NEXPOINT REAL ESTATE FINANCE, INC. The following is a discussion and analysis of our financial condition and results of operations. The following should be read in conjunction with our financial statements and accompanying notes. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those projected, forecasted, or expected in these forward-looking statements as a result of various factors, including, but not limited to, those discussed below and elsewhere in this quarterly report. See "Cautionary Statement Regarding Forward-Looking Statements" in this report, and the "Risk Factors" in Part 1, Item 1A, "Risk Factors" of our Annual Report on Form 10-K filed with theSEC onFebruary 25, 2021 . Overview We are a commercial mortgage REIT incorporated inMaryland onJune 7, 2019 . Our strategy is to originate, structure and invest in first-lien mortgage loans, mezzanine loans, preferred equity and common stock, as well as multifamily CMBS securitizations. We primarily focus on investments in real estate sectors where our senior management team has operating expertise, including in the multifamily, SFR, self-storage, hospitality and office sectors predominantly in the top 50 MSAs. In addition, we target lending or investing in properties that are stabilized or have a light-transitional business plan. Our investment objective is to generate attractive, risk-adjusted returns for stockholders over the long term. We seek to employ a flexible and relative-value focused investment strategy and expect to re-allocate capital periodically among our target investment classes. We believe this flexibility will enable us to efficiently manage risk and deliver attractive risk-adjusted returns under a variety of market conditions and economic cycles. For highlights of our recent acquisition, financing and other activity, see "-Purchases and Dispositions in the Quarter" and "-Liquidity and Capital Resources" below. Our business continues to be subject to the uncertainties associated with COVID-19. For additional information, see Note 2 to our consolidated financial statements. We are externally managed by our Manager, a subsidiary of our Sponsor, anSEC -registered investment advisor, which has extensive real estate experience, having completed as ofJune 30, 2021 approximately$13.0 billion of gross real estate transactions since the beginning of 2012. In addition, our Sponsor, together with its affiliates, includingNexBank, SSB is one of the most experienced global alternative credit managers managing approximately$13.4 billion of loans and debt or credit related investments as ofJune 30, 2021 and has managed credit investments for over 25 years. We believe our relationship with our Sponsor benefits us by providing access to resources including research capabilities, an extensive relationship network, other proprietary information, scalability, and a vast wealth of knowledge of information on real estate in our target assets and sectors. We intend to elect to be treated as a REIT forU.S. federal income tax purposes beginning with our taxable year endedDecember 31, 2020 . We also intend to operate our business in a manner that will permit us to maintain one or more exclusions or exemptions from registration under the Investment Company Act.
Purchases and Dispositions in the Quarter
Purchases The Company made the following purchases through the Subsidiary OPs in the three months endedJune 30, 2021 . The amounts in the table below are as of the purchase date: Interest Outstanding Cost (% of Underlying Loan Rate CMBS Securitization Investment Date Tranche Par Amount Par Value) Count Coupon Current Yield Maturity Date Type 30-Day SOFR + Floating
FREMF 2021-KF108
100.0 % 37 6.25% (1) 6.26 % 2/25/2031 Rate
Interest
FHMS K107 4/28/2021 X1 50,000,000 12.1 % N/A 1.71 % 14.02 % 1/25/2030 Only
Interest
FHMS K107 5/4/2021 X1 15,000,000 12.1 % N/A 1.71 % 14.06 % 1/25/2030 Only
Interest
FHMS K109 5/27/2021 X3 20,000,000 25.2 % N/A 3.39 % 13.41 % 5/25/2030 Only
Interest
FHMS K085 6/2/2021 X3 4,265,750 14.9 % N/A 2.39 % 16.02 % 11/25/2028 Only
Interest
FRESB 2019-SB64
7.0 % N/A 1.25 % 17.83 % 5/25/2029 Only
Interest
FRESB 2020-SB76
7.0 % N/A 1.31 % 18.87 % 5/25/2030 Only
Zero
FREMF 2017-K62 6/30/2021 Class D 98,305,106 68.7 % 67 0.00 % 6.88 % 12/31/2026 Coupon
$ 373,617,856 104
(1) SOFR is the Secured Overnight Financing Rate, an index calculated by
short-term repurchase agreements backed by U.S. Treasury securities.
