1, 2019 through November 30, 2019.

The dividend declared on October 28, 2020 was for September 1, 2020 through November 30, 2020.

Common Stock – On February 17, 2021, the Board of Directors declared a cash dividend of $0.33 per share of common stock.

The dividend is payable

on March 17, 2020 to common stockholders of record as of the close of business on February 28, 2020.

Preferred Stock On January 31, 2020, the Board of Directors declared a cash dividend of $0.515625 per share of 8.25% Series A preferred

The dividend is payable on March 19, 2021 to common stockholders of record as of the close of business on March 3, 2021.

Preferred Stock – On February 1, 2021, the Board of Directors declared a cash dividend of $0.515625 per share of 8.25% Series A preferred stock;

a cash dividend of $0.484375 per share of 7.75% Series B preferred stock;

and a cash dividend of $0.53125 per share of 8.50% Series C preferred stock.

These amounts reflect

dividends from December 1, 2019 through February 29, 2020 and are payable on March 2, 2020 to preferred stockholders of record on February 15, 2020.

These amounts reflect dividends from December 1, 2020 through February 28, 2021 and are payable on March 1, 2021 to preferred stockholders of record on February 15, 2021.

Deferred Compensation

We issued 516,691 shares of restricted stock to our employees, including our chief executive officer, 55,244 shares to the independent members

of the Board of Directors and up to 352,427 shares of performance-based restricted common stock units and 246,508 shares of performance-based restricted stock to our chief executive officer during

See Note 17 for details.

During 2020, we issued 360,885 shares of restricted stock to our employees (including our chief executive officer) and 52,735 shares to the independent members of the Board of Directors.

Our chief executive officer was also granted 275,569 shares of performance-based restricted stock units and 313,152 shares of performance-based restricted stock as a result of achieving goals related to the integration of our 2016 acquisition of ACM's agency platform (the “Acquisition”).

Our chief executive officer net settled 421,348 shares of fully vested performance-based restricted stock units for 215,014 common shares and 357,569 shares of fully vested performance-based restricted stock for 182,467 common shares.

We also withheld 158,722 shares of restricted common stock from our employees (including our chief executive officer) to net settle and pay their respective withholding taxes in connection with awards that vested.

See Note 17 for details of our deferred compensation transactions.

Agency Servicing Portfolio

The following table sets forth the characteristics of our loan servicing portfolio collateralizing our mortgage servicing rights and servicing

revenue ($ in thousands):

The following table sets forth the characteristics of our loan servicing portfolio collateralizing our mortgage servicing rights and servicing revenue ($ in thousands):

December 31, 2020

as a Percentage

of Portfolio(1)

Delinquencies

Interest Rate Type

as a Percentage

of Portfolio (1)

of Portfolio (2)

Private Label

December 31, 2019

(1) Prepayments

reflect loans repaid prior to nine months from the loan's maturity.

The majority of our loan servicing portfolio has a prepayment protection term and

therefore, we may collect a prepayment fee which is included as a component of servicing revenue, net.

(2) Delinquent

loans reflect loans that are contractually 60 days or more past due.

As of December 31, 2019 and 2018, delinquent loans totaled

$59.2 million and $35.6 million, respectively, of which $33.5 million and $35.6 million, respectively, were in the foreclosure process.

In addition, as of

December 31, 2019, loans collateralizing our servicing portfolio totaling $3.2 million are currently in bankruptcy.

servicing portfolio represents commercial real estate loans originated in our Agency Business, which are generally transferred or sold within 60 days to 180 days from

the date the loan is funded.

(1) Prepayments reflect loans repaid prior to six months from the loan’s maturity.

The majority of our loan servicing portfolio has a prepayment protection term and therefore, we may collect a prepayment fee which is included as a component of servicing revenue, net.

(2) Delinquent loans reflect loans that are contractually 60 days or more past due.

As of December 31, 2020 and 2019, delinquent loans totaled $91.3 million and $59.2 million, respectively, of which $19.6 million and $33.5 million, respectively, were in the foreclosure process.

In addition, as of December 31, 2019, loans collateralizing our servicing portfolio totaling $3.2 million were in bankruptcy.

Our servicing portfolio represents commercial real estate loans originated in our Agency Business, which are generally transferred or sold within 60 days from the date the loan is funded.

Primarily all of the loans in our servicing portfolio are collateralized by multifamily properties.

