What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-10-29 compared with 2021-07-30 · 124 added, 134 removed, 304 unchanged (46% of the section changed)

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Although we have not been significantly impacted by COVID-19 to-date, the impact of COVID-19 on companies continues to evolve, 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.

Significant Developments During the Second Quarter of 2021

Capital Markets Activity.

● We raised $169.6 million through a public offering of our common stock and an “At-The-Market” equity offering sales agreement and used $32.2 million of the proceeds to purchase common stock and OP Units from ACM and its members;

● We raised $222.6 million from the issuance of 6.375% Series D cumulative redeemable preferred stock and used $93.3 million of the proceeds to fully redeem our Series A, B and C preferred stock which had a weighted average rate of 8.14%.

Financing Activity.

● We closed a collateralized securitization vehicle (CLO XV) totaling $815.0 million of real estate related assets and cash, of which $674.4 million of investment grade notes were issued to third party investors and $73.4 million of below investment-grade notes and a $67.2 million equity interest in the portfolio were retained by us;

● We closed a Private Label securitization totaling $449.9 million, of which we retained the most subordinate certificates totaling $38.2 million;

Significant Developments During the Third Quarter of 2021

Financing and Capital Markets Activity.

● We closed a collateralized securitization vehicle (CLO 16) totaling $1.50 billion of real estate related assets and cash, of which $1.24 billion of investment grade notes were issued to third party investors and $135.0 million of below investment-grade notes and a $127.5 million equity interest in the portfolio were retained by us;

● We issued $270.0 million of 4.50% senior unsecured notes due in 2026 in a private offering;

● We increased the capacity of our existing debt facilities in our Structured Business by $1.27 billion.

Agency Business Activity.

● Loan originations and sales totaled $1.31 billion and $1.48 billion, respectively;

● Our fee-based servicing portfolio grew 2.3% to $26.04 billion.

● We raised $139.1 million from the issuance of 6.25% Series E preferred stock.

Structured Business Activity.

● Our Structured loan and investment portfolio grew 24.1% to $9.17 billion on loan originations totaling $2.47 billion, partially offset by loan runoff of $567.9 million;

● We successfully worked out an $89.3 million loan with the borrower on a hotel property classified as a troubled debt restructuring freeing up capital for other investments, and which resulted in the reversal of a $7.5 million provision for credit loss and recognition of $3.5 million in interest income;

● We recorded income of $5.4 million and received a $4.7 million cash distribution from our residential mortgage business joint venture.

We raised our quarterly common dividend to $0.35 per share, our fifth consecutive quarterly increase.

Agency Business Activity.

● Loan originations and sales totaled $1.80 billion and $1.01 billion, respectively;

● Our fee-based servicing portfolio grew to $26.21 billion.

We raised our quarterly common dividend to $0.36 per share, our sixth consecutive quarterly increase.

Subsequent Events.

● In October 2021, we completed a public offering of 8,050,000 shares of 6.25% Series F preferred stock, generating net proceeds of approximately $194.8 million;

● In October 2021, we closed a Private Label securitization totaling $535.0 million, of which we retained the most subordinate class of certificates totaling $47.5 million.

Current Market Conditions, Risks and Recent Trends

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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 Federal Housing Finance Agency (“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, 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.

In October 2021, the Federal Housing Finance Agency ("FHFA") announced that its 2022 loan origination caps for Fannie Mae and Freddie Mac will be $78 billion for each enterprise for a total opportunity of $156 billion (the “2022 Caps”), which has increased from its 2021 loan origination caps of $70 billion for each enterprise (the “2021 Caps”).

The 2022 Caps will continue to apply to all multifamily business, have no exclusions and mandate that 50% be directed towards mission driven, affordable housing.

The FHFA will also require at least 25% be affordable to residents at or below 60% of area median income for 2022, up from 20% in 2021.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.