Dispositions
During the three months ended
Investment Disposition Realized
Investment Investment Date Type Disposition Date Cost Basis Proceeds Gain/(Loss)
Preferred Equity Preferred
Investment 2/11/2020 Equity 6/10/2021 $ 3,941,328 $ 3,821,000 $ (120,328 )
SFR Loan 2/11/2020 SFR Loan 6/1/2021 15,930,191 15,300,000 (630,191 )
CMBS I/O
FHMS K-1510 X3 4/15/2020 Strip 6/23/2021 852,115 1,011,730 159,614
CMBS I/O
FHMS K-1513 X3 4/15/2020 Strip 6/23/2021 731,662 953,496 221,834
FREMF 2020-K113 CMBS I/O
X2B 7/30/2020 Strip 5/3/2021 1,853,773 1,956,033 102,260
$ 23,309,069 $ 23,042,258 $ (266,811 ) Components of Our Revenues and Expenses
Net Interest Income
Interest income. Our earnings are primarily attributable to the interest income from mortgage loans, mezzanine loan and preferred equity investments. Loan premium/discount amortization is also included as a component of interest income.
Interest expense. Interest expense represents interest accrued on our various
financing obligations used to fund our investments and is shown as a deduction
to arrive at net interest income.
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The following table presents the components of net interest income for the six
months ended
For the Six Months Ended June 30,
2021 2020
Interest Interest
income/ Average income/ Average
(expense) Balance (1) Yield (2) (expense) Balance (1) Yield (2)
Interest income
SFR Loans,
held-for-investment $ 17,427 $ 910,324 3.83 % $ 14,889 $ 932,776 3.86 %
Mezzanine loans 5,608 120,312 9.32 % 308 6,972 10.68 %
Preferred equity 1,107 17,895 12.37 % 1,105 24,054 11.10 %
CMBS structured pass
through certificates,
at fair value 1,386 44,555 6.22 % 105 2,184 11.62 %
Total interest income $ 25,528 $ 1,093,086 4.67 % $ 16,407 $ 965,986 4.11 %
Interest expense
Repurchase agreements (1,923 ) (165,998 ) 2.32 % (309 ) (33,794 ) 2.21 %
Long-term seller
financing (9,648 ) (716,489 ) 2.69 % (8,238 ) (818,228 ) 2.43 %
Unsecured Notes (2,515 ) (67,992 ) 7.40 % - - 0.00 %
Total interest
expense $ (14,086 ) $ (950,478 ) 2.96 % $ (8,547 ) $ (852,022 ) 2.42 %
Net interest income
(3) $ 11,442 $ 7,860 (1) Average balances for the SFR Loans, the mezzanine loan and preferred equity
are calculated based upon carrying values.
(2) Yield calculated on an annualized basis.
(3) Net interest income is calculated as the difference between total interest
income and total interest expense.
The following table presents the components of net interest income for the three
months ended
For the Three Months Ended June 30,
2021 2020
Interest Interest
income/ Average income/ Average
(expense) Balance (1) Yield (2) (expense) Balance (1) Yield (2)
Interest income
SFR Loans,
held-for-investment $ 8,694 $ 906,269 3.84 % $ 8,790 $ 932,776 3.77 %
Mezzanine loans 2,872 134,427 8.55 % 227 6,972 13.02 %
Preferred equity 538 17,233 12.49 % 699 24,054 11.62 %
CMBS structured pass
through certificates,
at fair value 775 47,340 6.55 % 105 4,368 9.62 %
Total interest income $ 12,879 $ 1,105,269 4.66 % $ 9,821 $ 968,170 4.06 %
Interest expense
Repurchase agreements (1,104 ) (173,957 ) 2.54 % (309 ) (56,223 ) 2.19 %
Long-term seller
financing (4,719 ) (832,487 ) 2.27 % (4,907 ) (788,554 ) 2.49 %
Unsecured Notes (1,766 ) (99,137 ) 7.13 % - - N/A
Total interest expense
(5,216 ) $ (844,777 ) 2.47 %
Net interest income
(3) $ 5,290 $ 4,605 (1) Average balances for the SFR Loans, the mezzanine loan and preferred equity
are calculated based upon carrying values.
