Overview



We are a specialty finance company primarily engaged in originating and
investing in commercial real estate ("CRE") loans and related investments. We
are externally managed by ACREM, a subsidiary of Ares Management Corporation
(NYSE: ARES) ("Ares Management"), a publicly traded, leading global alternative
asset manager, pursuant to the terms of the management agreement dated April 25,
2012, as amended, between us and our Manager (the "Management Agreement"). From
the commencement of our operations in late 2011, we have been primarily focused
on directly originating and managing a diversified portfolio of CRE debt-related
investments for our own account.

We were formed and commenced operations in late 2011. We are a Maryland
corporation and completed our initial public offering in May 2012. We have
elected and qualified to be taxed as a REIT for United States federal income tax
purposes under the Internal Revenue Code of 1986, as amended, commencing with
our taxable year ended December 31, 2012. We generally will not be subject to
United States federal income taxes on our REIT taxable income as long as we
annually distribute to stockholders an amount at least equal to our REIT taxable
income prior to the deduction for dividends paid and comply with various other
requirements as a REIT. We also operate our business in a manner that is
intended to permit us to maintain our exemption from registration under the 1940
Act.

Developments During the Second Quarter of 2021:



•ACRE originated a $19.5 million senior mortgage loan on a student housing
property located in Alabama.
•ACRE originated a $15.0 million mezzanine loan on a portfolio of self storage
properties located in New Jersey. Subsequent to the origination of the $15.0
million mezzanine loan, ACRE purchased a $40.5 million senior mortgage loan on
the same portfolio of self storage properties from the Ares Warehouse Vehicle.
•ACRE purchased a $53.3 million senior mortgage loan on a residential
condominium property located in New York from a third party. At the purchase
date, ACRE already owned the corresponding $18.6 million mezzanine loan.
•ACRE purchased a $100.7 million senior mortgage loan on an industrial property
located in Illinois from the Ares Warehouse Vehicle.
•ACRE originated a $37.5 million senior mortgage loan on a multifamily property
located in South Carolina.
•ACRE purchased a $44.7 million senior mortgage loan on an industrial property
located in New Jersey from the Ares Warehouse Vehicle.
•ACRE Commercial Mortgage 2017-FL3 Ltd. (the "FL3 Issuer") and ACRE Commercial
Mortgage 2017-FL3 LLC (the "FL3 Co-Issuer") entered into a First Supplement to
Amended and Restated Indenture (the "2021 Amended Indenture") with Wells Fargo
Bank, National Association, as advancing agent and note administrator, and
Wilmington Trust, National Association, as trustee, which governs the FL3
collateralized loan obligation securitization debt ("FL3 CLO Securitization").
The purpose of the 2021 Amended Indenture was to, among other things, extend the
reinvestment period to March 31, 2024, extend the date on and after which the
FL3 Issuer may redeem the Notes held by third parties to March 17, 2025 (the
"Redemption Date"), and eliminate the prepayment fee due on the Redemption Date.
•ACRE entered into an underwriting agreement (the "Underwriting Agreement") in
which ACRE agreed to sell an aggregate of 6,500,000 shares of ACRE's common
stock, par value $0.01 per share. The public offering generated net proceeds of
approximately $101.6 million, after deducting transaction expenses.

Factors Impacting Our Operating Results



The results of our operations are affected by a number of factors and primarily
depend on, among other things, the level of our net interest income, the market
value of our assets and the supply of, and demand for, commercial mortgage
loans, CRE debt and other financial assets in the marketplace. Our net interest
income, which reflects the amortization of origination fees and direct costs, is
recognized based on the contractual rate and the outstanding principal balance
of the loans we originate. Interest rates will vary according to the type of
investment, conditions in the financial markets, creditworthiness of our
borrowers, competition and other factors, none of which can be predicted with
any certainty. Our operating results may also be impacted by credit losses in
excess of initial anticipations or unanticipated credit events experienced by
borrowers.

Loans Held for Investment Portfolio



As of June 30, 2021, our portfolio included 53 loans held for investment,
excluding 106 loans that were repaid, sold or converted to real estate owned
since inception. As of June 30, 2021, the aggregate originated commitment under
these loans at closing was approximately $2.3 billion and outstanding principal
was $2.0 billion. During the six months ended June 30, 2021,
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we funded approximately $471.6 million of outstanding principal and received
repayments of $255.3 million of outstanding principal. As of June 30, 2021,
97.2% of our loans have LIBOR floors, with a weighted average floor of 1.36%,
calculated based on loans with LIBOR floors. References to LIBOR or "L" are to
30-day LIBOR (unless otherwise specifically stated).

Other than as set forth in Note 3 to our consolidated financial statements included in this quarterly report on Form 10-Q, as of June 30, 2021, all loans held for investment were paying in accordance with their contractual terms.