In addition, we are generally required to share in the risk of any

losses associated with loans sold under the Fannie Mae DUS program, see Note 12.

In addition, we are generally required to share in the risk of any losses associated with loans sold under the Fannie Mae DUS program, see Note 12.

Comparison of Results of Operations for Years Ended 2020 and 2019

10 unchanged sentences

Property operating income

Loss on derivative instruments, net

Other income, net

7 unchanged sentences

Provision for loss sharing (net of recoveries)

Provision for loan losses (net of recoveries)

Littigation settlement gain

Provision for credit losses (net of recoveries)

Total other expenses

Income before extinguishment of debt, income from equity

affiliates and income taxes

Income before extinguishment of debt, sale of real estate, income from equity affiliates and income taxes

Loss on extinguishment of debt

Loss on sale of real estate

Income from equity affiliates

3 unchanged sentences

Net income attributable to common stockholders

following table presents the average balance of our Structured Business interest-earning assets and interest-bearing liabilities, associated interest income (expense) and the

corresponding weighted average yields ($ in thousands):

nm – not meaningful

The following table presents the average balance of our Structured Business interest-earning assets and interest-bearing liabilities, associated interest income (expense) and the corresponding weighted average yields ($ in thousands):

Year Ended December 31,

Structured Business interest-earning assets:

Mezzanine / junior participation loans

Preferred equity investments

Mezzanine / junior participation loans

Core interest-earning assets

7 unchanged sentences

Net interest income

on UPB for loans, amortized cost for securities and principal amount for debt.

average yield calculated based on annualized interest income or expense divided by average carrying value.

(1) Based on UPB for loans, amortized cost for securities and principal amount for debt.

(2) Weighted average yield calculated based on annualized interest income or expense divided by average carrying value.

Net Interest Income

The increase in interest income was primarily due to an increase of $63.1 million, or 28%, from our Structured Business.

The increase was

primarily due to a 24% increase in our average core interest-earning assets, as a result of loan originations exceeding loan runoff, and a 3% increase in the average yield on core interest-earning

The increase in the average yield was largely due to increases in the average LIBOR rate, acceleration fees from early runoff and default interest and fees on a loan that paid off during 2019.

In addition, LIBOR floors on a portion of our loans resulted in an increase to interest income, which is due to the decline in the LIBOR during the second half of 2019.

increase in interest expense is primarily due to an increase of $32.1 million, or 23%, from our Structured Business.

The increase was primarily due to a 28% increase in the

average balance of our interest-bearing liabilities, due to growth in our loan portfolio and the issuance of additional CLO and unsecured debt.

The increase was partially offset by a 4% decrease in

the average cost of our interest-bearing liabilities, primarily due to an increase in accelerated deferred financing costs from the

of our CLOs and senior unsecured notes in 2019, as compared to 2018, partially offset by an increase in the average LIBOR rate.

The increase in interest income was due to increases of $16.1 million, or 6%, from our Structured Business and $7.5 million, or 29%, from our Agency Business.

The increase from our Structured Business was primarily due to a 30% increase in our average core interest-earning assets, as a result of loan originations exceeding loan runoff, partially offset by an 18% decrease in the average yield on core interest-earning assets, largely due to lower rates on originations as compared to loan runoff, a decrease in the average LIBOR rate and default interest and fees on a loan that paid off during 2019.

The increase from our Agency Business was primarily due to an increase in the average loans held-for-sale as a result of higher originations, which includes Private Label loan originations prior to securitization in May 2020, partially offset by a decrease in the 10-year treasury note rate in 2020.

The decrease in interest expense was due to a decrease of $18.8 million, or 11%, from our Structured Business, partially offset by an increase of $1.7 million, or 10%, from our Agency Business.

The decrease in our Structured Business was the result of a 33% decrease in the average cost of our interest-bearing liabilities, mainly from decreases in LIBOR and lower rates on recently issued debt, partially offset by a 32% increase in the average balance of our interest-bearing liabilities, due to growth in our loan portfolio and the recent issuance of additional unsecured debt.

The increase from our Agency Business was primarily due to an increase in the average debt balance used to finance the increase in the average loans held-for-sale balance, partially offset by a decrease in the average LIBOR rate.