(2) Yield calculated on an annualized basis.
(3) Net interest income is calculated as the difference between total interest
income and total interest expense.
Other Income (Loss)
Change in net assets related to consolidated CMBS variable interest entities.
Includes unrealized gain (loss) based on changes in the fair value of the assets
and liabilities of the CMBS trusts and net interest earned on the consolidated
CMBS trusts. See Note 4 to our consolidated financial statements for additional
information.
Change in unrealized gain on CMBS structured pass through certificates. Includes unrealized gain (loss) based on changes in the fair value of the CMBS I/O Strips. See Note 6 to our consolidated financial statements for additional information.
Change in unrealized gain on common stock held at fair value. Includes unrealized gain (loss) based on changes in the fair value of our common stock investment in NSP. See Note 5 to our consolidated financial statements for additional information.
Loan loss provision, net. Loan loss provision, net represents the change in our allowance for loan losses. See Note 2 to our consolidated financial statements for additional information.
Dividend income. Dividend income represents the accrued interest income and quarterly cash and stock dividends earned on our preferred stock investment in JCAP.
Realized losses. Realized losses relate to the difference between par and amortized cost on SFR Loan principal payments. Realized losses include the excess, or deficiency, of net proceeds received, less the carrying value of such investments, as realized losses. The Company reverses cumulative unrealized gains or losses previously reported in its Consolidate Statements of Operations with respect to the investment sold at the time of the sale.
Other income. Includes prepayment fees, placement fees, exit fees and other miscellaneous income items.
Operating Expenses G&A expenses. G&A expenses include, but are not limited to, audit fees, legal fees, listing fees, Board fees, equity-based and other compensation expenses, investor-relations costs and payments of reimbursements to our Manager. The Manager will be reimbursed for expenses it incurs on behalf of the Company. However, our Manager is responsible, and we will not reimburse our Manager or its affiliates, for the salaries or benefits to be paid to personnel of our Manager or its affiliates who serve as our officers, except that 50% of the salary of our VP of Finance is allocated to us and we may grant equity awards to our officers under the 2020 LTIP. Direct payment of operating expenses by us, which includes compensation expense relating to equity awards granted under the 2020 LTIP, together with reimbursement of operating expenses to our Manager, plus the Annual Fee, may not exceed 2.5% of equity book value determined in accordance with GAAP, for any calendar year or portion thereof, provided, however, that this limitation will not apply to Offering Expenses, legal, accounting, financial, due diligence and other service fees incurred in connection with extraordinary litigation and mergers and acquisitions and other events outside the ordinary course of our business or any out-of-pocket acquisition or due diligence expenses incurred in connection with the acquisition or disposition of certain real estate related investments. To the extent total corporate G&A expenses would otherwise exceed 2.5% of equity book value, our Manager will waive all or a portion of its Annual Fee to keep our total corporate G&A expenses at or below 2.5% of equity book value. Loan servicing fees. We pay various service providers fees for loan servicing of our SFR Loans and consolidated CMBS trusts. We classify the expenses related to the administration of the SFR Loans as servicing fees while the fees associated with the CMBS trusts are included as a component of the change in net assets related to consolidated CMBS VIEs.
Management fees. Management fees include fees paid to our Manager pursuant to the Management Agreement.