Our loans held for investment are accounted for at amortized cost. The following table summarizes our loans held for investment as of June 30, 2021 ($ in thousands):



                                                                                        As of June 30, 2021
                                                                                                                                             Weighted
                                                                                                                                             Average
                                           Carrying Amount         Outstanding            Weighted Average Unleveraged Effective          Remaining Life
                                                 (1)              Principal (1)                            Yield                             (Years)
Senior mortgage loans                      $  2,001,488          $   2,011,128                      5.8  % (2)         5.9  % (3)                

1.3


Subordinated debt and preferred equity
investments                                      30,920                 31,416                     15.8  % (2)        15.8  % (3)                   

2.5

Total loans held for investment portfolio $ 2,032,408 $ 2,042,544

                      6.0  % (2)         6.1  % (3)                

1.3

_______________________________



(1)The difference between the Carrying Amount and the Outstanding Principal
amount of the loans held for investment consists of unamortized purchase
discount, deferred loan fees and loan origination costs.
(2)Unleveraged Effective Yield is the compounded effective rate of return that
would be earned over the life of the investment based on the contractual
interest rate (adjusted for any deferred loan fees, costs, premiums or
discounts) and assumes no dispositions, early prepayments or defaults. The total
Weighted Average Unleveraged Effective Yield is calculated based on the average
of Unleveraged Effective Yield of all loans held by us as of June 30, 2021 as
weighted by the outstanding principal balance of each loan.
(3)Unleveraged Effective Yield is the compounded effective rate of return that
would be earned over the life of the investment based on the contractual
interest rate (adjusted for any deferred loan fees, costs, premiums or
discounts) and assumes no dispositions, early prepayments or defaults. The total
Weighted Average Unleveraged Effective Yield is calculated based on the average
of Unleveraged Effective Yield of all interest accruing loans held by us as of
June 30, 2021 as weighted by the total outstanding principal balance of each
interest accruing loan (excludes loans on non-accrual status as of June 30,
2021).

Critical Accounting Policies



Our consolidated financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP"), which require management to
make estimates and assumptions that affect reported amounts. The estimates and
assumptions are based on historical experience and other factors management
believes to be reasonable. Actual results may differ from those estimates and
assumptions. There have been no significant changes to our critical accounting
policies as disclosed in our Annual Report on Form 10-K. See Note 2 to our
consolidated financial statements included in this quarterly report on Form
10-Q, which describes factors which may impact management's estimates and
assumptions and the recently issued accounting pronouncements that were adopted
or not yet required to be adopted by us.

RECENT DEVELOPMENTS



On July 1, 2021, we purchased a $78.3 million pari-passu participation in a
$227.1 million senior mortgage loan on a mixed use property located in New York
from an Ares Management managed investment vehicle. At the purchase date, the
outstanding principal balance was $75.0 million. The loan has a per annum
interest rate of LIBOR plus 3.65%.

On July 9, 2021, we originated a $75.0 million senior mortgage loan on a residential condominium property located in Florida. At closing, the outstanding principal balance was approximately $65.0 million. The loan has a per annum interest rate of LIBOR plus 5.25%.

On July 9, 2021, we originated an $81.0 million senior mortgage loan on an office property located in New York. At closing, the outstanding principal balance was approximately $59.9 million. The loan has a per annum interest rate of LIBOR plus 3.85%.


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On July 16, 2021, we purchased a fully funded $3.2 million senior mortgage loan
on a self storage property located in Colorado from a third party. The loan has
a per annum interest rate of LIBOR plus 2.90%.

On July 16, 2021, we purchased an $8.6 million senior mortgage loan on a self
storage property located in Arizona from a third party. At the purchase date,
the outstanding principal balance was approximately $8.3 million. The loan has a
per annum interest rate of LIBOR plus 2.90%.

On July 16, 2021, we purchased a fully funded $7.4 million senior mortgage loan
on a self storage property located in Arizona from a third party. The loan has a
per annum interest rate of LIBOR plus 2.90%.

Our Board of Directors declared a regular cash dividend of $0.33 per common
share and a supplemental cash dividend of $0.02 per common share for the third
quarter of 2021. The third quarter 2021 and supplemental cash dividends will be
payable on October 15, 2021 to common stockholders of record as of September 30,
2021.

RESULTS OF OPERATIONS

The following table sets forth a summary of our consolidated results of operations for the three and six months ended June 30, 2021 and 2020 ($ in thousands):


                                                 For the three months ended June        For the six months ended June
                                                               30,                                   30,
                                                     2021               2020               2021               2020
Total revenue                                    $   23,531          $ 17,982          $   44,754          $ 39,116
Total expenses                                        9,391             8,063              17,929            19,333

Provision for current expected credit losses (3,883) (4,007)

             (7,123)           23,111

Unrealized losses on loans held for sale                  -             3,998                   -             3,998
Income (loss) before income taxes                    18,023             9,928              33,948            (7,326)
Income tax expense, including excise tax                408               160                 593               169
Net income (loss) attributable to common
stockholders                                     $   17,615          $  9,768          $   33,355          $ (7,495)

The following tables set forth select details of our consolidated results of operations for the three and six months ended June 30, 2021 and 2020 ($ in thousands):

Net Interest Margin


                                                      For the three months ended June        For the six months ended June
                                                                    30,                                   30,
                                                          2021               2020               2021               2020
Interest income                                       $   30,859          $ 29,835          $   61,564          $ 61,283
Interest expense                                         (11,092)          (13,042)            (23,231)          (28,576)
Net interest margin                                   $   19,767          $ 