Agency Business Revenue

The decrease in gain on sales, including fee-based services, net was primarily due to a decrease of $523.0 million, or 11%, in loan sales

volume, partially offset by a 5% increase in sales margin (gain on sale, including fee-based services, net as a percentage of loan sales volume) from 1.42% to 1.49%.

decrease in income from MSRs was primarily due to a 3% decrease in the MSR rate (income from MSRs as a percentage of loan commitment volume) from 1.94% to 1.88%, as well as a

decrease of $274.4 million, or 5%, in loan commitment volume.

increase in servicing revenue, net was primarily due to an increase in our servicing portfolio and an increase in earnings on escrows due to increases in average escrow balances and

the average LIBOR rate.

Our servicing portfolio increased 8% from $18.60 billion at December 31, 2018 to $20.06 billion at December 31, 2019.

Our servicing revenue, net in

2019 and 2018, included $48.7 million and $48.1 million, respectively, of amortization expense.

Other Income, Net

The decrease in other income, net was primarily due to changes in the fair value of rate lock commitments, partially offset by gains recognized

on Swap Futures in our Agency Business.

The increase in gain on sales, including fee-based services, net was primarily due to a 50% increase ($2.19 billion) in loan sales volume.

The increase in income from MSRs was primarily due to a 41% increase in loan commitment volume, along with a 29% increase in the MSR rate (income from MSRs as a percentage of loan commitment volume) from 1.88% to 2.43%, mainly due to an increase in the average servicing fee on loan commitments.

Other Revenue

Property operating income and expenses both decreased in 2020 as a result of lower occupancy and closure of the hotel property for most of the second quarter as a result of the COVID-19 pandemic, as well as from the sale of the hotel in September 2020.

The increase in loss on derivative instruments was primarily due to losses recognized in our Agency Business on Swap Futures held in connection with our Private Label loans.

See Note 13 for details.

Other Expenses

The increase in employee compensation and benefits expense is comprised of $7.8 million from our Agency Business and $3.8 million

from our Structured Business.

Increases in salary and stock-based compensation expense for both businesses is primarily due to increased headcount associated with each business's portfolio growth.

increase in selling and administrative expenses was primarily due to a $2.5 million increase in our Structured Business, mainly from higher professional fees, as well as

increases in general administrative expenses.

loss on real estate owned was $1.0 million and $2.0 million in 2019 and 2018, respectively.

During these periods, we received market analysis which resulted in

impairment losses on our real estate properties owned.

The increase in employee compensation and benefits expense was primarily due to an increase in commissions in our Agency Business in connection with higher loan sales volume, as well as increased headcount in both businesses associated with each business’s portfolio growth, including the full period impact in 2020 of new hires in 2019.

The decrease in selling and administrative expenses was primarily due to a $2.4 million decline in the Structured Business.

Legal and consulting costs were lower as transactions and projects that were terminated or completed in 2019 did not recur in 2020.

Administrative expenses were also lower in 2020 as a result of the COVID-19 pandemic due to travel restrictions and fewer events.

These decreases were partially offset by a $2.5 million litigation settlement we recorded related to the hotel property that we sold in the third quarter of 2020.

The increases in provision for loss sharing and provision for credit losses were primarily due to CECL reserves recorded in connection with the adoption of Accounting Standard Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”) in 2020.

See Note 2 for details.

decrease in our provision for loss sharing was primarily related to a $1.0 million recovery recorded on loans that fully paid off in 2019 and a $1.7 million specific

provision recorded in 2018.

provision for loan losses in 2018 was primarily related to a $12.3 million provision recorded on six loans secured by a land development project, partially offset by reserve

recoveries of $3.1 million related to previously written-off loans and investments.

litigation settlement gain in 2018 was due to net proceeds received in July 2018 from the settlement of a litigation related to a prior investment.

Loss on Extinguishment of Debt

The loss on extinguishment of debt in both 2019 and 2018 were primarily due to the exchange transactions of our convertible notes.

Note 11 for details.

Income from Equity Affiliates

Income from equity affiliates in 2019 primarily reflects income from our investment in a residential mortgage banking business of

$7.2 million and distributions from an equity investment totaling $3.5 million.

Income from equity affiliates in 2018 primarily reflects distributions from an equity investment totaling

$2.5 million and $0.7 million of income from our investment in a residential mortgage banking business, partially offset by a $2.2 million other-than-temporary impairment recorded

on one of our investments.

The loss on extinguishment of debt in 2020 was primarily due to losses recognized in connection with the unwind of both CLO VIII and the Debt Fund.

