ACRES COMMERCIAL REALTY CORP. References in this quarterly report to "we," "us" or the "Company" refer toACRES Commercial Realty Corp. The following discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with the consolidated financial statements and accompanying notes appearing elsewhere in this report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Special Note Regarding Forward-Looking Statements
This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as "may," "will," "continue," "expect," "intend," "anticipate," "estimate," "believe," "look forward" or other similar words or terms. Because such statements include risks, uncertainties and contingencies, actual results may differ materially from the expectations, intentions, beliefs, plans or predictions of the future expressed or implied by such forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, including, without limitation, factors impacting whether we will be able to maintain our sources of liquidity and whether we will be able to identify sufficient suitable investments to increase our originations, please refer to the Risk Factors section of the Company's Annual Report on Form 10-K for the year endedDecember 31, 2021 filed with theU.S. Securities and Exchange Commission (the "SEC"). Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
Overview
We are aMaryland corporation and an externally managed real estate investment trust ("REIT") that is primarily focused on originating, holding and managing commercial real estate ("CRE") mortgage loans and equity investments in commercial real estate properties through direct ownership and joint ventures. Our manager isACRES Capital, LLC (the "Manager"), a subsidiary ofACRES Capital Corp. (collectively, "ACRES"), a private commercial real estate lender exclusively dedicated to nationwide middle market CRE lending with a focus on multifamily, student housing, hospitality, office and industrial property in topUnited States ("U.S.") markets. Our Manager draws upon the management team of ACRES and its collective investment experience to provide its services. Our objective is to provide our stockholders with total returns over time, including quarterly distributions and capital appreciation, while seeking to manage the risks associated with our investment strategies as well as to maximize long-term stockholder value by maintaining stability through our available liquidity and diversified CRE loan portfolio. InDecember 2019 , a novel strain of coronavirus ("COVID-19") was identified. The resulting spread of COVID-19 throughout the globe led theWorld Health Organization to designate COVID-19 as a pandemic and numerous countries, including theU.S , to declare national emergencies. Many countries responded to the initial and ensuing outbreaks of COVID-19 by instituting quarantines and restrictions on travel and limiting operations of non-essential offices and retail centers, which resulted in the closure or remote operation of non-essential businesses, increased rates of unemployment and market disruption in connection with the economic uncertainty. The aforementioned quarantines and travel restrictions contributed significantly to economic disruptions across the country that directly impacted our borrowers and their ability to pay and to stay current with their debt obligations in 2020 and 2021, causing significant increases in our provisions for credit losses. During the height of the pandemic, we used a variety of legal and structural options to manage credit risk effectively, including through forbearance and extension provisions or other agreements. Currently, due in large part to the development and distribution of vaccines and other treatments, theU.S. and other countries around the world have eased or removed restrictions entirely, financial markets are more liquid, collateral performance has improved and unemployment rates have stabilized to some degree; as such, as ofJune 30, 2022 , we have substantially reversed provisions for credit losses related to macroeconomic factors impacted by COVID-19. We continue to actively and responsibly manage corporate liquidity and operations in light of changing macroeconomic circumstances, and our Manager continuously monitors for new capital opportunities and executes on agreements that are expected to enhance our returns. However, it is inherently difficult to accurately assess the continuing impact of the COVID-19 pandemic or any other domestic or global events on our revenues, profitability and financial position. In response, we are focused on maintaining sufficient liquidity while still growing our loan origination business. We continuously monitor the effects of domestic and global events, including but not limited to the current and expected impact of inflation, labor shortages, supply chain matters and rising interest rates, on our operations and financial position to ensure that we remain responsive and adaptable to the dynamic changes in our operating environment. For additional discussion with respect to the potential impact of COVID-19 on our liquidity and capital resources, see "Liquidity and Capital Resources." (Back to Index) 39
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We target originating transitional floating-rate CRE loans between$10.0 million and$100.0 million . During the three and six months endedJune 30, 2022 , we originated nine and 12 floating-rate CRE whole loans, respectively, with total commitments of$311.7 million and$411.6 million , respectively. We anticipate that our CRE loan originations, CRE debt securitizations and other CRE-related investments for the year endedDecember 31, 2022 will be between$600.0 million and$800.0 million .
Our CRE loan portfolio, which had
• First mortgage loans, which we refer to as whole loans. These loans are
typically secured by first liens on CRE property, including the following
property types: multifamily, office, hotel, self-storage, retail, student
housing, manufactured housing, industrial, healthcare and mixed-use. At
of
portfolio.
• Mezzanine debt is senior to the borrower's equity but is subordinated to
other third-party debt. These loans are subordinated CRE loans, usually
secured by a pledge of the borrower's equity ownership in the entity that
owns the property or by a second lien mortgage on the property. At
value of
loan portfolio.
We generate our income primarily from the spread between the revenues we receive from our assets and the cost to finance our ownership of those assets, including corporate debt. While the CRE whole loans included in the CRE loan portfolio are substantially composed of floating-rate loans benchmarked to market rates including theLondon Interbank Offered Rate ("LIBOR") and the Secured Overnight Financing Rate ("SOFR"), asset yields are protected through the use of benchmark floors and minimum interest periods that typically range from 12 to 18 months at the time of a loan's origination. Our benchmark floors provide asset yield protection when the benchmark rate falls below an in-place benchmark floor. Our net investment returns are enhanced by a decline in the cost of our floating-rate liabilities that do not have benchmark floors. Our net investment returns will be negatively impacted by the rising cost of our floating-rate liabilities that do not have floors until the benchmark rate is above the benchmark floor, at which point our floating-rate loans and floating-rate liabilities will be match funded, effectively locking in our net interest margin until the benchmark floor rate is activated again or the floating-rate loan is paid off or refinanced. AtJune 30, 2022 , our$2.1 billion floating-rate CRE loan portfolio, at par, which includes one whole loan without a benchmark floor, had a weighted average benchmark floor of 0.62%. AtDecember 31, 2021 , our par-value$1.9 billion floating-rate CRE loan portfolio, which included one loan without a benchmark floor, had a weighted average benchmark floor of 0.75%. The decrease in the weighted average benchmark floor was a result of older CRE floating-rate loans with higher floors paying off and being replaced with newer loans with lower floors. With the trend of rising benchmark rates in 2022 (both LIBOR and SOFR), we have seen the coupons on all of our floating-rate assets and debt rise accordingly. Because we have equity invested in each floating-rate loan, and because in most instances the benchmark rates are above our loan floors, a rise in interest rates will result in an increase in our net interest income. See "Interest Rate Risk" in "Item 3: Quantitative and Qualitative Disclosures About Market Risk." Our portfolio comprised loans with a diverse array of collateral types. We increased our multifamily portfolio allocation to 77.5% atJune 30, 2022 up from 69.7% atDecember 31, 2021 . The following charts show our portfolio allocation by property type atJune 30, 2022 andDecember 31, 2021 :
[[Image Removed]][[Image Removed]]
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All but three of our loans were current on contractual payments atJune 30, 2022 . Each of these three loans had recent appraisals in excess of their par balances and, as such, did not require individual CECL reserves. Additionally, we have executed extensions on four loans at a weighted average extension of two months in exchange for$158,000 of fees during the six months endedJune 30, 2022 .