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Results of Operations for the Three Months Ended
The following table sets forth a summary of our operating results for the three
months ended
For the Three Months Ended June 30,
2021 2020
Net interest income $ 5,290 $ 4,605
Other income 10,577 17,057
Operating expenses (3,613 ) (2,389 )
Net income 12,254 19,273
Preferred stock dividends (878 ) -
Net (income) loss attributable to redeemable
noncontrolling interests (5,834 ) (14,003 )
Net income attributable to common stockholders $ 5,542 $ 5,270
The change in our net income for the three months ended June 30, 2021 as
compared to the net income for the three months ended June 30, 2020 primarily
relates to an increase in net interest income, offset by a decrease in other
income and an increase in operating expenses. Our net income attributable to
common stockholders for the three months ended June 30, 2021 was
approximately $5.5 million . We earned approximately $5.3 million in net interest
income, $10.6 million in other income, incurred operating expenses of $3.6
million , allocated approximately $0.9 million of income to preferred
stockholders and allocated approximately $5.8 million of income to redeemable
noncontrolling interest in the OP for the three months ended June 30, 2021 .
Revenues
Net interest income. Net interest income was $5.3 million for the three months
ended June 30, 2021 compared to $4.6 million for the three months ended June 30,
2020 which was an increase of approximately $0.7 million . The increase between
the periods is primarily due to an increase in investments compared to the prior
period. As of June 30, 2021 we own 64 discrete investments compared to 40 as
of June 30, 2020 .
Other income. Other income was $10.6 million for the three months ended June 30,
2021 compared to $17.1 million for the three months ended June 30, 2020 which
was a decrease of approximately $6.5 million . This was primarily due to a lower
change in net assets related to consolidated CMBS VIEs between the periods,
specifically the change in fair value marks between the periods.
Expenses
G&A expenses. G&A expenses were $1.8 million for the three months ended June 30,
2021 . compared to $0.8 million for the three months ended June 30, 2020 which
was an increase of approximately $1.0 million . The increase between the periods
was primarily due to a $0.5 million increase in stock compensation
expense compared to the prior period.
Loan servicing fees. Loan servicing fees were $1.3 million for the three months
ended June 30, 2021 . compared to $1.2 million for the three months ended June
30, 2020 which was an increase of approximately $0.1 million . The increase
between the periods was primarily due to an increase in loans in the portfolio
compared to the prior period.
Management fees. Management fees were $0.5 million for the three months ended
June 30, 2021 . compared to $0.4 million for the three months ended June 30, 2020
which was an increase of approximately $0.1 million . The increase between the
periods was primarily due to an increase in equity as defined by the Management
Agreement.
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Results of Operations for the Six Months Ended
The following table sets forth a summary of our operating results for the six
months ended
For the Six Months Ended June 30,
2021 2020
Net interest income $ 11,442 $ 7,860
Other income (loss) 32,867 (7,867 )
Operating expenses (6,985 ) (3,588 )
Net income (loss) 37,324 (3,595 )
Preferred stock dividends (1,752 ) -
Net (income) loss attributable to redeemable
noncontrolling interests (21,663 ) 2,512
Net income (loss) attributable to common stockholders $ 13,909
The change in our net income for the six months endedJune 30, 2021 as compared to the net loss for the six months endedJune 30, 2020 primarily relates to increases in net interest income and other income including changes in net assets related to consolidated CMBS VIEs. Our net income attributable to common stockholders for the six months endedJune 30, 2021 was approximately$13.9 million . We earned approximately$11.4 million in net interest income,$32.9 million in other income, incurred operating expenses of$7.0 million , allocated$1.8 million of income to preferred stockholders and allocated$21.7 million of income to redeemable noncontrolling interest in the OP for the six months endedJune 30, 2021 . Revenues Net interest income. Net interest income was$11.4 million for the six months endedJune 30, 2021 compared to$7.9 million for the six months endedJune 30, 2020 which was an increase of approximately$3.5 million . The increase between the periods is primarily due to an increase in investments and the number of days in operation compared to the prior period. As ofJune 30, 2021 we own 64 discrete investments compared to 40 as ofJune 30, 2020 . Other income. Other income was$32.9 million for the six months endedJune 30, 2021 compared to loss of$7.9 million for the six months endedJune 30, 2020 which was an increase of approximately$40.8 million . This was primarily due to an increase in net assets related to consolidated CMBS VIEs and an increase in fair value marks between the periods. Expenses G&A expenses. G&A expenses were$3.3 million for the six months endedJune 30, 2021 compared to$1.2 million for the six months endedJune 30, 2020 which was an increase of approximately$2.1 million . The increase between the periods was primarily due to a$0.9 million increase in stock compensation expense and a$0.5 million increase in legal fees compared to the prior period. Loan servicing fees. Loan servicing fees were$2.6 million for the six months endedJune 30, 2021 compared to$1.8 million for the six months endedJune 30, 2020 which was an increase of approximately$0.8 million . The increase between the periods was primarily due to an increase in loans in the portfolio and the number of days in operation compared to the prior period. Management fees. Management fees were$1.0 million for the six months endedJune 30, 2021 compared to$0.5 million for the six months endedJune 30, 2020 which was an increase of approximately$0.5 million . The increase between the periods was primarily due to an increase in equity as defined by the Management Agreement and the number of days in operation compared to the prior period.
Key Financial Measures and Indicators
As a real estate finance company, we believe the key financial measures and indicators for our business are earnings per share, dividends declared, Core Earnings, CAD and book value per share.
Earnings Per Share and Dividends Declared
The following table sets forth the calculation of basic and diluted net income per share and dividends declared per share (in thousands, except per share data):
For the Three Months Ended June
30, For the Six Months Ended June 30,
2021 2020 2021 2020
Net income (loss) attributable to
redeemable noncontrolling interests $ 5,834 $ 14,003 $ 21,663 $ (2,512 )
Net income (loss) attributable to
common stockholders 5,542 5,270 13,909 (1,083 )
Weighted-average number of shares of
common stock outstanding
Basic 5,306 5,263 5,165 5,248
Diluted 19,603 5,292 19,402 5,248
Net income (loss) per share, basic 1.04 1.00 2.69 (0.21 )
Net income (loss) per share, diluted 0.58 1.00 1.83 (0.21 )
Dividends declared per share $ 0.4750 $ 0.4000 $ 0.9500 $ 0.6198
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Table of Contents Core Earnings We use Core Earnings to evaluate our performance which excludes the effects of certain GAAP adjustments and transactions that we believe are not indicative of our current operations and loan performance. Core Earnings is a non-GAAP financial measure of performance. Core Earnings is defined as the net income (loss) attributable to our common stockholders computed in accordance with GAAP, including realized gains and losses not otherwise included in net income (loss), excluding any unrealized gains or losses or other similar non-cash items that are included in net income (loss) for the applicable reporting period, regardless of whether such items are included in other comprehensive income (loss), or in net income (loss) and adding back amortization of stock-based compensation. We believe providing Core Earnings as a supplement to GAAP net income (loss) to our investors is helpful to their assessment of our performance. Core Earnings should not be used as a substitute for GAAP net income (loss). The methodology used to calculate Core Earnings may differ from other REITs. As such, our Core Earnings may not be comparable to similar measures provided by other REITs. We also use Core Earnings as a component of the management fee paid to our Manager. As consideration for the Manager's services, we will pay our Manager an annual management fee of 1.5% of Equity, paid monthly, in cash or shares of our common stock at the election of our Manager. "Equity" means (a) the sum of (1) total stockholders' equity immediately prior to our IPO, plus (2) the net proceeds received from all issuances of our equity securities in and after the IPO, plus (3) our cumulative Core Earnings from and after the IPO to the end of the most recently completed calendar quarter, (b) less (1) any distributions to our holders of common stock from and after the IPO to the end of the most recently completed calendar quarter and (2) all amounts that we have paid to repurchase for cash the shares our equity securities from and after the IPO to the end of the most recently completed calendar quarter. In our calculation of Equity, we will adjust our calculation of Core Earnings to (i) remove the compensation expense relating to awards granted under one or more of our long-term incentive plans that is added back in our calculation of Core Earnings and (ii) adjust net income (loss) attributable to common stockholders for (x) one-time events pursuant to changes in GAAP and (y) certain material non-cash income or expense items, in each case of (x) and (y) after discussions between the Manager and independent directors of our Board and approved by a majority of the independent directors of our Board. Additionally, for the avoidance of doubt, Equity does not include the assets contributed to us in the Formation Transaction.