The loss on extinguishment of debt in 2019 was primarily due to the exchange transactions of our convertible notes.

See Note 11 for details.

Income from Equity Affiliates

Income from equity affiliates in 2020 and 2019 primarily reflects income from our investment in a residential mortgage banking business of $75.7 million and $7.2 million, respectively, and distributions from an equity investment totaling $1.1 million and $3.5 million, respectively.

Provision for Income Taxes

In 2019 and 2018, we recorded a tax provision of $15.0 million and $9.7 million, respectively.

The tax provision recorded in 2019

consisted of a current tax provision of $14.9 million and a deferred tax provision of $0.2 million.

The tax provision in 2018 consisted of a current tax provision of $21.8 million

and a deferred tax benefit of $12.0 million.

The deferred tax benefit in 2018 was due primarily to our payoff in January 2018 of the $50.0 million preferred equity interest entered into

with ACM to finance a portion of the Acquisition purchase price.

In 2020, we recorded a tax provision of $40.4 million, which consisted of a current tax provision of $35.7 million and a deferred tax provision of $4.7 million.

In 2019, we recorded a tax provision of $15.0 million, which consisted of a current tax provision of $14.9 million and a deferred tax provision of $0.2 million.

The tax provision increase is primarily due to an increase in income generated from our residential mortgage banking business joint venture and growth in our Agency Business.

Net Income Attributable to Noncontrolling Interest

The noncontrolling interest relates to the outstanding OP Units issued as part of the Acquisition.

There were 20,484,094 OP Units and 20,653,584

OP Units outstanding as of December 31, 2019 and 2018, respectively, which represented 15.7% and 19.7% of our outstanding stock at December 31, 2019 and 2018, respectively.

There were 17,560,633 OP Units and 20,484,094 OP Units outstanding as of December 31, 2020 and 2019, respectively, which represented 12.5% and 15.7% of our outstanding stock at December 31, 2020 and 2019, respectively.

Comparison of Results of Operations for Years Ended 2019 and 2018

For a discussion of our results of operations for the year ended 2018 compared to 2017, please refer to Item 7 of Part II,

"Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2018, which was filed with the

SEC on February 15, 2019, and is available on the SEC's website at www.sec.gov and the "Investor Relations" section of our website at www.arbor.com.

For a discussion of our results of operations for the year ended 2019 compared to 2018, please refer to Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the SEC on February 14, 2020, and is available on the SEC’s website at www.sec.gov and the “Investor Relations” section of our website at www.arbor.com.

Liquidity and Capital Resources

Sources of Liquidity.

Liquidity is a measure of our ability to meet our potential cash requirements, including ongoing

commitments to repay

borrowings, satisfaction of collateral requirements under the Fannie Mae DUS risk-sharing agreement and, as an approved designated seller/servicer of Freddie Mac's SBL program, operational liquidity

requirements of the GSE agencies, fund new loans and investments, fund operating costs and distributions to our stockholders, as well as other general business needs.

Our primary sources of funds for

liquidity consist of proceeds from equity and debt offerings, debt facilities and cash flows from our operations.

We closely monitor our liquidity position and believe our existing sources of funds

and access to additional liquidity will be adequate to meet our liquidity needs.

we have been successful in obtaining proceeds from debt and equity offerings, CLOs and certain financing facilities, there is no guarantee that these forms of financing will

continue to be available or available at attractive terms.

Therefore, we will continue to rely, in part, on cash flows provided by operating and investing activities for working capital.

maintain our status as a REIT under the Internal Revenue Code, we must distribute annually at least 90% of our REIT-taxable income.

These distribution requirements limit our ability

to retain earnings and thereby replenish or increase capital for operations.

However, we believe that our capital

and access to financing will provide us with financial flexibility and market responsiveness at levels sufficient to meet current and anticipated capital requirements.

Cash flows used in operating activities totaled $226.5 million during 2019, primarily due to net cash outflows

$374.2 million as a result of loan originations exceeding loan sales in our Agency Business (mainly from $401.2 million of Private Label loan originations which have not yet been sold

and securitized), partially offset by net income of $155.2 million.

flows used in investing activities totaled $994.7 million during 2019.

Loan and investment activity (originations and payoffs/paydowns) comprise the bulk of our investing

Loan originations from our Structured Business totaling $2.71 billion, net of payoffs and paydowns of $1.75 billion, resulted in net cash outflows of $958.7 million.