16,793 $ 38,333 $ 32,707





For the three months ended June 30, 2021 and 2020, net interest margin was
approximately $19.8 million and $16.8 million, respectively. For the three
months ended June 30, 2021 and 2020, interest income of $30.9 million and $29.8
million, respectively, was generated by weighted average earning assets of $2.0
billion and $1.9 billion, respectively, offset by $11.1 million and $13.0
million, respectively, of interest expense, unused fees and amortization of
deferred loan costs. The weighted average borrowings under the Wells Fargo
Facility, the Citibank Facility, the CNB Facility, the MetLife Facility and the
Morgan Stanley Facility (individually defined below and collectively, the
"Secured Funding Agreements"), Notes Payable (as defined below and excluding the
Note Payable on the hotel property that is recognized as real estate owned in
our consolidated balance sheets), the Secured Term Loan, Secured Borrowings and
securitization debt (as defined below) were $1.5 billion for the three months
ended June 30, 2021 and $1.6 billion for the three months ended June 30, 2020
(which included two facilities which were subsequently paid in full). The
increase in net interest margin for the three months ended June 30, 2021
compared to the three months ended June 30, 2020 primarily relates to the
benefit received from the impact of LIBOR floors on our loans held for
investment due to a decrease in 30-day LIBOR for the three months ended June 30,
2021. As of June 30, 2021, 97.2% of our loans held for investment as measured by
outstanding principal balance have LIBOR floors, with a weighted average floor
of 1.36%, calculated based on loans with LIBOR floors, while 13.0% of our
borrowings have LIBOR floors, with a
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weighted average floor of 1.22%. In addition, in January 2021, we issued $540.5
million of securitization debt, a portion of the proceeds of which were used to
pay down debt with a higher cost of funds than the issued securitization debt.

For the six months ended June 30, 2021 and 2020, net interest margin was
approximately $38.3 million and $32.7 million, respectively. For the six months
ended June 30, 2021 and 2020, interest income of $61.6 million and $61.3
million, respectively, was generated by weighted average earning assets of $1.9
billion and $1.9 billion, respectively, offset by $23.2 million and $28.6
million, respectively, of interest expense, unused fees and amortization of
deferred loan costs. The weighted average borrowings under the Secured Funding
Agreements, Notes Payable (excluding the Note Payable on the hotel property that
is recognized as real estate owned in our consolidated balance sheets), the
Secured Term Loan, Secured Borrowings and securitization debt were $1.5 billion
for the six months ended June 30, 2021 and $1.5 billion for the six months ended
June 30, 2020. The increase in net interest margin for the six months ended June
30, 2021 compared to the six months ended June 30, 2020 primarily relates to the
benefit received from the impact of LIBOR floors on our loans held for
investment due to a decrease in 30-day LIBOR for the six months ended June 30,
2021. In addition, in January 2021, we issued $540.5 million of securitization
debt, a portion of the proceeds of which were used to pay down debt with a
higher cost of funds than the issued securitization debt.

Revenue From Real Estate Owned



  On March 8, 2019, we acquired legal title to a hotel property through a deed
in lieu of foreclosure. Prior to March 8, 2019, the hotel property
collateralized a $38.6 million senior mortgage loan that we held that was in
maturity default due to the failure of the borrower to repay the outstanding
principal balance of the loan by the December 2018 maturity date. In conjunction
with the deed in lieu of foreclosure, we derecognized the $38.6 million senior
mortgage loan and recognized the hotel property as real estate owned. For the
three months ended June 30, 2021 and 2020, revenue from real estate owned was
$3.8 million and $1.2 million, respectively. Revenues consist of room sales,
food and beverage sales and other hotel revenues. The increase in revenue from
real estate owned for the three months ended June 30, 2021 compared to the three
months ended June 30, 2020 is primarily due to the ongoing recovery from the
impact of the COVID-19 pandemic as occupancy and overall revenue at the hotel
property increased for the three months ended June 30, 2021. For both the six
months ended June 30, 2021 and 2020, revenue from real estate owned was $6.4
million.
Operating Expenses
                                                     For the three months ended          For the six months ended June
                                                              June 30,                                30,
                                                        2021              2020              2021               2020

Management and incentive fees to affiliate $ 2,951 $ 2,152 $ 5,518 $ 3,924 Professional fees

                                         615              660               1,400             1,563
General and administrative expenses                     1,195              959               2,351             1,827
General and administrative expenses reimbursed to
affiliate                                                 788            1,038               1,540             2,089
Expenses from real estate owned                         3,842            3,254               7,120             9,930
Total expenses                                      $   9,391          $ 8,063          $   17,929          $ 19,333



See the Related Party Expenses, Other Expenses and Expenses from Real Estate
Owned discussions below for the cause of the increase in operating expenses for
the three months ended June 30, 2021 compared to the three months ended June 30,
2020 and the cause of the decrease in operating expenses for the six months
ended June 30, 2021 compared to the six months ended June 30, 2020.

Related Party Expenses



For the three months ended June 30, 2021, related party expenses included $3.0
million in management and incentive fees due to our Manager pursuant to the
Management Agreement, which consisted of $2.3 million in management fees and
$0.7 million in incentive fees. For the three months ended June 30, 2021,
related party expenses also included $0.8 million for our share of allocable
general and administrative expenses for which we were required to reimburse our
Manager pursuant to the Management Agreement. For the three months ended June
30, 2020, related party expenses included $2.2 million in management and
incentive fees due to our Manager pursuant to the Management Agreement, which
consisted of $1.8 million in management fees and $0.3 million in incentive fees.
For the three months ended June 30, 2020, related party expenses also included
$1.0 million for our share of allocable general and administrative expenses for
which we were required to reimburse our Manager pursuant to the Management
Agreement. The increase in management fees for the three months ended June 30,
2021 compared to the three months ended June 30, 2020 primarily relates to an
increase in our weighted average stockholders'
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equity for the three months ended June 30, 2021 as a result of the public
offering of 7,000,000 shares of our common stock in March 2021, which generated
net proceeds of approximately $100.7 million, and the public offering of
6,500,000 shares of our common stock in June 2021, which generated net proceeds
of approximately $101.6 million. The increase in incentive fees for the three
months ended June 30, 2021 compared to the three months ended June 30, 2020,
primarily relates to our Core Earnings (as defined below) for the twelve months
ended June 30, 2021 exceeding the 8% minimum return by a higher margin than the
twelve months ended June 30, 2020. "Core Earnings" is defined in the Management
Agreement as GAAP net income (loss) computed in accordance with GAAP, excluding
non-cash equity compensation expense, the incentive fee, depreciation and
amortization (to the extent that any of our target investments are structured as
debt and we foreclose on any properties underlying such debt), any unrealized
gains, losses or other non-cash items recorded in net income (loss) for the
period, regardless of whether such items are included in other comprehensive
income or loss, or in net income (loss), and one-time events pursuant to changes
in GAAP and certain non-cash charges after discussions between our Manager and
our independent directors and after approval by a majority of our independent
directors. The decrease in allocable general and administrative expenses due to
our Manager for the three months ended June 30, 2021 compared to the three
months ended June 30, 2020, primarily relates to a decrease in the percentage of
time allocated to us by employees of our Manager due to changes in transaction
activity year over year.

