BRIGHTSPIRE CAPITAL, INC. The following discussion should be read in conjunction with our unaudited
consolidated financial statements and the accompanying notes thereto, which are
included in Item 1 of this Quarterly Report, as well as the information
contained in our Form 10-K for the year ended
Introduction
We are a commercial real estate ("CRE") credit real estate investment trust
("REIT") focused on originating, acquiring, financing and managing a diversified
portfolio consisting primarily of CRE debt investments and net leased properties
predominantly in the United States . CRE debt investments primarily consist of
first mortgage loans, which is our primary investment strategy. Additionally, we
may also selectively originate mezzanine loans and preferred equity investments,
which may include profit participations. The mezzanine loans and preferred
equity investments may be in conjunction with our origination of corresponding
first mortgages on the same properties. Net leased properties consist of CRE
properties with long-term leases to tenants on a net-lease basis, where such
tenants generally will be responsible for property operating expenses such as
insurance, utilities, maintenance capital expenditures and real estate taxes. We
will continue to target net leased equity investments on a selective basis.
Additionally, we hold investments in CRE debt securities consisting of
commercial mortgage-backed securities ("CMBS") that are "B-pieces" of a CMBS
securitization pool.
We were organized in the state of Maryland on August 23, 2017 and maintain key
offices in New York, New York and Los Angeles, California . We elected to be
taxed as a REIT under the Internal Revenue Code of 1986, as amended, beginning
with our taxable year ended December 31, 2018 . We conduct all our activities and
hold substantially all our assets and liabilities through our operating
subsidiary, BrightSpire Capital Operating Company, LLC (the "OP"). At March 31,
2022 , we owned 97.7% of the OP, as its sole managing member. The remaining 2.3%
was owned as noncontrolling interest. During the three months ended June 30,
2022 , we redeemed the 2.3% outstanding membership units in the OP for
$25.4 million . Following this redemption, there were no noncontrolling interests
in the OP.
Our Target Assets
Our investment strategy is to originate and selectively acquire our target assets, which consist of the following:
•Senior Mortgage Loans. Our primary focus is originating and selectively acquiring senior mortgage loans that are backed by CRE assets. These loans are secured by a first mortgage lien on a commercial property and provide mortgage financing to a commercial property developer or owner. The loans may vary in duration, bear interest at a fixed or floating rate and amortize, if at all, over varying periods, often with a balloon payment of principal at maturity. Senior mortgage loans may include junior participations in our originated senior loans for which we have syndicated the senior participations to other investors and retained the junior participations for our portfolio. We believe these junior participations are more like the senior mortgage loans we originate than other loan types given their credit quality and risk profile. •Mezzanine Loans. We may originate or acquire mezzanine loans, which are structurally subordinate to senior loans, but senior to the borrower's equity position. Generally, we will originate or acquire these loans if we believe we have the ability to protect our position and fund the first mortgage, if necessary. Mezzanine loans may be structured such that our return accrues and is added to the principal amount rather than paid on a current basis. We may also pursue equity participation opportunities in instances when the risk-reward characteristics of the investment warrant additional upside participation in the possible appreciation in value of the underlying assets securing the investment. •Preferred Equity. We may make investments that are subordinate to senior and mezzanine loans, but senior to the common equity in the mortgage borrower. Preferred equity investments may be structured such that our return accrues and is added to the principal amount rather than paid on a current basis. We also may pursue equity participation opportunities in preferred equity investments, like such participations in mezzanine loans. •Net Leased andOther Real Estate . We may occasionally invest directly in well-located commercial real estate with long-term leases to tenants on a net lease basis, where such tenants generally will be responsible for property operating expenses such as insurance, utilities, maintenance capital expenditures and real estate taxes. In addition, tenants of our properties typically pay rent increases based on: (1) increases in the consumer price index (typically subject to ceilings), (2) fixed increases, or (3) additional rent calculated as a percentage of the tenants' gross sales above a specified level. We believe that a portfolio of properties under long-term, net lease agreements generally produces a more predictable income stream than many other types of real estate portfolios, while continuing to offer the potential for growth in rental income. 60
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Our operating segments include senior and mezzanine loans and preferred equity, net leased and other real estate, all of which are included in our target assets, and CRE debt securities and corporate.
The allocation of our capital among our target assets will depend on prevailing market conditions at the time we invest and may change over time in response to different prevailing market conditions. In addition, in the future, we may invest in assets other than our target assets or change our target assets. With respect to all our investments, we invest so as to maintain our qualification as a REIT forU.S. federal income tax purposes and our exclusion or exemption from regulation under the Investment Company Act of 1940, as amended (the "Investment Company Act"). We believe that events in the financial markets from time to time, including the current and potential impacts of the COVID-19 pandemic, have created and will continue to create dislocation between price and intrinsic value in certain asset classes as well as a supply and demand imbalance of available credit to finance these assets. We believe that our in-depth understanding of CRE and real estate-related investments, in-house underwriting, asset management and resolution capabilities, provides an extensive platform to regularly evaluate our investments and determine primary, secondary or alternative disposition strategies. This includes intermediate servicing and negotiating, restructuring of non-performing investments, foreclosure considerations, management or development of owned real estate, in each case to reposition and achieve optimal value realization for the us and our stockholders. Depending on the nature of the underlying investment, we may pursue repositioning strategies through judicious capital investment in order to extract maximum value from the investment or recognize unanticipated losses to reinvest resulting liquidity in higher-yielding performing investments.
Our Business Segments
•Senior and Mezzanine Loans and Preferred Equity-CRE debt investments including
senior mortgage loans, mezzanine loans, and preferred equity interests as well
as participations in such loans. The segment also includes acquisition,
development and construction ("ADC") arrangements accounted for as equity method
investments.
•Net Leased and Other Real Estate -direct investments in commercial real estate
with long-term leases to tenants on a net lease basis, where such tenants
generally will be responsible for property operating expenses such as insurance,
utilities, maintenance, capital expenditures and real estate taxes. It also
includes other real estate, currently consisting of three investments with
direct ownership in commercial real estate, with an emphasis on properties with
stable cash flow.
•CRE Debt Securities- securities investments currently consisting of BBB and some BB rated CMBS (including Non-Investment Grade "B-pieces" of a CMBS securitization pool) or CRE CLOs (including the junior tranches thereof, collateralized by pools of CRE debt investments). It also includes two sub-portfolios of private equity funds.
•Corporate-includes corporate-level asset management and other fees including expenses related to our secured revolving credit facility (the "Bank Credit Facility"), compensation and benefits and restructuring charges.
Our target assets are included in different business segments.
Significant Developments
During the three months ended
Capital Resources
•As of the date of this report, we have approximately$438 million of liquidity, consisting of$273 million cash on hand and$165 million available on our Bank Credit Facility; •Declared and paid a second quarter$0.20 per share dividend onJuly 15, 2022 ; •Repurchased 2.2 million shares of our Class A common stock at a weighted average price of$8.40 for an aggregate cost of$18.3 million ; •Redeemed 3.1 million operating partnership units at a price of$8.25 per unit for an aggregate cost of$25.4 million ; and •We amended the below Master Repurchase Facilities as follows: •Increased the borrowing capacity of Bank 7 by$100 million and extended the maturity date toApril 2025 , with a one-year extension option; •Increased the borrowing capacity of Bank 9 by$100 million and extended the maturity date toJune 2025 , with two one-year extension options; •Extended the maturity date of Bank 3 toApril 2025 , with two one-year extension options, and replaced LIBOR with SOFR as the benchmark applicable to loans entered into prior toJanuary 1, 2022 ; 61 -------------------------------------------------------------------------------- Table of Contents •Extended the maturity date of Bank 1 toJuly 2024 , with three one-year extension options, and replaced LIBOR with SOFR as the benchmark applicable to loans entered into prior toJanuary 1, 2022 .
Our Portfolio
•GeneratedU.S. GAAP net income of$34.3 million , or$0.26 per basic and diluted share and Distributable Earnings and Adjusted Distributable Earnings of$31.4 million , or$0.24 per share for the three months endedJune 30, 2022 ; •Funded nine senior mortgage loans with a total commitment of$306.5 million . The average initial funded amount was$31.3 million and had a weighted average spread of SOFR plus 3.82%; •Received loan repayment proceeds of$247.9 million from nine loans; •Sold one preferred equity investment for a gross sales price of$38.1 million and recognized a realized gain of$21.9 million ; •Subsequent toJune 30, 2022 , we funded three senior mortgage loans with a total commitment of$91.4 million . The average initial funded amount was$27.7 million and had a weighted average spread of SOFR plus 3.52%; and •Subsequent toJune 30, 2022 , we received loan repayment proceeds of$36.6 million from two loans.
Factors Impacting Our Operating Results
Impact of COVID-19
The COVID-19 pandemic has negatively impacted CRE credit REITs across the industry, as well as other companies that own and operate commercial real estate investments, including our company. As we manage the impact and uncertainties of the COVID-19 pandemic, cash preservation, liquidity and investment and portfolio management are our key priorities. We continue to work closely with our borrowers and tenants to address the impact of COVID-19 on their businesses. To the extent that certain borrowers are experiencing significant financial dislocation we have and may continue to consider the use of interest and other reserves and/or replenishment obligations of the borrower and/or guarantors to meet current interest payment obligations, for a limited period. Similarly, we have and may in the future evaluate converting certain current interest payment obligations to payment-in-kind as a potential bridge period solution. We have in limited cases allowed some portions of current interest to convert to payment-in-kind. The COVID-19 pandemic has created uncertainties that have and may continue to negatively impact our future operating results, liquidity and financial condition. However, we believe there are too many uncertainties to predict and quantify the continuing impact. The potential concerns and risks include, but are not limited to, mortgage borrowers' ability to make monthly payments, lessees' capacity to pay their rent, and the resulting impact on us to meet our obligations. Therefore, there can be no assurances that we will not need to take impairment charges in future quarters or experience further declines in revenues and net income, which could be material.
Market Update
Overall market uncertainty and reports that theU.S. economy is in or will be in a recession, coupled with rising inflation and interest rates have tempered the loan financing markets recently. There has been an overall slowdown in commercial real estate transaction volumes, with many lenders being cautious, and transaction volumes are expected to remain muted for the foreseeable future. The rising LIBOR/SOFR and costly interest rate caps have contributed to borrowers accepting lower proceeds and exploring other interest rate options such as fixed interest rates. During 2022, theFederal Open Market Committee ("FOMC") of theFederal Reserve raised the target range for the federal funds rate four times. The two most recent rate hikes were significant: onJune 15, 2022 , the target range for federal funds rates was raised by 0.75% to a range of 1.50% to 1.75% and onJuly 27, 2022 the target range for federal funds rates was raised by another 0.75% to a range of 2.25% to 2.50%.
These economic factors have had and will continue to impact our business operations as follows:
-the value of fixed-rate investments may decrease;
-prepayments on certain assets in our portfolio may slow;
-coupons on our floating and adjustable-rate mortgage loans and CMBS may reset, although on a delayed basis, to higher interest rates;
-to the extent we use leverage to finance our assets, the interest expense associated with our borrowings may increase, and there may be margin calls on our Master Repurchase Facilities;
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-to the extent we enter into interest rate swap agreements as part of our hedging strategy, the value of these agreements may increase;
-bank warehouse lenders may take a more conservative stance by increasing funding costs, which may lead to margin calls; and
-disrupt our borrowers' and tenants' ability to finance their activities or refinance properties, which could adversely impact their ability to make their monthly mortgage payments and meet their loan obligations, and may result in requests for loan extensions. In addition to economic conditions, political conditions are contributing to market uncertainty which may further negatively impact our business and results of operations. InFebruary 2022 , conflict escalated betweenRussia andUkraine . In response, theU.S. , theU.K. , and theEuropean Union governments, among others, imposed financial and economic sanctions targetingRussia that, among other things, restrict transactions with Russian entities and individuals and trade and financing to, from, or inRussia and certain regions ofUkraine . Although we do not conduct any business, and have not originated any loans secured by assets, inRussia orUkraine , the ongoing conflict may cause continued volatility in the capital markets, other adverse economic impacts due to additional sanctions, embargoes, regional instability and geopolitical shifts, and increased cost of goods and supply chain disruptions, any of which may negatively impact the business or operations of our borrowers and tenants and our business and results of operations. 63
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Our Portfolio
As ofJune 30, 2022 , our portfolio consisted of 125 investments representing approximately$4.7 billion in book value (based on our share of ownership and excluding cash, cash equivalents and certain other assets). Our senior and mezzanine loans consisted of 110 senior mortgage loans and mezzanine loans had a weighted average cash coupon of 3.7% and a weighted average all-in unlevered yield of 5.9%. Our net leased and other real estate consisted of approximately 6.4 million total square feet of space and total second quarter 2022 net operating income ("NOI") of that portfolio was approximately$16.2 million . Refer to "Non-GAAP Supplemental Financial Measures" below for further information on NOI. As ofJune 30, 2022 , our portfolio consisted of the following investments (dollars in thousands): Book value Net book value Book value (at BRSP Net book value (at BRSP Count(1) (Consolidated) share)(2) (Consolidated)(3) share)(4) Our Portfolio Senior mortgage loans 104$ 3,729,515 $ 3,729,515 $ 842,039$ 842,039 Mezzanine loans(5) 6 104,008 104,008 104,008 104,008 Subtotal 110 3,833,523 3,833,523 946,047 946,047 Net leased real estate 8 618,838 618,838 163,561 163,561 Other real estate 2 176,062 162,684 137 (147) CRE debt securities 4 36,154 36,154 36,154 36,154 Private equity interests 1 4,406 4,406 4,406 4,406 Total/Weighted average Our Portfolio 125$ 4,668,983 $ 4,655,605 $ 1,150,305$ 1,150,021
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(1)Count for net leased real estate and other real estate represents number of investments. (2)Book value at our share represents the proportionate book value based on ownership by asset as ofJune 30, 2022 . (3)Net book value represents book value less any associated financing as ofJune 30, 2022 . (4)Net book value at our share represents the proportionate book value based on asset ownership less any associated financing based on ownership as ofJune 30, 2022 . (5)Mezzanine loans include one investment in an unconsolidated venture whose underlying interest is in a loan.