Cash outflows also included $20.0 million to purchase SFR bonds and $13.5 million of investments in two new equity investments.

flows provided by financing activities totaled $1.39 billion during 2019, and consisted primarily of net proceeds of $1.07 billion from CLO activity, net cash inflows

of $543.0 million from debt facility activities (funded loan originations were greater than facility paydowns), $464.0 million received from the issuance of senior unsecured debt and

$260.4 million of net proceeds from the issuances of common stock.

These cash inflows were partially offset by cash outflows of $761.2 million for the redemption of CLOs and certain

convertible senior unsecured notes and $138.8 million of distributions to our stockholders and OP Unit holders.

Liquidity is a measure of our ability to meet our potential cash requirements, including ongoing commitments to repay borrowings, satisfaction of collateral requirements under the Fannie Mae DUS risk-sharing agreement and, as an approved designated seller/servicer of Freddie Mac’s SBL program, operational liquidity requirements of the GSE agencies, fund new loans and investments, fund operating costs and distributions to our stockholders, as well as other general business needs.

Our primary sources of funds for liquidity consist of proceeds from equity and debt offerings, proceeds from CLOs and securitizations, debt facilities and cash flows from operations.

We closely monitor our liquidity position and believe our existing sources of funds and access to additional liquidity will be adequate to meet our liquidity needs.

We are monitoring the COVID-19 pandemic and its impact on our financing sources, borrowers and their tenants, and the economy as a whole.

The magnitude and duration of the pandemic, and its impact on our operations and liquidity, are uncertain and continue to evolve.

To the extent that our financing sources, borrowers and their tenants continue to be impacted by the pandemic, or by the other risks disclosed in our filings with the SEC, it would have a material adverse effect on our liquidity and capital resources.

We had approximately $4.92 billion in total structured debt outstanding at December 31, 2020.

Of this total, approximately $3.64 billion, or 74%, does not contain mark-to-market provisions and is comprised of non-recourse CLO vehicles, senior unsecured debt and junior subordinated notes, the majority of which have maturity dates in 2022, or later.

The remaining $1.28 billion of debt is in warehouse and repurchase facilities with several different banks that we have long-standing relationships with.

While we expect to extend or renew all of our facilities as they mature, given the current market environment, we believe that the extension terms may be less favorable than the terms of our current facilities.

In addition to our ability to extend our warehouse and repurchase facilities, we have approximately $400 million in cash and available liquidity as well as other liquidity sources, including our $24.63 billion agency servicing portfolio, which is mostly prepayment protected and generates approximately $112.0 million a year in recurring cash flow.

At December 31, 2020, we had $86.5 million of securities financed with $38.5 million of debt that was subject to margin calls related to changes in interest spreads.

During 2020, we significantly reduced the UPB of this debt by $178.6 million to $38.5 million through a debt restructuring and the use of proceeds from our senior notes issued in the second quarter of 2020.

To maintain our status as a REIT under the Internal Revenue Code, we must distribute annually at least 90% of our REIT-taxable income.

These distribution requirements limit our ability to retain earnings and thereby replenish or increase capital for operations.

However, we believe that our capital resources and access to financing will provide us with financial flexibility and market responsiveness at levels sufficient to meet current and anticipated capital and liquidity requirements.

Cash flows provided by operating activities totaled $55.2 million during the year ended December 31, 2020 and consisted primarily of net income of $196.2 million, partially offset by net cash outflows of $121.6 million as a result of loan originations exceeding loan sales in our Agency Business.

Cash flows used in investing activities totaled $1.16 billion during the year ended December 31, 2020.

Loan and investment activity (originations and payoffs/paydowns) comprise the bulk of our investing activities.

Loan originations from our Structured Business totaling $2.38 billion, net of payoffs and paydowns of $1.24 billion, resulted in net cash outflows of $1.13 billion.

Cash outflows also included $37.9 million to purchase APL certificates in connection with our Private Label securitization in the second quarter of 2020.

Cash flows provided by financing activities totaled $1.13 billion during the year ended December 31, 2020 and consisted primarily of net cash inflows of $557.6 million from debt facility activities (financed loan originations were greater than facility paydowns), net proceeds of $384.9 million from CLO activity, $345.8 million received from the issuances of senior unsecured notes

and $183.6 million received from common stock issuances, partially offset by, $173.1 million of distributions to our stockholders and OP Unit holders, $70.0 million for the unwind of the Debt Fund and $32.2 million for the redemption of OP units.