Our CRE mezzanine loan earns interest at a fixed rate.
From time to time, we may acquire real estate property through direct equity investments or as a result of our lending activities. AtJune 30, 2022 , the total carrying value of our net real estate-related assets and liabilities was$134.9 million on six properties owned. The existence of net capital loss carryforwards available untilDecember 31, 2025 , allows for potential future capital gains on these investments to be shielded from income taxes. We use leverage to enhance our returns. The cost of borrowings to finance our investments is a significant part of our expenses. Our net interest income depends on our ability to control these expenses relative to our revenue. Our CRE loans may initially be financed with term facilities, such as CRE loan warehouse financing facilities, in anticipation of their ultimate securitization. We ultimately seek to finance our CRE loans through the use of non-recourse long-term, match-funded CRE debt securitizations.
Our asset-specific borrowings comprised term warehouse financing facilities, CRE
debt securitizations, our senior secured financing facility and mortgage
payable. We executed the optional redemptions on
AtJune 30, 2022 andDecember 31, 2021 , we had outstanding balances on our CRE loan term warehouse financing facilities of$328.4 million and$66.8 million , respectively, or 17.8% and 3.7%, respectively, of total outstanding borrowings. AtJune 30, 2022 andDecember 31, 2021 , we had outstanding balances of$1.2 billion and$1.5 billion , respectively, on CRE debt securitizations, or 66.9% and 80.8%, respectively, of total outstanding borrowings. AtJune 30, 2022 , we had outstanding borrowings on our senior secured financing facility of$16.7 million , or 0.9% of total outstanding borrowings. AtDecember 31, 2021 , we had no outstanding borrowings on our senior secured financing facility. AtJune 30, 2022 , we had outstanding borrowings on our mortgage payable of$18.1 million , or 1.0% of total outstanding borrowings. InFebruary 2022 , we repurchased approximately$39.8 million par value of our 4.50% convertible senior notes due 2022 ("4.50% Convertible Senior Notes"). In conjunction with the repurchase, we accelerated approximately$460,000 of the convertible note discount, which was recorded as an extinguishment of debt cost, and$114,000 of deferred debt issuance costs, which were recorded in interest expense. We anticipate redeeming the outstanding balance of the 4.50% Convertible Notes, which was$48.2 million atJune 30, 2022 , with available cash upon maturity onAugust 15, 2022 . InJanuary 2020 , we adopted updated accounting guidance that replaced the incurred loss approach with the current expected credit losses ("CECL") model for the determination of our allowance for loan losses. We reevaluate our CECL allowance quarterly, incorporating our current expectations of macroeconomic factors considered in the determination of our CECL reserves. AtJune 30, 2022 , the CECL allowance on our CRE loan portfolio was$5.2 million , or 0.25% of our$2.1 billion loan portfolio. AtDecember 31, 2021 , the CECL allowance on our CRE loan portfolio was$8.8 million , or 0.46% of our$1.9 billion of our loan portfolio. During the three months endedJune 30, 2022 , we recorded a provision for credit losses that reflected current macroeconomic expectations related to rising inflation, interest rates and expected unemployment. For the year endedDecember 31, 2021 , we recorded net reversals of credit losses, which reflected improvements in macroeconomic conditions, improved collateral operating performance and improvements in or resolutions of individually-evaluated loans. Additionally, the steady decline in our CECL reserves from our highest reserve balance inJune 30, 2020 of$61.1 million , or 3.44% of the par balance of our CRE loan portfolio, to our current reserve balance atJune 30, 2022 of$5.2 million , or 0.25% of the par balance of our CRE loan portfolio, has been due to the following: the successful resolution of our individually evaluated loans with specific reserves, the overall newer vintage of our CRE loan portfolio (with 20.7% of the portfolio, atJune 30, 2022 , being originated prior to the fourth quarter of 2020) as well as the increasing percentage allocation of our CRE loan portfolio to multifamily loans over time. Multifamily loans have historically had the lowest credit losses of any asset class for us and as a sample population in the third-party model that we use to support our CECL reserves. Our percentage allocation of our CRE loan portfolio to multifamily has grown from 58.4% atJune 30, 2020 to 77.5% atJune 30, 2022 . During the three months endedJune 30, 2022 , we recorded no charge-offs. During the six months endedJune 30, 2022 , we recorded$2.3 million in charge-offs, primarily attributable to the discounted payoff of one loan that resulted in a realized loss of$2.3 million for which a CECL allowance was established atDecember 31, 2021 . We historically used derivative financial instruments, including interest rate swaps, to hedge a portion of the interest rate risk associated with our borrowings. InApril 2020 we terminated all interest rate hedges in conjunction with the disposition of our financed commercial mortgage-backed securities ("CMBS") portfolio. AtJune 30, 2022 andDecember 31, 2021 , we had unrealized losses in connection with the terminated hedges of$7.5 million and$8.5 million , respectively, which will be amortized into interest expense over the remaining life of the debt. We recognized amortization expense on these terminated contracts of$484,000 and$963,000 , respectively, during the three and six months endedJune 30, 2022 . (Back to
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Common stock book value was$24.48 per share atJune 30, 2022 , a$0.61 per share increase fromDecember 31, 2021 , primarily resulting from the accretive benefit of our board of directors, or our Board, approved common stock repurchase program, offset by net losses from operations incurred during the quarter.
Impact of Reference Rate Reform
As discussed in the "Overview" section above, our CRE whole loans and our asset-specific borrowings are primarily benchmarked to one-month LIBOR. InMarch 2021 , theUnited Kingdom's Financial Conduct Authority announced that it would cease publication of the one-week and two-month USD LIBOR immediately afterDecember 31, 2021 and cease publication of the remaining tenors immediately afterJune 30, 2023 . While there is no consensus on what rate or rates may become accepted alternatives to LIBOR, theU.S. Federal Reserve , in conjunction with the Alternative Reference Rates Committee, a steering committee comprising largeU.S. financial institutions, has identified SOFR, a new index calculated by short-term repurchase agreements backed byU.S. Treasury securities, as its preferred alternative rate for LIBOR. All our underwritten loans contain terms that allow for a change to an alternative benchmark rate upon the discontinuation of LIBOR. InSeptember 2021 ,January 2022 andFebruary 2022 , the term warehouse financing facilities withJPMorgan Chase Bank, N.A . ("JPMorgan Chase"),Morgan Stanley Mortgage Capital Holdings LLC ("Morgan Stanley") and Barclays Bank PLC ("Barclays"), respectively, were amended to allow for the transition to alternative rates, including rates tied to SOFR, subject to benchmark transition events. Beginning inJanuary 2022 , all loans are underwritten using SOFR as the benchmark rate. The transition from LIBOR to SOFR or to another alternative rate may result in financial market disruptions and significant increases in benchmark rates, resulting in increased financing costs to us, any of which could have an adverse effect on our business, results of operations, financial condition, and the market price of our common stock. Further discussion of the risk related to ongoing reference rate reform is provided in the section entitled "Risk Factors" in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 .