For the six months ended June 30, 2021, related party expenses included $5.5
million in management and incentive fees due to our Manager pursuant to the
Management Agreement, which consisted of $4.2 million in management fees and
$1.4 million in incentive fees. For the six months ended June 30, 2021, related
party expenses also included $1.5 million for our share of allocable general and
administrative expenses for which we were required to reimburse our Manager
pursuant to the Management Agreement. For the six months ended June 30, 2020,
related party expenses included $3.9 million in management and incentive fees
due to our Manager pursuant to the Management Agreement, which consisted of $3.6
million in management fees and $0.3 million in incentive fees. For the six
months ended June 30, 2020, related party expenses also included $2.1 million
for our share of allocable general and administrative expenses for which we were
required to reimburse our Manager pursuant to the Management Agreement. The
increase in management fees for the six months ended June 30, 2021 compared to
the six months ended June 30, 2020 primarily relates to an increase in our
weighted average stockholders' equity for the six months ended June 30, 2021 as
a result of the public offering of 7,000,000 shares of our common stock in March
2021, which generated net proceeds of approximately $100.7 million, and the
public offering of 6,500,000 shares of our common stock in June 2021, which
generated net proceeds of approximately $101.6 million. The increase in
incentive fees for the six months ended June 30, 2021 compared to the six months
ended June 30, 2020 primarily relates to our Core Earnings for the twelve months
ended June 30, 2021 exceeding the 8% minimum return by a higher margin than the
twelve months ended June 30, 2020. The decrease in allocable general and
administrative expenses due to our Manager for the six months ended June 30,
2021 compared to the six months ended June 30, 2020 primarily relates to a
decrease in the percentage of time allocated to us by employees of our Manager
due to changes in transaction activity year over year.

Other Expenses



For the three months ended June 30, 2021 and 2020, professional fees were $0.6
million and $0.7 million, respectively. The decrease in professional fees for
the three months ended June 30, 2021 compared to the three months ended June 30,
2020 primarily relates to a decrease in our use of third-party professionals due
to changes in transaction activity year over year. For the three months ended
June 30, 2021 and 2020, general and administrative expenses were $1.2 million
and $1.0 million, respectively. The increase in general and administrative
expenses for the three months ended June 30, 2021 compared to the three months
ended June 30, 2020 primarily relates to an increase in stock-based compensation
expense due to new restricted stock and restricted stock unit grants awarded
after June 30, 2020.

For the six months ended June 30, 2021 and 2020, professional fees were $1.4
million and $1.6 million, respectively. The decrease in professional fees for
the six months ended June 30, 2021 compared to the six months ended June 30,
2020 primarily relates to a decrease in our use of third-party professionals due
to changes in transaction activity year over year. For the six months ended June
30, 2021 and 2020, general and administrative expenses were $2.4 million and
$1.8 million, respectively. The increase in general and administrative expenses
for the six months ended June 30, 2021 compared to the six months ended June 30,
2020 primarily relates to an increase in stock-based compensation expense due to
new restricted stock and restricted stock unit grants awarded after June 30,
2020.

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Expenses From Real Estate Owned

For the three and six months ended June 30, 2021 and 2020, expenses from real estate owned was comprised of the following ($ in thousands):


                                                  For the three months ended         For the six months ended June
                                                           June 30,                               30,
                                                     2021              2020              2021              2020
Hotel operating expenses                         $   3,202          $ 2,611          $   5,846          $ 8,654
Interest expense on note payable                       415              419                825              831
Depreciation expense                                   225              224                449              445
Expenses from real estate owned                  $   3,842          $ 3,254

$ 7,120 $ 9,930





For the three months ended June 30, 2021 and 2020, hotel operating expenses were
$3.2 million and $2.6 million, respectively. Hotel operating expenses consist
primarily of expenses incurred in the day-to-day operation of our hotel
property, including room expense, food and beverage expense and other operating
expenses. Room expense includes housekeeping and front office wages and payroll
taxes, reservation systems, room supplies, laundry services and other costs.
Food and beverage expense primarily includes the cost of food, the cost of
beverages and associated labor costs. Other operating expenses include labor and
other costs associated with administrative departments, sales and marketing,
repairs and maintenance, real estate taxes, insurance, utility costs and
management and incentive fees paid to the hotel property manager. The increase
in hotel operating expenses for the three months ended June 30, 2021 compared to
the three months ended June 30, 2020 is primarily due to the ongoing recovery
from the impact of the COVID-19 pandemic as occupancy and overall expenses at
the hotel property increased for the three months ended June 30, 2021. For both
the three months ended June 30, 2021 and 2020, interest expense on our note
payable was $0.4 million. For both the three months ended June 30, 2021 and
2020, depreciation expense was $0.2 million.