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Changes in Financial Condition

Assets — Comparison of balances at June 30, 2021 to December 31, 2020:

Our Structured loan and investment portfolio balance was $7.39 billion and $5.48 billion at June 30, 2021 and December 31, 2020, respectively.

Assets — Comparison of balances at September 30, 2021 to December 31, 2020:

Our Structured loan and investment portfolio balance was $9.17 billion and $5.48 billion at September 30, 2021 and December 31, 2020, respectively.

This increase was primarily due to loan originations exceeding loan payoffs and paydowns by $3.94 billion.

See below for details.

Our portfolio had a weighted average current interest pay rate of 4.85% and 5.23% at June 30, 2021 and December 31, 2020, respectively.

Including certain fees earned and costs associated with the structured portfolio, the weighted average current interest rate was 5.33% and 5.80% at June 30, 2021 and December 31, 2020, respectively.

Advances on our financing facilities totaled $6.41 billion and $4.92 billion at June 30, 2021 and December 31, 2020, respectively, with a weighted average funding cost of 2.44% and 2.64%, respectively, which excludes financing costs.

Including financing costs, the weighted average funding rate was 2.79% and 3.03% at June 30, 2021 and December 31, 2020, respectively.

Our portfolio had a weighted average current interest pay rate of 4.56% and 5.23% at September 30, 2021 and December 31, 2020, respectively.

Including certain fees earned and costs associated with the structured portfolio, the weighted average current interest rate was 4.97% and 5.80% at September 30, 2021 and December 31, 2020, respectively.

Advances on our financing facilities totaled $8.58 billion and $4.92 billion at September 30, 2021 and December 31, 2020, respectively, with a weighted average funding cost of 2.32% and 2.64%, respectively, which excludes financing costs.

Including financing costs, the weighted average funding rate was 2.64% and 3.03% at September 30, 2021 and December 31, 2020, respectively.

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

Three Months Ended

Six Months Ended

June 30, 2021

Nine Months Ended

September 30, 2021

Loans originated (1)

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Weighted average interest rate

(1) During the three and six months ended June 30, 2021, we committed to fund one and four SFR build-to-rent bridge loans totaling $40.0 million and $138.4 million, respectively.

(1) During the three and nine months ended September 30, 2021, we committed to fund one and five SFR build-to-rent bridge loans totaling $17.6 million and $156.0 million, respectively.

Loans paid-off / paid-down

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Number of loans

Loans held-for-sale from the Agency Business decreased $529.3 million, primarily from loan sales exceeding originations by $613.0 million as noted in the following table (in thousands).

Loans held-for-sale from the Agency Business increased $287.3 million, primarily from loan originations exceeding sales by $184.3 million as noted in the following table (in thousands).

Loan sales includes $104.5 million of fixed rate SFR permanent loans that are now recorded through the Agency Business beginning in the first quarter of 2021, see Note 3 and 4 for details, and $449.9 million of Private Label loans which were sold in connection with a Private Label multifamily mortgage loan securitization in the second quarter of 2021.

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Three Months Ended

Six Months Ended

June 30, 2021

Nine Months Ended

September 30, 2021

Private Label

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

At June 30, 2021, the weighted average estimated life remaining of our MSRs was 8.6 years.

At September 30, 2021, the weighted average estimated life remaining of our MSRs was 8.5 years.

Securities held-to-maturity increased $17.2 million, primarily due to the purchase, at a discount, of APL certificates in connection with a Private Label securitization.

Investments in equity affiliates increased $17.6 million, primarily due to income from our investment in a residential mortgage banking business of $32.7 million, partially offset by $23.4 million in cash distributions received from the same investment.

Liabilities – Comparison of balances at June 30, 2021 to December 31, 2020:

Credit and repurchase facilities decreased $219.7 million, primarily due to loan sales exceeding originations in our Agency Business as described above, partially offset by funding of new structured loan activity.

Collateralized loan obligations increased $966.8 million, primarily due to the issuances of two new CLOs, where we issued $1.33 billion of notes to third party investors, partially offset by the unwind of a CLO totaling $356.2 million.