Agency Business Requirements.

The Agency Business is subject to supervision by certain regulatory agencies.

Among other things,

these agencies

require us to meet certain minimum net worth, operational liquidity and restricted liquidity collateral requirements, purchase and loss obligations and compliance with reporting requirements.

adjusted net worth and operational liquidity exceeded the agencies' requirements as of December 31, 2019.

Our restricted liquidity and purchase and loss obligations were satisfied with letters

of credit totaling $50.0 million and $1.9 million of cash collateral.

Among other things, these agencies require us to meet certain minimum net worth, operational liquidity and restricted liquidity collateral requirements, purchase and loss obligations and compliance with reporting requirements.

Our adjusted net worth and operational liquidity exceeded the agencies’ requirements as of December 31, 2020.

Our restricted liquidity and purchase and loss obligations were satisfied with letters of credit totaling $50.0 million and $9.2 million of cash collateral.

See Note 15 for details about our performance regarding these requirements.

also enter into contractual commitments with borrowers providing rate lock commitments while simultaneously entering into forward sale commitments with investors.

These commitments

are outstanding for short periods of time (generally less than 60 days) and are described in Note 13.

We also enter into contractual commitments with borrowers providing rate lock commitments while simultaneously entering into forward sale commitments with investors.

These commitments are outstanding for short periods of time (generally less than 60 days) and are described in Note 13.

Debt Facilities.

We maintain various forms of short-term and long-term financing arrangements.

Borrowings underlying these

arrangements are primarily

secured by a significant amount of our loans

investments and all of our loans held-for-sale.

Borrowings underlying these arrangements are primarily secured by a significant amount of our loans and investments and substantially all of our loans held-for-sale.

The following is a summary of our debt facilities (in thousands):

December 31, 2020

Debt Facilities

Debt Instruments

Commitment (1)

9 unchanged sentences

Consolidated total

temporary increases to committed amounts which have not expired as of December 31, 2019.

the impact of deferred financing costs.

dates represent the weighted average remaining maturity based on the underlying collateral as of December 31, 2019.

Multifamily As Soon as Pooled ®

Plus ("ASAP") agreement we have with Fannie Mae has no expiration date.

debt facilities, including their restrictive covenants, are described in Note 11.

Contractual Obligations.

As of December 31, 2019, we had the following material contractual obligations (in thousands):

Payments Due by Period(1)

Year Ending December 31,

Contractual Obligations

Credit facilities and repurchase agreements

Collateralized loan obligations(2)

Senior unsecured notes

Convertible senior unsecured notes

Junior subordinated notes(4)

Outstanding unfunded commitments(5)

Operating leases(6)

(1) Represents

principal amounts due based on contractual maturities.

Excludes the total projected interest payments on our debt obligations of $145.4 million in

2020, $117.3 million in 2021, $98.5 million in 2022, $42.8 million in 2023, $18.7 million in 2024 and $142.4 million thereafter based on current LIBOR rates.

(2) Comprised

of debt totaling $282.9 million for CLO VIII, $356.4 million for CLO IX, $441.0 million for CLO X, $533.0 million for CLO XI

and $534.2 million for CLO XII with a weighted average contractual maturity of 1.81 years, 1.92 years, 1.94 years, 2.47 years and 3.25 years, respectively, as

of December 31, 2019.

weighted average contractual maturity of the underlying loans is 1.55 years.

(4) Represents

the face amount due upon maturity.

The carrying value is $140.9 million, which is net of a deferred amount of $11.4 million and deferred

financing fees of $2.0 million at December 31, 2019.

accordance with certain loans and investments, we have outstanding unfunded commitments that we are obligated to fund as the borrowers meet certain requirements.

Specific requirements include, but are not limited to, property renovations, building construction and building conversions based on criteria met by the borrower in accordance with the loan

The payment due by period is based on the maturity date of underlying loans and is included in loans and investments, net in the consolidated balance sheet.

(6) Represents

the operating lease payments due in connection with our lease of office space and equipment for our corporate headquarters and loan origination, support

and servicing offices located throughout the U.S.

Certain of the office leases have escalation clauses.

(1) Includes temporary increases to committed amounts which have not expired as of December 31, 2020.

(2) Excludes the impact of deferred financing costs.

(3) See Note 15 for a breakdown of debt maturities by year.