Results of Operations
Our net income allocable to common shares for the three months endedJune 30, 2022 was$690,000 , or$0.08 per share-basic ($0.08 per share-diluted). Our net loss allocable to common shares for the six months endedJune 30, 2022 was$2.1 million , or$(0.23) per share-basic ($(0.23 ) per share-diluted), as compared to net income allocable to common shares for the three and six months endedJune 30, 2021 of$10.1 million , or$1.04 per share-basic ($1.04 per share-diluted) and$20.5 million , or$2.06 per share-basic ($2.06 per share-diluted), respectively. (Back to Index) 42
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(Back to Index) Net Interest Income The following tables analyze the change in interest income and interest expense for the comparative three and six months endedJune 30, 2022 and 2021 by changes in volume and changes in rates. The changes attributable to the combined changes in volume and rate have been allocated proportionately, based on absolute values, to the changes due to volume and changes due to rates (dollars in thousands, except amounts in footnotes): Three Months EndedJune 30 ,
2022 Compared to Three Months Ended
2021
Due to Changes in
Percent
Net Change Change (1) Volume Rate
Increase (decrease) in interest income:
CRE whole loans (2) $ 1,883 8 % $ 4,546 $ (2,663 )
Legacy CRE loan (2)(3) (157 ) (100 )% (187 ) 30
CRE preferred equity investments (2) (535 ) (100 )% (535 ) -
Other 35 175 % 35 -
Total increase in interest income 1,226 5 % 3,859 (2,633 )
Increase (decrease) in interest expense:
Securitized borrowings: (4)
XAN 2019-RSO7 Senior Notes (3,068 ) (100 )% (3,068 ) -
XAN 2020-RSO8 Senior Notes (3,544 ) (100 )% (3,544 ) -
XAN 2020-RSO9 Senior Notes (2,885 ) (100 )% (2,885 ) -
ACR 2021-FL1 Senior Notes 2,536 146 % 113 2,423
ACR 2021-FL2 Senior Notes 4,106 100 % 4,106 -
Senior secured financing facility (729 ) (60 )% (729 ) -
CRE - term warehouse financing
facilities (4) 1,401 129 % 1,301 100
4.50% Convertible Senior Notes (4) (1,692 ) (66 )% (1,692 ) -
5.75% Senior Unsecured Notes (4) 2,303 100 % 2,303 -
12.00% Senior Unsecured Notes (4) (1,487 ) (94 )% (1,487 ) -
Unsecured junior subordinated debentures 102 19 % - 102
Total decrease in interest expense (2,957 ) (16 )% (5,582 ) 2,625
Net increase (decrease) in net interest
income $ 4,183 $ 9,441 $ (5,258 ) (1) Percent change is calculated as the net change divided by the respective
interest income or interest expense for the three months ended
(2) Includes decreases in fee income of approximately
recognized on our CRE whole loans and legacy CRE loan, respectively, and an
increase in fee income of approximately
investments, that were due to changes in volume.
(3) Includes the change in interest income recognized on one legacy CRE loan with
an amortized cost of
loan on the consolidated balance sheet. The loan paid off in
(4) Includes decreases in amortization expense of approximately
respectively, and increases in amortization expense of approximately
Senior Unsecured Notes and 12.00% senior unsecured notes, respectively, that
were due to changes in volume.
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Six Months Ended June 30, 2022 Compared to Six Months Ended
Due to Changes in
Percent
Net Change Change (1) Volume Rate
Increase (decrease) in interest income:
CRE whole loans (2) $ 940 2 % $ 8,262 $ (7,322 )
Legacy CRE loan (2)(3) (289 ) (91 )% (319 ) 30
CRE mezzanine loan - - % - -
CRE preferred equity investments (2) (1,378 ) (100 )% (1,378 ) -
CMBS (4) (161 ) (100 )% (161 ) -
Other 41 124 % 41 -
Total decrease in interest income (847 ) (2 )% 6,445 (7,292 )
Increase (decrease) in interest expense:
Securitized borrowings: (4)
XAN 2019-RSO7 Senior Notes (5,172 ) (100 )% (5,172 ) -
XAN 2020-RSO8 Senior Notes (4,321 ) (78 )% (4,712 ) 391
XAN 2020-RSO9 Senior Notes (4,464 ) (82 )% (4,743 ) 279
ACR 2021-FL1 Senior Notes 5,718 329 % 509 5,209
ACR 2021-FL2 Senior Notes 7,289 100 % 7,289 -
Senior secured financing facility (1,305 ) (57 )% (1,305 ) -
CRE - term warehouse financing
facilities (4) 1,535 77 % 1,428 107
4.50% Convertible Senior Notes (4) (2,891 ) (56 )% (2,891 ) -
5.75% Senior Unsecured Notes (4) 4,606 100 % 4,606 -
12.00% Senior Unsecured Notes (4) (2,872 ) (91 )% (2,872 ) -
Unsecured junior subordinated debentures 103 10 % - 103
Hedging - - % - -
Total decrease in interest expense (1,774 ) (5 )% (7,863 ) 6,089
Net increase (decrease) in net interest
income $ 927 $ 14,308 $ (13,381 ) (1) Percent change is calculated as the net change divided by the respective
interest income or interest expense for the six months ended
(2) Includes decreases in fee income of approximately
recognized on our CRE whole loans and legacy CRE loan, respectively, and an
increase of approximately
were due to changes in volume.
(3) Includes the change in interest income recognized on one legacy CRE loan with
an amortized cost of
loan on the consolidated balance sheet. The loan paid off in
(4) Includes decreases in amortization expense of approximately
respectively, and increases in amortization expense of approximately
Senior Unsecured Notes and 12.00% Senior Unsecured Notes, respectively, that
were due to changes in volume.
Net Change in Interest Income for the Comparative three and six months ended
Aggregate interest income increased by
CRE whole loans. The increases of$1.9 million and$940,000 for the comparative three and six months endedJune 30, 2022 and 2021, respectively, were primarily attributable to a net increase in the size of the total loan portfolio period over period. The increases were partially offset by a decline in loan yields, attributable to declines in the spreads on the originated CRE whole loans over the comparative periods as well as a decline in the weighted-average benchmark rate floors on new CRE whole loans originated. Legacy CRE loan. The decreases of$157,000 and$289,000 for the comparative three and six months endedJune 30, 2022 and 2021, respectively, were primarily attributable to the payoff of our remaining legacy CRE whole loan inJanuary 2022 . CRE preferred equity investments. The decreases of$535,000 and$1.4 million for the comparative three and six months endedJune 30, 2022 and 2021, respectively, were attributable to the payoffs of the preferred equity investments inMarch 2021 andApril 2021 .