Senior unsecured notes increased $173.2 million, primarily due to our issuance of $175.0 million of 5.00% notes.

Due to borrowers decreased $20.9 million, primarily due to the release of unfunded loan originations in our Structured Business, partially offset by funds held on new originations.

In addition, we entered into two new equity investments during the third quarter of 2021 totaling $6.4 million.

See Note 8 for details.

Other assets increased $30.9 million, primarily due to increases in current tax assets, interest receivables from portfolio growth and the fair value of our Swaps.

Liabilities – Comparison of balances at September 30, 2021 to December 31, 2020:

Credit and repurchase facilities increased $1.16 billion, primarily due to funding of new structured loan activity.

Collateralized loan obligations increased $2.20 billion, primarily due to the issuances of three new CLOs, where we issued $2.57 billion of notes to third party investors, partially offset by the unwind of a CLO totaling $356.2 million.

Senior unsecured notes increased $439.7 million, primarily due to our issuances of $270.0 million of 4.50% notes and $175.0 million of 5.00% notes.

Other liabilities increased $57.5 million, primarily due to increases in accrued compensation, deferred tax liabilities, good faith deposits on new loan originations and the fair value of our rate lock and forward sale commitments.

In August 2021, we completed a public offering of 5,750,000 shares of 6.25% Series E cumulative redeemable preferred stock with a liquidation preference of $25.00 per share, generating net proceeds of approximately $139.1 million after deducting the underwriting discount and other offering expenses.

In June 2021, we completed a public offering of 9,200,000 shares of 6.375% Series D cumulative redeemable preferred stock with a liquidation preference of $25.00 per share, generating net proceeds of $222.6 million after deducting the underwriting discount and other offering expenses.

We used $93.3 million of the proceeds to fully redeem our Series A, B and C preferred stock.

During the first half of 2021, we sold 19,422,879 shares of our common stock through two public offerings and our “At-The-Market” agreement, raising net proceeds totaling $328.0 million.

During the nine months ended September 30, 2021, we sold 20,222,879 shares of our common stock through two public offerings and our “At-The-Market” agreement, raising net proceeds totaling $342.6 million.

We used $44.6 million of the net proceeds to purchase a total of 2,608,400 of common stock and OP Units from certain executive officers of ours, ACM and its members and an estate planning family vehicle established by our chief executive officer.

Distributions – Dividends declared (on a per share basis) for the six months ended June 30, 2021 are as follows:

Preferred Stock

Declaration Date

February 17, 2021

February 1, 2021

April 30, 2021

(1) The dividend declared on April 30, 2021 was for March 1, 2021 through May 31, 2021 and the dividend declared on February 1, 2021 was for December 1, 2020 through February 28, 2021.

As mentioned above, we used a portion of the proceeds from our Series D preferred stock to fully redeem our Series A, B and C preferred stock in June 2021.

Common Stock – On July 28, 2021, the Board of Directors declared a cash dividend of $0.35 per share of common stock.

The dividend is payable on August 31, 2021 to common stockholders of record as of the close of business on August 16, 2021.

Preferred Stock – On July 2, 2021, the Board of Directors declared a cash dividend of $0.256771 per share of 6.375% Series D preferred stock, which reflects dividends from June 2, 2021 through July 29, 2021 and are payable on July 30, 2021 to preferred stockholders of record on July 15, 2021.

Deferred Compensation

During the first quarter of 2021, we issued 257,726 shares of restricted common stock to our employees and 27,864 shares of common stock to the independent members of the Board of Directors.

We also withheld 140,744 shares of restricted common stock from employees to net settle and pay withholding taxes on shares that vested.

Additionally, 448,980 shares of performance-based restricted stock units previously granted to our chief executive officer fully vested and were net settled for 229,083 common shares.

See Note 15 for details.