(4) Maturity dates represent the weighted average remaining maturity based on the underlying collateral as of December 31, 2020.

(5) The Multifamily As Soon as Pooled ® Plus (“ASAP”) agreement we have with Fannie Mae has no expiration date.

These debt facilities, including their restrictive covenants, are described in Note 11.

Off-Balance-Sheet Arrangements.

At December 31, 2020, we had no off-balance-sheet arrangements.

Changes in the general level of interest rates prevailing in the economy in response to changes in the rate of

inflation generally have

little effect on our income because the majority of our

interest-earning

assets and interest-bearing liabilities have floating rates of interest.

Changes in the general level of interest rates prevailing in the economy in response to changes in the rate of inflation generally would not have a significant effect on our income because the majority of our interest-earning assets and interest-bearing liabilities have floating rates of interest.

See “Quantitative and Qualitative Disclosures about Market Risk” below.

Derivative Financial Instruments

We enter into derivative financial instruments in the normal course of business to manage the potential loss exposure caused by fluctuations of

interest rates.

We enter into derivative financial instruments in the normal course of business to manage the potential loss exposure caused by fluctuations of interest rates.

See Note 13 for details.

Significant Accounting Estimates

Management's discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which

have been prepared in accordance with the FASB Accounting Standards Codification, the authoritative reference for accounting principles generally accepted in the U.S.

preparation of financial statements in conformity with GAAP requires the use of estimates and assumptions that could affect the reported amounts in our consolidated financial statements.

results could differ from these estimates.

summary of our significant accounting policies is presented in Note 2.

Many of these accounting policies require judgment and the use of estimates and assumptions when applying

these policies in the preparation of our consolidated financial statements.

Each quarter, we assess these estimates and assumptions based on several factors, including historical experience, which we

believe to be reasonable under the circumstances.

Management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with the FASB Accounting Standards Codification™, the authoritative reference for accounting principles generally accepted in the U.S.

The preparation of financial statements in conformity with GAAP requires the use of estimates and assumptions that could affect the reported amounts in our consolidated financial statements.

Actual results could differ from these estimates.

A summary of our significant accounting policies is presented in Note 2.

Many of these accounting policies require judgment and the use of estimates and assumptions when applying these policies in the preparation of our consolidated financial statements.

Each quarter, we assess these estimates and assumptions based on several factors, including historical experience, which we believe to be reasonable under the circumstances.

These estimates are subject to change in the future if any of the underlying assumptions or factors change.

Non-GAAP Financial Measures

Funds from Operations and Adjusted Funds from Operations.

We present funds from operations ("FFO") and adjusted funds from

operations ("AFFO")

because we believe they are important supplemental measures of our operating performance in that they are frequently used by analysts, investors and other parties in the evaluation of REITs.

National Association of Real Estate Investment Trusts, or NAREIT, defines FFO as net income (loss) attributable to common stockholders (computed in accordance with GAAP), excluding gains (losses) from

sales of depreciated real properties, plus impairments of depreciated real properties and real estate related depreciation and amortization, and after adjustments for unconsolidated ventures.

the fourth quarter of 2019, we updated our definition of AFFO to (i) exclude one-time gains and losses on the early extinguishment of debt, (ii) exclude gains and

losses on derivative instruments associated with Private Label loans that have not yet been sold and securitized and (iii) include the cumulative gains or losses on derivative instruments

associated with Private Label loans that were sold during the periods presented.

All prior period amounts presented below have been conformed to reflect this change.

Therefore, we now define AFFO as

funds from operations adjusted for accounting items such as non-cash stock-based compensation expense, income from MSRs, gains or losses on Private Label-related derivative instruments until the loans

are sold, changes in fair value of GSE-related derivatives that temporarily flow through earnings, amortization and write-offs of MSRs, deferred taxes and amortization of convertible senior notes

conversion options.

We also add back one-time charges such as acquisition costs, gains and losses on the extinguishment of debt, impairment losses on real estate and gains (losses) on sales of real

We are generally not in the business of operating real estate property and had obtained real estate by foreclosure or through partial or full settlement of mortgage debt related to our loans

to maximize the value of the collateral and minimize our exposure.

Therefore, we deem such impairment and gains on real estate as an extension of the asset management of our loans, thus a recovery of

principal or additional loss on our initial investment.

and AFFO are not intended to be an indication of our cash flow from operating activities (determined in accordance with GAAP) or a measure of our liquidity, nor is it entirely

indicative of

our cash needs, including our ability to make cash distributions.