CMBS. The decrease of
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Net Change in Interest Expense for the Comparative three and six months ended
Aggregate interest expense decreased by$3.0 million and$1.8 million for the comparative three and six months endedJune 30, 2022 and 2021, respectively. We attribute the changes to the following: Securitized borrowings. The net decreases of$2.9 million and$950,000 for the comparative three and six months endedJune 30, 2022 and 2021, respectively, were primarily attributable to the liquidations ofExantas Capital Corp. 2019-RSO7, Ltd. ("XAN 2019-RSO7"), XAN 2020-RSO8 and XAN 2020-RSO9. The decrease was partially offset by the issuance ofACRES Commercial Realty 2021-FL2 Issuer, Ltd. ("ACR 2021-FL2") and an increase in benchmark rates over the comparative periods. Senior secured financing facility. The decreases of$729,000 and$1.3 million for the comparative three and six months endedJune 30, 2022 and 2021 were attributable to decreased utilization of the senior secured financing facility over the comparative periods. CRE - term warehouse financing facilities. The increases of$1.4 million and$1.5 million for the comparative three and six months endedJune 30, 2022 and 2021, respectively, were primarily attributable to the increased utilization of these facilities during the six months endedJune 30, 2022 . 4.50% Convertible Senior Notes. The decreases of$1.7 million and$2.9 million for the comparative three and six months endedJune 30, 2022 and 2021, respectively, were primarily attributable to the repurchase of$55.7 million of our 4.50% Convertible Senior Notes during the year endedDecember 31, 2021 and the repurchase of$39.8 million of our 4.50% Convertible Senior Notes during the six months endedJune 30, 2022 . 5.75% Senior Unsecured Notes. The increases of$2.3 million and$4.6 million for the comparative three and six months endedJune 30, 2022 and 2021, respectively, were attributable to the issuance of our 5.75% Senior Unsecured Notes inAugust 2021 . 12.00% Senior Unsecured Notes due 2027. The decreases of$1.5 million and$2.9 million for the comparative three and six months endedJune 30, 2022 and 2021, respectively, were attributable to the redemption of the full outstanding balance of our 12.00% Senior Unsecured Notes inAugust 2021 .
Average Net Yield and Average Cost of Funds:
The following tables present the average net yield and average cost of funds for the three and six months endedJune 30, 2022 and 2021 (dollars in thousands, except amounts in footnotes): For the Three Months Ended June 30, 2022 For the Three Months Ended June 30, 2021 Interest Average Net Interest Average Net Income Yield (Cost of Income Yield (Cost Average Balance (Expense) Funds) (1) Average Balance (Expense) of Funds) (1) Interest-earning assets CRE whole loans, floating-rate (2)$ 1,953,740 $ 26,846 5.51 %$ 1,621,900 $ 24,963 6.17 % Legacy CRE loan (2) - - - % 11,516 157 5.48 % CRE mezzanine loan 4,700 118 9.96 % 4,700 118 9.96 % CRE preferred equity investments (2) - - - % 6,350 535 33.75 % Other 51,135 55 0.43 % 90,065 20 0.09 % Total interest income/average net yield 2,009,575 27,019 5.39 % 1,734,531 25,793 5.96 % Interest-bearing liabilities Collateralized by: CRE whole loans (3) 1,494,037 (11,352 ) (3.00 )% 1,192,571 (13,535 ) (4.47 )% General corporate debt: Unsecured junior subordinated debentures 51,548 (642 ) (4.93 )% 51,548 (540 ) (4.15 )% 4.50% Convertible Senior Notes (4) 47,823 (891 ) (7.37 )% 138,676 (2,583 ) (7.37 )% 5.75% Senior Unsecured Notes (5) 147,132 (2,303 ) (6.28 )% - - - % 12.00% Senior Unsecured Notes (6)(7) - (96 ) - % 46,554 (1,583 ) (13.64 )% Hedging (8) - (461 ) - % - (461 ) - % Total interest expense/average cost of funds$ 1,740,540 (15,745 ) (3.45 )%$ 1,429,349 (18,702 ) (5.04 )% Total net interest income$ 11,274 $ 7,091
(1) Average net yield includes net amortization/accretion and fee income and is
computed based on average amortized cost.
(2) Includes fee income of approximately
whole loans for the three months ended
million and
respectively, for the three months ended
months ended
on the preferred equity investments in connection with their payoffs.
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(3) Includes amortization expense of approximately
for the three months ended
interest-bearing liabilities collateralized by CRE whole loans.
(4) Includes aggregated amortization expense of approximately
our 4.50% Convertible Senior Notes.
(5) Includes amortization expense of approximately
ended
(6) Includes amortization expense of approximately
three months ended
Unsecured Notes.
(7) The outstanding par balance of our 12.00% Senior Unsecured Notes was redeemed
in full in
2022, we were permitted to elect to issue up to
additional notes. The interest expense incurred during the three months ended
remaining availability.
(8) Includes net amortization expense of
ended
that were in net loss positions at the time of termination. The remaining
losses, reported in accumulated other comprehensive (loss) income on the
consolidated balance sheets, will be accreted over the remaining life of the
debt.
For the Six Months Ended June 30, 2022 For the Six Months Ended June 30, 2021
Interest Average Net Interest Average Net
Income Yield (Cost of Income Yield (Cost
Average Balance (Expense) Funds) (1) Average Balance (Expense) of Funds) (1)
Interest-earning assets
CRE whole loans,
floating-rate (2) $ 1,918,678 $ 49,356 5.19 % $ 1,561,536 $ 48,416 6.25 %
Legacy CRE loan (2) 318 29 18.08 % 11,516 318 5.58 %
CRE mezzanine loan 4,700 236 9.96 % 4,700 236 9.96 %
CRE preferred equity
investments (2) - - - % 16,541 1,378 16.80 %
CMBS - - - % 8,462 161 3.87 %
Other 93,667 74 0.16 % 72,252 33 0.09 %
Total interest
income/average net yield 2,017,363 49,695 4.97 % 1,675,007 50,542 6.08 %
Interest-bearing
liabilities
Collateralized by:
CRE whole loans (3) 1,487,428 (21,426 ) (2.82 )% 1,137,142 (22,146 ) (3.83 )%
General corporate debt:
Unsecured junior
subordinated debentures 51,548 (1,181 ) (4.56 )% 51,548 (1,078 ) (4.16 )%
4.50% Convertible Senior
Notes (4) 57,396 (2,247 ) (7.79 )% 138,203 (5,138 ) (7.39 )%
5.75% Senior Unsecured
Notes (5) 147,060 (4,606 ) (6.31 )% - - - %
12.00% Senior Unsecured
Notes (6)(7) - (274 ) - % 46,511 (3,146 ) (13.64 )%
Hedging (8) - (918 ) - % - (918 ) - %
Total interest
expense/average cost of
funds $ 1,743,432 (30,652 ) (3.33 )% $ 1,373,404 (32,426 ) (4.53 )%
Total net interest income $ 19,043 $ 18,116 (1) Average net yield includes net amortization/accretion and fee income and is
computed based on average amortized cost.
(2) Includes fee income of approximately
whole loans for the six months ended
million and
respectively, for the six months ended
ended
preferred equity investments in connection with their payoffs.
(3) Includes amortization expense of approximately
for the six months ended
interest-bearing liabilities collateralized by CRE whole loans.
(4) Includes aggregated amortization expense of approximately
million for the six months ended
4.50% Convertible Senior Notes.
(5) Includes amortization expense of approximately
ended
(6) Includes amortization expense of approximately
six months ended
Unsecured Notes.