For the six months ended June 30, 2021 and 2020, hotel operating expenses were
$5.8 million and $8.7 million, respectively. The decrease in hotel operating
expenses for the six months ended June 30, 2021 compared to the six months ended
June 30, 2020 is primarily due to the six months ended June 30, 2020 including
two months of hotel operations that were not significantly impacted by the
COVID-19 pandemic, which significantly reduced occupancy and forced us to
implement plans to reduce overall operating expenses at the hotel property. For
both the six months ended June 30, 2021 and 2020, interest expense on our note
payable was $0.8 million. For both the six months ended June 30, 2021 and 2020,
depreciation expense was $0.4 million.

Provision for Current Expected Credit Losses



For the three months ended June 30, 2021 and 2020, the provision for current
expected credit losses was $(3.9) million and $(4.0) million, respectively. The
decrease in the provision for current expected credit losses for the three
months ended June 30, 2021 compared to the three months ended June 30, 2020 is
primarily due to forecasted improvement in macroeconomic factors, shorter
average remaining loan term and changes in the portfolio, including payoffs,
during the three months ended June 30, 2021.

For the six months ended June 30, 2021 and 2020, the provision for current
expected credit losses was $(7.1) million and $23.1 million, respectively. The
decrease in the provision for current expected credit losses for the six months
ended June 30, 2021 compared to the six months ended June 30, 2020 is primarily
due to forecasted improvement in macroeconomic factors, shorter average
remaining loan term and changes in the portfolio, including payoffs, during the
six months ended June 30, 2021.

  The current expected credit loss reserve (the "CECL Reserve") takes into
consideration the macroeconomic impact of the COVID-19 pandemic on CRE
properties and is not specific to any loan losses or impairments on our loans
held for investment. Additionally, the CECL Reserve is not an indicator of what
we expect our CECL Reserve would have been absent the current and potential
future impacts of the COVID-19 pandemic.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain our assets and operations, make distributions to our stockholders and other general business


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needs. We use significant cash to purchase our target investments, make principal and interest payments on our borrowings, make distributions to our stockholders and fund our operations.



Our primary sources of cash generally consist of unused borrowing capacity under
our Secured Funding Agreements, the net proceeds of future offerings, payments
of principal and interest we receive on our portfolio of assets and cash
generated from our operating activities. Principal repayments from mortgage
loans in securitizations where we retain the subordinate securities are applied
sequentially, first used to pay down the senior notes, and accordingly, we will
not receive any proceeds from repayment of loans in the securitizations until
all senior notes are repaid in full.

Due to the impact of the COVID-19 pandemic, we may experience borrowers who are
unable to pay interest and principal payments timely, including at the maturity
date of the borrower's loan, if at all, and expected prepayments by our
borrowers may not occur, which could impact our liquidity. Our Secured Funding
Agreements contains margin call provisions following the occurrence of certain
mortgage loan credit events. If we are unable to make the required payment or if
we fail to meet or satisfy any of the covenants in our Financing Agreements, we
would be in default under these agreements, and our lenders could elect to
declare outstanding amounts due and payable, terminate their commitments,
require the posting of additional collateral, including cash to satisfy margin
calls, and enforce their interests against existing collateral. We are also
subject to cross-default and acceleration rights with respect to our Financing
Agreements. Given the impact of the COVID-19 pandemic on the real estate
industry and the potential impact on our borrowers, to mitigate the risk of
future margin calls, we proactively engaged in discussions with certain of our
lenders to modify the terms of our borrowings on certain assets within these
facilities, in order to, among other things, reduce the amounts we are borrowing
against such assets and/or increase the borrowing spreads. We may not receive
financing from our Secured Funding Agreements with respect to our commitments to
fund our loans held for investment in the future. See "Summary of Financing
Agreements" below for a description of our Financing Agreements.

We are focused on preserving our liquidity in order to satisfy our cash
requirements, including future commitments to fund on our loans, make interest,
principal and other payments pursuant to our financing obligations and to
potentially originate new loans and make opportunistic new investments. Subject
to maintaining our qualification as a REIT and our exemption from the 1940 Act,
we expect that our primary sources of enhancing our liquidity will be financing,
to the extent available to us, through credit, secured funding and other lending
facilities, other sources of private financing, including warehouse and
repurchase facilities, and public or private offerings of our equity or debt
securities. On July 19, 2019, we filed a registration statement on Form S-3 with
the SEC, which became effective on August 2, 2019, in order to permit us to
offer, from time to time, in one or more offerings or series of offerings up to
$1.25 billion of our common stock, preferred stock, debt securities,
subscription rights to purchase shares of our common stock, warrants
representing rights to purchase shares of our common stock, preferred stock or
debt securities, or units. The specifics of any future offerings, along with the
use of proceeds of any securities offered, will be described in detail in a
prospectus supplement, or other offering materials, at the time of any offering.
We may also access liquidity through our "At the Market Stock Offering Program"
which was established in November 2019 pursuant to which we may sell, from time
to time, up to $100.0 million of shares of our common stock. Furthermore, we
have sold, and may continue to sell certain of our mortgage loans, or interests
therein, in order to manage liquidity needs. Subject to maintaining our
qualification as a REIT, we may also change our dividend practice, including by
reducing the amount of, or temporarily suspending, our future dividends or
making dividends that are payable in cash and shares of our common stock for
some period of time. We are also able to access additional liquidity through the
(i) reinvestment provisions in our FL3 CLO Securitization, which allows us to
replace mortgage assets in our FL3 CLO Securitization which have repaid and (ii)
future funding acquisition provisions in our FL4 collateralized loan obligation
securitization debt ("FL4 CLO Securitization", together with our FL3 CLO
Securitization, our "CLO Securitizations"), which allows us to use mortgage
asset repayment funds to acquire additional funded pari-passu participations
related to the mortgage assets then-remaining in our FL4 CLO Securitization;
each subject to the satisfaction of certain reinvestment or acquisition
conditions, which may include receipt of Rating Agency Confirmation and investor
approval. There can be no assurance that the conditions for reinvestment or
acquisition will be satisfied and whether our CLO Securitizations will acquire
any additional mortgage assets or funded pari-passu participations. In addition,
our CLO Securitizations contains certain senior note overcollateralization ratio
tests. To the extent we fail to meet these tests, amounts that would otherwise
be used to make payments on the subordinate securities that we hold will be used
to repay principal on the more senior securities to the extent necessary to
satisfy any senior note overcollateralization ratio and we may incur significant
losses. Our sources of liquidity may be impacted to the extent we do not receive
cash payments that we would otherwise expect to receive from the CLO
Securitizations if these tests were met.

Ares Management or one of its investment vehicles, including the Ares Warehouse
Vehicle, may originate mortgage loans and we may have the opportunity to
purchase such loans that are determined by our Manager in good faith to be
appropriate for us, once we have sufficient available liquidity. Ares Management
or one of its investment vehicles may also acquire mortgage loans from us.

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As of July 29, 2021, we had approximately $57 million in liquidity including
$2 million of unrestricted cash and $55 million of availability under secured
funding agreements.

Equity Offerings

On March 15, 2021, we entered into an underwriting agreement (the "March 2021
Underwriting Agreement"), by and among us, ACREM, and Wells Fargo Securities,
LLC, BofA Securities, Inc. and Morgan Stanley & Co. LLC, as representatives of
the several underwriters listed therein (collectively, the "March 2021
Underwriters"). Pursuant to the terms of the March 2021 Underwriting Agreement,
we agreed to sell, and the March 2021 Underwriters agreed to purchase, subject
to the terms and conditions set forth in the March 2021 Underwriting Agreement,
an aggregate of 7,000,000 shares of our common stock, par value $0.01 per share.
The public offering closed on March 18, 2021 and generated net proceeds of
approximately $100.7 million, after deducting transaction expenses. We used the
net proceeds from the public offering to repay indebtedness and to invest in
mortgage loans and other target assets and investments consistent with our
investment strategies and investment guidelines.

On June 17, 2021, we entered into an underwriting agreement (the "June 2021
Underwriting Agreement"), by and among us, ACREM, and Wells Fargo Securities,
LLC, BofA Securities, Inc. and Morgan Stanley & Co. LLC, as representatives of
the several underwriters listed therein (collectively, the "June 2021
Underwriters"). Pursuant to the terms of the June 2021 Underwriting Agreement,
we agreed to sell, and the June 2021 Underwriters agreed to purchase, subject to
the terms and conditions set forth in the June 2021 Underwriting Agreement, an
aggregate of 6,500,000 shares of the Company's common stock, par value $0.01 per
share. The public offering closed on June 22, 2021 and generated net proceeds of
approximately $101.6 million, after deducting transaction expenses. We used the
net proceeds from the public offering to repay indebtedness and to invest in
mortgage loans and other target assets and investments consistent with our
investment strategies and investment guidelines.

Cash Flows

The following table sets forth changes in cash and cash equivalents for the six months ended June 30, 2021 and 2020 ($ in thousands):

For the six months ended June


                                                                                       30,
                                                                             2021                2020
Net income (loss)                                                        $ 

33,355 $ (7,495) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

                                                   (13,574)            21,658
Net cash provided by (used in) operating activities                          19,781             14,163
Net cash provided by (used in) investing activities                        (307,953)          (193,035)
Net cash provided by (used in) financing activities                         289,067            246,224
Change in cash and cash equivalents                                      $  

895 $ 67,352

During the six months ended June 30, 2021 and 2020, cash and cash equivalents increased by $0.9 million and $67.4 million, respectively.

Operating Activities



For the six months ended June 30, 2021 and 2020, net cash provided by operating
activities totaled $19.8 million and $14.2 million, respectively. For the six
months ended June 30, 2021, adjustments to net income related to operating
activities primarily included the provision for current expected credit losses
of $7.1 million, accretion of deferred loan origination fees and costs of
$3.9 million, amortization of deferred financing costs of $4.5 million and
change in other assets of $9.3 million. For the six months ended June 30, 2020,
adjustments to net loss related to operating activities primarily included the
provision for current expected credit losses of $23.1 million, accretion of
deferred loan origination fees and costs of $3.6 million, amortization of
deferred financing costs of $3.3 million and change in other assets of $4.7
million.

Investing Activities



For the six months ended June 30, 2021 and 2020, net cash used in investing
activities totaled $308.0 million and $193.0 million, respectively. This change
in net cash used in investing activities was primarily as a result of the cash
used for
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the origination and funding of loans held for investment exceeding the cash received from principal repayment of loans held for investment for the six months ended June 30, 2021.