Underwriting Process
We use an investment and underwriting process that has been developed by our senior management team leveraging their extensive commercial real estate expertise over many years and real estate cycles. The underwriting process focuses on some or all of the following factors designed to ensure each investment is evaluated appropriately: (i) macroeconomic conditions that may influence operating performance; (ii) fundamental analysis of underlying real estate, including tenant rosters, lease terms, zoning, necessary licensing, operating costs and the asset's overall competitive position in its market; (iii) real estate market factors that may influence the economic performance of the investment, including leasing conditions and overall competition; (iv) the operating expertise and financial strength and reputation of a tenant, operator, partner or borrower; (v) the cash flow in place and projected to be in place over the term of the investment and potential return; (vi) the appropriateness of the business plan and estimated costs associated with tenant buildout, repositioning or capital improvements; (vii) an internal and third-party valuation of a property, investment basis relative to the competitive set and the ability to liquidate an investment through a sale or refinancing; (viii) review of third-party reports including appraisals, engineering and environmental reports; (ix) physical inspections of properties and markets; (x) the overall legal structure of the investment, contractual implications and the lenders' rights; and (xi) the tax and accounting impact.
Loan Risk Rankings
In addition to reviewing loans held for investment for impairment quarterly, we
evaluate loans held for investment to determine if a current expected credit
losses reserve should be established. In conjunction with this review, we assess
the risk factors of each senior and mezzanine loans and preferred equity and
assign a risk ranking based on a variety of factors, including, without
limitation, underlying real estate performance and asset value, values of
comparable properties, durability and quality of property cash flows, sponsor
experience and financial wherewithal, and the existence of a risk-mitigating
loan structure. Additional key considerations include loan-to-value ratios, debt
service coverage ratios, loan structure, real estate and credit market dynamics,
and risk of default or principal loss. Based on a five-point scale, our loans
held for investment are rated "1" through "5," from less risk to greater risk.
At the time of origination or purchase, loans held for investment are ranked as
a "3" and will move accordingly going forward based on the ratings which are
defined as follows:
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1.Very Low Risk-The loan is performing as agreed. The underlying property
performance has exceeded underwritten expectations with very strong NOI, debt
service coverage ratio, debt yield and occupancy metrics. Sponsor is investment
grade, very well capitalized, and employs a very experienced management team.
2.Low Risk-The loan is performing as agreed. The underlying property performance
has met or exceeds underwritten expectations with high occupancy at market
rents, resulting in consistent cash flow to service the debt. Strong sponsor
that is well capitalized with experienced management team.
3.Average Risk-The loan is performing as agreed. The underlying property
performance is consistent with underwriting expectations. The property generates
adequate cash flow to service the debt, and/or there is enough reserve or loan
structure to provide time for sponsor to execute the business plan. Sponsor has
routinely met its obligations and has experience owning/operating similar real
estate.
4.High Risk/Delinquent/Potential for Loss-The loan is in excess of 30 days delinquent and/or has a risk of a principal loss. The underlying property performance is behind underwritten expectations. Loan covenants may require occasional waivers/modifications. Sponsor has been unable to execute its business plan and local market fundamentals have deteriorated. Operating cash flow is not sufficient to service the debt and debt service payments may be coming from sponsor equity/loan reserves.
5.Impaired/Defaulted/Loss Likely-The loan is in default, or a default is imminent, and has a high risk of a principal loss, or has incurred a principal loss. The underlying property performance is significantly worse than underwritten expectation and sponsor has failed to execute its business plan. The property has significant vacancy and current cash flow does not support debt service. Local market fundamentals have significantly deteriorated resulting in depressed comparable property valuations versus underwriting. As mentioned above, management considers several risk factors when assigning our risk rankings each quarter. We believe the long-term impacts of the COVID-19 pandemic remain uncertain, and therefore continue to represent a risk to our portfolio. During the second quarter of 2022, we added nine new loans to our portfolio with a risk ranking of 3, and eight loans repaid, of which five loans had a risk ranking of 2 and three loans had a risk ranking of 3. Our weighted average risk ranking atJune 30, 2022 is unchanged fromMarch 31, 2022 at 3.1.
Senior and Mezzanine Loans and Preferred Equity
Our senior and mezzanine loans consists of senior mortgage loans and mezzanine
loans. We did not have any preferred equity investments as of
The following table provides a summary of our senior and mezzanine loans based
on our internal risk rankings as of
Carrying Value (at BRSP share)(1)
Senior mortgage Mezzanine
Risk Ranking Count loans(2) loans Total % of Our Portfolio
2 10 $ 284,847 $ - $ 284,847 7.4 %
3 87 2,787,924 63,098 2,851,022 74.4 %
4 11 685,534 - 685,534 17.9 %
5 2 - 12,120 12,120 0.3 %
110 $ 3,758,305 $ 75,218 $ 3,833,523 100.0 %
Weighted average risk ranking 3.1
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(1)Carrying value at our share represents the proportionate book value based on ownership by asset as ofJune 30, 2022 . (2)Includes one mezzanine loan totaling$28.8 million where we are also the senior lender.
The following table provides asset level detail for our senior and mezzanine
loans as of
Carrying Principal Unlevered all-in
Collateral type Origination Date City , State value(1) balance Coupon type Cash Coupon(2) yield(3) Extended maturity date Loan-to-value(4) Q2 Risk ranking(5)
Senior loans
Loan 1 Hotel 1/2/2018 San Jose, CA $ 184,959 $ 184,959 Floating 4.8% 6.5% 11/9/2026 79% 4
Loan 2 Multifamily 6/21/2019 Milpitas, CA 184,715 184,282 Floating 3.1% 5.5% 7/9/2024 75% 3
Loan 3 Office 12/7/2018 Carlsbad, CA 120,000 120,000 Floating 4.3% 6.2% 12/9/2023 73% 3
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Unlevered all-in
Collateral type Origination Date City , State Carrying value(1) Principal balance Coupon type Cash Coupon(2) yield(3) Extended maturity date Loan-to-value(4) Q2Risk ranking(5) Loan 4 Hotel6/28/2018 Berkeley, CA 119,737 120,000 Floating 3.2% 5.2%7/9/2025 66% 4 Loan 5 Office2/17/2022 Boston, MA 80,172 81,000 Floating 3.8% 6.0%3/9/2027 54% 3 Loan 6 Other (Mixed-use)10/24/2019 Brooklyn, NY 75,818 75,818 Floating 4.0% 6.1%11/9/2024 70% 3 Loan 7 Office8/28/2018 San Jose, CA 73,147 73,147 Floating 2.5% 4.5%8/28/2025 75% 3 Loan 8 Hotel6/25/2018 Englewood, CO 73,000 73,000 Floating 3.5% 5.3%2/9/2025 69% 3 Loan 9 Office1/19/2021 Phoenix, AZ 72,035 72,460 Floating 3.6% 5.7%2/9/2026 70% 3 Loan 10 Office5/29/2019 Long Island City, NY 68,110 68,110 Floating 3.5% 5.8%6/9/2024 59% 4 Loan 11 Office4/5/2019 Long Island City, NY 66,298 66,298 Floating 3.3% 5.6%4/9/2024 58% 4 Loan 12(6) Multifamily6/18/2019 Santa Clara, CA 57,440 57,440 Floating 4.4% 7.1%6/18/2024 65% 4 Loan 13 Office7/12/2019 Washington, D.C. 57,274 57,274 Floating 2.8% 5.5%8/9/2024 68% 4 Loan 14 Office2/13/2019 Baltimore, MD 55,942 55,942 Floating 3.5% 6.2%2/9/2024 74% 4 Loan 15 Multifamily5/17/2022 Las Vegas, NV 49,075 49,600 Floating 3.6% 5.7%6/9/2027 74% 3 Loan 16 Multifamily3/8/2022 Austin, TX 48,804 49,125 Floating 3.3% 5.6%3/9/2027 75% 3 Loan 17 Multifamily7/19/2021 Dallas, TX 48,547 48,699 Floating 3.3% 5.5%8/9/2026 74% 3 Loan 18 Multifamily5/26/2021 Las Vegas, NV 45,655 45,799 Floating 3.4% 5.6%6/9/2026 70% 3 Loan 19 Other (Mixed-use)1/13/2022 New York, NY 44,832 45,190 Floating 3.5% 5.7%2/9/2027 67% 3 Loan 20 Multifamily2/3/2021 Arlington, TX 43,254 43,270 Floating 3.6% 5.9%2/9/2026 81% 2 Loan 21 Multifamily11/30/2021 Phoenix, AZ 43,191 43,457 Floating 3.4% 5.9%12/9/2026 74% 3 Loan 22 Multifamily3/1/2021 Richardson, TX 42,981 43,227 Floating 3.4% 5.5%3/9/2026 75% 3 Loan 23 Multifamily7/15/2021 Jersey City, NJ 42,812 43,000 Floating 3.0% 5.1%8/9/2026 66% 2 Loan 24 Multifamily12/21/2020 Austin, TX 42,641 42,850 Floating 3.7% 5.8%1/9/2026 54% 2 Loan 25 Multifamily3/22/2021 Fort Worth, TX 40,327 40,470 Floating 3.5% 5.7%4/9/2026 83% 3 Loan 26 Office5/23/2022 Plano, TX 39,990 40,300 Floating 4.3% 6.3%6/9/2027 64% 3 Loan 27 Office4/27/2022 Plano, TX 38,994 39,270 Floating 4.1% 6.2%5/9/2027 70% 3 Loan 28 Multifamily3/25/2021 Fort Worth, TX 38,340 38,480 Floating 3.3% 5.5%4/9/2026 82% 3 Loan 29 Office11/23/2021 Tualatin, OR 38,338 38,660 Floating 3.9% 6.1%12/9/2026 66% 3 Loan 30 Multifamily12/7/2021 Denver, CO 37,821 38,108 Floating 3.2% 5.5%12/9/2026 74% 3 Loan 31 Multifamily7/15/2021 Dallas, TX 36,510 36,736 Floating 3.1% 5.4%8/9/2026 77% 3 Loan 32 Office9/28/2021 Reston, VA 35,620 35,887 Floating 4.0% 6.3%10/9/2026 71% 3 Loan 33 Multifamily3/31/2022 Long Beach, CA 35,391 35,751 Floating 3.4% 5.6%4/9/2027 74% 3 Loan 34 Office11/17/2021 Dallas, TX 34,959 35,250 Floating 3.9% 6.1%12/9/2025 61% 3 Loan 35 Multifamily12/29/2020 Fullerton, CA 34,692 34,860 Floating 3.8% 5.9%1/9/2026 70% 3 Loan 36 Multifamily1/18/2022 Dallas, TX 34,510 34,699 Floating 3.5% 5.8%2/9/2027 75% 3 Loan 37 Multifamily1/12/2022 Los Angeles, CA 34,388 34,728 Floating 3.4% 5.4%2/9/2027 65% 3 Loan 38 Multifamily3/31/2022 Louisville, KY 34,269 34,550 Floating 3.7% 6.0%4/9/2027 72% 3 Loan 39 Multifamily9/28/2021 Carrollton, TX 34,118 34,395 Floating 3.1% 5.2%10/9/2025 73% 3 Loan 40 Office6/16/2017 Miami, FL 34,097 33,757 Floating 4.9% 6.6%7/9/2022 68% 3 Loan 41 Office4/7/2022 San Jose, CA 33,439 33,750 Floating 4.2% 6.3%4/9/2027 70% 3 Loan 42 Multifamily3/16/2021 Fremont, CA 33,206 33,380 Floating 3.5% 5.7%4/9/2026 76% 3 Loan 43 Office6/2/2021 South Pasadena, CA 32,881 32,956 Floating 4.9% 7.2%6/9/2026 69% 3 Loan 44 Multifamily7/29/2021 Phoenix, AZ 31,656 31,895 Floating 3.3% 5.4%8/9/2026 74% 3 Loan 45 Multifamily3/31/2021 Mesa, AZ 30,994 31,107 Floating 3.7% 5.9%4/9/2026 83% 3 Loan 46 Office4/30/2021 San Diego, CA 30,483 30,700 Floating 3.6% 5.7%5/9/2026 55% 3 Loan 47 Multifamily5/5/2021 Dallas, TX 29,622 29,749 Floating 3.4% 5.6%5/9/2026 68% 3 Loan 48 Multifamily4/29/2021 Las Vegas, NV 29,619 29,734 Floating 3.1% 5.2%5/9/2026 76% 2 Loan 49 Multifamily7/13/2021 Plano, TX 28,624 28,756 Floating 3.1% 5.2%2/9/2025 82% 3 Loan 50 Multifamily4/15/2022 Mesa, AZ 28,402 28,693 Floating 3.4% 5.4%5/9/2027 75% 3 Loan 51 Office11/19/2021 Gardena, CA 28,201 28,505 Floating 3.5% 5.6%12/9/2026 69% 3 Loan 52 Multifamily5/27/2021 Houston, TX 27,871 28,000 Floating 3.0% 5.2%6/9/2026 67% 3 Loan 53 Office10/21/2021 Blue Bell, PA 27,853 27,930 Floating 3.7% 6.2%11/9/2023 67% 3 Loan 54 Multifamily5/19/2022 Denver, CO 27,624 27,919 Floating 3.5% 5.6%6/9/2027 73% 3 Loan 55 Other (Mixed-use)5/3/2022 Brooklyn, NY 27,536 27,801 Floating 4.4% 6.5%5/9/2027 68% 3 66
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Carrying Principal Unlevered all-in
Collateral type Origination Date City , State value(1) balance Coupon type Cash Coupon(2) yield(3) Extended maturity date Loan-to-value(4) Q2 Risk ranking(5)
Loan 56 Office 3/31/2022 Blue Bell, PA 27,208 27,447 Floating 4.2% 6.8% 4/9/2025 59% 3
Loan 57 Multifamily 8/31/2021 Glendale, AZ 26,324 26,536 Floating 3.2% 5.3% 9/9/2026 75% 3
Loan 58 Multifamily 12/16/2021 Fort Mill, SC 25,882 26,100 Floating 3.2% 5.3% 1/9/2027 71% 3
Loan 59 Office 2/26/2019 Charlotte, NC 25,855 26,052 Floating 3.3% 5.1% 7/9/2025 51% 2
Loan 60 Multifamily 2/17/2022 Long Beach, CA 25,308 25,556 Floating 3.4% 5.5% 3/9/2027 67% 3
Loan 61 Multifamily 5/13/2021 Phoenix, AZ 24,968 25,132 Floating 3.1% 5.2% 6/9/2026 76% 2
Loan 62 Office 9/26/2019 Salt Lake City, UT 24,864 24,903 Floating 2.7% 5.0% 10/9/2024 72% 4
Loan 63 Office 11/23/2021 Oakland, CA 24,800 25,000 Floating 4.2% 6.4% 12/9/2026 57% 3
Loan 64 Office 12/7/2021 Hillsboro, OR 24,310 24,511 Floating 3.9% 6.1% 12/9/2024 71% 3
Loan 65 Multifamily 12/21/2021 Phoenix, AZ 24,307 24,528 Floating 3.5% 5.6% 1/9/2027 75% 3
Loan 66 Multifamily 1/29/2021 Charlotte, NC 23,432 23,558 Floating 3.5% 5.6% 2/9/2026 76% 3
Loan 67 Multifamily 7/1/2021 Aurora, CO 23,300 23,466 Floating 3.1% 5.2% 7/9/2026 73% 3
Loan 68 Multifamily 3/31/2022 Phoenix, AZ 23,035 23,265 Floating 3.7% 5.7% 4/9/2027 75% 3
Loan 69 Multifamily 3/8/2022 Glendale, AZ 23,025 23,260 Floating 3.5% 5.5% 3/9/2027 73% 3
Loan 70 Office 9/16/2019 San Francisco, CA 22,951 22,951 Floating 3.2% 5.7% 10/9/2024 82% 3
Loan 71 Multifamily 3/25/2021 San Jose, CA 22,518 22,650 Floating 3.7% 5.8% 4/9/2026 70% 2
Loan 72 Multifamily 11/4/2021 Austin, TX 22,499 22,690 Floating 3.3% 5.4% 11/9/2026 71% 3
Loan 73 Multifamily 10/7/2021 Irving, TX 22,353 22,400 Floating 3.3% 5.5% 9/1/2024 70% 3
Loan 74 Office 8/27/2019 San Francisco, CA 22,121 22,121 Floating 2.8% 5.4% 9/9/2024 79% 4
Loan 75 Office 7/30/2021 Denver, CO 21,811 22,002 Floating 4.3% 6.4% 8/9/2026 66% 3
Loan 76 Multifamily 7/13/2021 Oregon City, OR 21,385 21,487 Floating 3.3% 5.4% 8/9/2026 73% 3
Loan 77 Multifamily 6/22/2021 Phoenix, AZ 21,107 21,262 Floating 3.2% 5.3% 7/9/2026 75% 2
Loan 78 Multifamily 3/31/2021 San Antonio, TX 20,026 20,148 Floating 3.1% 5.1% 4/9/2026 77% 3
Loan 79 Multifamily 9/22/2021 Denton, TX 19,248 19,351 Floating 3.2% 5.3% 10/9/2025 70% 3
Loan 80 Multifamily 12/21/2021 Gresham, OR 19,047 19,199 Floating 3.5% 5.8% 1/9/2027 74% 3
Loan 81 Multifamily 1/12/2022 Austin, TX 18,991 19,153 Floating 3.4% 5.5% 2/9/2027 75% 3
Loan 82 Multifamily 8/6/2021 La Mesa, CA 18,943 19,045 Floating 2.9% 5.1% 8/9/2025 70% 3
Loan 83 Multifamily 9/1/2021 Bellevue, WA 18,888 19,003 Floating 2.9% 5.2% 9/9/2025 64% 3
Loan 84 Office 10/29/2020 Denver, CO 18,598 18,708 Floating 3.6% 5.7% 11/9/2025 64% 3
Loan 85 Multifamily 6/24/2021 Phoenix, AZ 18,417 18,548 Floating 3.4% 5.6% 7/9/2026 63% 3
Loan 86 Multifamily 5/5/2022 Charlotte, NC 18,317 18,500 Floating 3.5% 5.7% 5/9/2027 61% 3
Loan 87 Multifamily 7/14/2021 Salt Lake City, UT 17,960 18,042 Floating 3.3% 5.4% 8/9/2026 73% 3
Loan 88 Multifamily 3/28/2022 Los Angeles, CA 17,220 17,390 Floating 3.6% 5.8% 4/9/2027 68% 3
Loan 89 Multifamily 6/25/2021 Phoenix, AZ 17,041 17,160 Floating 3.2% 5.3% 7/9/2026 75% 3
Loan 90 Multifamily 11/24/2020 Tucson, AZ 16,239 16,233 Floating 3.6% 5.7% 12/9/2025 75% 2
Loan 91 Multifamily 4/29/2022 Tacoma, WA 16,176 16,359 Floating 3.3% 5.5% 5/9/2027 72% 3
Loan 92 Industrial 3/25/2022 City of Industry, CA 16,058 16,234 Floating 3.4% 5.5% 4/9/2027 67% 3
Loan 93 Multifamily 3/5/2021 Tucson, AZ 15,834 15,864 Floating 3.7% 5.9% 3/9/2026 72% 2
Loan 94 Office 10/13/2021 Burbank, CA 15,391 15,538 Floating 3.9% 6.0% 11/9/2026 57% 3
Loan 95 Multifamily 6/15/2021 Phoenix, AZ 15,327 15,392 Floating 3.3% 5.4% 7/9/2026 74% 3
Loan 96 Office 11/16/2021 Charlotte, NC 14,624 14,771 Floating 4.4% 6.5% 12/9/2026 67% 3
Loan 97 Office 8/31/2021 Los Angeles, CA 14,440 14,570 Floating 5.0% 7.3% 9/9/2026 58% 3
Loan 98 Multifamily 5/27/2021 Phoenix, AZ 14,117 14,212 Floating 3.1% 5.2% 6/9/2026 72% 3
Loan 99 Multifamily 7/21/2021 Durham, NC 14,078 14,183 Floating 3.3% 5.4% 8/9/2026 58% 3
Loan 100 Multifamily 2/11/2021 Provo, UT 13,582 13,660 Floating 3.8% 5.9% 3/9/2026 71% 3
Loan 101 Multifamily 7/28/2021 San Antonio, TX 13,559 13,641 Floating 3.3% 5.6% 8/9/2024 76% 3
Loan 102 Office 11/10/2021 Richardson, TX 13,322 13,400 Floating 4.0% 6.3% 12/9/2026 71% 3
Loan 103 Multifamily 3/8/2022 Glendale, AZ 10,714 10,825 Floating 3.5% 5.5% 3/9/2027 73% 3
Loan 104 Industrial 3/21/2022 Commerce, CA 9,181 9,281 Floating 3.3% 5.4% 4/9/2027 71% 3
Total/Weighted average senior loans $ 3,729,515 $ 3,746,010 3.6% 5.7% 1/11/2026 70% 3.1
Mezzanine loans
Loan 105(6) Multifamily 12/3/2019 Milpitas, CA $ 41,459 $ 41,500 Fixed 8.0% 13.3% 12/3/2024 49% - 71% 3
Loan 106 Hotel 9/23/2019 Berkeley, CA 28,790 28,790 Fixed 11.5% 11.5% 7/9/2025 66% - 81% 4
Loan 107(6) Multifamily 2/8/2022 Las Vegas, NV 17,165 17,288 Fixed 7.0% 12.3% 2/8/2027 56% - 79% 3
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Carrying Principal Unlevered all-in
Collateral type Origination Date City , State value(1) balance Coupon type Cash Coupon(2) yield(3) Extended maturity date Loan-to-value(4) Q2 Risk ranking(5)
Loan 108 Hotel 1/9/2017 New York, NY 12,120 12,000 Floating 11.0% 12.8% 9/9/2022 63% - 76% 5
Loan 109 Multifamily 7/30/2014 Various - TX 4,474 4,474 Fixed 9.5% 9.5% 8/11/2024 71% - 83% 3
Loan 110(6)(7) Other (Mixed-use) 9/1/2020 Los Angeles, CA - 162,243 n/a(7) n/a(7) n/a(7) 7/9/2023 n/a 5
Total/Weighted average mezzanine loans $ 104,008 $ 266,295 9.2% 12.4% 3/4/2025 59% - 77% 3.5
Total/Weighted average senior and mezzanine loans - Our Portfolio
$ 3,833,523 $ 4,012,305 3.7% 5.9%1/3/2026 n/a 3.1
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(1)Represents carrying values at our share as ofJune 30, 2022 . (2)Represents the stated coupon rate for loans; for floating rate loans, does not includeUSD 1 -month London Interbank Offered Rate ("LIBOR") or Secured Overnight Financing Rate ("SOFR"), which were 1.79% and 1.69%, respectively, as ofJune 30, 2022 . (3)In addition to the stated cash coupon rate, unlevered all-in yield includes non-cash payment in-kind interest income and the accrual of origination, extension and exit fees. Unlevered all-in yield for the loan portfolio assumes the applicable floating benchmark rate as ofJune 30, 2022 , for weighted average calculations. (4)Except for construction loans, senior loans reflect the initial loan amount divided by the as-is value as of the date the loan was originated, or the principal amount divided by the appraised value as of the date of the most recent as-is appraisal. Mezzanine loans include attachment loan-to-value and detachment loan-to-value, respectively. Attachment loan-to-value reflects initial funding of loans senior to our position divided by the as-is value as of the date the loan was originated, or the principal amount divided by the appraised value as of the date of the most recent appraisal. Detachment loan-to-value reflects the cumulative initial funding of our loan and the loans senior to our position divided by the as-is value as of the date the loan was originated, or the cumulative principal amount divided by the appraised value as of the date of the most recent appraisal. (5)On a quarterly basis, the Company's senior and mezzanine loans are rated "1" through "5," from less risk to greater risk. Represents risk ranking as ofJune 30, 2022 . (6)Construction senior loans' loan-to-value reflect the total commitment amount of the loan divided by as-completed appraised value, or the total commitment amount of the loan divided by the projected total cost basis. Construction mezzanine loans include attachment loan-to-value and detachment loan-to-value, respectively. Attachment loan-to-value reflects the total commitment amount of loans senior to our position divided by as-completed appraised value, or the total commitment amount of loans senior to our position divided by projected total cost basis. Detachment loan-to-value reflect the cumulative commitment amount of our loan and the loans senior to our position divided by as-completed appraised value, or the cumulative commitment amount of our loan and loans senior to our position divided by projected total cost basis. (7)Loan 110 is an investment in an unconsolidated venture whose underlying interest is in a loan and was placed on nonaccrual status during inApril 2020 ; as such, no income is being recognized. The following table details the types of properties securing our senior and mezzanine loans and geographic distribution as ofJune 30, 2022 (dollars in thousands): Book value (at BRSP share) Senior mortgage Mezzanine Collateral property type Count loans loans Total % of Total Multifamily 67$ 1,940,265 $ 63,098 $ 2,003,363 52.3 % Office 32 1,238,136 - 1,238,136 32.3 % Hotel 5 377,689 40,910 418,599 10.9 % Other (Mixed-use)(1) 4 148,186 - 148,186 3.9 % Industrial 2 25,239 - 25,239 0.6 % Total 110$ 3,729,515 $ 104,008 $ 3,833,523 100.0 % Book value (at BRSP share) Senior mortgage Mezzanine Region Count loans loans Total % of Total US West 44$ 1,676,250 $ 87,414 $ 1,763,664 46.0 % US Southwest 45 1,253,229 4,474 1,257,703 32.8 % US Northeast 12 573,861 12,120 585,981 15.3 % US Southeast 9 226,175 - 226,175 5.9 % Total 110$ 3,729,515 $ 104,008 $ 3,833,523 100.0 %
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(1)Other includes commercial and residential development and predevelopment assets.
AtJune 30, 2022 , our current expected credit loss reserve ("CECL") calculated by our probability of default ("PD")/loss given default ("LGD") model for our outstanding loans and future loan funding commitments is$45.1 million , which is 1.08% of the aggregate commitment amount of our loan portfolio. This represents an increase of$10.2 million from$34.9 million or 0.85% of the aggregate commitment amount of our loan portfolio atMarch 31, 2022 . This change was primarily driven by the current macroeconomic outlook and new loan originations. 68
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Asset Specific Loan Summaries
Berkeley,
Principal
Loan Type Collateral type Origination Date Carrying value balance Coupon type Cash Coupon Unlevered all-in yield Extended maturity date Loan-to-value(1) Q2 Risk ranking
Loan 4 Senior Hotel 6/28/2018 $ 119,737 $ 120,000 Floating 3.2% 5.2% 7/9/2025 66% 4
Loan 106 Mezzanine Hotel 9/23/2019 28,790 28,790 Fixed 11.5% 11.5% 7/9/2025 66% - 81% 4
______________________________________
(1)Loan-to-value is calculated using the as-is value on the date of loan origination.
We originated a$109.8 million senior loan in 2018 to replace the sponsor's existing financing on a hotel located inBerkeley, California (the "Berkeley Hotel "). The hotel includes meeting space, full-service restaurants and tennis club facilities. The loan included an initial funding of$98.8 million with an additional$11.0 million of future advances. The sponsor purchased theBerkeley Hotel in 2014 for a purchase price of$89.5 million and has spent a significant amount on capital improvements. InSeptember 2019 , we upsized the senior loan to$120.0 million and provided a$28.3 million mezzanine loan to facilitate the sponsor's acquisition of a third party's equity interest in the property. Due to the COVID-19 pandemic, theBerkeley Hotel was closed from April through July of 2020, during which time the loan stayed current through the combination of federal loans (Paycheck Protection Program), borrower reserves, and lender advances from the mezzanine loan. The hotel partially re-opened inAugust 2020 and shortly thereafter began generating cash flow. Operating performance steadily improved in 2021 at theBerkeley Hotel . Due to seasonality, cash flows during certain months have been insufficient to service the debt, and during those months the borrower supported debt service out-of-pocket. Net cash flow was negative in January andFebruary 2022 due to anticipated seasonality, however net cash flow exceeded debt service for March throughJune 2022 . Given mutual cooperation and commitment by the borrower, we entered into an amendment to delay the debt service hurdle test until the loan maturity inJuly 2023 in exchange for the borrower funding two additional months of interest to the interest reserve, bringing the total interest reserve balance to three months of interest on both the senior and mezzanine loans. COVID-19 cases and regulations inCalifornia continue to impact the local economy, which may influence future borrower actions and support at theBerkeley Hotel and have a negative impact on performance of the asset and the value of our investment interest.
Carrying Principal
Loan Type Collateral type Origination Date value balance Coupon type Cash Coupon Unlevered all-in yield Extended maturity date Loan-to-value(1) Q2 Risk ranking
Loan 10 Senior Office 5/29/2019 $ 68,110 $ 68,110 Floating 3.5% 5.8% 6/9/2024 59% 4
Loan 11 Senior Office 4/5/2019 66,298 66,298 Floating 3.3% 5.6% 4/9/2024 58% 4
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(1)Loan-to-value is calculated using the as-is value on the date of loan origination.
We originated two senior mortgage loans on two transitional office properties to the same sponsorship group. However, the borrowing entities are unrelated and the loans are neither cross-collateralized nor cross defaulted. TheNew York City metro office markets have experienced and continue to experience higher vacancy rates due to the COVID-19 pandemic and the effects of employee work from home arrangements. TheLong Island City market has seen increases in vacancy as newly developed or renovated properties have become available for leasing. Additionally, the availability of significant sub-lease space inLong Island City has created additional supply at below market rents. While certain market participants project that office demand will increase in the near future,New York City office buildings continue to face headwinds to increase occupancy. As a result, the timeline may not be rapid enough to remedy the negative impact on our sponsor's business plans and leasing activity for these two properties. Currently, the underlying individual property cash flows are insufficient to cover their respective debt service payments. SinceMarch 2021 and as recently asJanuary 2022 , we have worked with the borrower on both loans, as applicable, to use certain future funding advances from the tenant improvements and leasing costs account to be used for interest carry and operations shortfalls, provided that the borrower would deposit an incremental six months of deposits for interest and carry reserves on such loans as additional protection. Both loans generate incremental revenue from license agreements for rooftop signage. Loan 11 also generates incremental revenue from a license agreement for antenna space. BothLong Island City properties qualify for the industrial and commercial abatement programs ("ICAP") which will result in lower real estate taxes for the next 15 years, subject to renewal on an annual basis. Subsequent toJune 2022 , Loan 10 property received the final certificate of eligibility resulting in a savings of$0.6 million for the 2022/2023 tax year. Our Loan 11 property is expected to receive the final certificate of eligibility in the third quarter of 2022, which will result in significant tax savings. 69
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In regard to leasing, as ofJune 30, 2022 , Loan 10 has in-place leases for 10% of the property and Loan 11 has in-place leases for 30% of the property. There is a risk that Loan 10's carrying value could exceed the value of the property if leasing activity does not improve. These uncertain market conditions and borrower actions may result in a future valuation impairment or investment loss.
Carrying Principal
Loan Type Collateral type Origination Date value balance Coupon type Cash Coupon Unlevered all-in yield Extended maturity date Loan-to-value(1) Q2 Risk ranking
Loan 108 Mezzanine Hotel 1/9/2017 $ 12,120 $ 12,000 Floating 11.0% 12.8% 9/9/2022 63% - 76% 5
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(1)Loan-to-value is calculated using the as-is value on the date of loan origination.
We originated a$12.0 million mezzanine loan in 2017 in conjunction with a third party first mortgage loan of$60.0 million to finance the acquisition and capital improvements of a 289 key hotel located inNew York City (the "New York Hotel "). The hotel features a full-service restaurant, meeting rooms, fitness center and business center. The sponsor acquired the hotel in 2017 for a purchase price of$95.0 million . In 2019, the hotel underwent a brand conversion. As a result of COVID-19, hotel occupancy declined significantly starting inMarch 2020 . However, inMay 2020 the hotel obtained a contract with a government housing authority to lease rooms. The contract was on a month-to-month basis and as ofJune 30, 2022 , the housing authority had vacated the hotel. The sponsor is currently undergoing a capital improvement plan, including purchasing certain furniture, bedding and towels, and plans to re-open onAugust 1, 2022 . The borrower indicates forward bookings of 29% of room nights throughDecember 2022 . Additionally, the borrower is seeking a recapitalization to pay off the senior and mezzanine loans and implement a new hotel brand property improvement plan. The sponsor was unable to meet the reserve funding required for the extension of theMarch 2022 maturity date on both the senior and mezzanine loans. Default and reservation of rights letters have been issued by both lenders as a prudent measure. The loan is currently past due for theJuly 2022 interest payment. It is possible that uncertain market conditions and borrower actions may result in a future valuation impairment or investment loss.
Net Leased and
Our net leased real estate investment strategy focuses on direct ownership in commercial real estate with an emphasis on properties with stable cash flow, which may be structurally senior to a third-party partner's equity. In addition, we may own net leased real estate investments through joint ventures with one or more partners. As part of our net leased real estate strategy, we explore a variety of real estate investments including multi-tenant office, multifamily, student housing and industrial. Additionally, we have two investments in direct ownership of commercial real estate and own these operating real estate investments through joint ventures with one or more partners. Our properties are typically well-located with strong operating partners.
As of
NOI for the three
Carrying months ended June
Count(1) Value(2) 30, 2022(3)
Net leased real estate 8 $ 618,838 $ 12,420
Other real estate 2 162,684 3,739
Total/Weighted average net leased and other real
estate 10 ________________________________________
(1)Count represents the number of investments. (2)Represents carrying values at our share as ofJune 30, 2022 ; includes real estate tangible assets, deferred leasing costs and other intangible assets less intangible liabilities. (3)Refer to "Non-GAAP Supplemental Financial Measures" for further information on NOI. 70
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The following table provides asset-level detail of our net leased and other real estate as ofJune 30, 2022 : Rentable square Weighted feet ("RSF") / Weighted average % average lease Collateral type City, State Number of Properties units/keys(1) leased(2) term (yrs)(3) Net leased real estate Net lease 1 Office Stavanger, Norway 1 1,290,926 RSF 100% 8.2 Net lease 2 Industrial Various - U.S. 2 2,787,343 RSF 100% 16.1 Net lease 3 Office Aurora, CO 1 183,529 RSF 100% 0.3 Net lease 4 Office Indianapolis, IN 1 338,000 RSF 100% 8.5 Net lease 5 Retail Various - U.S. 7 319,600 RSF 100% 4.4 Net lease 6 Retail Keene, NH 1 45,471 RSF 100% 6.6 Net lease 7 Retail Fort Wayne, IN 1 50,000 RSF 100% 2.2 Net lease 8 Retail South Portland, ME 1 52,900 RSF 100% 8.6 Total/Weighted average net leased real estate 15 5,067,769 RSF 100% 10.8 Other real estate Other real estate 1 Office Creve Coeur, MO 7 847,604 RSF 87% 4.0 Other real estate 2 Office Warrendale, PA 5 496,414 RSF 82% 3.2 Total/Weighted average other real estate 12 1,344,018 RSF 85% 3.7 Total/Weighted average net leased and other real estate 27
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(1)Rentable square feet based on carry value at our share as of
Asset Specific Net Leased Summaries
Stavanger,
Rentable square
feet ("RSF") / Weighted average Weighted average
Collateral type City, State Number of Properties units/keys % leased lease term (yrs)Net lease 1 Office Stavanger, Norway 1 1,290,926 RSF 100% 8.2 InJuly 2018 , we acquired a class A office campus in Stavanger,Norway (the "NorwayNet Lease ") for$320 million . This property is 100% occupied by a single tenant that is rated investment grade AA-/Aa2 from S&P and Moody's, respectively. The property serves as their global headquarters. The NorwayNet Lease requires the tenant to pay for all real estate related expenses, including operational expenditures, capital expenditures and municipality taxes. The NorwayNet Lease has a weighted average remaining lease term of eight years and the tenant has the option to extend for two five-year periods at the same terms with rent adjusted to market rent, and there is a risk that the rent can decrease at that time. The NorwayNet Lease also has annual rent increases based on the Norwegian CPI Index through 2030. The rent increase in 2022 was 5.1%. Our tenant has injected a significant amount of capital into improvements of the property over the past 10 years. Financing on the NorwayNet Lease consists of a mortgage payable of$161.9 million with a fixed rate of 3.9%, which matures inJune 2025 , at which time there will be five years remaining on the initial lease term. The financing includes a provision for annual appraisal valuation each May with loan-to-value ("LTV") tests declining from 75% LTV beginning in year five, to 70% LTV after year eight and 65% LTV after year nine. The most recent valuation in May of 2022 resulted in a LTV of 67%. Market conditions could impact property valuations and continuing compliance with those annual tests, resulting in a cash trap subject to LTV rebalancing. This five-year remaining lease term along with risk of a downward rent adjustment at the 2030 renewal, and a potential increase in interest rates, could adversely impact the refinancing or sale of the asset. The tenant has made all rent payments and is current on all its financial obligations under the lease. Both the lease payments and mortgage debt service are NOK denominated currency. We maintain a series of USD-NOK forward swaps for a total notional amount of274 million NOK in order to minimize our foreign currency cash flow risk. These forward swaps occur quarterly throughMay 2024 , where we have agreed to sell NOK and buy USD at a locked in forward curve rate. However, only the lease payments are hedged through May 71
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2024. The net equity and lease payments beyond
Warehouse Distribution Portfolio
Rentable square
feet ("RSF") / Weighted average Weighted average
Collateral type City, State Number of Properties units/keys % leased lease term (yrs)Net lease 2 Industrial Various - U.S. 2 2,787,343 RSF 100% 16.1 InAugust 2018 we acquired two warehouse distribution facilities located inTracy, California andTolleson, Arizona (the "Warehouse Distribution Portfolio") for$292 million . These two properties are 100% occupied by a single tenant that is rated investment grade Ba1 from Moody's. The tenant is a national grocer and these properties form a part of its national distribution network. The Warehouse Distribution Portfolio lease (the "Warehouse Distribution Portfolio Lease") requires the tenant to pay for all real estate related expenses, including operational expenditures, capital expenditures and taxes. The tenant has invested a significant amount of capital expenditures into each property over the past few years and has plans for additional capital expenditures in 2022. The Warehouse Distribution Portfolio Lease has a remaining lease term of 16.1 years ending in 2038. The tenant has the option to extend the lease for nine five-year periods at the same terms with rent adjusted to market rent. The Warehouse Distribution Portfolio Lease also has annual rent increases of 1.5%. Financing on the Warehouse Distribution Portfolio consists of mortgage and mezzanine debt for a total combined amount payable of$200 million . The debt is interest only at a blended fixed rate of 4.8% and matures inSeptember 2028 . The debt has a defeasance provision for any early loan prepayment. The tenant has made all rent payments and is current on all its financial obligations under the Warehouse Distribution Portfolio Lease.
The Warehouse Distribution Portfolio has generated net operating income for the
six months ended
The following table presents an overview of our CRE debt securities as of
Weighted Average(1)
CRE Debt Securities by ratings Unlevered all-in
category Number of Securities Book value Cash coupon yield Remaining term (yrs) Ratings
"B-pieces" of CMBS securitization
pools 4 $ 36,154 2.8 % 12.9 % 4.9 -
Total/Weighted Average 4 $ 36,154 2.8 % 12.9 % 4.9 -
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(1)Weighted average metrics weighted by book value, except for cash coupon which is weighted by principal balance.
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Results of Operations
The following table summarizes our portfolio results of operations for the three
months ended
Three Months Three Months
Ended June 30, Ended March 31, Increase (Decrease)
2022 2022 Amount %
Net interest income
Interest income $ 53,083 $ 44,570 $ 8,513 19.1 %
Interest expense (21,455) (16,072) (5,383) 33.5 %
Interest income on mortgage loans held 9,721 9,375 346 3.7 %
in securitization trusts
Interest expense on mortgage obligations (8,586) (8,488) (98) 1.2 %
issued by securitization trusts
Net interest income 32,763 29,385 3,378 11.5 %
Property and other income
Property operating income 21,781 24,168 (2,387) (9.9) %
Other income 787 276 511 n.m.
Total property and other income 22,568 24,444 (1,876) (7.7) %
Expenses
Property operating expense 5,266 6,724 (1,458) (21.7) %
Transaction, investment and servicing 982 1,124 (142) (12.6) %
expense
Interest expense on real estate 7,117 7,556 (439) (5.8) % Depreciation and amortization 8,720 8,594 126 1.5 % Increase (decrease) of CECL reserve 10,143 (866) 11,009 n.m. Compensation and benefits 8,269 8,225 44 0.5 % Operating expense 4,070 4,349 (279) (6.4) % Total expenses 44,567 35,706 8,861 24.8 % Other income (loss) Other gain, net 24,332 10,288 14,044 n.m. Income before equity in earnings of unconsolidated ventures and income taxes 35,096 28,411 6,685 23.5 % Equity in earnings of unconsolidated (100.0) % ventures - 25 (25) Income tax expense (465) (36) (429) n.m. Net income$ 34,631 $ 28,400 $ 6,231 21.9 %
Comparison of Three Months Ended
Net Interest Income
Interest income
Interest income increased by$8.5 million to$53.1 million for the three months endedJune 30, 2022 as compared to the three months endedMarch 31, 2022 . The increase was primarily related to$6.5 million in interest from new loan originations,$2.5 million from higher SOFR and LIBOR rates and$1.9 million from a non-recurring loan prepayment fee. The increase was partially offset by$2.4 million due to loan repayments.
Interest expense
Interest expense increased by$5.4 million to$21.5 million for the three months endedJune 30, 2022 as compared to the three months endedMarch 31, 2022 . The increase was primarily due to$3.3 million related to higher SOFR and LIBOR rates and$2.5 million related to financing for loan originations. The increase was partially offset by$0.5 million related to payoffs of financing in connection with loan repayments. 73
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Net interest income on mortgage loans and obligations held in securitization trusts, net
Net interest income on mortgage loans and obligations held in securitization trusts, net increased by$0.2 million to$1.1 million for the three months endedJune 30, 2022 , as compared to the three months endedMarch 31, 2022 . The increase was primarily due to higher net income from our consolidated securitization trust. Property and other income Property operating income
Property operating income decreased by
Other income
Other income increased by
Expenses Property operating expense Property operating expense decreased by$1.5 million to$5.3 million for the three months endedJune 30, 2022 , as compared to the three months endedMarch 31, 2022 . The decrease was primarily the result of two property sales in the first quarter of 2022.
Transaction, investment and servicing expense
Transaction, investment and servicing expense decreased by$0.1 million to$1.0 million for the three months endedJune 30, 2022 , as compared to the three months endedMarch 31, 2022 , primarily due to$0.5 million relating to costs associated with the sale of a joint venture in the first quarter, partially offset by$0.3 million of other costs in the second quarter of 2022.
Interest expense on real estate
Interest expense on real estate decreased by$0.4 million to$7.1 million for the three months endedJune 30, 2022 , as compared to the three months endedMarch 31, 2022 . The decrease was primarily due to the repayment of a mortgage loan secured by one hotel property sold in the first quarter of 2022.
Depreciation and amortization
Depreciation and amortization expense increased by$0.1 million to$8.7 million for the three months endedJune 30, 2022 , as compared to the three months endedMarch 31, 2022 . The increase was primarily due to fixed asset and deferred leasing cost additions in the second quarter of 2022.
CECL Reserve
We recorded an increase of our CECL reserve of
Compensation and benefits
Compensation and benefits increased by a de minimis amount to
Operating expense
Operating expense decreased by$0.3 million to$4.1 million for the three months endedJune 30, 2022 , as compared to the three months endedMarch 31, 2022 . The decrease was primarily due to higher non-recurring costs incurred during the first quarter of 2022. 74
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Table of Contents Other income (loss) Other gain, net During the three months endedJune 30, 2022 , we recorded other gain, net of$24.3 million primarily due to the sale of a preferred equity investment in the second quarter of 2022. During the three months endedMarch 31, 2022 , we recorded other gain, net of$10.3 million primarily due to two property sales in the first quarter of 2022. Income tax expense Income tax expense increased by$0.4 million for the three months endedJune 30, 2022 , as compared to the three months endedMarch 31, 2022 , due to an income tax accrual recorded in the first quarter of 2022.
The following table summarizes our portfolio results of operations for the six
months ended
Six Months Ended June 30, Increase (Decrease)
2022 2021 Amount %
Net interest income
Interest income $ 97,654 $ 72,295 $ 25,359 35.1 %
Interest expense (37,527) (25,488) (12,039) 47.2 %
Interest income on mortgage loans held 19,095 31,079 (11,984) (38.6) %
in securitization trusts
Interest expense on mortgage obligations (17,074) (27,447) 10,373 (37.8) %
issued by securitization trusts
Net interest income 62,148 50,439 11,709 23.2 %
Property and other income
Property operating income 45,948 50,521 (4,573) (9.1) %
Other income 1,063 1,155 (92) (8.0) %
Total property and other income 47,011 51,676 (4,665) (9.0) %
Expenses
Management fee expense - 9,596 (9,596) (100.0) %
Property operating expense 11,990 14,869 (2,879) (19.4) %
Transaction, investment and servicing 2,106 2,932 (826) (28.2) %
expense
Interest expense on real estate 14,673 16,410 (1,737) (10.6) % Depreciation and amortization 17,314 19,533 (2,219) (11.4) % Increase (decrease) of CECL reserve 9,277 4,425 4,852 n.m. Compensation and benefits 16,494 16,839 (345) (2.0) % Operating expense 8,419 9,809 (1,390) (14.2) % Restructuring charges - 109,321 (109,321) (100.0) % Total expenses 80,273 203,734 (123,461) (60.6) % Other income (loss) Unrealized gain on mortgage loans and obligations held in securitization (100.0) % trusts, net - 28,154 (28,154) Realized loss on mortgage loans and obligations held in securitization (100.0) % trusts, net - (19,516) 19,516 Other gain, net 34,620 9,203 25,417 n.m. Income (loss) before equity in earnings of unconsolidated ventures and income n.m. taxes 63,506 (83,778) 147,284 Equity in earnings (loss) of n.m. unconsolidated ventures 25 (36,266) 36,291 Income tax benefit (expense) (501) 1,935 (2,436) n.m. Net income (loss)$ 63,030 $ (118,109) $ 181,139 n.m. 75
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Comparison of Six Months Ended
Net Interest Income
Interest income
Interest income increased by$25.4 million to$97.7 million for the six months endedJune 30, 2022 , as compared to the six months endedJune 30, 2021 . The increase was primarily due to$38.5 million in interest from new loan originations,$4.1 million in non-recurring profit participation income and$2.3 million received in non-recurring yield maintenance. This was partially offset by$18.0 million related to loan repayments.
Interest expense
Interest expense increased by$12.0 million to$37.5 million for the six months endedJune 30, 2022 , as compared to the six months endedJune 30, 2021 . The increase was driven by$9.6 million related to financing for loan originations and$2.6 million related to the BRSP 2021-FL1 securitization.
Net interest income on mortgage loans and obligations held in securitization trusts, net
Net interest income on mortgage loans and obligations held in securitization trusts, net decreased by$1.6 million for the six months endedJune 30, 2022 , as compared to the six months endedJune 30, 2021 , primarily due to the sale of the retained interest of a securitization trust during 2021.
Property and other income
Property operating income
Property operating income decreased by$4.6 million to$45.9 million for the six months endedJune 30, 2022 , as compared to the six months endedJune 30, 2021 . The decrease was primarily the result of the sale of an industrial portfolio in the first quarter of 2021 and two property sales in the first quarter of 2022.
Other income
Other income of$1.1 million was recorded during the six months endedJune 30, 2022 , which primarily relates to special servicing income associated with a securitization trust and income from money market investments. Other income of$1.2 million was recorded during the six months endedJune 30, 2021 , which relates to a one-time reimbursement received on a previously resolved transaction. Expenses Management fee expense
Management fee expense decreased by
Property operating expense
Property operating expense decreased by$2.9 million to$12.0 million for the six months endedJune 30, 2022 , as compared to the six months endedJune 30, 2021 . The decrease was primarily the result of two property sales in the first quarter of 2022 and the sale of an industrial portfolio in the first quarter of 2021.
Transaction, investment and servicing expense
Transaction, investment and servicing expense decreased by$0.8 million to$2.1 million for the six months endedJune 30, 2022 , as compared to the six months endedJune 30, 2021 , primarily due to higher franchise tax refunds received in the first quarter of 2021.
Interest expense on real estate
Interest expense on real estate decreased by$1.7 million to$14.7 million for the six months endedJune 30, 2022 , as compared to the six months endedJune 30, 2021 . This decrease was primarily due to the repayments of mortgage loans secured by two properties sold in the first quarter of 2022 and an industrial portfolio that was sold in the first quarter of 2021. 76
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Depreciation and amortization
Depreciation and amortization expense decreased by$2.2 million to$17.3 million for the six months endedJune 30, 2022 , as compared to the six months endedJune 30, 2021 . The decrease was primarily the result of two property sales in the first quarter of 2022.
Increase (decrease) of CECL reserve
We recorded a CECL reserve of$9.3 million and$4.4 million for the six months endedJune 30, 2022 and the six months endedJune 30, 2021 , respectively. This increase was primarily driven by the current macroeconomic outlook and new loan originations. Compensation and benefits Compensation and benefits decreased by$0.3 million to$16.5 million for the six months endedJune 30, 2022 , as compared to the six months endedJune 30, 2021 . This decrease was driven by higher stock compensation due to accelerated vesting of shares owned by employees of our former Manager following the internalization of our management in the second quarter of 2021.
Operating expense
Operating expense decreased by$1.4 million to$8.4 million for the six months endedJune 30, 2022 , as compared to the six months endedJune 30, 2021 . This decrease was due to lower operating expenses following the internalization of our management and operating functions (the "Internalization") onApril 30, 2021 .
Restructuring Charges
During the six months endedJune 30, 2021 , we recorded$109.3 million in restructuring costs related to the termination of our Management Agreement with our previous Manager. This consisted of a one-time cash payment of$102.3 million to our previous Manager paid onApril 30, 2021 and$7.0 million in additional restructuring costs consisting primarily of fees paid for legal and investment banking advisory services.
Other income (loss)
Unrealized gain (loss) on mortgage loans and obligations held in securitization trusts, net
During the six months endedJune 30, 2022 , we recorded no unrealized gain or loss on mortgage loans and obligations held in securitization trusts, net. During the six months endedJune 30, 2021 , we recorded a reversal of an unrealized loss of$28.2 million primarily due to the sale of retained investments in the subordinate tranches of one securitization trust and the sale of two underlying loans held within one of our retained investments in the subordinate tranches of another securitization trust. Upon the sales, the accumulated unrealized losses related to the retained investments were reversed and realized.
Realized loss on mortgage loans and obligations held in securitization trusts, net
During the six months endedJune 30, 2022 , we recorded no realized gain or loss on mortgage loans and obligations held in securitization trusts, net. During the six months endedJune 30, 2021 , we recorded a realized loss of$19.5 million on mortgage loans and obligations held in securitization trusts, net. This was due to the realized loss upon sale of the retained investments in the subordinate tranches of one securitization trust in the second quarter of 2021.
Other gain, net
During the six months endedJune 30, 2022 , we recorded other gain, net of$34.6 million , primarily due to realized gains on two property sales in the first quarter of 2022 and the sale of a preferred equity investment in the second quarter of 2022. During the six months endedJune 30, 2021 , we recorded other gain, net of$9.2 million primarily due to a realized gain on the sale of an industrial portfolio.
Equity in earnings (loss) of unconsolidated ventures
During the six months ended
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Income tax benefit (expense)
Income tax benefit decreased by$2.4 million to an expense$0.5 million for the six months endedJune 30, 2022 , as compared to the six months endedJune 30, 2021 , primarily due to a one-time benefit from a tax capital loss carryback on private equity investments recorded during the six months endedJune 30, 2021 .
Book Value Per Share
The following table calculates our GAAP book value per share and undepreciated book value per share ($ in thousands, except per share data):
June 30, 2022 December 31, 2021
Stockholders' Equity excluding noncontrolling
interests in investment entities $ 1,452,008 $ 1,489,843
Shares
Class A common stock 128,965 129,769
OP units - 3,076
Total outstanding 128,965 132,845
GAAP book value per share $ 11.26 $ 11.22
Accumulated depreciation and amortization per share $ 1.16 $
1.15
Undepreciated book value per share $ 12.42 $ 12.37
Non-GAAP Supplemental Financial Measures
Distributable Earnings
We present Distributable Earnings, which is a non-GAAP supplemental financial measure of our performance. We believe that Distributable Earnings provides meaningful information to consider in addition to our net income and cash flow from operating activities determined in accordance withU.S. GAAP, and this metric is a useful indicator for investors in evaluating and comparing our operating performance to our peers and our ability to pay dividends. We elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, beginning with our taxable year endedDecember 31, 2018 . As a REIT, we are required to distribute substantially all of our taxable income and we believe that dividends are one of the principal reasons investors invest in credit or commercial mortgage REITs such as our company. Over time, Distributable Earnings has been a useful indicator of our dividends per share and we consider that measure in determining the dividend, if any, to be paid. This supplemental financial measure also helps us to evaluate our performance excluding the effects of certain transactions andU.S. GAAP adjustments that we believe are not necessarily indicative of our current portfolio and operations. We define Distributable Earnings asU.S. GAAP net income (loss) attributable to our common stockholders (or, without duplication, the owners of the common equity of our direct subsidiaries, such as our OP) and excluding (i) non-cash equity compensation expense, (ii) the expenses incurred in connection with our formation or other strategic transactions, (iii) the incentive fee, (iv) acquisition costs from successful acquisitions, (v) gains or losses from sales of real estate property and impairment write-downs of depreciable real estate, including unconsolidated joint ventures and preferred equity investments, (vi) CECL reserves determined by probability of default/loss given default ("PD/LGD") model, (vii) depreciation and amortization, (viii) any unrealized gains or losses or other similar non-cash items that are included in net income for the current quarter, regardless of whether such items are included in other comprehensive income or loss, or in net income, (ix) one-time events pursuant to changes inU.S. GAAP and (x) certain material non-cash income or expense items that in the judgment of management should not be included in Distributable Earnings. For clauses (ix) and (x), such exclusions shall only be applied after approval by a majority of our independent directors. Distributable Earnings include CECL reserves when realized. Loan losses are realized when such amounts are deemed nonrecoverable at the time the loan is repaid, or if the underlying asset is sold following foreclosure, or if we determine that it is probable that all amounts due will not be collected; realized loan losses to be included in Distributable Earnings is the difference between the cash received, or expected to be received, and the book value of the asset. Additionally, we define Adjusted Distributable Earnings as Distributable Earnings excluding (i) realized gains and losses on asset sales, (ii) fair value adjustments, which represent mark-to-market adjustments to investments in unconsolidated ventures based on an exit price, defined as the estimated price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants, (iii) unrealized gains or losses, (iv) realized CECL reserves and (v) one-time gains or losses that in the judgement of management should not be included in Adjusted Distributable Earnings. We believe Adjusted Distributable Earnings is a useful indicator for investors to further evaluate and compare our operating 78
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performance to our peers and our ability to pay dividends, net of the impact of any gains or losses on assets sales or fair value adjustments, as described above.
Distributable Earnings and Adjusted Distributable Earnings do not represent net income or cash generated from operating activities and should not be considered as an alternative toU.S. GAAP net income or an indication of our cash flows from operating activities determined in accordance withU.S. GAAP, a measure of our liquidity, or an indication of funds available to fund our cash needs. In addition, our methodology for calculating Distributable Earnings and Adjusted Distributable Earnings may differ from methodologies employed by other companies to calculate the same or similar non-GAAP supplemental financial measures, and accordingly, our reported Distributable Earnings and Adjusted Distributable Earnings may not be comparable to the Distributable Earnings and Adjusted Distributable Earnings reported by other companies. The following table presents a reconciliation of net income (loss) attributable to our common stockholders to Distributable Earnings and Adjusted Distributable Earnings attributable to our common stockholders and noncontrolling interest of theOperating Partnership (dollars and share amounts in thousands, except per share data) for the three and six months endedJune 30, 2022 and 2021: Three
Months Ended
2022 2021
Net income (loss) attributable to
$ 34,287 $ (19,720) Adjustments: Net income (loss) attributable to noncontrolling interest of the Operating Partnership 359 (437) Non-cash equity compensation expense 2,286 5,443 Transaction costs - 150 Depreciation and amortization 8,711 9,801 Net unrealized loss (gain): Other unrealized gain on investments (1,940) (23,310) CECL reserves 10,143 1,201
Gain on sales of real estate, preferred equity and investments in unconsolidated joint ventures
(22,210) -
Adjustments related to noncontrolling interests (191) (192)
Distributable Earnings attributable to
$ 31,445 $ (27,064) Distributable Earnings (Loss) per share(1) $
0.24
Adjustments:
Fair value adjustments - 32,039 Realized loss on CRE debt securities sales - 22,075
Adjusted Distributable Earnings attributable to
$ 31,445 $ 27,050 Adjusted Distributable Earnings per share(1) $ 0.24$ 0.20 Weighted average number of common shares and OP units(1) 131,522 132,788
________________________________________
(1)We calculate Distributable Earnings (Loss) per share, and Adjusted Distributable Earnings per share, non-GAAP financial measures, based on a weighted-average number of common shares and OP units (held by members other than us or our subsidiaries). For the three months endedJune 30, 2021 , weighted average number of common shares includes 3.1 million OP units. For the three months endedJune 30, 2022 includes 3.1 million OP units until their redemption inMay 2022 . 79
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Six Months Ended June 30,
2022 2021
Net income (loss) attributable to
$ 62,010 $ (112,034) Adjustments: Net income (loss) attributable to noncontrolling interest of the Operating Partnership 1,013 (2,390) Non-cash equity compensation expense 4,166 9,705 Transaction costs - 109,321 Depreciation and amortization 17,314 19,559 Net unrealized loss (gain): Other unrealized gain on investments (492) (31,682) CECL reserves 9,277 4,426
Gain on sales of real estate, preferred equity and investments in unconsolidated joint ventures
(32,713) (9,782)
Adjustments related to noncontrolling interests (355) (367)
Distributable Earnings attributable to
$ 60,220 $ (13,244) Distributable Earnings (Loss) per share(1) $
0.46
Adjustments:
Fair value adjustments - 35,344 Realization of CRE debt securities mark-to-market loss - 990 Realized loss on CRE debt securities sales - 21,944
Adjusted Distributable Earnings attributable to
$ 60,220 $ 45,034 Adjusted Distributable Earnings per share(1) $ 0.46$ 0.34 Weighted average number of common shares and OP units(1) 132,168 132,755
________________________________________
(1)We calculate Distributable Earnings (Loss) per share, and Adjusted Distributable Earnings per share, non-GAAP financial measures, based on a weighted-average number of common shares and OP units (held by members other than us or our subsidiaries). For the six months endedJune 30, 2021 , weighted average number of common shares includes 3.1 million OP units. For the six months endedJune 30, 2022 includes 3.1 million OP units until their redemption inMay 2022 . NOI We believe NOI to be a useful measure of operating performance of our net leased and other real estate portfolios as they are more closely linked to the direct results of operations at the property level. NOI excludes historical cost depreciation and amortization, which are based on different useful life estimates depending on the age of the properties, as well as adjustments for the effects of real estate impairment and gains or losses on sales of depreciated properties, which eliminate differences arising from investment and disposition decisions. Additionally, by excluding corporate level expenses or benefits such as interest expense, any gain or loss on early extinguishment of debt and income taxes, which are incurred by the parent entity and are not directly linked to the operating performance of the Company's properties, NOI provides a measure of operating performance independent of the Company's capital structure and indebtedness. However, the exclusion of these items as well as others, such as capital expenditures and leasing costs, which are necessary to maintain the operating performance of the Company's properties, and transaction costs and administrative costs, may limit the usefulness of NOI. NOI may fail to capture significant trends in these components ofU.S. GAAP net income (loss) which further limits its usefulness. NOI should not be considered as an alternative to net income (loss), determined in accordance withU.S. GAAP, as an indicator of operating performance. In addition, our methodology for calculating NOI involves subjective judgment and discretion and may differ from the methodologies used by other companies, when calculating the same or similar supplemental financial measures and may not be comparable with other companies. 80
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The following tables present a reconciliation of net income (loss) on our net leased and other real estate portfolios attributable to our common stockholders to NOI attributable to our common stockholders (dollars in thousands) for the three and six months endedJune 30, 2022 and 2021: Three
Months Ended
2022 2021
Net income (loss) attributable to
$ 34,287 $ (19,720) Adjustments:
Net (income) loss attributable to non-net leased and other real estate portfolios(1)
(31,577) 21,166
Net income (loss) attributable to noncontrolling
interests in investment entities (15) 23
Amortization of above- and below-market lease intangibles (59) (208)
Interest income - 9
Interest expense on real estate 7,117 7,777
Other income (17) 36
Transaction, investment and servicing expense 52 63
Depreciation and amortization 8,664 9,949
Operating expense 56 61
Other gain on investments, net (2,101) (1,237)
Income tax expense (benefit) 49 (86)
NOI attributable to noncontrolling interest in investment
entities (297) (3,968)
Total NOI, at share $ 16,159 $ 13,865 ________________________________________
(1)Net loss attributable to non-net leased and other real estate portfolio includes net (income) loss on our senior and mezzanine loans and preferred equity, CRE debt securities and corporate business segments.
Six
Months Ended
2022 2021
Net income (loss) attributable to
$ 62,010 $ (112,034) Adjustments:
Net (income) loss attributable to non-net leased and other real estate portfolios(1)
(47,505) 122,578
Net income (loss) attributable to noncontrolling interests in investment entities
7 (109)
Amortization of above- and below-market lease intangibles (101) (25)
Interest income - 18
Interest expense on real estate 14,673 16,410
Other income (17) 2
Transaction, investment and servicing expense 407 51
Depreciation and amortization 17,215 19,488
Operating expense 247 92
Other gain on investments, net (13,196) (10,733)
Income tax expense (benefit) 118 (111)
NOI attributable to noncontrolling interest in investment
entities (606) (7,966)
Total NOI, at share $ 33,252 $ 27,661 ________________________________________
(1)Net loss attributable to non-net leased and other real estate portfolio includes net (income) loss on our senior and mezzanine loans and preferred equity, CRE debt securities and corporate business segments.
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Liquidity and Capital Resources
Overview
Our material cash commitments include commitments to repay borrowings, finance our assets and operations, meet future funding obligations, make distributions to our stockholders and fund other general business needs. We use significant cash to make investments, meet commitments to existing investments, repay the principal of and interest on our borrowings and pay other financing costs, make distributions to our stockholders and fund our operations. Our primary sources of liquidity include cash on hand, cash generated from our operating activities and cash generated from asset sales and investment maturities. However, subject to maintaining our qualification as a REIT and our Investment Company Act exclusion, we may use several sources to finance our business, including bank credit facilities (including term loans and revolving facilities), master repurchase facilities and securitizations, as described below. In addition to our current sources of liquidity, there may be opportunities from time to time to access liquidity through public offerings of debt and equity securities. We have sufficient sources of liquidity to meet our material cash commitments for the next 12 months and beyond.
Financing Strategy
We have a multi-pronged financing strategy that included an up to$165 million secured revolving credit facility as ofJune 30, 2022 , up to approximately$2.3 billion in secured revolving repurchase facilities,$1.4 billion in non-recourse securitization financing,$631 million in commercial mortgages and$28 million in other asset-level financing structures (refer to "Bank Credit Facility" section below for further discussion). In addition, we may use other forms of financing, including additional warehouse facilities, public and private secured and unsecured debt issuances and equity or equity-related securities issuances by us or our subsidiaries. We may also finance a portion of our investments through the syndication of one or more interests in a whole loan. We will seek to match the nature and duration of the financing with the underlying asset's cash flow, including using hedges, as appropriate.
Debt-to-Equity Ratio
The following table presents our debt-to-equity ratio:
June 30, 2022 December 31, 2021
Debt-to-equity ratio(1) 2.2x 2.0x
_________________________________________
(1)Represents (i) total outstanding secured debt less cash and cash equivalents of$317.7 million and$259.7 million atJune 30, 2022 andDecember 31, 2021 , respectively to (ii) total equity, in each case, at period end.
Potential Sources of Liquidity
The COVID-19 pandemic has had a significant impact on our business, and we have taken actions since its onset to protect our liquidity. However, there is still uncertainty regarding the pandemic's impact on the financial condition of our borrowers and their ability to make their monthly mortgage payments and remain in compliance with loan covenants and terms. The failure of our borrowers to meet their loan obligations may trigger repayments under ourBank Credit Facility and Master Repurchase Facilities. If our operating real estate lessees are unable to make monthly rent payments, we would be unable to make our monthly mortgage payments which could result in defaults under these obligations or trigger repayments under ourBank Credit Facility. If these events were to occur, we may not have sufficient available cash to repay amounts due. Furthermore, as discussed in greater detail above under "Factors Impacting Our Operating Results," overall market uncertainty coupled with rising inflation and interest rates have tempered the loan financing markets recently. A rising interest rate environment will result in increased interest expense on our variable rate debt that is not hedged and may result in disruptions to our borrowers' and tenants' ability to finance their activities, which could similarly adversely impact their ability to make their monthly mortgage payments and meet their loan obligations. Additionally, due to the current market conditions, warehouse lenders may take a more conservative stance by increasing funding costs, which may also lead to margin calls.
Our primary sources of liquidity include borrowings available under our credit facilities, master repurchase facilities and CMBS facilities and monthly mortgage payments.
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Bank Credit Facilities
We use bank credit facilities (including term loans and revolving facilities) to finance our business. These financings may be collateralized or non-collateralized and may involve one or more lenders. Credit facilities typically have maturities ranging from two to five years and may accrue interest at either fixed or floating rates. OnJanuary 28, 2022 ,BrightSpire Capital Operating Company, LLC ("BrightSpire OP") (together with certain subsidiaries of BrightSpire OP from time to time party thereto as borrowers, collectively, the "Borrowers") entered into an Amended and Restated Credit Agreement (the "Credit Agreement") withJPMorgan Chase Bank, N.A ., as administrative agent (the "Administrative Agent"), and the several lenders from time to time party thereto (the "Lenders"), pursuant to which the Lenders agreed to provide a revolving credit facility in the aggregate principal amount of up to$165.0 million , of which up to$25.0 million is available as letters of credit. Loans under the Credit Agreement may be advanced inU.S. dollars and certain foreign currencies, including euros, pounds sterling and swiss francs. The Credit Agreement amended and restated BrightSpire OP's prior$300.0 million revolving credit facility that would have matured onFebruary 1, 2022 . The Credit Agreement also includes an option for the Borrowers to increase the maximum available principal amount to up to$300.0 million , subject to one or more new or existing Lenders agreeing to provide such additional loan commitments and satisfaction of other customary conditions. Advances under the Credit Agreement accrue interest at a per annum rate equal to, at the applicable Borrower's election, either (x) an adjusted SOFR rate plus a margin of 2.25%, or (y) a base rate equal to the highest of (i) theWall Street Journal's prime rate, (ii) the federal funds rate plus 0.50% and (iii) the adjusted SOFR rate plus 1.00%, plus a margin of 1.25%. An unused commitment fee at a rate of 0.25% or 0.35%, per annum, depending on the amount of facility utilization, applies toun -utilized borrowing capacity under the Credit Agreement. Amounts owed under the Credit Agreement may be prepaid at any time without premium or penalty, subject to customary breakage costs in the case of borrowings with respect to which a SOFR rate election is in effect. The maximum amount available for borrowing at any time under the Credit Agreement is limited to a borrowing base valuation of certain investment assets, with the valuation of such investment assets generally determined according to a percentage of adjusted net book value. As ofJune 30, 2022 , the borrowing base valuation is sufficient to permit borrowings of up to$165.0 million . If any borrowing is outstanding for more than 180 days after its initial draw, the borrowing base valuation will be reduced by 50% until all outstanding borrowings are repaid in full. The ability to borrow new amounts under the Credit Agreement terminates onJanuary 31, 2026 , at which time BrightSpire OP may, at its election and by written notice to the Administrative Agent, extend the termination date for two (2) additional terms of six (6) months each, subject to the terms and conditions in the Credit Agreement, resulting in a latest termination date ofJanuary 31, 2027 . The obligations of the Borrowers under the Credit Agreement are guaranteed pursuant to a Guarantee and Collateral Agreement by substantially all material wholly owned subsidiaries of BrightSpire OP (the "Guarantors") in favor of the Administrative Agent (the "Guarantee and Collateral Agreement") and, subject to certain exceptions, secured by a pledge of substantially all equity interests owned by the Borrowers and the Guarantors, as well as by a security interest in deposit accounts of the Borrowers and the Guarantors in which the proceeds of investment asset distributions are maintained. The Credit Agreement contains various affirmative and negative covenants, including, among other things, the obligation of the Company to maintain REIT status and be listed on theNew York Stock Exchange , and limitations on debt, liens and restricted payments. In addition, the Credit Agreement includes the following financial covenants applicable to BrightSpire OP and its consolidated subsidiaries: (a) minimum consolidated tangible net worth of BrightSpire OP to be greater than or equal to the sum of (i)$1,112,000,000 and (ii) 70% of the net cash proceeds received by BrightSpire OP from any offering of its common equity afterSeptember 30, 2021 and of the net cash proceeds from any offering by the Company of its common equity to the extent such proceeds are contributed to BrightSpire OP, excluding any such proceeds that are contributed to BrightSpire OP within ninety (90) days of receipt and applied to acquire capital stock of BrightSpire OP; (b) BrightSpire OP's ratio of EBITDA plus lease expenses to fixed charges for any period of four (4) consecutive fiscal quarters to be not less than 1.50 to 1.00; (c) BrightSpire OP's minimum interest coverage ratio to be not less than 3.00 to 1.00; and (d) BrightSpire OP's ratio of consolidated total debt to consolidated total assets to be not more than 0.80 to 1.00. The Credit Agreement also includes customary events of default, including, among other things, failure to make payments when due, breach of covenants or representations, cross default to material indebtedness, material judgment defaults, bankruptcy matters involving any Borrower or any Guarantor and certain change of control events. The occurrence of an event of default will limit the ability of BrightSpire OP and its subsidiaries to make distributions and may result in the termination of the credit facility, acceleration of repayment obligations and the exercise of remedies by the Lenders with respect to the collateral.
As of
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Master Repurchase Facilities and CMBS Credit Facilities
Currently, our primary source of financing is our Master Repurchase Facilities, which we use to finance the origination of senior loans, and CMBS Credit Facilities, which we use to finance the purchase of securities. Repurchase agreements effectively allow us to borrow against loans, participations and securities that we own in an amount generally equal to (i) the market value of such loans, participations and/or securities multiplied by (ii) the applicable advance rate. Under these agreements, we sell our loans, participations and securities to a counterparty and agree to repurchase the same loans and securities from the counterparty at a price equal to the original sales price plus an interest factor. During the term of a repurchase agreement, we receive the principal and interest on the related loans, participations and securities and pay interest to the lender under the master repurchase agreement. We intend to maintain formal relationships with multiple counterparties to obtain master repurchase financing of favorable terms.
During the first quarter of 2022, we entered into amendments under our five
Master Repurchase Facilities and/or associated guarantees to reduce the minimum
tangible net worth covenant requirement from
Additionally, during the first quarter of 2022, we entered into amendments under four of our Master Repurchase Facilities to expand the eligibility criteria to allow for loans indexed to SOFR, and to allow for borrowings under those facilities to also be indexed to SOFR. During the second quarter of 2022, we entered into amendments under our Master Repurchase Facility with Bank 7 and Bank 9 to increase the facility sizes by$100 million and extend the maturity dates by one year for each facility.
Subsequent to
As ofJune 30, 2022 , we had entered into eight master repurchase agreements (collectively the "CMBS Credit Facilities") to finance CMBS investments. The CMBS Credit Facilities are on a recourse basis and contain representations, warranties, covenants, conditions precedent to funding, events of default and indemnities that are customary for agreements of this type. The CMBS Credit Facilities were undrawn as ofJune 30, 2022 .
The following table presents a summary of our Master Repurchase and Bank Credit
Facilities as of
Weighted Average
Maximum Current Final Maturity Weighted Average
Facility Size Borrowings (Years) Interest Rate(1)
Master Repurchase Facilities
Bank 1 $ 400,000 $ 250,162 3.8 LIBOR/SOFR + 1.82%
Bank 3 600,000 396,202 0.8 LIBOR/SOFR + 1.95%
Bank 7 600,000 415,795 3.8 LIBOR/SOFR + 1.79%
Bank 8 250,000 158,504 0.9 LIBOR/SOFR + 2.18%
Bank 9 400,000 266,904 4.9 LIBOR/SOFR + 1.70%
Total Master Repurchase Facilities 2,250,000 1,487,567
Bank Credit Facility 165,000 - 4.5 SOFR + 2.25%
Total Facilities $ 2,415,000 $ 1,487,567 _________________________________________
(1)The Company utilized the Secured Overnight Financing Rate ("SOFR") for all
deals beginning
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The following table presents the quarterly average unpaid principal balance ("UPB"), end of period UPB and the maximum UPB at any month-end related to our Master Repurchase and Bank Credit Facilities (dollars in thousands):
Quarterly Maximum UPB at
Quarter Ended Average UPB End of Period UPB Any Month-End
June 30, 2022 $ 1,343,678 $ 1,487,567 $ 1,503,297
March 31, 2022 1,052,455 1,199,789 1,199,789
December 31, 2021 731,792 905,122 905,122
September 30, 2021 780,625 558,461 622,961
June 30, 2021 895,356 1,002,789 1,002,789
March 31, 2021 661,573 787,923 787,923
The increase in our end of period UPB from
Securitizations
We may seek to utilize non-recourse long-term securitizations of our investments in mortgage loans, especially loan originations, to the extent consistent with the maintenance of our REIT qualification and exclusion from the Investment Company Act in order to generate cash for funding new investments. This would involve conveying a pool of assets to a special purpose vehicle (or the issuing entity), which would issue one or more classes of non-recourse notes pursuant to the terms of an indenture. The notes would be secured by the pool of assets. In exchange for the transfer of assets to the issuing entity, we would receive the cash proceeds on the sale of non-recourse notes and a 100% interest in the equity of the issuing entity. The securitization of our portfolio investments might magnify our exposure to losses on those portfolio investments because any equity interest we retain in the issuing entity would be subordinate to the notes issued to investors and we would, therefore, absorb all of the losses sustained with respect to a securitized pool of assets before the owners of the notes experience any losses.
In
OnMarch 5, 2021 , theFinancial Conduct Authority of the U.K . (the "FCA") announced that LIBOR tenors relevant to CLNC 2019-FL1 would cease to be published or no longer be representative afterJune 30, 2023 . The Alternative Reference Rates Committee (the "ARRC") interpreted this announcement to constitute a benchmark transition event. As ofJune 17, 2021 , the benchmark index interest rate was converted from LIBOR to SOFR, plus a benchmark adjustment of 11.448 basis points with a lookback period equal to the number of calendar days in the applicable Interest Accrual Period plus two SOFR business days, conforming with the indenture agreement and recommendations from the ARRC. Compounded SOFR for any interest accrual period shall be the "30-Day Average SOFR" as published by theFederal Reserve Bank of New York on each benchmark determination date. As ofFebruary 19, 2022 , the benchmark index interest rate was converted from Compounded SOFR to Term SOFR, plus a benchmark adjustment of 11.448 basis points, conforming with the indenture agreement. Term SOFR for any interest accrual period shall be the one month CME Term SOFR reference rate as published by the CME Group benchmark administration on each benchmark determination date. As ofJune 30, 2022 , the CLNC 2019-FL1 mortgage assets are indexed to LIBOR and the borrowings under CLNC 2019-FL1 are indexed to Term SOFR, creating an underlying benchmark index rate basis difference between CLNC 2019-FL1 assets and liabilities, which is meant to be mitigated by the benchmark replacement adjustment described above. We have the right to transition the CLNC 2019-FL1 mortgage assets to SOFR, eliminating the basis difference between CLNC 2019-FL1 assets and liabilities, and will make the determination taking into account the loan portfolio as a whole. The transition to SOFR is not expected to have a material impact to CLNC 2019-FL1's assets and liabilities and related interest expense. CLNC 2019-FL1 included a two-year reinvestment feature that allowed us to contribute existing or newly originated loan investments in exchange for proceeds from repayments or repurchases of loans held in CLNC 2019-FL1, subject to the satisfaction of certain conditions set forth in the indenture. The reinvestment period for CLNC 2019-FL1 expired onOctober 19, 2021 . During the first half of 2022, five loans held in CLNC 2019-FL1 were repaid, totaling$138.4 million . The proceeds from the five loan payoffs were used to amortize the securitization bonds in accordance with the securitization priority of payments. As ofAugust 2, 2022 , the securitization advance rate was 80.9% at a weighted average cost of funds of Adjusted Term SOFR plus 1.66% (before transaction costs). 85
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Additionally, CLNC 2019-FL1 contains note protection tests that can be triggered as a result of contributed loan defaults, losses, and certain other events outlined in the indenture, beyond established thresholds. A note protection test failure that is not remedied can result in the redirection of interest proceeds from the below investment grade tranches to amortize the most senior outstanding tranche. While we continue to closely monitor all loan investments contributed to CLNC 2019-FL1, a deterioration in the performance of an underlying loan could negatively impact our liquidity position. InJuly 2021 , we executed a securitization transaction through our subsidiaries BRSP 2021-FL1 Ltd. and BRSP 2021-FL1, LLC , which resulted in the sale of$670 million of investment grade notes. The securitization reflects an advance rate of 83.75% at a weighted costs of funds of LIBOR plus 1.49% (before transaction expenses) and is collateralized by a pool of 33 senior loan investments. BRSP 2021-FL1 includes a two-year reinvestment feature that allows us to contribute existing or newly originated loan investments in exchange for proceeds from repayments or repurchases of loans held in BRSP 2021-FL1, subject to the satisfaction of certain conditions set forth in the indenture. In addition to existing eligible loans available for reinvestment, the continued origination of securitization eligible loans is required to ensure that we reinvest the available proceeds within BRSP 2021-FL1. During the first half of 2022 and throughAugust 2, 2022 , five loans held in BRSP 2021-FL1 were fully repaid, totaling$73.8 million . We replaced the repaid loans by contributing existing loan investments of equal value. Additionally, BRSP 2021-FL1 contains note protection tests that can be triggered as a result of contributed loan defaults, losses, and certain other events outlined in the indenture, beyond established thresholds. A note protection test failure that is not remedied can result in the redirection of interest proceeds from the below investment grade tranches to amortize the most senior outstanding tranche. We will continue to closely monitor all loan investments contributed to BRSP 2021-FL1, a deterioration in the performance of an underlying loan could negatively impact our liquidity position.
Other potential sources of financing
In the future, we may also use other sources of financing to fund the acquisition of our target assets, including secured and unsecured forms of borrowing and selective wind-down and dispositions of assets. We may also seek to raise equity capital or issue debt securities in order to fund our future investments. Liquidity Needs In addition to our loan origination activity and general operating expenses, our primary liquidity needs include interest and principal payments under our Bank Credit Facility, securitization bonds, and secured debt. Information concerning our contractual obligations and commitments to make future payments, including our commitments to repay borrowings, is included in the following table as ofJune 30, 2022 . This table excludes our obligations that are not fixed and determinable (dollars in thousands): Payments Due by Period Less than a More than 5 Total Year 1-3 Years 3-5 Years Years Bank credit facility(1)$ 1,868 $ 413 $ 825 $ 630 $ - Secured debt(2) 2,426,754 257,127 688,285 1,190,628 290,714 Securitization bonds payable(3) 1,429,410 169,389 1,244,650 15,371 - Ground lease obligations(4) 28,352 3,108 4,845 4,036 16,363 Office leases 8,630 797 2,586 2,647 2,600$ 3,895,014 $ 430,834
312,903
Total $ 4,207,917 _________________________________________
(1)Future interest payments were estimated based on the applicable index atJune 30, 2022 and unused commitment fee of 0.25% per annum, assuming principal is repaid on the current maturity date ofJanuary 2027 . (2)Amounts include minimum principal and interest obligations through the initial maturity date of the collateral assets. Interest on floating rate debt was determined based on the applicable index atJune 30, 2022 . (3)The timing of future principal payments was estimated based on expected future cash flows of underlying collateral loans. Repayments are estimated to be earlier than contractual maturity only if proceeds from underlying loans are repaid by the borrowers. (4)The amounts represent minimum future base rent commitments through initial expiration dates of the respective noncancellable operating ground leases, excluding any contingent rent payments. Rents paid under ground leases are recoverable from tenants. (5)Future lending commitments may be subject to certain conditions that borrowers must meet to qualify for such fundings. Commitment amount assumes future fundings meet the terms to qualify for such fundings. 86 -------------------------------------------------------------------------------- Table of Contents Share Repurchases InMay 2022 , our board of directors authorized a stock repurchase program ("Stock Repurchase Program") under which we may repurchase up to$100.0 million of our outstanding Class A common stock untilApril 30, 2023 . Under the Stock Repurchase Program, we may repurchase shares in open market purchases, in privately negotiated transactions or otherwise. We have a written trading plan as part of the Share Repurchase Program that provides for share repurchases in open market transactions that is intended to comply with Rule 10b-18 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Stock Repurchase Program will be utilized at our discretion and in accordance with the requirements of theSecurities and Exchange Commission ("SEC"). The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate requirements and other conditions. During the three months endedJune 30, 2022 , we repurchased 2.2 million shares of Class A common stock at a weighted average price of$8.40 per share for an aggregate cost of$18.3 million . Additionally, and separate from the Stock Repurchase Program, we redeemed the 3.1 million total outstanding membership units in the OP held by a third-party representing noncontrolling interests at a price of$8.25 per unit for a total cost of$25.4 million .
As of
Cash Flows
The following presents a summary of our consolidated statements of cash flows
for the six months ended
Six Months Ended June 30,
Cash flow provided by (used in): 2022 2021 Change
Operating activities $ 54,614 $ (128,611) $ 183,225
Investing activities (234,920) (277,213) 42,293
Financing activities 243,885 155,876 88,009
Operating Activities
Cash inflows from operating activities are generated primarily through interest
received from loans receivable and securities, and property operating income
from our real estate portfolio. This is partially offset by payment of interest
expenses for credit facilities and mortgages payable, and operating expenses
supporting our various lines of business, including property management and
operations, loan servicing and workout of loans in default, investment
transaction costs, as well as general administrative costs.
Our operating activities provided net cash inflows of $54.6 million and net cash
outflows of $128.6 million for the six months ended June 30, 2022 and 2021,
respectively. Net cash provided by operating activities increased $183.2 million
for the six months ended June 30, 2022 compared to the six months ended June 30,
2021 , primarily due to higher net interest income earned resulting from loan
originations throughout 2021 and 2022 and lower operating expenses following the
Internalization on April 30, 2021 .
We believe cash flows from operations, available cash balances and our ability
to generate cash through short and long-term borrowings are sufficient to fund
our operating liquidity needs.
Investing Activities
Investing activities include cash outlays for acquisition of real estate, disbursements on new and/or existing loans, and contributions to unconsolidated ventures, which are partially offset by repayments and sales of loan receivables, distributions of capital received from unconsolidated ventures, proceeds from sale of real estate, as well as proceeds from maturity or sale of securities. Investing activities used net cash outflows of$234.9 million for the six months endedJune 30, 2022 . Net cash used in investing activities in 2022 resulted primarily from originations and future advances on our loans held for investment, net of$815.5 million partially offset by repayments on loans held for investment of$470.4 million , proceeds from sales of real estate of$55.6 million , proceeds from sales of investments in unconsolidated ventures of$38.1 million and repayments of principal in mortgage loans held in securitization trusts of$15.9 million . Investing activities used net cash outflows of$277.2 million for the six months endedJune 30, 2021 . Net cash used in investing activities in 2021 resulted primarily from originations and future advances on our loans and preferred equity held for investment, net of$822.8 million partially offset by proceeds from sales of real estate of$332.0 million , repayments on loan 87
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and preferred equity held for investment of
Financing Activities
We finance our investing activities largely through borrowings secured by our investments along with capital from third party or affiliated co-investors. We also have the ability to raise capital in the public markets through issuances of common stock, as well as draw upon our corporate credit facility, to finance our investing and operating activities. Accordingly, we incur cash outlays for payments on third party debt, dividends to our common stockholders and throughMay 27, 2022 , on distributions to our noncontrolling interests. Financing activities provided net cash of$243.9 million for the six months endedJune 30, 2022 , which resulted primarily from borrowings from credit facilities of$698.7 million partially offset by repayment of securitization bonds of$138.4 million , repayment of credit facilities of$116.3 million , repayment of mortgage notes of$82.1 million , distributions paid on common stock of$49.2 million , redemption of OP units of$25.4 million , repurchase of common stock of$18.3 million and repayment of mortgage obligations issued by securitization trusts of$15.9 million .
Financing activities provided net cash of
Our Investment Strategy
Our objective is to generate consistent and attractive risk-adjusted returns to our stockholders. We seek to achieve this objective primarily through cash distributions and the preservation of invested capital. We believe our investment strategy provides flexibility through economic cycles to achieve attractive risk-adjusted returns. This approach is driven by a disciplined investment strategy, focused on:
•leveraging long standing relationships, our organization structure and the experience of the team; •the underlying real estate and market dynamics to identify investments with attractive risk-return profiles; •primarily originating and structuring CRE senior mortgage loans and selective investments in mezzanine loans and preferred equity with attractive return profiles relative to the underlying value and financial operating performance of the real estate collateral, given the strength and quality of the sponsorship; •structuring transactions with a prudent amount of leverage, if any, given the risk of the underlying asset's cash flows, attempting to match the structure and duration of the financing with the underlying asset's cash flows, including through the use of hedges, as appropriate; and •operating our net leased real estate investments and selectively pursuing new investments based on property location and purpose, tenant credit quality, market lease rates and potential appreciation of, and alternative uses for, the real estate. The period for which we intend to hold our investments will vary depending on the type of asset, interest rates, investment performance, micro and macro real estate environment, capital markets and credit availability, among other factors. We generally expect to hold debt investments until the stated maturity and equity investments in accordance with each investment's proposed business plan. We may sell all or a partial ownership interest in an investment before the end of the expected holding period if we believe that market conditions have maximized its value to us, or the sale of the asset would otherwise be in the best interests of our stockholders. Our investment strategy is flexible, enabling us to adapt to shifts in economic, real estate and capital market conditions and to exploit market inefficiencies. We may expand or change our investment strategy or target assets over time in response to opportunities available in different economic and capital market conditions. This flexibility in our investment strategy allows us to employ a customized, solutions-oriented approach, which we believe is attractive to borrowers and tenants. We believe that our diverse portfolio, our ability to originate, acquire and manage our target assets and the flexibility of our investment strategy positions us to capitalize on market inefficiencies and generate attractive long-term risk-adjusted returns for our stockholders through a variety of market conditions and economic cycles.
Underwriting, Asset and Risk Management
We closely monitor our portfolio and actively manage risks associated with,
among other things, our assets and interest rates. Prior to investing in any
particular asset, the underwriting team, in conjunction with third party
providers, undertakes a rigorous asset-level due diligence process, involving
intensive data collection and analysis, to ensure that we understand fully the
state of the market and the risk-reward profile of the asset. Beginning in 2021,
our investment and portfolio management and risk
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assessment practices diligence the environmental, social and governance ("ESG")
standards of our business counterparties, including borrowers, sponsors,
partners and service providers, and that of our investment assets and underlying
collateral, which may include sustainability initiatives, recycling, energy
efficiency and water management, volunteer and charitable efforts, anti-money
laundering and know-your-client policies, and diversity, equity and inclusion
practices in workforce leadership, composition and hiring practices. Prior to
making a final investment decision, we focus on portfolio diversification to
determine whether a target asset will cause our portfolio to be too heavily
concentrated with, or cause too much risk exposure to, any one borrower, real
estate sector, geographic region, source of cash flow for payment or other
geopolitical issues. If we determine that a proposed acquisition presents
excessive concentration risk, it may determine not to acquire an otherwise
attractive asset.
For each asset that we acquire, our asset management team engages in active
management of the asset, the intensity of which depends on the attendant risks.
The asset manager works collaboratively with the underwriting team to formulate
a strategic plan for the particular asset, which includes evaluating the
underlying collateral and updating valuation assumptions to reflect changes in
the real estate market and the general economy. This plan also generally
outlines several strategies for the asset to extract the maximum amount of value
from each asset under a variety of market conditions. Such strategies may vary
depending on the type of asset, the availability of refinancing options,
recourse and maturity, but may include, among others, the restructuring of
non-performing or sub-performing loans, the negotiation of discounted pay-offs
or other modification of the terms governing a loan, and the foreclosure and
management of assets underlying non-performing loans in order to reposition them
for profitable disposition. We continuously track the progress of an asset
against the original business plan to ensure that the attendant risks of
continuing to own the asset do not outweigh the associated rewards. Under these
circumstances, certain assets will require intensified asset management in order
to achieve optimal value realization.
Our asset management team engages in a proactive and comprehensive on-going
review of the credit quality of each asset it manages. In particular, for debt
investments on at least an annual basis, the asset management team will evaluate
the financial wherewithal of individual borrowers to meet contractual
obligations as well as review the financial stability of the assets securing
such debt investments. Further, there is ongoing review of borrower covenant
compliance including the ability of borrowers to meet certain negotiated debt
service coverage ratios and debt yield tests. For equity investments, the asset
management team, with the assistance of third-party property managers, monitors
and reviews key metrics such as occupancy, same store sales, tenant payment
rates, property budgets and capital expenditures. If through this analysis of
credit quality, the asset management team encounters declines in credit not in
accord with the original business plan, the team evaluates the risks and
determine what changes, if any, are required to the business plan to ensure that
the attendant risks of continuing to hold the investment do not outweigh the
associated rewards.
In addition, the audit committee of our Board of Directors, in consultation with
management, periodically reviews our policies with respect to risk assessment
and risk management, including key risks to which we are subject, including
credit risk, liquidity risk and market risk, and the steps that management has
taken to monitor and control such risks.
Inflation
Virtually all of our assets and liabilities are interest rate sensitive in nature. As a result, interest rates and other factors influence our performance significantly more than inflation does. A change in interest rates may correlate with the inflation rate. Substantially all of the leases at our multifamily properties allow for monthly or annual rent increases which provide us with the opportunity to achieve increases, where justified by the market, as each lease matures. Such types of leases generally minimize the risks of inflation on our multifamily properties.
Refer to Item 3, "Quantitative and Qualitative Disclosures About Market Risk" for additional details.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted inthe United States , orU.S. GAAP, which requires the use of estimates and assumptions that involve the exercise of judgment and that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. There have been no material changes to our critical accounting policies and estimates described in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 .
Recent Accounting Updates
For recent accounting updates, refer to Note 2, "Summary of Significant Accounting Policies" in our accompanying consolidated financial statements included in Part I, Item 1, "Financial Statements."
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