(7) The outstanding par balance of our 12.00% Senior Unsecured Notes was redeemed
in full in
2022, we were permitted to elect to issue up to
additional notes. The interest expense incurred during the six months ended
remaining availability.
(8) Includes net amortization expense of
ended
that were in net loss positions at the time of termination. The remaining
losses, reported in accumulated other comprehensive (loss) income on the
consolidated balance sheets, will be accreted over the remaining life of the
debt.
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Real Estate Income and Other Revenue
The following table sets forth information relating to our real estate income and other revenue for the periods presented (dollars in thousands):
For the Three Months Ended
June 30,
2022 2021 Dollar Change Percent Change
Real estate income and other revenue:
Real estate income $ 8,777 $ 2,732 $ 6,045 221 %
Other revenue 19 16 3 19 %
Total $ 8,796 $ 2,748 $ 6,048 220 %
For the Six Months Ended
June 30,
2022 2021 Dollar Change Percent Change
Real estate income and other revenue:
Real estate income $ 11,915 $ 4,386 $ 7,529 172 %
Other revenue 35 32 3 9 %
Total $ 11,950 $ 4,418 $ 7,532 170 %
Aggregate real estate income and other revenue increased by $6.0 million and
$7.5 million for the comparative three and six months ended June 30, 2022 and
2021. We attribute the changes to the following:
Real estate income. The increases of $6.0 million and $7.5 million for the
comparative three and six months ended June 30, 2022 and 2021, respectively,
were attributable to the acquisition of two revenue-generating properties in the
fourth quarter of 2021 and two additional revenue-generating properties in the
second quarter of 2022. Real estate income at our hospitality property acquired
in 2020 additionally benefited from increased personal and business travel
resulting from lifted COVID-19 restrictions that occurred late in the spring of
2022.
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(Back to Index) Operating Expenses
The following tables set forth information relating to our operating expenses for the periods presented (dollars in thousands):
For the Three Months Ended
June 30,
2022 2021 Dollar Change Percent Change
Operating expenses:
General and administrative $ 2,353 $ 2,716 $ (363 ) (13 )%
Real estate expenses 9,162 2,481 6,681 269 %
Management fees - related party 1,672 1,379 293 21 %
Equity compensation - related party 991 171 820 480 %
Corporate depreciation and
amortization 21 15 6 40 %
Provision for (reversal of) credit
losses, net 524 (10,343 ) 10,867 105 %
Total $ 14,723 $ (3,581 ) $ 18,304 511 %
For the Six Months Ended
June 30,
2022 2021 Dollar Change Percent Change
Operating expenses:
General and administrative $ 5,810 $ 5,869 $ (59 ) (1 )%
Real estate expenses 13,956 4,312 9,644 224 %
Management fees - related party 3,354 2,705 649 24 %
Equity compensation - related party 1,735 190 1,545 813 %
Corporate depreciation and amortization 43 59 (16 ) (27 )%
Reversal of credit losses, net (1,278 ) (15,984 ) 14,706 92 %
Total $ 23,620 $ (2,849 ) $ 26,469 929 %
Aggregate operating expenses increased by $18.3 million and $26.5 million for
the comparative three and six months ended June 30, 2022 and 2021, respectively.
We attribute the changes to the following:
General and administrative. General and administrative expenses decreased by
$363,000 and $59,000 for the comparative three and six months ended June 30,
2022 and 2021, respectively. For the comparative three and six months ended
June 30, 2022 and 2021, there were no significant general and administrative
expense matters to discuss. The following tables summarize the information
relating to our general and administrative expenses for the periods presented
(dollars in thousands):
For the Three Months Ended
June 30,
2022 2021 Dollar Change Percent ChangeGeneral and administrative: Professional services$ 1,157 $ 1,204 $ (47 ) (4 )% D&O insurance 360 369 (9 ) (2 )% Wages and benefits 290 414 (124 ) (30 )% Operating expenses 238 250 (12 ) (5 )% Dues and subscriptions 186 189 (3 ) (2 )% Director fees 76 177 (101 ) (57 )% Rent and utilities 28 30 (2 ) (7 )% Travel 17 16 1 6 % Tax penalties, interest and franchise tax 1 67 (66 ) (99 )% Total$ 2,353 $ 2,716 $ (363 ) (13 )% (Back to Index) 48
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For the Six Months Ended
June 30,
2022 2021 Dollar Change Percent ChangeGeneral and administrative: Professional services$ 3,049 $ 3,040 $ 9 0 % D&O insurance 716 665 51 8 % Wages and benefits 649 818 (169 ) (21 )% Operating expenses 368 537 (169 ) (31 )% Dues and subscriptions 392 367 25 7 % Director fees 413 296 117 40 % Rent and utilities 57 62 (5 ) (8 )% Travel 26 16 10 63 % Tax penalties, interest and franchise tax 140 68 72 106 % Total$ 5,810 $ 5,869 $ (59 ) (1 )% Real estate expenses. The increases of$6.7 million and$9.6 million for the comparative three and six months endedJune 30, 2022 and 2021, respectively, were primarily attributable to the acquisition of two properties, a hotel and a student housing complex, inApril 2022 , as well as the acquisition of two office properties inOctober 2021 . The increase for the comparative six months was also attributable to increased expense incurred on a hotel property acquired inNovember 2020 after it reopened during the first quarter of 2021. Management fees - related party. The increases of$293,000 and$649,000 for the comparative three months endedJune 30, 2022 and 2021, respectively, were primarily attributable to an increase in our base management fees during the three months endedJune 30, 2022 . As ofJuly 31, 2020 , as part of the Fourth Amended and Restated Management Agreement, as amended ("Management Agreement"), the monthly base management fee payable to our Manager was amended to be the greater of 1/12th of the amount of our equity multiplied by 1.50% or$442,000 throughJuly 31, 2022 . InJune 2021 , the base management fee calculation exceeded the$442,000 for the first time since the execution of the Management Agreement in connection with the issuance of the 7.875% Series D Cumulative Redeemable Preferred Stock ("Series D Preferred Stock"). As a result, the management fees incurred during the three and six months endedJune 30, 2022 were greater than those incurred during the three and six months endedJune 30, 2021 . Equity compensation - related party. The increases of$820,000 and$1.5 million for the comparative three and six months endedJune 30, 2022 and 2021, respectively, were primarily attributable to shares granted in the second quarter 2022 and the second quarter 2021 under our Manager Incentive Plan, which will vest 25% for four years, on each anniversary of the issuance date. Provision for (reversal of) credit losses, net. The provision for credit losses of$524,000 for the three months endedJune 30, 2022 was primarily attributable to a general decline in macroeconomic conditions. The net reversal of credit losses of$1.3 million for the six months endedJune 30, 2022 as well as the reversal of credit losses of$10.3 million and$16.0 million for the three and six months endedJune 30, 2021 , respectively, were attributable to overall, general improvements in expected macroeconomic conditions and improvements in property-level operations on loan collateral. (Back to
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(Back to Index) Other Income (Expense)
The following tables set forth information relating to our other income (expense) incurred for the periods presented (dollars in thousands):
For the Three Months Ended
June 30,
2022 2021 Dollar Change Percent Change
Other income (expense):
Other income $ 175 $ 219 $ (44 ) (20 )%
Total $ 175 $ 219 $ (44 ) (20 )%
For the Six Months Ended
June 30,
2022 2021 Dollar Change Percent Change
Other income (expense):
Net realized and unrealized (loss)
gain on investment securities
available-for-sale and loans and
derivatives $ - $ 878 $ (878 ) (100 )%
Loss on extinguishment of debt (460 ) - (460 ) (100 )%
Other income 973 434 539 124 %
Total $ 513 $ 1,312 $ (799 ) (61 )%
Aggregate other income decreased $44,000 and $799,000 for the comparative three
and six months ended June 30, 2022 and 2021. We attribute the changes to the
following:
Net realized and unrealized gain on investment securities available-for-sale and
loans and derivatives. The decrease of $878,000 for the six months ended
June 30, 2022 was attributable to the sale of our two remaining CMBS securities
for proceeds of $3.0 million , which generated non-recurring gains of $878,000 in
March 2021 .