Financing Activities



For the six months ended June 30, 2021, net cash provided by financing
activities totaled $289.1 million and primarily related to proceeds from our
Secured Funding Agreements of $207.2 million, proceeds from the issuance of debt
of consolidated VIEs of $540.5 million and proceeds from the sale of our common
stock of $202.7 million, partially offset by repayments of our Secured Funding
Agreements of $558.6 million, repayments of our Notes Payable of $27.9 million,
repayments of our Secured Term Loan of $50.0 million and dividends paid of
$25.4 million. For the six months ended June 30, 2020, net cash provided by
financing activities totaled $246.2 million and primarily related to proceeds
from our Secured Funding Agreements of $355.1 million, proceeds from Secured
Borrowings of $48.1 million, proceeds from the sale of our common stock of $73.2
million, partially offset by repayments of our Secured Funding Agreements of
$206.8 million and dividends paid of $20.6 million.

Summary of Financing Agreements



The sources of financing, as applicable in a given period, under our Secured
Funding Agreements, Notes Payable and the Secured Term Loan (collectively, the
"Financing Agreements") are described in the following table ($ in thousands):
                                                                                                                            As of
                                                                   June 30, 2021                                                                                    December 31, 2020
                                Total              Outstanding                                                                     Total              Outstanding
                              Commitment             Balance                Interest Rate              Maturity Date             Commitment             Balance                Interest Rate              Maturity Date
Secured Funding Agreements:
Wells Fargo Facility        $   350,000          $     238,414           LIBOR+1.50 to 2.75%         December 14, 2022  (1)    $   350,000          $     336,001           LIBOR+1.45 to 2.75%         December 14, 2022  (1)
Citibank Facility               325,000                 44,730           LIBOR+1.50 to 2.25%         December 13, 2021  (2)        325,000                117,506           LIBOR+1.50 to 2.25%         December 13, 2021  (2)
CNB Facility                     50,000                      -               LIBOR+2.65%              March 10, 2022    (3)         50,000                 50,000               LIBOR+2.65%              March 10, 2021    (3)
MetLife Facility                180,000                 20,648           LIBOR+2.10 to 2.50%          August 13, 2022   (4)        180,000                104,124           LIBOR+2.10 to 2.50%          August 13, 2022   (4)
Morgan Stanley
Facility                        250,000                100,413           LIBOR+1.75 to 2.85%         January 16, 2023   (5)        150,000                147,921           LIBOR+1.75 to 2.85%         January 16, 2023   (5)
Subtotal                    $ 1,155,000          $     404,205                                                                 $ 1,055,000          $     755,552

Notes Payable               $    51,755          $      44,936           LIBOR+3.00 to 3.75%                (6)                $    84,155          $      63,122           LIBOR+2.50 to 3.75%                (6)

Secured Term Loan           $    60,000          $      60,000               LIBOR+5.38%             December 22, 2021  (7)    $   110,000          $     110,000               LIBOR+5.00%             December 22, 2021  (7)
Total                       $ 1,266,755          $     509,141                                                                 $ 1,249,155          $     928,674

_____________________________



(1)The maturity date of the master repurchase funding facility with Wells Fargo
Bank, National Association (the "Wells Fargo Facility") is subject to three
12-month extensions at our option provided that certain conditions are met and
applicable extension fees are paid. The maximum commitment may be increased to
up to $500.0 million at our option, subject to the satisfaction of certain
conditions, including payment of an upsize fee.
(2)The maturity date of the master repurchase facility with Citibank, N.A. (the
"Citibank Facility") is subject to two 12-month extensions at our option
provided that certain conditions are met and applicable extension fees are paid.
(3)In March 2021, we exercised a 12-month extension option on the secured
revolving funding facility with City National Bank (the "CNB Facility"). The CNB
Facility has an accordion feature that provides for, subject to approval by City
National Bank in its sole discretion, an increase in the commitment amount from
$50.0 million to $75.0 million for up to a period of 120 days once per calendar
year.
(4)The maturity date of the revolving master repurchase facility with
Metropolitan Life Insurance Company (the "MetLife Facility") is subject to two
12-month extensions at our option provided that certain conditions are met and
applicable extension fees are paid.
(5)The maturity date of the master repurchase and securities contract with
Morgan Stanley (the "Morgan Stanley Facility") is subject to two 12-month
extensions at our option provided that certain conditions are met and applicable
extension fees are paid. The Morgan Stanley Facility has an accordion feature
that provides for a $100.0 million permanent increase in the commitment amount
from $150.0 million to $250.0 million, which may be exercised at our
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option, subject to the satisfaction of certain conditions, including payment of
an upsized commitment fee. In June 2021, we exercised the option to increase the
commitment amount from $150.0 million to $250.0 million.
(6)Certain of our consolidated subsidiaries are party to two separate note
agreements (the "Notes Payable") with the lenders referred to therein,
consisting of (1) a $28.3 million note that has a maturity date of June 10, 2024
and (2) a $23.5 million note that has an initial maturity date of September 5,
2022, subject to two 12-month extensions at our option provided that certain
conditions are met and applicable extension fees are paid. In March 2021, the
$32.4 million note, which was secured by a $40.5 million senior mortgage loan
held by us on an industrial property located in North Carolina, was repaid in
full and not extended. The outstanding principal on the note at the time of
repayment was $27.9 million.
(7)In December 2020, we exercised the 12-month extension option on the Credit
and Guaranty Agreement with the lenders referred to therein and Cortland Capital
Market Services LLC, as administrative agent and collateral agent for the
lenders (the "Secured Term Loan"). During the extension period, the spread on
advances under the Secured Term Loan increases every three months by 0.125%,
0.375% and 0.750% per annum, respectively, beginning after the third-month of
the extension period. In March 2021, we voluntarily elected to repay $50.0
million of outstanding principal at par on the Secured Term Loan prior to the
scheduled maturity as permitted by the contractual terms of the Secured Term
Loan.

Our Financing Agreements contain various affirmative and negative covenants,
including negative pledges, and provisions related to events of default that are
normal and customary for similar financing agreements. As of June 30, 2021, we
were in compliance with all financial covenants of each respective Financing
Agreement. We may be required to fund commitments on our loans held for
investment in the future and we may not receive funding from our Secured Funding
Agreements with respect to these commitments. See Note 6 to our consolidated
financial statements included in this quarterly report on Form 10-Q for more
information on our Financing Agreements.

Securitizations



As of June 30, 2021, the carrying amount and outstanding principal of our CLO
Securitizations was $979.8 million and $986.1 million, respectively. See Note 16
to our consolidated financial statements included in this quarterly report on
Form 10-Q for additional terms and details of our CLO Securitizations.

Secured Borrowings



As of June 30, 2021, the carrying amount and outstanding principal of our
secured borrowings was $59.9 million and $60.2 million, respectively. See Note 7
to our consolidated financial statements included in this quarterly report on
Form 10-Q for additional terms and details of our secured borrowings.

Leverage Policies



We intend to use prudent amounts of leverage to increase potential returns to
our stockholders. To that end, subject to maintaining our qualification as a
REIT and our exemption from registration under the 1940 Act, we intend to
continue to use borrowings to fund the origination or acquisition of our target
investments. Given current market conditions and our focus on first or senior
mortgages, we currently expect that such leverage would not exceed, on a
debt-to-equity basis, a 4-to-1 ratio. Our charter and bylaws do not restrict the
amount of leverage that we may use. The amount of leverage we will deploy for
particular investments in our target investments will depend upon our Manager's
assessment of a variety of factors, which may include, among others, our
liquidity position, the anticipated liquidity and price volatility of the assets
in our loans held for investment portfolio, the potential for losses and
extension risk in our portfolio, the gap between the duration of our assets and
liabilities, including hedges, the availability and cost of financing the
assets, our opinion of the creditworthiness of our financing counterparties, the
impact of the COVID-19 pandemic on the United States economy generally or in
specific geographic regions and commercial mortgage markets, our outlook for the
level and volatility of interest rates, the slope of the yield curve, the credit
quality of our assets, the collateral underlying our assets, and our outlook for
asset spreads relative to the LIBOR curve.

DIVIDENDS



We elected to be taxed as a REIT for United States federal income tax purposes
and, as such, anticipate annually distributing to our stockholders at least 90%
of our REIT taxable income, prior to the deduction for dividends paid. If we
distribute less than 100% of our REIT taxable income in any tax year (taking
into account any distributions made in a subsequent tax year under Sections
857(b)(9) or 858 of the Code), we will pay tax at regular corporate rates on
that undistributed portion. Furthermore, if we distribute less than the sum of
1) 85% of our ordinary income for the calendar year, 2)
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95% of our capital gain net income for the calendar year and 3) any
undistributed shortfall from our prior calendar year (the "Required
Distribution") to our stockholders during any calendar year (including any
distributions declared by the last day of the calendar year but paid in the
subsequent year), then we are required to pay non-deductible excise tax equal to
4% of any shortfall between the Required Distribution and the amount that was
actually distributed. Any of these taxes would decrease cash available for
distribution to our stockholders. The 90% distribution requirement does not
require the distribution of net capital gains. However, if we elect to retain
any of our net capital gain for any tax year, we must notify our stockholders
and pay tax at regular corporate rates on the retained net capital gain. The
stockholders must include their proportionate share of the retained net capital
gain in their taxable income for the tax year, and they are deemed to have paid
the REIT's tax on their proportionate share of the retained capital gain.
Furthermore, such retained capital gain may be subject to the nondeductible 4%
excise tax. If we determine that our estimated current year taxable income
(including net capital gain) will be in excess of estimated dividend
distributions (including capital gains dividends) for the current year from such
income, we accrue excise tax on a portion of the estimated excess taxable income
as such taxable income is earned.

Before we make any distributions, whether for United States federal income tax
purposes or otherwise, we must first meet both our operating requirements and
debt service on our Financing Agreements and other debt payable. If our cash
available for distribution is less than our REIT taxable income, we could be
required to sell assets or borrow funds to make cash distributions or we may
make a portion of the Required Distribution in the form of a taxable stock
distribution or distribution of debt securities.

OFF-BALANCE SHEET ARRANGEMENTS



We have commitments to fund various senior mortgage loans, as well as
subordinated debt and preferred equity investments in our portfolio. As a result
of the COVID-19 pandemic, the progress of capital expenditures, construction and
leasing is anticipated to be slower than otherwise expected, and the pace of the
funding of our unfunded commitments may be slower.

Other than as set forth in this quarterly report on Form 10-Q, we do not have
any relationships with unconsolidated entities or financial partnerships, such
as entities often referred to as structured investment vehicles, special purpose
entities or variable interest entities, established to facilitate off-balance
sheet arrangements or other contractually narrow or limited purposes. Further,
we have not guaranteed any obligations of unconsolidated entities or entered
into any commitment or intend to provide additional funding to any such
entities.

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