See Note 15 for the details of our dividends declared and our deferred compensation transactions during the nine months ended September 30, 2021.

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):

June 30, 2021

September 30, 2021

Delinquencies

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

As of June 30, 2021 and December 31, 2020, delinquent loans totaled $100.8 million and $91.3 million, respectively, of which $26.5 million and $19.6 million, respectively, were in the foreclosure process.

No loans were in bankruptcy as of June 30, 2021 and December 31, 2020.

As of September 30, 2021 and December 31, 2020, delinquent loans totaled $86.1 million and $91.3 million, respectively, of which $36.3 million and $19.6 million, respectively, were in the foreclosure process.

No loans were in bankruptcy as of September 30, 2021 and December 31, 2020.

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.

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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 10.

Comparison of Results of Operations for the Three Months Ended June 30, 2021 and 2020

Comparison of Results of Operations for the Three Months Ended September 30, 2021 and 2020

The following table provides our consolidated operating results ($ in thousands):

Three Months Ended June 30,

Three Months Ended September 30,

Increase / (Decrease)

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Total other expenses

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

Loss on extinguishment of debt

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

Loss on sale of real estate

Income from equity affiliates

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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):

Three Months Ended June 30,

Three Months Ended September 30,

Structured Business interest-earning assets:

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The increase in interest expense was mainly due to a $15.6 million increase from our Structured Business, primarily due to an increase in the average balance of our interest-bearing liabilities, due to growth in our loan portfolio and the issuance of additional unsecured debt.

This was partially offset by a decrease in the average cost of our interest-bearing liabilities, mainly from decreases in LIBOR and the recent issuance of CLOs at lower rates.

This was partially offset by a decrease in the average cost of our interest-bearing liabilities, mainly from decreases in LIBOR, the recent issuance of CLOs at lower rates and more favorable terms on warehouse debt.

Agency Business Revenue

The increase in gain on sales, including fee-based services, net was primarily due to a 109% increase in the sales margin (fee-based services as a percentage of loan sales) from 1.32% to 2.76% as a result of higher margins on Private Label loan sales, partially offset by a 26% decrease ($510.8 million) in loan sales volume.

The decrease in income from MSRs was primarily due to an 18% decrease in the MSR rate (income from MSRs as a percentage of loan commitment volume) from 2.69% to 2.20%.

The decrease in the MSR rate was primarily due to a lower mix of Fannie Mae loan commitments, which carry a higher servicing fee, in the second quarter of 2021, as compared to the second quarter of 2020.

Other Revenue

The losses on derivative instruments were primarily from our Agency Business and reflect losses recognized on our Swap Futures held in connection with our Private Label loans.

The decrease in gain on sales, including fee-based services, net was primarily due to a 17% decrease ($212.5 million) in loan sales volume.

The sales margin (fee-based services as a percentage of loan sales) of 1.62% this quarter was consistent with the prior year period sales margin of 1.63%.

The decrease in income from MSRs was primarily due to a 37% decrease in the MSR rate (income from MSRs as a percentage of loan commitment volume) from 2.77% to 1.75%, partially offset by a 21% increase ($327.9 million) in loan commitment volume.

The decrease in the MSR rate was primarily due to lower Fannie Mae loan commitments, which carry a higher servicing fee, and a decrease in the average servicing fee on FHA loan commitments.

The increase in servicing revenue, net was primarily due to the growth in our servicing portfolio.

Other Expenses

The increase in employee compensation and benefits expense was primarily due to increases in headcount and incentive compensation as a result of the portfolio growth in both business segments, as well as commissions in our Agency Business in connection with higher margins on Private Label loan sales.

The increase in selling and administrative expenses was primarily due to an increase in legal costs in our Structured Business and higher rent expense in both business segments.

The decreases in both provision for credit losses and provision for loss sharing were primarily due to the reversal of CECL reserves in our Structured Business and lower CECL reserves in our Agency Business, both in connection with improved market conditions and expected future forecasts.

Loss on Extinguishment of Debt

The loss on extinguishment of debt of $1.6 million in the second quarter of 2020 relates to the loss recognized in connection with the unwind of the Luxembourg commercial real estate debt fund (“Debt Fund”).

The increase in employee compensation and benefits expense was primarily due to increases in headcount and incentive compensation as a result of the portfolio growth in both business segments.

The increase in selling and administrative expenses was primarily due to higher rent expense, consulting fees and travel expenses in both business segments, partially offset by a decrease in legal costs in our Structured Business as a result of a $2.5 million litigation settlement related to a hotel property that we sold in the third quarter of 2020.

We recorded net reversals this quarter in both our provision for loss sharing and provision for credit losses primarily due to improved market conditions and expected future forecasts in our CECL models for both business segments.

Loss on Sale of Real Estate

The loss recorded in the third quarter of 2020 was from the hotel property we sold in September 2020.

Income from Equity Affiliates

Income from equity affiliates in the second quarter of 2021 and 2020 primarily reflects income from our investment in a residential mortgage banking business of $4.8 million and $20.9 million, respectively.

The income from this investment was driven by the strength in the residential housing market during COVID-19.

Income from equity affiliates in the third quarter of 2021 and 2020 primarily reflects income from our investment in a residential mortgage banking business of $5.4 million and $32.3 million, respectively.

The income from this investment was driven by the historically low interest rates and strength in the residential housing market during COVID-19.

Provision for Income Taxes

In the three months ended June 30, 2021, we recorded a tax provision of $11.0 million, which consisted of a current tax provision of $11.0 million and a deferred tax benefit of less than $0.1 million.

In the three months ended June 30, 2020, we recorded a tax provision of $12.1 million, which consisted of a deferred tax provision of $10.9 million and a current tax provision of $1.2 million.

In the three months ended September 30, 2021, we recorded a tax provision of $9.9 million, which consisted of current and deferred tax provisions of $3.6 million and $6.3 million, respectively.

In the three months ended September 30, 2020, we recorded a tax provision of $17.8 million, which consisted of current and deferred tax provisions of $13.9 million and $3.9 million, respectively.

The decrease in the tax provision was primarily due to lower income generated from our investment in a residential banking business and a decrease in the pre-tax income from our Agency Business.

Preferred Stock Dividends

The increase in preferred stock dividends was due primarily to the recognition of $3.5 million of previously deferred issuance costs in connection with the redemption of our Series A, B and C preferred stock in June 2021 and the issuance in May 2021 of our Series D preferred stock, which included a significantly larger number of shares.

The increase in preferred stock dividends was due to the issuances of our Series D and E preferred stock, which included a significantly larger number of shares than our Series A, B and C preferred stock that were redeemed in the second quarter of 2021.

Net Income Attributable to Noncontrolling Interest

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

There were 16,352,233 OP Units and 20,369,265 OP Units outstanding as of June 30, 2021 and 2020, respectively, which represented 10.3% and 15.4% of our outstanding stock at June 30, 2021 and 2020, respectively.

Comparison of Results of Operations for the Six Months Ended June 30, 2021 and 2020

There were 16,325,095 OP Units and 17,632,371 OP Units outstanding as of September 30, 2021 and 2020, respectively, which represented 10.2% and 13.2% of our outstanding stock at September 30, 2021 and 2020, respectively.

Comparison of Results of Operations for the Nine Months Ended September 30, 2021 and 2020

The following table provides our consolidated operating results ($ in thousands):

Six Months Ended June 30,

Nine Months Ended September 30,

Increase / (Decrease)

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Total other expenses

Income (loss) before extinguishment of debt, sale of real estate, 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

Gain on sale of real estate

Gain (loss) on sale of real estate

Income from equity affiliates

(Provision for) benefit from income taxes

Net income (loss)

Provision for income taxes

Preferred stock dividends

Net income (loss) attributable to noncontrolling interest

Net income (loss) attributable to common stockholders

Net income attributable to noncontrolling interest

Net income attributable to common stockholders

nm — not meaningful

Six Months Ended June 30,

Nine Months Ended September 30,

Structured Business interest-earning assets:

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Net Interest Income

The increase in interest income was due to a $26.9 million increase from our Structured Business, partially offset by a $2.3 million decrease from our Agency Business.

The increase from our Structured Business was primarily due to an increase in our average core interest-earning assets from loan originations exceeding loan runoff, partially offset by a decrease in the average yield on core interest-earning assets.

The decrease in the average yield was due to lower rates on originations as compared to loan runoff, a decrease in the average LIBOR and lower fees on early runoff.

The decrease from our Agency Business was primarily due to a decrease in the average loans held-for-sale as a result of loan sales exceeding originations, partially offset by an increase in the 10-year treasury note rate.

The decrease in interest expense was primarily due to a $3.6 million decrease from our Agency Business, primarily due to a lower average balance of our interest-bearing liabilities, due to a decrease in the average loans held-for-sale and the utilization of paydown features in certain credit facilities, and a lower average cost of our interest-bearing liabilities from decreases in LIBOR.

The increase in interest income was mainly due to a $66.2 million increase from our Structured Business, primarily due to an increase in our average core interest-earning assets from loan originations exceeding loan runoff, partially offset by a decrease in the average yield on core interest-earning assets.

The decrease in the average yield was due to lower rates on originations as compared to loan runoff and a decrease in the average LIBOR.

The increase in interest expense was mainly due to a $16.4 million increase from our Structured Business, primarily due to an increase in the average balance of our interest-bearing liabilities, due to growth in our loan portfolio and the issuance of additional unsecured debt.

Agency Business Revenue

The increase in gain on sales, including fee-based services, net was primarily due a 52% increase in the sales margin from 1.38% to 2.10% as a result of higher margins on Private Label loan sales and a 13% increase ($374.1 million) in loan sales volume.

The increase in income from MSRs was primarily due to an 8% increase in the MSR rate from 2.20% to 2.38%.

The increase in the MSR rate was primarily due to a larger mix of Fannie Mae loan commitments, which carry a higher servicing fee, in 2021, as compared to 2020.

The increase in gain on sales, including fee-based services, net was primarily due a 37% increase in the sales margin from 1.45% to 1.99%, as a result of higher margins on Private Label and SFR loan sales, and a 4% increase ($161.5 million) in loan sales volume.

The decrease in income from MSRs was primarily due to a 12% decrease in the MSR rate from 2.42% to 2.12%, largely offset by a 13% increase in loan commitment volume.

The decrease in the MSR rate was primarily due to lower Fannie Mae loan commitments, which carry a higher servicing fee.

The increase in servicing revenue, net was primarily due to the growth in our servicing portfolio.

Other Revenue

The losses on derivative instruments in both 2021 and 2020 were primarily from our Agency Business and were predominantly from losses recognized on our Swap Futures held in connection with our Private Label loans.

The losses on derivative instruments in both 2021 and 2020 were primarily from our Agency Business and were predominantly from losses recognized on our Swaps held in connection with our Private Label loans.

Other Expenses

The increase in selling and administrative expenses was primarily due to an increase in legal costs in our Structured Business and higher rent expense in both business segments.

The increase in selling and administrative expenses was primarily due to higher rent expense in both business segments.

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

We also recorded a $2.5 million litigation settlement related to a hotel property that we sold in the third quarter of 2020.

The decreases in both provision for loss sharing and provision for credit losses were primarily due to the reversal of CECL reserves in both business segments in connection with improved market conditions and expected future forecasts.

Loss on Extinguishment of Debt

The loss on extinguishment of debt in both periods was deferred financing fees recognized in connection with the unwind of CLOs, along with a loss recognized in connection with the unwind of the Debt Fund in 2020.

Gain on Sale of Real Estate

Gain (loss) on Sale of Real Estate

The gain recorded in 2021 was from the sale of a repurchased Fannie Mae loan.

The loss recorded in 2020 was from a hotel property we sold in September 2020.

Income from Equity Affiliates

Income from equity affiliates in 2021 and 2020 primarily reflects income from our investment in a residential mortgage banking business of $32.7 million and $56.1 million, respectively.

The income from this investment was driven by the strength in the residential housing market during COVID-19.

(Provision for) Benefit from Income Taxes

In the six months ended June 30, 2021, we recorded a tax provision of $23.5 million, which consisted of current and deferred tax provisions of $19.0 million and $4.5 million, respectively.

In the six months ended June 30, 2020, we recorded a tax benefit of $2.3 million, which consisted of a deferred tax benefit of $9.0 million and a current tax provision of $6.7 million.

The income from this investment was driven by the historically low interest rates and strength in the residential housing market during COVID-19.

Provision for Income Taxes

In the nine months ended September 30, 2021, we recorded a tax provision of $33.4 million, which consisted of current and deferred tax provisions of $22.7 million and $10.7 million, respectively.

In the nine months ended September 30, 2020, we recorded a tax provision of $15.5 million, which consisted of a current tax provision of $20.7 million and a deferred tax benefit of $5.2 million.

The increase in the tax provision was primarily due to an increase in pre-tax income from our Agency Business, partially offset by lower income generated from our investment in a residential banking business in 2021, compared to 2020.

Preferred Stock Dividends

Net Income (Loss) Attributable to Noncontrolling Interest

Net Income Attributable to Noncontrolling Interest

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

Liquidity and Capital Resources

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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 $6.41 billion in total structured debt outstanding at June 30, 2021.

We had approximately $8.58 billion in total structured debt outstanding at September 30, 2021.

Of this total, approximately $6.28 billion, or 73%, 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 $2.30 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 could 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 $26.04 billion agency servicing portfolio, which is mostly prepayment protected and generates approximately $119.0 million a year in recurring cash flow.

At June 30, 2021, we had $69.1 million of securities financed with $34.6 million of debt that was subject to margin calls related to changes in interest spreads.

While we expect to extend or renew all of our facilities as they mature, we cannot provide assurance that they will be extended or renewed on as favorable terms.

In addition to our ability to extend our warehouse and repurchase facilities, we have approximately $800 million in cash and available liquidity as well as other liquidity sources, including our $26.21 billion agency servicing portfolio, which is mostly prepayment protected and generates approximately $120 million per year in recurring cash flow.

At September 30, 2021, we had $65.1 million of securities financed with $32.2 million of debt that was subject to margin calls related to changes in interest spreads.

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

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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 $727.6 million during the six months ended June 30, 2021 and consisted primarily of net cash inflows of $582.5 million as a result of loan sales exceeding loan originations in our Agency Business and net income of $165.4 million.

Cash flows used in investing activities totaled $2.01 billion during the six months ended June 30, 2021.

Cash flows used in operating activities were $0.4 million during the nine months ended September 30, 2021 as net income of $251.4 million was substantially offset by net cash outflows of $227.9 million as a result of loan originations exceeding loan sales in our Agency Business, as well as certain other non-cash net income adjustments.

Cash flows used in investing activities totaled $3.76 billion during the nine months ended September 30, 2021.

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

Loan originations from our Structured Business totaling $2.81 billion, net of payoffs and paydowns of $773.2 million, resulted in net cash outflows of $2.04 billion.

Cash flows provided by financing activities totaled $1.21 billion during the six months ended June 30, 2021 and consisted primarily of net proceeds of $973.7 million from CLO activity, $725.5 million of proceeds from the issuance of common and preferred stock and senior unsecured notes, partially offset by net cash outflows of $217.3 million from debt facility activities (financed loan originations were greater than facility paydowns), $107.3 million of distributions to our stockholders and OP Unit holders and $89.3 million for the redemption of preferred stock.

Loan originations from our Structured Business totaling $5.17 billion, net of payoffs and paydowns of $1.35 billion, resulted in net cash outflows of $3.83 billion.

Cash flows provided by financing activities totaled $4.17 billion during the nine months ended September 30, 2021 and consisted primarily of net proceeds of $2.21 billion from CLO activity, net cash inflows of $1.17 billion from debt facility activities (financed loan originations were greater than facility paydowns) and $1.15 billion of proceeds from the issuance of common and preferred stock and senior unsecured notes, partially offset by $161.4 million of distributions to our stockholders and OP Unit holders and $92.8 million for the redemption of preferred stock.

Agency Business Requirements.

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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 June 30, 2021.

Our adjusted net worth and operational liquidity exceeded the agencies' requirements as of September 30, 2021.

Our restricted liquidity and purchase and loss obligations were satisfied with letters of credit totaling $50.0 million and $17.0 million of cash collateral.

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

June 30, 2021

September 30, 2021

Debt Instruments

Structured Business

Credit facilities and repurchase agreements

Credit and repurchase facilities

Collateralized loan obligations (3)

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Agency Business

Credit facilities and repurchase agreements (4)

Credit and repurchase facilities (4)

Consolidated total

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(2) See Note 13 for a breakdown of debt maturities by year.

(3) Maturity dates represent the weighted average remaining maturity based on the underlying collateral as of June 30, 2021.

(3) Maturity dates represent the weighted average remaining maturity based on the underlying collateral as of September 30, 2021.

(4) The ASAP agreement we have with Fannie Mae has no expiration date.

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Quarter Ended

September 30, 2021

June 30, 2021

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September 30, 2020

June 30, 2020

Our debt facilities, including their restrictive covenants, are described in Note 9.

Off-Balance Sheet Arrangements.

At June 30, 2021, we had no off-balance sheet arrangements.

At September 30, 2021, we had no off-balance sheet arrangements.

Contractual Obligations.

During the six months ended June 30, 2021, the following significant changes were made to our contractual obligations disclosed in our 2020 Annual Report:

(1) closed CLO XV issuing $674.4 million of investment grade notes (2) closed CLO XIV issuing $655.5 million of investment grade notes;

(3) unwound CLO IX redeeming $356.2 million of outstanding notes;

During the nine months ended September 30, 2021, the following significant changes were made to our contractual obligations disclosed in our 2020 Annual Report:

(1) closed three CLOs issuing $2.57 billion of investment grade notes;

(2) unwound a CLO redeeming $356.2 million of outstanding notes;

(3) issued $270.0 million of 4.50% senior unsecured notes;

(4) issued $175.0 million of 5.00% senior unsecured notes;

and (5) entered into new and modified existing debt facilities.

Refer to Note 13 for a description of our debt maturities by year and unfunded commitments as of June 30, 2021.

Refer to Note 13 for a description of our debt maturities by year and unfunded commitments as of September 30, 2021.

Derivative Financial Instruments

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Please refer to Note 2 of the Notes to Consolidated Financial Statements in our 2020 Annual Report for a discussion of our critical accounting policies.

During the six months ended June 30, 2021, there were no material changes to these policies.

During the nine months ended September 30, 2021, there were no material changes to these policies.

Non-GAAP Financial Measures

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

Three Months Ended June 30,

Six Months Ended June 30,

Net income (loss) attributable to common stockholders

Net income (loss) attributable to noncontrolling interest

Three Months Ended September 30,

Nine Months Ended September 30,

Net income attributable to common stockholders

Net income attributable to noncontrolling interest

Income from mortgage servicing rights

Deferred tax (benefit) provision

Deferred tax provision (benefit)

Amortization and write-offs of MSRs

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Provision for credit losses, net

(Gain) loss on derivative instruments, net

Loss on derivative instruments, net

Stock-based compensation

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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-Q

Item 2. Management’s Discussion and Analysis