Loss on extinguishment of debt. The loss of
Other Income. The increase of$539,000 during the comparative six months endedJune 30, 2022 and 2021, was primarily attributable to a loan recovery received during the six months endedJune 30, 2022 on a middle market loan that was previously charged off. Financial Condition Summary
Our total assets were
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(Back to Index) Investment Portfolio
The tables below summarize the amortized cost and net carrying amount of our
investment portfolio, classified by asset type, at
Net Carrying Percent of
At June 30, 2022 Amortized Cost Amount(1) Portfolio Weighted Average Coupon
Loans held for investment:
CRE whole loans, floating-rate $ 2,069,989 $ 2,064,986 93.62 % 4.95%
CRE mezzanine loan 4,700 4,473 0.20 % 10.00%
2,074,689 2,069,459 93.82 %
Other investments:
Investments in unconsolidated entities 1,548 1,548 0.07 % N/A (3)
Investments in real estate (2) 117,200 117,200 5.31 % N/A (3)
Property held for sale 17,657 17,657 0.80 % N/A (3)
136,405 136,405 6.18 %
Total investment portfolio $ 2,211,094 $ 2,205,864 100.00 %
Net Carrying Percent of
At December 31, 2021 Amortized Cost Amount(1) Portfolio Weighted Average Coupon
Loans held for investment:
CRE whole loans, floating-rate(4) $ 1,877,851 $ 1,869,301 95.44 % 4.43%
CRE mezzanine loan 4,700 4,445 0.23 % 10.00%
1,882,551 1,873,746 95.67 %
Other investments:
Investments in unconsolidated entities 1,548 1,548 0.08 % N/A (3)
Investment in real estate (2) 65,465 65,465 3.34 % N/A (3)
Property held for sale 17,846 17,846 0.91 % N/A (3)
84,859 84,859 4.33 %
Total investment portfolio $ 1,967,410 $ 1,958,605 100.00 %
(1) Net carrying amount includes an allowance for credit losses of
and
(2) Includes real estate-related right of use assets of
million, intangible assets of
liabilities of
Also includes a mortgage payable of
(3) There are no stated rates associated with these investments.
(4) Includes one legacy CRE whole loan with an amortized cost of
December 31, 2021 that paid off inJanuary 2022 . CRE loans. During the six months endedJune 30, 2022 , we originated$411.6 million of floating-rate CRE whole loan commitments (of which$42.6 million was unfunded loan commitments), funded$27.2 million of previously unfunded loan commitments and received$201.5 million in proceeds from loan payoffs and paydowns. (Back to Index) 51
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The following is a summary of our loans (dollars in thousands, except amounts in
footnotes):
Unamortized Maturity
(Discount) Allowance for Contractual Interest DatesDescription Quantity Principal Premium, net (1)
Amortized Cost Credit Losses Carrying Value Rates (2) (3)(4)
At June 30, 2022 :
CRE loans held for
investment:
1M BR July 2022
plus 2.75% to 1M BR to July
Whole loans (5)(6) 88 $ 2,084,242 $ (14,253 ) $ 2,069,989 $ (5,003 ) $ 2,064,986 plus 8.50% 2026
Mezzanine loan (5) 1 4,700 - 4,700 (227 ) 4,473 10.00% June 2028
Total CRE loans held
for investment $ 2,088,942 $ (14,253 ) $ 2,074,689 $ (5,230 ) $ 2,069,459
At December 31, 2021 :
CRE loans held for
investment:
January
1M BR 2022 to
plus 2.70% to 1M BR September
Whole loans (5)(6) 93 $ 1,891,795 $ (13,944 ) $ 1,877,851 $ (8,550 ) $ 1,869,301 plus 8.50% 2025
Mezzanine loan (5) 1 4,700 - 4,700 (255 ) 4,445 10.00% June 2028
Total CRE loans held
for investment $ 1,896,495 $ (13,944 ) $ 1,882,551 $ (8,805 ) $ 1,873,746 (1) Amounts include unamortized loan origination fees of
million and deferred amendment fees of
and
unamortized loan acquisition costs of
(2) Our whole loan portfolio of
weighted-average one-month benchmark rate ("BR") floors of 0.62% and 0.75% at
one-month London Interbank Offered Rate ("LIBOR") or one-month Term Secured
Overnight Financing Rate ("SOFR"). At
all but one of our floating-rate whole loans had one-month benchmark floors.
(3) Maturity dates exclude contractual extension options, subject to the
satisfaction of certain terms that may be available to the borrowers.
(4) Maturity dates exclude three whole loans, with amortized costs of
million and
(5) Substantially all loans are pledged as collateral under various borrowings at
(6) CRE whole loans had
commitments at
unfunded loan commitments are advanced as the borrowers formally request
additional funding and meet certain benchmarks, as permitted under the loan
agreement, and any necessary approvals have been obtained.