Our calculation of FFO and AFFO may be different from the calculations used by other companies and, therefore, comparability

may be limited.

and AFFO are as follows ($ in thousands, except share and per share data):

Distributable Earnings.

Beginning in the fourth quarter of 2020, we changed the name of our non-GAAP financial measure from core earnings to distributable earnings.

Although calculated the same way as core earnings, we believe the name change to distributable earnings better reflects what this non-GAAP financial measure presents.

We are presenting distributable earnings because we believe it is an important supplemental measure of our operating performance and is useful to investors, analysts and other parties in the evaluation of REITs and their ability to provide dividends to stockholders.

Dividends are one of the principal reasons investors invest in REITs.

To maintain REIT status, REITs are required to distribute at least 90% of their REIT-taxable income.

We consider distributable earnings in determining our quarterly dividend and believe that, over time, distributable earnings is a useful indicator of our dividends per share.

We define distributable earnings as net income (loss) attributable to common stockholders computed in accordance with GAAP, adjusted for accounting items such as depreciation and amortization (adjusted for unconsolidated joint ventures), non-cash stock-based compensation expense, income from MSRs, amortization and write-offs of MSRs, gains/losses on derivative instruments primarily associated with Private Label loans not yet sold and securitized, the tax impact on cumulative gains/losses on derivative instruments associated with Private Label loans sold during the periods presented, changes in fair value of GSE-related derivatives that temporarily flow through earnings, deferred tax (benefit) provision, CECL provisions for credit losses (adjusted for realized losses as described below) and amortization of the convertible senior notes conversion option.

We also add back one-time charges such as acquisition costs and one-time gains/losses on the early extinguishment of debt.

We reduce distributable earnings for realized losses in the period we determine that a loan is deemed nonrecoverable in whole or in part.

Loans are deemed nonrecoverable upon the earlier of:

(i) when the loan receivable is settled (i.e.

when the loan is repaid, or in the case of foreclosure, when the underlying asset is sold);

or (ii) when we determine that it is nearly certain that all amounts due will not be collected.

The realized loss amount is equal to the difference between the cash received, or expected to be received, and the book value of the asset.

Distributable earnings is not intended to be an indication of our cash flows from operating activities (determined in accordance with GAAP) or a measure of our liquidity, nor is it entirely indicative of funding our cash needs, including our ability to make cash distributions.

Our calculation of distributable earnings may be different from the calculations used by other companies and, therefore, comparability may be limited.

Distributable earnings is as follows ($ in thousands, except share and per share data):

Year Ended December 31,

1 unchanged sentence

Net income attributable to noncontrolling interest

Impairment loss on real estate owned

Depreciationreal estate owned

Depreciationinvestments in equity affiliates

Funds from operations(1)

Income from mortgage servicing rights

Impairment loss on real estate owned

Deferred tax provision (benefit)

1 unchanged sentence

Depreciation and amortization

Loss (gain) on extinguishment of debt

Net gain on Private Label-related derivatives prior to sale

Net loss (gain) on changes in fair value of GSE-related derivatives

Loss on extinguishment of debt

Provision for credit losses, net

Loss (gain) on derivative instruments, net

Stock-based compensation

Adjusted funds from operations(1)

Diluted FFO per share(1)

Diluted AFFO per share(1)

Distributable Earnings (1)

Diluted distributable earnings per share (1)

Diluted weighted average shares outstanding (1)

are attributable to common stockholders and OP Units holders.

The OP Units are redeemable for cash, or at our option for shares of our common stock on a

one-for-one basis.

(1) Amounts are attributable to common stockholders and OP Units holders.

The OP Units are redeemable for cash, or at our option for shares of our common stock on a one-for-one basis.

As noted above, we changed the name of our non-GAAP financial measure from core earnings to distributable earnings in the fourth quarter of 2020.

Core earnings was introduced as our non-GAAP performance measure in the first quarter of 2020 as a replacement of adjusted funds from operations (“AFFO”).

Core earnings was comparable to the previous AFFO metric, revised to exclude provisions for credit losses (including CECL) related to our structured loan portfolio, securities held-to maturity and loss-sharing obligations related to the Fannie Mae program.

Prior period amounts presented in the table above have been conformed to reflect these changes.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis