CLAROS MORTGAGE TRUST, INC. Management’s description and analysis of its financial condition and results of operations. (Form 10-Q) | Market Screener

The following discussion should be read in conjunction with our unaudited
consolidated financial statements and notes thereto appearing elsewhere in this
quarterly report on Form 10-Q. References herein to "Claros Mortgage Trust,"
"Company", "we", "us" or "our" refer to Claros Mortgage Trust, Inc. and its
subsidiaries unless the context specifically require otherwise.



              CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS



We make forward-looking statements herein and will make forward-looking
statements in future filings with the SEC, press releases or other written or
oral communications within the meaning of Section 27A of the Securities Act of
1933, as amended (the "Securities Act"), and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). For these statements, we
claim the protections of the safe harbor for forward-looking statements
contained in such Sections. Forward-looking statements are subject to
substantial risks and uncertainties, many of which are difficult to predict and
are generally beyond our control. These forward-looking statements include
information about possible or assumed future results of our business, financial
condition, liquidity, results of operations, plans and objectives. When we use
the words "believe," "expect," "anticipate," "estimate," "plan," "continue,"
"intend," "should," "may" or similar expressions, it intends to identify
forward-looking statements. Statements regarding the following subjects, among
others, may be forward-looking: the macro- and micro-economic impact of the
COVID-19 pandemic on our financial condition, results of operations, liquidity
and capital resources; market trends in our industry, interest rates, real
estate values, the debt securities markets or the general economy; the demand
for commercial real estate loans; our business and investment strategy; our
operating results; actions and initiatives of the U.S. government and
governments outside of the United States, changes to government policies and the
execution and impact of these actions, initiatives and policies; the state of
the economy generally or in specific geographic regions; economic trends and
economic recoveries; our ability to obtain and maintain financing arrangements,
including secured debt arrangements and securitizations; the timing and amount
of expected future fundings of unfunded commitments; the availability of debt
financing from traditional lenders; the volume of short-term loan extensions;
the demand for new capital to replace maturing loans; expected leverage; general
volatility of the securities markets in which we participate; changes in the
value of our assets; the scope of our target assets; interest rate mismatches
between our target assets and any borrowings used to fund such assets; changes
in interest rates and the market value of our target assets; changes in
prepayment rates on our target assets; effects of hedging instruments on our
target assets; rates of default or decreased recovery rates on our target
assets; the degree to which hedging strategies may or may not protect us from
interest rate volatility; impact of and changes in governmental regulations, tax
law and rates, accounting, legal or regulatory issues or guidance and similar
matters; our continued maintenance of our qualification as a REIT for U.S.
federal income tax purposes; our continued exclusion from registration under the
Investment Company Act of 1940, as amended (the "1940 Act"); the availability of
opportunities to acquire commercial mortgage-related, real estate-related and
other securities; the availability of qualified personnel; estimates relating to
our ability to make distributions to our stockholders in the future; our present
and potential future competition; and unexpected costs or unexpected
liabilities, including those related to litigation.

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

Introduction

We are a CRE finance company focused primarily on originating senior and
subordinate loans on transitional CRE assets located in major U.S. markets,
including mortgage loans secured by a first priority or subordinate mortgage on
transitional CRE assets, and subordinate loans including mezzanine loans secured
by a pledge of equity ownership interests in the direct or indirect property
owner rather than directly in the underlying commercial properties. These loans
are subordinate to a mortgage loan but senior to the property owner's equity
ownership interests. Transitional CRE assets are properties that require
repositioning, renovation, rehabilitation, leasing, development or redevelopment
or other value-added elements in order to maximize value. We believe our
Sponsor's real estate development, ownership and operations experience and
infrastructure differentiates us in lending on these transitional CRE assets.
Our objective is to be a premier provider of debt capital for transitional CRE
assets and, in doing so, to generate attractive risk-adjusted returns for our
stockholders over time, primarily through dividends. We strive to create a
diversified investment portfolio of CRE loans that we generally intend to hold
to maturity. We focus primarily on originating loans ranging from $50 million to
$300 million on transitional CRE assets located in major markets with attractive
fundamental characteristics supported by macroeconomic tailwinds.

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We were organized as a Maryland corporation on April 29, 2015 and commenced
operations on August 25, 2015, and are traded on the New York Stock Exchange, or
NYSE, under the symbol "CMTG". We have elected and believe we have qualified to
be taxed as a REIT for U.S. federal income tax purposes commencing with our
taxable year ended December 31, 2015. We are externally managed and advised by
our Manager, an investment adviser registered with the SEC pursuant to the
Investment Advisers Act of 1940, as amended. We operate our business in a manner
that permits us to maintain our exclusion from registration under the 1940 Act.

I. Key Financial Metrics and Indicators


As a CRE finance company, we believe the key financial measures and indicators
for our business are net income per share, dividends declared per share,
Distributable Earnings per share, book value per share, adjusted book value per
share, Net Debt-to-Equity Ratio and Total Leverage Ratio. During the three
months ended September 30, 2022, we had net income per share of $0.30,
Distributable Earnings per share of $0.33, and declared dividends of $0.37 per
share. As of September 30, 2022, our book value per share was $17.96, our
adjusted book value per share was $18.58, our Net-Debt-to-Equity Ratio was 2.0x,
and our Total Leverage Ratio was 2.4x. We use Net Debt-to-Equity Ratio and Total
Leverage Ratio, financial measures which are not prepared in accordance with
GAAP, to evaluate our financial leverage, which in the case of our Total
Leverage Ratio, makes certain adjustments that we believe provide a more
conservative measure of our financial condition.

Net income per share and declared dividend per share


The following table sets forth the calculation of basic and diluted net income
per share and dividends declared per share ($ in thousands, except share and per
share data):


                                                               Three Months Ended
                                                        September 30,
                                                             2022          June 30, 2022
Basic and diluted earnings                              $       41,272    

$62,404
Weighted average number of common, basic and diluted shares outstanding

                                          139,430,153      

139,637,949

Basic and diluted net income per share of common
stock                                                   $         0.30     $         0.45
Dividends declared per share of common stock            $         0.37     $         0.37




Distributable Earnings

Distributable Earnings is a non-GAAP measures used to evaluate our performance
excluding the effects of certain transactions, non-cash items and GAAP
adjustments, as determined by our Manager, that we believe are not necessarily
indicative of our current performance and operations. Distributable Earnings is
a non-GAAP measure, which we define as net income as determined in accordance
with GAAP, excluding (i) non-cash stock-based compensation expense (income),
(ii) real estate depreciation and amortization, (iii) any unrealized gains or
losses from mark-to-market valuation changes (other than permanent impairments)
that are included in net income for the applicable period, (iv) one-time events
pursuant to changes in GAAP and (v) certain non-cash items, which in the
judgment of our Manager, should not be included in Distributable Earnings.
Pursuant to the Management Agreement, we use Core Earnings, which is
substantially the same as Distributable Earnings excluding incentive fees, to
determine the incentive fees we pay our Manager. Distributable Earnings is
substantially the same as Core Earnings, as defined in the Management Agreement,
for the periods presented.

Distributable Earnings, and other similar measures, have historically been a
useful indicator of a mortgage REITs' ability to cover its dividends, and to
mortgage REITs themselves in determining the amount of any dividends.
Distributable Earnings is a key factor, among others, considered by the Board in
setting the dividend and as such we believe Distributable Earnings is useful to
investors. Accordingly, we believe providing Distributable Earnings on a
supplemental basis to our net income as determined in accordance with GAAP is
helpful to our stockholders in assessing the overall performance of our
business.

We believe that Distributable Earnings provides meaningful information to
consider in addition to our net income and cash flows from operating activities
determined in accordance with GAAP. We believe Distributable Earnings helps us
to evaluate our performance excluding the effects of certain transactions,
non-cash items and GAAP adjustments, as determined by our Manager, that we
believe are not necessarily indicative of our current performance and
operations. Distributable Earnings does not represent net income or cash flows
from operating activities and should not be considered as an alternative to GAAP
net income, an indication of our cash flows from operating activities, a measure
of our liquidity or an indication of funds available for our cash needs. In
addition, our methodology for calculating Distributable Earnings may differ from
the methodologies employed by other companies to calculate the same or similar
supplemental performance measures and, accordingly, our reported Distributable
Earnings may not be comparable to the Distributable Earnings reported by other
companies.

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While Distributable Earnings excludes the impact of our unrealized current
provision for credit losses, loan losses are charged off and recognized through
Distributable Earnings when deemed non-recoverable. Non-recoverability is
determined (i) upon the resolution of a loan (i.e. when the loan is repaid,
fully or partially, or in the case of foreclosure, when the underlying asset is
sold), or (ii) with respect to any amount due under any loan, when such amount
is determined to be non-collectible. During the three months ended September 30,
2022, we recorded a $2.4 million increase in the CECL reserve, which has been
excluded from Distributable Earnings.

In determining distributable earnings per share, the dilutive effect of unvested
RSUs are considered. The weighted-average diluted shares outstanding used for
Distributable Earnings has been adjusted from weighted-average diluted shares
under GAAP to include unvested RSUs.

The table below summarizes the reconciliation from weighted-average diluted
shares under GAAP to the weighted-average diluted shares used for Distributable
Earnings:

                                                    Three Months Ended
Weighted-Averages                          September 30, 2022      June 30, 2022
Diluted Shares - GAAP                              139,430,153        139,637,949
Unvested RSUs                                        2,159,280            407,565
Diluted Shares - Distributable Earnings            141,589,433        140,045,514




The following table provides a reconciliation of net income attributable to
common stock to Distributable Earnings ($ in thousands, except share and per
share data):

                                                         Three Months Ended
                                             September 30, 2022         June 30, 2022
Net income attributable to common stock:    $             42,071     $      

63,234

Adjustment:

Non-cash stock-based compensation expense                  3,426            

604

Provision for current expected credit
loss reserve                                               2,352            

8,530

Depreciation expense                                       2,064            

1,998

Unrealized gain on interest rate cap                      (2,776 )                (2,837 )
Distributable Earnings prior to principal
charge-offs                                 $             47,137     $            71,529
Principal charge-offs                                          -                 (11,500 )
Distributable Earnings                      $             47,137     $            60,029
Weighted average diluted shares -
Distributable Earnings                               141,589,433            

140,045,514

Diluted Distributable Earnings per share
prior to principal charge-offs              $               0.33     $      

0.51

Diluted Distributable Earnings per share    $               0.33     $              0.43




Book Value Per Share

We believe that presenting book value per share adjusted for the general
allowance for loan losses and accumulated depreciation is useful for investors
as it enhances the comparability across the industry. We believe that our
investors and lenders consider book value excluding these items as an important
metric related to our overall capitalization.

The following table sets forth the calculation of our book value and our
adjusted book value per share ($ in thousands, except share and per share data):

                                                    September 30,
                                                         2022           December 31, 2021
Total Stockholders' Equity                          $    2,535,185     $         2,604,267
Non-controlling interest                                         -                 (37,636 )
Stockholders' Equity, net of non-controlling
interest                                            $    2,535,185     $    

2,566,631

Number of shares common stock outstanding and
RSUs                                                   141,129,778          

139,840,088

Book Value per share(1)                             $        17.96     $    

18.35

Add back: accumulated depreciation on real estate
owned                                                         0.09          

0.05

Add back: general CECL reserve                                0.53          

0.48

Adjusted Book Value per share                       $        18.58     $             18.88




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(1)

Calculated as (i) total shareholders’ equity less non-controlling interests divided by (ii) period-end common shares outstanding and RSUs.




II. Our Portfolio

The table below summarizes the current lending portfolio. September 30, 2022 (thousand dollars):


                                                                                       Weighted Average(2)
                                                                                                        Term to
                                                                                                         Fully
                                                                 Unpaid                                 Extended
                       Number of                                Principal         Yield to            Maturity (in
                         Loans         Loan Commitment(1)        Balance         Maturity(3)           years) (4)         LTV(5)
Senior and
subordinate loans              77     $          9,150,041     $ 7,380,506                 7.7 %                3.5           67.8 %



(1)
Loan commitment represents principal outstanding plus remaining unfunded loan
commitments.
(2)
Weighted averages are based on unpaid principal balance.
(3)
All-in yield represents the weighted average annualized yield to initial
maturity of each loan, inclusive of coupon, and fees received, based on the
applicable floating benchmark rate/floors (if applicable), in place as of
September 30, 2022.
(4)
Fully extended maturity assumes all extension options are exercised by the
borrower upon satisfaction of the applicable conditions.
(5)
LTV represents "loan-to-value" or "loan-to-cost", which is calculated as our
total loan commitment from time to time, as if fully funded, plus any financings
that are pari passu with or senior to our loan, divided by our estimate of
either (1) the value of the underlying real estate, determined in accordance
with our underwriting process (typically consistent with, if not less than, the
value set forth in a third-party appraisal) or (2) the borrower's projected,
fully funded cost basis in the asset, in each case as we deem appropriate for
the relevant loan and other loans with similar characteristics. Underwritten
values and projected costs should not be assumed to reflect our judgment of
current market values or project costs, which may have changed materially since
the date of origination. LTV is updated only in connection with a partial loan
paydown and/or release of collateral, material changes to expected project
costs, the receipt of a new appraisal (typically in connection with financing or
refinancing activity) or a change in our loan commitment. Totals represent
weighted average based on loan commitment, including non-consolidated senior
interests.


Portfolio activities and overview


The following table summarizes changes in unpaid principal balance within our
portfolio, for both our loans and for our interests in loans (i.e., loans in
which we have acquired an interest in a loan for which the transferor did not
account for the transaction as a sale under GAAP) for the three and nine months
ended September 30, 2022 ($ in thousands):

                                    Three Months Ended September 30, 2022                          Nine Months Ended September 30, 2022
                                                                                                                   Interests
                                                     Interests                                                      in Loans
                       Loans Receivable         in Loans Receivable           Total         Loans Receivable       Receivable         Total
Unpaid principal
balance, beginning
of period              $       7,139,571       $                   -       $ 7,139,571     $        6,441,238     $    161,566     $  6,602,804
Initial funding of
loans                            687,550                           -           687,550              1,996,086                -        1,996,086
Advances on loans                185,566                           -           185,566                480,777           17,080          497,857
Loan repayments                 (632,181 )                         -          (632,181 )           (1,410,075 )       (178,646 )     (1,588,721 )
Sale of loan
receivable                             -                           -                 -               (116,020 )              -         (116,020 )
Principal
charge-offs                            -                           -                 -                (11,500 )              -          (11,500 )
Total net fundings     $         240,935       $                   -       $   240,935     $          939,268     $   (161,566 )   $    777,702
Unpaid principal
balance, end of
period                 $       7,380,506       $                   -       $ 7,380,506     $        7,380,506     $          -     $  7,380,506






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The following table shows our individual loan investments based on their current outstanding principal balance. September 30, 2022 (thousand dollars):



                                                                           Unpaid                          Fully
                                                                         Principal        Carrying        Extended
Loan Number    Loan type    Origination Date    Loan Commitment(1)        Balance          Value        Maturity(2)    Property Type    Construction(4)   Location   Risk Rating
     1          Senior         12/16/2021                   405,000          396,420        393,600        6/16/2027    Multifamily            -             CA           3
     2          Senior         11/1/2019                    390,000          390,000        388,770        11/1/2026    Multifamily            -             NY           3
     3          Senior         6/13/2018                    280,000          280,000        280,983         8/1/2023    Hospitality            -             NY           3
     4          Senior         10/18/2019                   279,549          239,733        239,569       10/18/2024   For Sale Condo          Y             CA           3
     5          Senior         10/4/2019                    263,000          217,089        216,684        10/1/2025     Mixed-Use             Y             DC           3
     6          Senior         6/30/2022                    227,000          211,222        208,568        6/30/2029    Hospitality            -             CA           3
     7          Senior         12/27/2018                   210,000          207,548        207,548         2/1/2025     Mixed-Use             -             NY           4
     8          Senior         8/17/2022                    235,000          205,000        202,800        8/17/2027    Hospitality            -             CA           3
     9          Senior         7/21/2021                    225,000          200,529        199,143        7/26/2026    Hospitality            -             GA           3
    10          Senior          9/7/2018                    192,600          192,600        192,282       10/18/2024        Land               -             NY           3
    11          Senior         2/15/2022                    262,500          172,020        169,691        2/14/2027    Multifamily            Y             CA           3
    12          Senior         1/14/2022                    170,000          170,000        168,705        1/14/2027    Multifamily            -             CO           3
    13          Senior         4/14/2022                    193,400          166,700        165,061        4/14/2027    Multifamily            -             MI           3
    14          Senior         9/27/2019                    258,400          159,340        157,903        9/26/2026       Office              -             GA           4
    15          Senior         9/20/2019                    225,000          151,285        149,628       12/31/2025   For Sale Condo          Y             FL           3
    16          Senior         2/28/2019                    150,000          150,000        149,844        2/28/2024       Office              -             CT           3
    17          Senior          1/9/2018                    148,500          148,500        148,341         1/9/2024    Hospitality            -             VA           3
    18          Senior          9/8/2022                    160,000          148,500        146,945         9/8/2027    Multifamily            -             AZ           3
    19          Senior         12/30/2021                   147,500          147,500        147,144       12/30/2025    Multifamily            -             PA           3
    20          Senior          8/8/2019                    154,999          137,713        137,165         8/8/2026    Multifamily            -             CA           3
    21          Senior         4/14/2022                    151,698          133,059        131,453        4/26/2027    Multifamily            -             TX           3
    22          Senior         12/10/2021                   130,000          130,000        129,187       12/10/2026    Multifamily            -             VA           3
    23        Subordinate      12/9/2021                    125,000          125,000        124,740         1/1/2027       Office              -             IL           3
    24          Senior         9/23/2021                    127,535          122,535        121,637        9/24/2028    Hospitality            -             TX           3
    25          Senior         9/30/2019                    122,500          122,500        122,346         2/9/2027       Office              -             NY           3
    26          Senior         4/29/2019                    120,000          119,510        119,261        4/29/2024     Mixed-Use             -             NY           3
    27          Senior          3/1/2022                    122,000          118,600        117,714        2/28/2027    Multifamily            -             TX           3
    28          Senior          8/8/2022                    115,000          115,000        113,960         8/8/2027    Multifamily            -             CO           3
    29          Senior         7/20/2021                    113,500          113,500        113,178        7/19/2026    Multifamily            -             IL           3
    30          Senior         2/13/2020                    124,810          112,341        111,910        2/13/2025       Office              -             CA           4
    31          Senior         6/17/2022                    127,250          110,265        108,781        6/17/2027    Multifamily            -             TX           3
    32          Senior          6/8/2018                    104,250          104,250        105,342        1/15/2022        Land               -             NY           4
    33          Senior         12/15/2021                   103,000          103,000        102,319       12/13/2026    Multifamily            -             TN           3
    34          Senior         10/11/2017                    97,500           97,500         97,489       10/31/2023    Hospitality            -             CA           3
    35          Senior          8/2/2021                    100,000           95,969         95,398         8/2/2026       Office              -             CA           3
    36          Senior         1/27/2022                    100,800           95,633         94,918        1/27/2027    Multifamily            -             NV           3
    37          Senior          4/1/2020                    141,084           92,841         91,736         4/1/2026       Office              Y             TN           3




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                                                                           Unpaid                                 Fully
                                                                          Principal                              Extended

Loan number Loan type Origination date Loan commitment (1) Balance book value Maturity (2) Property type Construction (4) Location Risk rating

    38          Senior         3/31/2020                     87,750            87,750               87,750         2/9/2025       Office              -             TX           4
    39          Senior         6/13/2018                     76,499            76,499               73,748        7/10/2025    Hospitality            -             CA           4
    40          Senior          4/5/2019                     75,500            75,500               75,406         4/5/2024     Mixed-Use             -             NY           3
    41          Senior         12/14/2018                    75,000            75,000               74,961       12/14/2023    Multifamily            -             DC           3
    42          Senior          8/1/2022                    115,250            74,998               74,639        7/30/2026    Hospitality            Y             NY           3
    43          Senior         7/27/2022                     76,000            72,426               71,894        7/27/2027    Multifamily            -             UT           3
    44          Senior         8/26/2021                     84,810            69,869               69,252        8/27/2026       Office              -             GA           3
    45          Senior          8/2/2019                     67,000            67,000               67,000        1/30/2022        Land               -             NY           4
    46          Senior         12/22/2021                    76,350            64,097               63,483       12/22/2026    Multifamily            -             TX           3
    47          Senior         8/29/2018                     60,000            60,000               59,862        8/31/2023    Hospitality            -             NY           3
    48          Senior         3/22/2021                    148,303            57,160               56,106        3/22/2026       Other               Y             MA           3
    49          Senior         1/19/2022                     73,677            52,716               52,091        1/19/2027    Hospitality            -             TN           3
    50          Senior         11/2/2021                     77,115            52,647               51,967        11/2/2026    Multifamily            Y             FL           3
    51          Senior          6/3/2021                     79,600            52,560               51,966         6/3/2026       Other               -             MI           3
    52          Senior         3/15/2022                     53,300            49,844               49,415        3/15/2027    Multifamily            -             AZ           3
    53          Senior         12/30/2021                    44,661            44,661               44,391       12/30/2025   For Sale Condo          -             VA           3
    54          Senior         1/10/2022                    130,461            40,841               39,538         1/9/2027       Other               Y             PA           3
    55          Senior          2/4/2022                     44,768            38,002               37,628         2/4/2027    Multifamily            -             TX           3
    56        Subordinate      12/21/2018                    31,300            31,300               31,456        6/21/2022        Land               -             NY           3
    57          Senior         4/18/2019                     30,000            30,000               29,913         5/1/2023       Office              -             MA           3
    58        Subordinate       7/2/2021                     30,200            28,181               28,146         7/2/2024        Land               -             FL           3
    59          Senior         12/30/2021                   141,791            25,856               24,491       12/30/2026     Mixed-use             Y             FL           3
    60          Senior          2/2/2022                     90,000            24,122               23,225         2/2/2027       Office              Y             WA           3
    61          Senior         2/17/2022                     28,479            23,924               23,698        2/17/2027    Multifamily            -             TX           3
    62          Senior          8/2/2019                     20,660            20,660               20,861         2/2/2024   For Sale Condo          -             NY           3
    63          Senior         11/24/2021                    60,255            20,070               19,478       11/22/2026    Multifamily            Y             NV           3
   64(3)        Senior          4/9/2021                     17,500            17,500               17,668        4/29/2023        Land               -             PA           3
    65          Senior         1/31/2022                     34,641            12,667               12,332        1/31/2027       Other               Y             FL           3
    66          Senior          3/9/2018                     14,789            12,052               11,850        5/31/2023   For Sale Condo          -             NY           3
    67          Senior         6/30/2022                     48,500             7,614                7,137        6/30/2026       Other               Y             NV           3
    68          Senior          7/1/2019                      3,500             3,500                3,500       12/30/2020       Other               -             NY           5
   69(3)        Senior          5/5/2017                      2,838             2,838                2,838         1/1/2023       Other               -             DC           5
    70          Senior          1/4/2022                     32,795             2,396                2,069         1/4/2027       Other               Y             GA           3
    71        Subordinate       8/2/2018                        927               927                  907         7/9/2023       Other               -             NY           2
    72          Senior         2/18/2022                     32,083               913                  592        2/18/2027       Other               Y             FL           3
    73          Senior         4/19/2022                     23,378               689                  455        4/19/2027       Other               Y             GA           3
    74          Senior         2/25/2022                     53,984               525                  (15 )      2/25/2027       Other               Y             GA           3
    75          Senior         4/19/2022                     24,245                 -                 (242 )      4/19/2027       Other               Y             GA           3
    76          Senior         5/16/2022                    202,500                 -               (2,025 )      5/13/2027     Mixed-Use             Y             VA           3
    77          Senior          9/2/2022                    176,257                 -               (1,763 )       9/2/2027    Multifamily            Y             UT           3

 Total                                                    9,150,041         7,380,506            7,329,411
 CECL Allowance                                                                                    (59,188 )
 Grand Total/Weighted Average                             9,150,041         7,380,506            7,270,223                                          28.0%                       3.1



(1)
Loan commitment represents principal outstanding plus remaining unfunded loan
commitments.
(2)
Fully extended maturity assumes all extension options are exercised by the
borrower upon satisfaction of the applicable conditions.
(3)
Subsequent to September 30, 2022, this loan was repaid in full.
(4)
Weighted average is based on loan commitment as of September 30, 2022.

Real Estate Owned, Net


On February 8, 2021, we acquired legal title to a portfolio of hotel properties
located in New York, NY through a foreclosure. Prior to February 8, 2021, the
hotel portfolio represented the collateral for the $103.9 million mezzanine loan
that we held, which was in default as a result of the borrower failing to pay
debt service. The hotel portfolio appears as real estate owned, net on our
balance sheet and, as of September 30, 2022, was encumbered by a $290.0 million
securitized senior mortgage, which is included as a liability on our balance
sheet. Refer to Note 5 to our consolidated financial statements for additional
details.

Asset Management

Our Manager proactively manages the loans in our portfolio from closing to final
repayment and our Sponsor has dedicated asset management employees to perform
asset management services. Following the closing of an investment, the asset
management team rigorously monitors the loan, with an emphasis on ongoing
financial, legal, market condition and quantitative analyses. Through the final
repayment of a loan, the asset management team maintains regular contact with
borrowers, servicers and local market experts monitoring performance of the
collateral, anticipating borrower, property and market issues, and enforcing our
rights and remedies when appropriate.

From time to time, some of our borrowers may experience delays in the execution
of their business plans. As a transitional lender, we work with our borrowers to
execute loan modifications which typically include additional equity
contributions from borrowers, repurposing of reserves, temporary deferrals of
interest or principal, and partial deferral of coupon interest as
payment-in-kind interest.

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We have completed a number of loan modifications to date and may make further modifications depending on the borrower’s business plans, financial condition, liquidity and operating performance.


Our Manager reviews our entire loan portfolio at least quarterly, undertakes an
assessment of the performance of each loan, and assigns it a risk rating between
"1" and "5," from least risk to greatest risk, respectively. The weighted
average risk rating of our total loan exposure was 3.1 at September 30, 2022.

Current Expected Credit Losses

upon January 1, 2021, adopted ASU 2016-13, which introduced the CECL accounting model. After hiring $78.3 million Cumulative effect adjustment to retained earnings.


During the second quarter of 2022, we recorded a principal charge-off of $11.5
million against a loan made to the personal estate of a former borrower. Prior
to the charge-off, the loan had an unpaid principal balance $15.0 million and a
specific CECL reserve of $6.0 million, resulting in a carrying value of $9.0
million. Following the charge-off, the loan carrying value was $3.5 million,
which represents estimated collection. The loan is on non-accrual status and is
in maturity default.

During three months ended September 30, 2022, we recorded a provision of $2.4
million in the allowance for credit losses, bringing our total reserve to $75.0
million as of September 30, 2022.

In December 2021, we received a partial principal repayment of $81.7 million on
a senior loan with an outstanding principal balance of $95.0 million, and a
maturity date of May 31, 2021, and recorded a principal charge-off of $1.8
million. Following the repayment, the maturity date of the loan was extended to
January 1, 2023. As of September 30, 2022, the loan had an unpaid principal
balance of $2.8 million and a specific CECL reserve of $38,000. Subsequent to
September 30, 2022 this loan was repaid in full.

Portfolio finance

Our portfolio financing arrangements include repurchase schemes, asset-specific financing structures, mortgages on owned real estate, and secured term loan borrowings.


The following table summarizes our loan portfolio financing ($ in thousands):


                                                              September 30, 2022
                                                                                    Weighted
                                                                   Borrowing         Average
                                                  Capacity        Outstanding       Spread(1)
Repurchase agreements                            $ 4,700,000     $   3,781,687         + 2.16%
Repurchase agreements - Side Car                     271,171           212,033         + 4.51%
Loan participations sold                             264,252           264,252         + 3.77%
Notes payable                                        383,898           127,764         + 3.09%
Secured Term Loan                                    756,997           756,997         + 4.50%
Debt related to real estate owned                    290,000           290,000         + 2.78%
Total / weighted average                         $ 6,666,318     $   5,432,733         + 2.71%



(1)
Weighted average spread over the applicable benchmark is based on unpaid
principal balance. One-month LIBOR as of September 30, 2022 was 3.14%. One-month
term SOFR as of September 30, 2022 was 3.04%. Fixed rate loans are presented as
a spread over the relevant floating benchmark rates.

repurchase agreement


We finance certain of our loans using secured revolving repurchase facilities.
As of September 30, 2022, aggregate borrowings outstanding under our secured
revolving repurchase facilities totaled $4.0 billion, with a weighted average
coupon of one-month LIBOR or one-month term SOFR plus 2.29% per annum. All
weighted averages are based on unpaid principal balance. As of September 30,
2022, outstanding borrowings under these facilities had a weighted average term
to fully extended maturity (assuming we exercise all extension options and our
counterparty agrees to such extension options) of 3.7 years.


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Each of the secured revolving repurchase facilities contains "margin
maintenance" provisions, which are designed to allow the lender to require
additional collateral to secure borrowings against assets that are determined to
have experienced a diminution in value. Since inception through September 30,
2022, we have not received any margin calls under any of our repurchase
facilities.

Sold Loan Participation

The Company finances certain investments through the sale of participating rights in owned loans. To the extent such arrangements do not qualify as sales under GAAP, the Company presents the loan participation rights sold as liabilities on its Consolidated Balance Sheets. Funding is typically not cross-collateralized when participating in multiple loans with the same lender. Each loan participation right sold is generally matched to the corresponding loan collateral.Current September 30, 2022three of our loans were financed by loan participations that were sold.

payable memo


We finance certain investments on a match-term, non-recourse basis with such
financings collateralized by our loans receivable, which we refer to as notes
payable. Each of our notes payable is generally term-matched to its
corresponding loan collateral. As of September 30, 2022, four of our loans were
financed with notes payable.

Secured Term Loan

We have a secured term loan of $757.0 million which we originally entered into
on August 9, 2019. Our secured term loan is presented net of any original issue
discount and transaction expenses which are deferred and recognized as a
component of interest expense over the life of the loan using the effective
interest method.

On December 2, 2021, we entered into a modification of our secured term loan
which reduced the interest rate to the greater of (i) one-month term SOFR plus a
0.10% credit spread adjustment and (ii) 0.50%, plus a credit spread of 4.50%.
The secured term loan matures on August 9, 2026. As of September 30, 2022, our
secured term loan has an unpaid principal balance of $757.0 million and a
carrying value of $737.5 million.

Obligations related to owned real estate


On February 8, 2021 we assumed a $300.0 million securitized senior mortgage in
connection with a Uniform Commercial Code foreclosure on a portfolio of seven
limited service hotels located in New York, New York. In June 2021, we modified
the securitized senior mortgage, which resulted in an extension of the
contractual maturity date to February 9, 2024, a principal repayment of $10.0
million, and the payment of $7.6 million of fees and modification costs, among
other items. The securitized senior mortgage is non-recourse to us. Our debt
related to real estate owned as of September 30, 2022 has an outstanding
principal balance of $290.0 million, a carrying value of $289.3 million and a
stated rate of one-month LIBOR plus 2.78%, subject to a one-month LIBOR floor of
0.75%. See Derivatives below for further detail of our interest rate cap.

derivatives


As part of the agreement to amend the terms of our debt related to real estate
owned on June 2, 2021, we acquired an interest rate cap with a notional amount
of $290.0 million and a maturity date of February 15, 2024 for $275,000. The
fair value of the interest rate cap is $5.6 million at September 30, 2022.

The interest rate cap effectively limits the maximum interest rate of our debt
related to real estate owned to 5.78%. Increases or decreases in the fair value
of our interest rate cap are recorded as an unrealized gain or loss on interest
rate cap on our consolidated statements of operations and the fair value is
recorded in other assets on our consolidated balance sheets.

Acquired facility


On June 29, 2022, we entered into a $150.0 million full recourse credit
facility. The facility generally provides interim financing for eligible loans
for up to 180 days at an initial advance rate of 75%, which begins to decline
after the 90th day. The facility matures on June 29, 2025 and earns interest at
a rate of one-month term SOFR, plus a 0.10% credit spread adjustment, plus a
spread of 2.25%. With the consent of our lenders, and subject to certain
conditions, the commitment of the facility may be increased up to $500.0
million. As of September 30, 2022, the outstanding balance of the facility is
$0.

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Current September 30, 2022we complied with all financial covenants under the financing.

Single senior interests sold and single senior interests held by third parties


In certain instances, we use structural leverage through the non-recourse
syndication of a match-term senior loan interest to a third party which
qualifies for sale accounting under GAAP, or through the acquisition of a
subordinate loan for which a non-recourse senior interest is retained by a third
party. In such instances, the senior loan is not included on our consolidated
balance sheet.

The following table summarizes the Company’s current unconsolidated senior interests and related retained subordinated interests. September 30, 2022 (thousand dollars):


                                                                                                              Term to
                                                                                                               Fully
                                                                 Unpaid                                      Extended
Non-Consolidated Senior           Loan            Loan         Principal      Carrying                       Maturity
Interests                         Count        Commitment       Balance         Value       Spread(1)    (in years)(2)(3)
Floating rate
non-consolidated senior loans           2     $    111,000     $  107,014           N/A     L + 5.05%                  0.9
Retained floating rate
subordinate loans                       2           61,500         59,481        59,603     L + 11.57%                 0.8
Fixed rate non-consolidated
senior loans                            2     $    861,073     $  859,660           N/A       3.47%                    4.1
Retained fixed rate
subordinate loans                       2          125,927        125,927       125,647       8.49%                    4.2




(1)
Non-consolidated senior interests are indexed to one-month LIBOR, which was
3.14% at September 30, 2022. Weighted average is based on unpaid principal
balance.
(2)
Weighted average is based on unpaid principal balance.
(3)
Term to fully extended maturity is determined based on the maximum maturity of
each of the corresponding loans, assuming all extension options are exercised by
the borrower; provided, however, that our loans may be repaid prior to such
date.

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Floating and Fixed Rate Portfolios


Our business model seeks to minimize our exposure to changing interest rates by
originating floating rate loans and as much as possible, match-funding the
duration of our financing of such loans and using the same benchmark indices,
typically one-month LIBOR or one-month term SOFR. As of September 30, 2022,
97.8% of our loans based on unpaid principal balance were floating rate and the
majority of our floating rate loans were financed with liabilities that require
interest payments based on floating rates also determined by reference to
one-month LIBOR or one-month term SOFR plus a spread, which resulted in
approximately $1.8 billion of net floating rate exposure.

The following table details our net floating rate exposure as of September 30,
2022 ($ in thousands):


                                Net Floating
                              Rate Exposure(1)
Floating rate assets         $        7,215,529
Floating rate liabilities            (5,412,733 )

Net floating rate exposure $1,802,796

(1)

All of our variable rate loans and related liabilities are indexed to 1-month LIBOR or 1-month term SOFR. 1 month LIBOR September 30, 2022 was 3.14%. SOFR for 1-month period September 30, 2022 was 3.04%.



LIBOR and certain other floating rate benchmark indices to which our floating
rate loans and other loan agreements are tied to, are the subject of recent
national, international and regulatory guidance and proposals for reform. On
March 5, 2021, the Financial Conduct Authority of the United Kingdom, or the
FCA, which regulates. LIBOR's administrator, ICE Benchmark Administration
Limited, or IBA, announced that all LIBOR tenors relevant to us will cease to be
published or will no longer be representative after June 30, 2023 (and that all
other LIBOR tenors will cease to be published or will no longer be
representative either after December 31, 2021, or after June 30, 2023). The U.S.
Federal Reserve, in conjunction with the Alternative Reference Rates Committee,
a steering committee comprised of large U.S. financial institutions, has
identified the Secured Overnight Financing Rate, or SOFR, a new index calculated
using short-term repurchase agreements backed by Treasury securities, as its
preferred alternative rate for USD LIBOR.


Our contracts generally allow us to use a new interest rate index if LIBOR becomes unavailable. The Company has begun, and will continue to do so, to continue to utilize alternative interest rates referenced in contracts or to negotiate alternative reference rates for LIBOR.


We have an interest rate cap with a notional amount of $290.0 million and a
maturity date of February 15, 2024 on our debt related to real estate owned. The
interest rate cap effectively limits the maximum interest rate of our debt
related to real estate owned to 5.78%. We have not employed other interest rate
derivatives (interest rate swaps, caps, collars or swaptions) to hedge our loan
portfolio's cash flow or fair value exposure to increases in interest rates, but
we may do so in the future.

Operating Results – 3 Months End September 30, 2022 When June 30, 2022


As previously disclosed, beginning with our Quarterly Report on Form 10-Q for
the quarter ended September 30, 2021, and for all subsequent reporting periods,
we have elected to present results of operations by comparing to the immediately
preceding period, as well as the same year to date period in the prior year.
Given the dynamic nature of our business and the sensitivity to the real estate
and capital markets, we believe providing analysis of results of operations by
comparing to the immediately preceding period is more meaningful to our
stockholders in assessing the overall performance of our current business.

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business performance


The following table sets forth information regarding our consolidated results of
operations for the three months ended September 30, 2022, and June 30, 2022 ($
in thousands, except per share data):


                                                   Three Months Ended
                                         September 30, 2022       June 30, 2022      $ Change       % Change
Revenue
Interest and related income              $           126,520     $        98,993     $  27,527             28 %
Less: interest and related expense                    67,985              46,871        21,114             45 %
Net interest income                                   58,535              52,122         6,413             12 %
Revenue from real estate owned                        17,882              17,118           764              4 %
Total revenue                                         76,417              69,240         7,177             10 %
Expenses
Management fees - affiliate                            9,944               9,843           101              1 %
General and administrative expenses                    4,819               4,748            71              1 %
Stock-based compensation expense                       3,426                 604         2,822            467 %
Operating expenses on real estate
owned                                                 11,366              10,536           830              8 %
Interest expense from debt related to
real estate owned                                      3,903               2,719         1,184             44 %
Depreciation on real estate owned                      2,064               1,998            66              3 %
Total expenses                                        35,522              30,448         5,074             17 %
Realized gain on sale of loan                              -              30,090       (30,090 )         -100 %
Unrealized gain on interest rate cap                   2,776               2,837           (61 )           -2 %
Income from equity method investment                     929                   -           929            100 %
(Provision) reversal of current
expected credit loss reserve                          (2,352 )            (8,530 )       6,178            -72 %
Net income                               $            42,248     $        63,189     $ (20,941 )          -33 %
Net income (loss) attributable to
non-controlling interests                $               177     $           (45 )   $     222           -493 %
Net income attributable to common
stock                                    $            42,071     $        63,234     $ (21,163 )          -33 %
Net income per share of common stock -
basic and diluted                        $              0.30     $          0.45     $   (0.15 )          -33 %



Ended 3-month comparison September 30, 2022 When June 30, 2022

Earnings


Revenue increased $7.2 million during the three months ended September 30, 2022,
compared to the three months ended June 30, 2022. The increase is primarily due
to an increase in net interest income of $6.4 million for the comparative
period, which was driven by an increase in interest income earned of $27.5
million primarily as a result of reference rate increases, interest income
earned on new originations and follow on fundings, and accelerated OID
recognized during the third quarter of 2022, offset in part by an increase in
interest expense of $21.1 million primarily as a result of reference rate
increases and interest expense owed on new financings during the third quarter
of 2022. Additionally, the increase in revenue was driven by an increase in
revenue from real estate owned of $0.8 million due to higher occupancy during
the third quarter of 2022.

Expenses

Expenses are primarily comprised of base management fees payable to our Manager,
general and administrative expenses, stock-based compensation expense, operating
expenses from real estate owned, interest expense from debt related to real
estate owned, and depreciation on real estate owned. Expenses increased by $5.1
million during the three months ended September 30, 2022 as compared to the
three months ended June 30, 2022, primarily due to:

(i) an increase in stock based compensation expense of $2.8 million due to a
full quarter of stock-based compensation expense incurred on restricted stock
units granted in June of 2022;

(ii) increased interest expense on liabilities related to real estate owned;
$1.2 million Due to the increase in the reference rate in the third quarter of 2022.

(iii) increased operating expenses due to real estate holdings; $800,000due to an increase in variable operating expenses due to higher occupancy rates.

                                       44
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Gain on sale of loan

3 months ended June 30, 2022realized a gain on the sale of loans of $30.1 millionNo loans were sold in the three months ended
September 30, 2022.

Unrealized gains on interest rate caps


Unrealized gain on interest rate cap was $0.06 million lower during the
comparative period. The fair value of the interest rate cap generally continues
to increase as interest rates increase, offset in part by the impact of shorter
duration of the cap remaining.

Equity in earnings of affiliates


During the three months ended September 30, 2022, we recognized income from our
equity method investment of $0.9 million as a result of us accounting for our
investment in CMTG/TT as an equity method investment commencing in the third
quarter of 2022. We did not hold any equity method investments during the three
months ended June 30, 2022.

(Provisions) Reversal of current expected loan loss reserves


The provision for current expected credit loss reserves was $6.2 million lower
than the provision for current expected credit loss reserves during the
comparative period, due to a specific CECL reserve of $11.5 million on one loan
which was charged-off during the three months ended June 30, 2022. Additional
reserves of $2.4 million incurred during the three months ended September 30,
2022 relate primarily to the increase in the size of the portfolio and worsening
economic conditions.

Operating Results – 9 Months End September 30, 2022When September 30, 2021



The following table sets forth information regarding our consolidated results of
operations for nine months ended September 30, 2022 and 2021 ($ in thousands,
except per share data):


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                                                Nine Months Ended
                                         September 30,     September 30,
                                             2022               2021          $ Change       % Change
Revenue
Interest and related income              $     316,207     $      314,326     $   1,881              1 %
Less: interest and related expense             154,436            138,187        16,249             12 %
Net interest income                            161,771            176,139       (14,368 )           -8 %
Revenue from real estate owned                  41,813             15,620        26,193            168 %
Total revenue                                  203,584            191,759        11,825              6 %
Expenses
Management fees - affiliate                     29,594             29,152           442              2 %
General and administrative expenses             13,910              5,393         8,517            158 %
Stock-based compensation                         4,030               (376 )       4,406           1172 %
Operating expenses from real estate
owned                                           29,682             16,739        12,943             77 %
Interest expense on debt related to
real estate owned                                9,206             13,001        (3,795 )          -29 %
Depreciation on real estate owned                6,002              5,173           829             16 %
Total expenses                                  92,424             69,082        23,342             34 %
Realized gain on sale of loan                   30,090                  -        30,090            100 %
Unrealized gain on interest rate cap             5,613                  -         5,613            100 %
Gain on foreclosure of real estate
owned                                                -              1,430        (1,430 )         -100 %
Income from equity method investment               929                  -           929            100 %
Other income                                         -              5,855        (5,855 )         -100 %
(Provision) reversal of current
expected credit loss reserve                   (12,984 )           17,413       (30,397 )         -175 %
Income before income taxes                     134,808            147,375       (12,567 )           -9 %
Income tax benefit                                   -              6,025        (6,025 )         -100 %
Net income                               $     134,808     $      153,400     $ (18,592 )          -12 %
Net income (loss) attributable to
non-controlling interests                $          91     $         (118 )   $     209            177 %
Net income attributable to preferred
stock                                    $           -     $           12     $     (12 )         -100 %
Net income attributable to common
stock                                    $     134,717     $      153,506     $ (18,789 )          -12 %
Net income per share of common stock -
basic and diluted                        $        0.95     $         1.15     $   (0.20 )          -17 %



Comparison of the closed 9 months September 30, 2022 When September 30, 2021

Earnings


Revenue increased $11.8 million during the nine months ended September 30, 2022,
compared to the nine months ended September 30, 2021. The increase is primarily
due to an increase in revenue from real estate owned of $26.2 million due to
improved travel and demand at the hotel portfolio for the comparative period.
The increase was partially offset by a decrease in net interest income of $14.4
million for the comparative period, which was driven by an increase in interest
expense of $16.3 million, as a result of reference rate increases and increased
borrowing levels, offset in part by a increase in interest income of $1.9
million, as a result of reference rate increases and accelerated OID recognized
over the nine months ended September 30, 2022.

expenses


Expenses are primarily comprised of base management fees payable to our Manager,
general and administrative expenses, stock based compensation expense, operating
expenses from real estate owned, interest expense from debt related to real
estate owned, and depreciation on real estate owned. Expenses increased by $23.3
million, during the nine months ended September 30, 2022, as compared to the
nine months ended September 30, 2021, primarily due to:

(i) an increase in operating expenses from real estate owned of $12.9 million
during the comparative period, due to increased variable operating expenses in
connection with higher occupancy levels at the hotel portfolio during the
comparative period;

(ii) an increase in general and administrative expenses of $8.5 million during
the comparative period, due primarily to an increase in general operating
expenses incurred in connection with becoming a public company as of November 3,
2021;

(iii) increase in stock compensation $4.4 million During the comparative period with restricted stock units granted in the second quarter of 2022.

                                       46
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(iv) offset by a decrease in interest expense on debt related to real estate
owned of $3.8 million primarily as a result of additional interest expense on
debt related to real estate owned incurred in connection with the modification
of debt during the nine months ended September 30, 2021, offset in part by the
reference rate increases and the debt related to real estate owned being
outstanding for longer during the nine months ended September 30, 2022.

Gain on sale of loan

9 months ended September 30, 2022realized a gain on the sale of loans of $30.1 millionNo loans were sold in the 9 months ended September 30, 2021.

Unrealized gains on interest rate caps


Unrealized gain on interest rate cap was $5.6 million higher during the
comparative period due to the recognition of a $5.6 million increase in the fair
value of the interest rate cap during the nine months ended September 30, 2022
as a result of rising interest rates.

Gain on seizure of owned real estate


During the nine months ended September 30, 2021, we recognized a gain of $1.4
million on the foreclosure of a portfolio of seven limited-service hotel
properties located in New York, New York. This gain was based upon the estimated
fair value of the hotel properties of $414.0 million as determined by a
third-party appraisal, and our assumption of working capital and debt related to
real estate owned, relative to our basis in the investment at the time of
foreclosure. The fair value was determined using discount rates ranging from
8.50% to 8.75% and a terminal capitalization rate of 6.00% on projected net
operating profits on the hotels.

Equity in earnings of affiliates


During the nine months ended September 30, 2022, we recognized income from
equity method investment of $0.9 million as a result of us accounting for our
investment in CMTG/TT as an equity method investment during the third quarter of
2022. We did not hold any equity method investments during the three months
ended June 30, 2022.

Other income/income


During the nine months ended September 30, 2021, 292,731 fully-vested time-based
RSU awards were forfeited prior to their delivery pursuant to the terms of the
RSU award documents, resulting in us reversing previously recognized
compensation expense associated with these RSU awards.

(Provisions) Reversal of current expected loan loss reserves


During the nine months ended September 30, 2022, we recorded a provision of
current expected credit loss reserves of $13.0 million compared to a reversal of
current expected credit loss reserves of $17.4 million during the nine months
ended September 30, 2021. The provision is primarily attributable to an increase
in size of the portfolio and changes in macroeconomic conditions during the
comparative period.

income tax benefits


Income tax benefit was $6.0 million lower during the comparative period. The
change in the comparative periods is due to the recognition of a full valuation
allowance of our deferred tax asset during the nine months ended September 30,
2022.


Liquidity and funding sources

capitalization


We have capitalized our business to date primarily through the issuance of
shares of our common stock and borrowings under our secured financings and our
Secured Term Loan. As of September 30, 2022, we had 138,970,498 shares of our
common stock outstanding, representing $2.5 billion of stockholders' equity and
we also had $5.4 billion of outstanding borrowings under our secured financings,
our Secured Term Loan, our debt related to real estate owned, and our
acquisition facility. As of September 30, 2022, our secured financings consisted
of six secured revolving repurchase facilities for loan investments with
capacity of $5.0 billion and an outstanding balance of $4.0 billion, seven
asset-specific financings for loan investments with capacity $648.2 million and
an outstanding

                                       47
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balance of $392.0 million and an acquisition facility with a capacity of $150.0
million and no outstanding balance. As of September 30, 2022, our Secured Term
Loan had an outstanding balance of $757.0 million and our debt related to real
estate owned had an outstanding balance of $290.0 million.


Net interest-bearing debt ratio and total leverage ratio


Net Debt-to-Equity Ratio and Total Leverage Ratio are non-GAAP measures that we
use to evaluate our financial leverage, which in the case of our Total Leverage
Ratio, makes certain adjustments that we believe provide a more conservative
measure of our financial condition.

Net Debt-to-Equity Ratio is calculated as the ratio of asset specific debt
(repurchase agreements, loan participations sold, net, notes payable, net, and
debt related to real estate owned, net) and secured term loan, less cash and
cash equivalents to total equity.


Total Leverage Ratio is similar to Net Debt-to-Equity Ratio, however it includes
non-consolidated senior interests sold and non-consolidated senior interests
held by third parties. Non-consolidated senior interests sold and
non-consolidated senior interests held by third parties, as applicable, are
secured by the same collateral as our loan and are structurally senior in
repayment priority relative to our loan. We believe the inclusion of
non-consolidated senior interests sold and non-consolidated senior interests
held by third parties provides a meaningful measure of our financial leverage.

The following table shows the current net debt-to-equity ratio and total leverage ratio. September 30, 2022 When December 31, 2021 (thousand dollars):

                                   September 30, 2022       December 31, 2021
Asset specific debt               $          4,670,475     $         3,995,061
Secured term loan, net                         737,516                 739,762
Total debt                                   5,407,991               4,734,823
Less: cash and cash equivalents               (225,556 )              (310,194 )
Net Debt                          $          5,182,435     $         4,424,629
Total Stockholders' Equity        $          2,535,185     $         2,604,267
Net Debt-to-Equity Ratio                          2.0x                    1.7x
Non-consolidated senior loans                  966,674               1,063,939
Total Leverage                    $          6,149,109     $         5,488,568
Total Leverage Ratio                              2.4x                    2.1x


Sources of Liquidity

Our primary sources of liquidity include cash and cash equivalents, interest
income from our loans, loan repayments, available borrowings under our secured
revolving repurchase facilities and identified borrowing capacity related to our
notes payable and loan participations sold, borrowings under our Secured Term
Loan, and proceeds from the issuance of our common stock. The following table
sets forth, as of September 30, 2022 and December 31, 2021, our sources of
available liquidity ($ in thousands):

                                                        September 30,
                                                             2022           December 31, 2021
Cash and cash equivalents                               $      225,556     $           310,194
Loan principal payments held by servicer(1)                      4,198                  67,100
Approved and undrawn credit capacity                           276,818                  19,283
Total sources of liquidity                              $      506,572     $           396,577




(1)

As of the balance sheet date, the loan originator, net of any related secured debt balances held by Lockbox or a third party loan servicer as of the balance sheet date and remitted to us during subsequent remittance cycles. Represents a payment for a book.

we have $535 million unpaid principal balance of unencumbered loans in
September 30, 2022Such commitments are subject to additional collateral and are subsequently approved by our lending counterparties.

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liquidity needs


In addition to our ongoing loan origination and acquisition activity, our
primary liquidity needs include future fundings to our borrowers on our unfunded
loan commitments, interest and principal payments on outstanding borrowings
under our financings, operating expenses and dividend payments to our
stockholders necessary to satisfy REIT dividend requirements. Additionally, our
financing, repurchase and term loan agreements require us to maintain minimum
levels of liquidity in order to satisfy certain financial covenants. We
currently maintain, and seek to maintain, excess cash and liquidity to comply
with minimum liquidity requirements under our financings, and if necessary, to
reduce borrowings under our secured financings, including our repurchase
agreements.

As of September 30, 2022, we had aggregate unfunded loan commitments of $1.8
billion which comprise funding for capital expenditures and construction,
leasing costs, and interest and carry costs, and their funding will vary
depending on the progress of capital projects, leasing, and cash flows at the
properties securing our loans. Therefore, the exact timing and amounts of such
future loan fundings are uncertain and will depend on the current and future
performance of the underlying collateral assets. We expect to fund our loan
commitments over the remaining maximum term of the related loans, which have a
weighted-average future funding period of 4.2 years.

Contractual Obligations and Promises


Our contractual obligations and commitments as of September 30, 2022 were as
follows ($ in thousands):

                                                                     Payment Timing
                                          Total          Less than         1 to            3 to         More than
                                       Obligations        1 year          3 years         5 years        5 years
Unfunded loan commitments(1)           $  1,769,535     $   897,745     $   790,643     $    81,147     $        -
Secured financings, term loan
agreement, and debt
  related to real estate owned-
principal and interest(2)                 6,399,839         514,251       1,768,560       3,867,734        249,294
Total                                  $  8,169,374     $ 1,411,996     $ 2,559,203     $ 3,948,881     $  249,294




(1)
The allocation of our unfunded loan commitments is based on the earlier of our
expected funding date and the commitment expiration date.
(2)
The allocation of our secured financings and term loan agreement is based on the
earlier of the fully extended maturity date of each individual borrowing or the
maximum maturity date under the respective agreement, and assumes two loans with
aggregate borrowings outstanding of $75.2 million that are in maturity default
have an extended maturity date in 2023
(3)
Amounts include the related future interest payment obligations, which are
estimated by assuming the amounts outstanding under our secured financing
agreements and one-month LIBOR or one-month term SOFR in effect as of September
30, 2022 will remain constant into the future. This is only an estimate, as
actual amounts borrowed and rates will vary over time. Our floating rate loans
and related liabilities are indexed to one-month LIBOR or one-month term SOFR.
Totals exclude non-consolidated senior interests.

We are required to pay our Manager, in cash, a base management fee and incentive
fees (to the extent earned) on a quarterly basis in arrears. The tables above do
not include the amounts payable to our Manager under the Management Agreement as
they are not fixed and determinable.

As a REIT, we generally must distribute substantially all of our REIT taxable
income, determined without regard to the deduction for dividends paid and
excluding net capital gains, to stockholders in the form of dividends to comply
with certain of the provisions of the Internal Revenue Code. To the extent that
we satisfy this distribution requirement but distribute less than 100% of our
REIT taxable income, we will be subject to U.S. federal income tax on our
undistributed REIT taxable income. Our REIT taxable income does not necessarily
equal our net income as calculated in accordance with GAAP or our Distributable
Earnings as described previously.

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loan maturity


The following table summarizes the future scheduled repayments of principal
based on fully extended maturity dates for the loan portfolio as of September
30, 2022 ($ in thousands):


               Unpaid
              Principal           Loan
Year         Balance(1)       Commitment(1)
2022         $         -     $             -
2023             575,817             578,554
2024             974,684           1,017,009
2025           1,044,673           1,179,220
2026           1,847,763           2,447,957
Thereafter     2,731,519           3,721,251
Total        $ 7,174,456     $     8,943,991



(1)

Excludes principal balances of non-performing loans.

Cash flow


The following table provides a breakdown of the net change in our cash and cash
equivalents and restricted cash for the nine months ended September 30, 2022 and
2021, respectively ($ in thousands):


                                                        September 30,     September 30,
                                                            2022              2021

Net cash flow from operating activities $91,004 $

144,538

Net cash flows (used in) investing activities                (650,877 )        (302,488 )
Net cash flows provided by financing activities               488,403           (13,192 )
Net decrease in cash and cash equivalents
  and restricted cash                                   $     (71,470 )   $    (171,142 )



We experienced a net decrease in cash and cash equivalents and restricted cash
of $71.5 million during the nine months ended September 30, 2022, compared to a
net decrease of $171.1 million during the nine months ended September 30, 2021.


During the nine months ended September 30, 2022, we made initial fundings of
$2.0 billion of new loans and $444.6 million of advances on existing loans and
made repayments on financings arrangements of $1.3 billion. We received $1.9
billion of proceeds from borrowings under our financing arrangements, received
$1.6 billion from loan repayments and received $132.2 million of sales proceeds.

income tax


We have elected and believe we have qualified to be taxed as a REIT for U.S.
federal income tax purposes, commencing with our initial taxable year ended
December 31, 2015. We generally must distribute annually at least 90% of our
REIT taxable income, determined without regard to the deduction for dividends
paid and excluding net capital gain, to maintain our REIT status. To the extent
that we satisfy this distribution requirement, but distribute less than 100% of
our REIT taxable income, we will be subject to U.S. federal income tax on our
undistributed REIT taxable income. In addition, we will be subject to a 4%
nondeductible excise tax if the actual amount that we pay (or are treated as
paying) out to our stockholders in a calendar year is less than a minimum amount
specified under U.S. federal tax laws. Our real estate owned is held in a TRS.
Our TRS is not consolidated for U.S. federal income tax purposes and is taxed
separately as a corporation. For financial reporting purposes, a provision or
benefit for current and deferred taxes is established for the portion of
earnings or expense recognized by us with respect to our TRS.

Our qualification as a REIT also depends on our ability to meet various other
requirements imposed by the Internal Revenue Code, which relate to
organizational structure, diversity of stock ownership and certain restrictions
with regard to the nature of our assets and the sources of our income. Even if
we qualify as a REIT, we may be subject to certain U.S. federal income and
excise taxes and state and local taxes on our income and assets. If we fail to
maintain our qualification as a REIT for any taxable year, we may be subject to
material penalties as well as federal, state and local income tax on our REIT
taxable income at regular corporate rates and we would not be able to qualify as
a REIT for the subsequent four full taxable years. As of September 30, 2022, we
were in compliance with all REIT requirements.

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For additional information regarding our income taxes, see Note 13 to our Consolidated Financial Statements.

Off balance sheet arrangement

Current September 30, 2022there were no off-balance sheet arrangements.

Critical Accounting Policies and Estimates


Our discussion and analysis of our financial condition and results of operations
is based upon our consolidated financial statements, which have been prepared in
accordance with GAAP. The preparation of these financial statements requires our
Manager to make estimates, judgments and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting periods. We believe that all of the
decisions and estimates are reasonable, based upon the information available to
us. We believe that the following accounting policies are those most critical to
the judgments and estimates used in the preparation of our financial statements.

See Note 2 to our Consolidated Financial Statements for a discussion of our significant accounting policies.

Current Expected Credit Losses (“CECL”)


The CECL reserve required under ASU 2016-13 "Financial Instruments - Credit
Losses - Measurement of Credit Losses on Financial Instruments (Topic 326)"
("ASU 2016-13"), reflects our current estimate of potential credit losses
related to our loan portfolio. The initial CECL allowance recorded on January 1,
2021 is reflected as a direct charge to retained earnings on our consolidated
statements of changes in redeemable common stock and stockholders' equity.


For our loan portfolio, we perform a quantitative assessment of the impact of
CECL using the Weighted Average Remaining Maturity, or WARM, method. The
application of the WARM method to estimate a general CECL reserve requires
judgment, including the appropriate historical loan loss reference data, the
expected timing and amount of future loan fundings and repayments, the current
credit quality of our portfolio, and our expectations of performance and market
conditions over the relevant time period. In certain circumstances we may
determine that a loan is no longer suited for the model-based approach due to
its unique risk characteristics, or because the repayment of the loan's
principal is collateral-dependent. We may instead elect to employ different
methods to estimate loan losses that also conform to ASU 2016-13 and related
guidance. If the recovery of that loan's principal balance is entirely
collateral-dependent, we may assess such an asset individually and elect to
apply a practical expedient in accordance with ASU 2016-13.



The WARM method requires us to reference historical loan loss data from a
comparable data set and apply such loss rate to each of our loans over their
expected remaining term, taking into consideration expected economic conditions
over the forecasted timeframe. Our general CECL reserve reflects our forecast of
the current and future macroeconomic conditions that impact the performance of
the commercial real estate assets securing our loans and the borrower's ultimate
ability to repay. These estimates include unemployment rates, price indices for
commercial properties, and market liquidity, all of which may influence the
likelihood and magnitude of potential credit losses for our loans during their
anticipated term. Additionally, further adjustments may be made based upon loan
positions senior to ours, the loan's risk rating, a loan's purpose, or economic
conditions specific to the property type of a loan's underlying collateral.



To estimate an annual historical loss rate, we obtained historical loss rate
data for loans most comparable to our loan portfolio from a commercial mortgage
backed securities database licensed by a third party, which contains historical
loss rates from January 1, 1999 through September 30, 2022. When evaluating the
current and future macroeconomic environment, we consider the aforementioned
macroeconomic factors. Historical data for each metric is compared to historical
commercial real estate loan losses in order to determine the strongest
correlation of the data. We use projections of each macroeconomic factor,
obtained from a third party, to approximate the impact the macroeconomic outlook
may have on our loss rate. Additionally, we assess the obligation to extend
credit through our unfunded loan commitments over each loan's contractual
period, which is considered in the estimate of the general CECL reserve. This
component of the general CECL reserve will similarly impact our consolidated net
income. For both the funded and unfunded portions of our loans, we consider our
internal risk rating of each loan as the primary credit quality indicator
underlying our assessment.


Real estate owned, net

We may assume legal title or physical possession of the underlying collateral of
a defaulted loan through foreclosure. Foreclosed real estate owned, net is
initially recorded at estimated fair value and is presented net of accumulated
depreciation and impairment charges and the assets and liabilities are presented
separately when legal title or physical possession is assumed. If the fair value
of the real estate is lower than the carrying value of the loan, the difference,
along with any previously recorded Specific CECL Allowances, are recorded as a
realized loss on investments in the consolidated statement of operations.
Conversely, if the fair value of the real estate

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is greater than the carrying value of the loan, the difference, along with any
previously recorded Specific CECL Allowances, are recorded as a realized gain on
investments in the consolidated statement of operations.

Acquisition of real estate is accounted for using the acquisition method under
Accounting Standards Codification ("ASC") Topic 805, "Business Combinations." We
recognize and measure identifiable assets acquired, liabilities assumed and any
noncontrolling interest in the acquiree, if applicable, based on their relative
fair values. If applicable, we recognize and measure intangible assets and
expense acquisition-related costs in the periods in which the costs are incurred
and the services are received.

Real estate assets that are acquired for investment are assumed at their
estimated fair value at acquisition and presented net of accumulated
depreciation and impairment charges, if any. Upon acquisition, we allocate the
value of acquired real estate assets based on the fair value of the acquired
land, building, furniture, fixtures and equipment, and intangible assets, if
applicable. Real estate assets are depreciated using the straight-line method
over estimated useful lives of up to 40 years for buildings and up to 8 years
for furniture, fixtures and equipment. Renovations and/or replacements that
improve or extend the life of the real estate asset are capitalized and
depreciated over their estimated useful lives. The cost of ordinary repairs and
maintenance are expensed as incurred.

Real estate assets are evaluated for indicators of impairment on a quarterly
basis. Factors that we may consider in its impairment analysis include, among
others: (1) significant underperformance relative to historical or anticipated
operating results; (2) significant negative industry or economic trends; (3)
costs necessary to extend the life or improve the real estate asset; (4)
significant increase in competition; and (5) ability to hold and dispose of the
real estate asset in the ordinary course of business. A real estate asset is
considered impaired when the sum of estimated future undiscounted cash flows
expected to be generated by the real estate asset over the estimated remaining
holding period is less than the carrying amount of such real estate asset. Cash
flows include operating cash flows and anticipated capital proceeds generated by
the real estate asset. An impairment charge is recorded equal to the excess of
the carrying value of the real estate asset over the fair value.

When determining the fair value of a real estate asset, we make certain
assumptions including, but not limited to, consideration of projected operating
cash flows, comparable selling prices and projected cash flows from the eventual
disposition of the real estate asset based upon our estimate of a capitalization
rate and discount rate.

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