AtJune 30, 2022 , approximately, 25.6%, 24.1% and 16.5% of our CRE loan portfolio was concentrated in the Southwest, Southeast and Mountain regions, respectively, based on carrying value, as defined by the NCREIF. AtDecember 31, 2021 , approximately 28.4%, 18.4% and 15.2% of our CRE loan portfolio was concentrated in the Southeast, Southwest and Mid-Atlantic regions respectively, based on carrying value. AtJune 30, 2022 andDecember 31, 2021 , no single loan or investment represented more than 10% of our total assets and no single investment group generated over 10% of our revenue. Investment in unconsolidated entities. Our investments in unconsolidated entities atJune 30, 2022 andDecember 31, 2021 comprised a 100% interest in the common shares of Resource Capital Trust I ("RCT I") andRCC Trust II ("RCT II"), with a value of$1.5 million in the aggregate, or 3.0% of each trust. We record our investments in RCT I's and RCT II's common shares as investments in unconsolidated entities using the cost method, recording dividend income when declared by RCT I and RCT II. We recorded dividends from our investments in RCT I's and RCT II's common shares, reported in other revenue on the consolidated statement of operations, of$19,000 and$35,000 during the three and six months endedJune 30, 2022 . During the three and six months endedJune 30, 2021 , we recorded dividends of$16,000 and$32,000 , respectively. (Back to
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(Back to Index) Financing Receivables The following tables show the activity in the allowance for credit losses for the six months endedJune 30, 2022 and year endedDecember 31, 2021 (in thousands): Year Ended Six Months Ended December 31, June 30, 2022 2021 CRE Loans CRE Loans Allowance for credit losses: Allowance for credit losses at beginning of period $ 8,805 $ 34,310 Reversal of credit losses, net (1,278 ) (21,262 ) Charge offs (2,297 ) (4,243 ) Allowance for credit losses at end of period $ 5,230
$ 8,805
During the three months endedJune 30, 2022 , we recorded a provision of expected credit losses of$524,000 primarily attributable to the negative impact of macroeconomic factors focused on increases in inflation, energy costs and interest rates, partially offset by improvements in property-level cash flows. During the six months endedJune 30, 2021 , reversal of expected credit losses in the first quarter of 2022 outpaced the provision during the second quarter of 2022, resulting in a net reversal of$1.3 million in connection with resolutions of loans with specific reserves and continued improvements in property-level operations. During the three and six months endedJune 30, 2021 , we recorded a reversal of expected credit losses of$10.3 million and$16.0 million , respectively, in connection with declines in expected unemployment and continued improvement in macroeconomic factors, loan paydowns and improved collateral operating performance. AtJune 30, 2022 , we individually evaluated one hotel loan in the Northeast region with a principal balance of$14.0 million , one retail loan in the Northeast region with a principal balance of$8.0 million and one office loan in the Southwest region with a principal balance of$21.8 million for which foreclosure was determined to be probable. Each loan had an as-is appraised value in excess of its principal balance, and, as such, had no CECL allowance atJune 30, 2022 . InJuly 2022 , we received the deed-in-lieu of foreclosure on the hotel property. AtDecember 31, 2021 , two additional loans were individually evaluated for impairment: a retail loan in the Pacific region and a hotel loan in East North Central region. Both loans were repaid inJanuary 2022 . The repayment of the retail loan in the Pacific region resulted in a charge off of$2.3 million against the allowance for credit losses. An individual CECL allowance was established for this loan during the fourth quarter of 2021.
Credit quality indicators
Commercial Real Estate Loans
CRE loans are collateralized by a diversified mix of real estate properties and
are assessed for credit quality based on the collective evaluation of several
factors, including but not limited to: collateral performance relative to
underwritten plan, time since origination, current implied and/or reunderwritten
loan-to-collateral value ("LTV") ratios, loan structure and exit plan. Depending
on the loan's performance against these various factors, loans are rated on a
scale from 1 to 5, with loans rated 1 representing loans with the highest credit
quality and loans rated 5 representing loans with the lowest credit quality.
Loans are rated a 2 at origination. The factors evaluated provide general
criteria to monitor credit migration in our loan portfolio; as such, a loan's
rating may improve or worsen, depending on new information received.
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The criteria set forth below should be used as general guidelines and, therefore, not every loan will have all of the characteristics described in each category below.
Risk Rating Risk Characteristics
1 • Property performance has surpassed underwritten expectations.
• Occupancy is stabilized, the property has had a history of
consistently high occupancy, and the property has a diverse and high
quality tenant mix.
2 • Property performance is consistent with underwritten expectations
and covenants and performance criteria are being met or exceeded.
• Occupancy is stabilized, near stabilized or is on track with
underwriting.
3 • Property performance lags behind underwritten expectations.
• Occupancy is not stabilized and the property has some tenancy
rollover.
4 • Property performance significantly lags behind underwritten
expectations. Performance criteria and loan covenants have required
occasional waivers.
• Occupancy is not stabilized and the property has a large amount of
tenancy rollover.
5 • Property performance is significantly worse than underwritten
expectations. The loan is not in compliance with loancovenants and
performance criteria and may be in default. Expected sale proceeds
would not be sufficient to pay off the loan at maturity.
• The property has a material vacancy rate and significant rollover
of remaining tenants.
• An updated appraisal is required upon designation andupdated on an
as-needed basis.
All CRE loans are evaluated for any credit deterioration by debt asset management and certain finance personnel on at least a quarterly basis. Mezzanine loans and preferred equity investments may experience greater credit risks due to their nature as subordinated investments.
For the purpose of calculating the quarterly provision for credit losses under CECL, we pool CRE loans based on the underlying collateral property type and utilize a probability of default and loss given default methodology for approximately one year after which we immediately revert to a historical mean loss ratio. In order to calculate the historical mean loss ratio, we utilize our full, 16-year underwriting history in the determination of historical losses, along with the market loss history from a selected population from an engaged third-party provider's database that were similar to our loan types, loan sizes, durations, interest rate structure and general LTV profiles.
Credit risk profiles of CRE loans at amortized cost were as follows (in thousands, except amounts in the footnotes):
Rating 1 Rating 2 Rating 3 Rating 4 Rating 5 Total (1)
At June 30, 2022 :
Whole loans, floating-rate $ - $ 1,757,379 $ 182,918 $ 115,692 $ 14,000 $ 2,069,989
Mezzanine loan - - - 4,700 - 4,700
Total $ - $ 1,757,379 $ 182,918 $ 120,392 $ 14,000 $ 2,074,689
At December 31, 2021 :
Whole loans, floating-rate $ - $ 1,456,330 $ 273,078 $ 123,762 $ 24,681 $ 1,877,851
Mezzanine loan - - - 4,700 - 4,700
Total $ - $ 1,456,330 $ 273,078 $ 128,462 $ 24,681 $ 1,882,551 (1) The total amortized cost of CRE loans excluded accrued interest receivable of
$7.1 million and$6.1 million atJune 30, 2022 andDecember 31, 2021 , respectively. (Back to Index) 54
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Credit risk profiles of CRE loans by origination year at amortized cost were as follows (in thousands, except amounts in footnotes):
2022 2021 2020 2019 2018 Prior Total (1)
At June 30, 2022 :
Whole loans,
floating-rate: (2)
Rating 2 $ 365,066 $ 1,206,132 $ 120,232 $ 46,463 $ 19,486 $ - $ 1,757,379
Rating 3 - 47,882 25,357 47,565 44,616 17,498 182,918
Rating 4 - - - 51,234 64,458 - 115,692
Rating 5 - - - 14,000 - - 14,000
Total whole loans,
floating-rate 365,066 1,254,014 145,589 159,262 128,560 17,498 2,069,989 Mezzanine loan (rating 4)
- - - - 4,700 - 4,700
Total $ 365,066 $ 1,254,014 $ 145,589 $
159,262
2021 2020 2019 2018 2017 Prior Total (1)
At December 31,
2021:
Whole loans,
floating-rate: (2)
Rating 2 $ 1,230,810 $ 150,513 $ 55,510 $ 19,497 $ - $ - $ 1,456,330
Rating 3 33,781 24,604 136,305 60,888 - 17,500 273,078
Rating 4 - - 28,446 86,096 - 9,220 123,762
Rating 5 - - 22,385 - - 2,296 24,681
Total whole loans,
floating-rate 1,264,591 175,117 242,646 166,481 - 29,016 1,877,851
Mezzanine loan
(rating 4) - - - 4,700 - - 4,700
Total $ 1,264,591 $ 175,117 $ 242,646 $ 171,181 $ - $ 29,016 $ 1,882,551 (1) The total amortized cost of CRE loans excluded accrued interest receivable of
respectively.
(2) Acquired CRE whole loans are grouped within each loan's year of origination.
At
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Loan Portfolio Aging Analysis
The following table presents the CRE loan portfolio aging analysis as of the
dates indicated for CRE loans at amortized cost (in thousands, except amounts in
footnotes):
Greater Total Loans Total Loans
than 90 Total Receivable > 90 Days
30-59 Days 60-89 Days Days (1) Past Due Current (2) (3) and Accruing
At June 30, 2022 :
Whole loans, floating-rate $ 14,000 $ - $ 8,025 $ 22,025 $ 2,047,964 $ 2,069,989 $ -
Mezzanine loan - - - - 4,700 4,700 -
Total $ 14,000 $ - $ 8,025 $ 22,025 $ 2,052,664 $ 2,074,689 $ -
At December 31, 2021 :
Whole loans, floating-rate $ - $ - $ 19,916 $ 19,916 $ 1,857,935 $ 1,877,851 $ 19,916
Mezzanine loan - - - - 4,700 4,700 -
Total $ - $ - $ 19,916 $ 19,916 $ 1,862,635 $ 1,882,551 $ 19,916 (1) During the three and six months ended
interest income on the one loan with a principal payment past due greater
than 90 days at
we recognized interest income of
with principal payments past due greater than 90 days at June 30, 2022 .
(2) Includes one whole loan, with an amortized cost of
default at
(3) The total amortized cost of CRE loans excluded accrued interest receivable of
respectively.
AtJune 30, 2022 andDecember 31, 2021 , we had three CRE loans in maturity default, with total amortized costs of$43.8 million and$27.9 million , respectively. During the six months endedJune 30, 2022 , two whole loans in maturity default atDecember 31, 2021 paid off principal of$17.6 million . The payoff on one loan was the result of a discounted payoff and resulted in a realized loss of$2.3 million for which a CECL allowance was established as ofDecember 31, 2021 .
At
AtDecember 31, 2021 , three whole loans, including two loans that had maturity defaults, with total amortized cost of$30.4 million , were past due on interest payments. InJuly 2022 , we received the deed-in-lieu of foreclosure in full settlement of a CRE loan collateralized by a hotel property in the Northeast region that had a cost basis of$14.0 million atJune 30, 2022 . This CRE loan was both in maturity default and past due on interest payments atJune 30, 2022 .
Troubled Debt Restructurings ("TDRs")
There were no TDRs for the six months ended
During the six months endedJune 30, 2022 , we entered into six agreements that extended loans by a weighted average period of two months and, in certain cases, modified certain other loan terms. One formerly forborne borrower was in maturity default atJune 30, 2022 . No loan modifications during the six months endedJune 30, 2022 resulted in TDRs.
Restricted Cash
AtJune 30, 2022 , we had restricted cash of$25.4 million , which consisted of$24.9 million of restricted cash held within our five consolidated securitization entities,$336,000 held in escrow for tax payments at our real estate properties, and$142,000 held in various reserve accounts. AtDecember 31, 2021 , we had restricted cash of$248.4 million , which consisted of$248.1 million held within our seven consolidated securitization entities and$360,000 held in various reserve accounts. The decrease of$223.1 million was primarily attributable to loan purchase activity within two of our consolidated securitization entities. (Back to Index) 56
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(Back to Index) Accrued Interest Receivable
The following table summarizes our accrued interest receivable at
June 30, 2022 December 31, 2021 Net Change
Accrued interest receivable from loans $ 7,114 $ 6,106 $ 1,008
Accrued interest receivable from promissory
note, escrow, sweep and reserve accounts 48 6 42
Total $ 7,162 $ 6,112 $ 1,050 The increase of
Other Assets
The following table summarizes our other assets at
June 30, 2022 December 31, 2021 Net Change
Tax receivables and prepaid taxes 2,124 2,120 4
Other prepaid expenses 2,051 1,367 684
Other receivables 1,961 1,573 388
Other assets, miscellaneous 407 21 386
Fixed assets - non-real estate 363 401 (38 )
Unsettled trades receivable 1 - 1
Total $ 6,907 $ 5,482 $ 1,425 The increase of
Deferred Tax Assets
AtJune 30, 2022 andDecember 31, 2021 , our net deferred tax asset was zero, resulting from a full valuation allowance of$21.6 million and$21.4 million , respectively, on our deferred tax asset as we believed it was more likely than not that some or all of the deferred tax assets would not be realized. We will continue to evaluate our ability to realize the tax benefits associated with deferred tax assets by analyzing forecasted taxable income using both historical and projected future operating results, the reversal of existing temporary differences, taxable income in prior carry back years (if permitted) and the availability of tax planning strategies.
Core Asset Classes
Our investment strategy targets the following core asset class:
Core Asset Class Principal Investments
Commercial real • First mortgage loans, which we refer to as whole
estate-related assets loans;
• First priority interests in first mortgage loans,
which we refer to as A notes;
• Subordinated interests in first mortgage loans,
which we refer to as B notes;
• Mezzanine debt related to CRE that is senior to the
borrower's equity position but subordinated to other
third-party debt;
• Preferred equity investments related to CRE that
are subordinate to first mortgage loans and are not
collateralized by the property underlying the
investment; and
• CRE equity investments.
Derivative Instruments
Historically, we sought to mitigate the potential impact on net income (loss) of
adverse fluctuations in interest rates incurred on our borrowings by entering
into hedging agreements. We classified our interest rate hedges as cash flow
hedges, which are hedges that eliminate the risk of changes in the cash flows of
a financial asset or liability.
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We terminated interest rate swap positions associated with our prior financed CMBS portfolio inApril 2020 . At termination, we realized a loss of$11.8 million . AtJune 30, 2022 andDecember 31, 2021 , we had a loss of$7.5 million and$8.5 million , respectively, recorded in accumulated other comprehensive (loss) income, which will be amortized into earnings over the remaining life of the debt. During the three and six months endedJune 30, 2022 , we recorded amortization expense of$484,000 and$963,000 , respectively, reported in interest expense on the consolidated statements of operations. During the three and six months endedJune 30, 2021 , we recorded amortization expense of$484,000 and$963,000 , respectively, on the consolidated statement of operations. AtJune 30, 2022 andDecember 31, 2021 , we had an unrealized gain of$302,000 and$347,000 , respectively, attributable to two terminated interest rate swaps, in accumulated other comprehensive (loss) income on the consolidated balance sheets, to be accreted into earnings over the remaining life of the debt. We recorded accretion income, reported in interest expense on the consolidated statements of operations, of$23,000 during three months endedJune 30, 2022 and 2021, and$45,000 during the six months endedJune 30, 2022 and 2021, to accrete the accumulated other comprehensive income on the terminated swap agreements.
The following tables present the effect of derivative instruments on our
consolidated statements of operations for the six months ended
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