The following table provides a reconciliation of Core Earnings to GAAP net income (loss) attributable to common stockholders (in thousands, except per share amount):
For the Three Months Ended June For the Six Months Ended June
30, 30,
2021 2020 2021 2020
Net income (loss) attributable to common
stockholders $ 5,542 $ 5,270 $ 13,909 $ (1,083 )
Adjustments
Amortization of stock-based compensation 557 39 948 39
Loan loss provision, net (1) - 23 - 81
Unrealized (gains) or losses (2) (2,659 ) (3,387 ) (8,586 ) 4,029
Core Earnings $ 3,440 $ 1,945 Weighted-average common shares outstanding - basic 5,306 5,263 5,165 5,248 Weighted-average common shares outstanding - diluted (3) 5,815 5,292 5,615 5,248 Core Earnings per Diluted Weighted-Average Share$ 0.59 $ 0.37 $ 1.12 $ 0.58
(1) We have modified our calculation of Core Earnings to exclude any add back
of loan loss provision, net, beginning with our fiscal year 2021.
(2) Unrealized gains are the net change in unrealized loss on investments held at
fair value applicable to common stockholders.
(3) Weighted-average diluted shares outstanding does not include dilutive effect of
redeemable non-controlling interests.
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The following table provides a reconciliation of Core Earnings to GAAP net income including the dilutive effect of non-controlling interests (in thousands, except per share amount):
For the Three Months Ended June For the Six Months Ended June
30, 30,
2021 2020 2021 2020
Net income (loss) attributable to
redeemable noncontrolling interests $ 5,834 $ 14,003 $ 21,663 $ (2,512 )
Net income (loss) attributable to common
stockholders 5,542 5,270 13,909 (1,083 )
Adjustments
Amortization of stock-based compensation 557 39 948 39 Loan loss provision, net (1) - 81 - 293 Unrealized (gains) or losses (2) (3,859 ) (12,067 ) (20,335 ) 14,834 Core Earnings$ 8,074 $ 7,326
Weighted-average common shares outstanding - basic 5,306 5,263 5,165 5,248 Weighted-average common shares outstanding - diluted 19,603 18,100 19,402 18,000 Core Earnings per Diluted Weighted-Average Share$ 0.41 $ 0.40 $ 0.83 $ 0.64
(1) We have modified our calculation of Core Earnings to exclude any add back of
loan loss provision, net, beginning with our fiscal year 2021.
(2) Unrealized gains are the net change in unrealized loss on investments held at
fair value.
Cash Available for Distribution
CAD is a non-GAAP measure. We believe that it provides meaningful information
that is used by investors, analysts and our management to evaluate and determine
trends in cash flow as it is not affected by non-cash items. CAD is also a
useful measure used by our Board to determine our dividend and the long-term
viability of the current dividend. CAD does not represent net income or cash
flows from operating activities and should not be considered as an alternative
to GAAP net income, an indication of our GAAP cash flows from operating
activities, a measure of our liquidity or an indication of funds available for
our cash needs. In addition, our methodology for calculating it may differ from
the methodologies employed by other companies to calculate the same or similar
supplemental performance measures and, accordingly, our reported CAD may not be
comparable to the CAD reported by other companies.
We calculate CAD by adjusting net income (loss) attributable to common
stockholders by adding back amortization of stock-based compensation,
amortization of premiums on our former preferred stock investment in JCAP and by
removing the change in unrealized loss on our investments held at fair value,
accretion of discounts, stock dividends receivable on preferred stock that was
converted to common stock and stock dividends received.
For the Three Months Ended June For the Six Months Ended June
30, 30,
2021 2020 2021 2020
Net income (loss) attributable to common
stockholders $ 5,542 $ 5,270 $ 13,909 $ (1,083 )
Adjustments
Amortization of stock-based compensation 557 39 948 39
Amortization of premiums 866 555 1,484 849
Loan loss provision, net (1) - 23 - 81
Change in unrealized loss on investments
held at fair value (2,659 ) (3,387 ) (8,586 ) 4,029
Accretion of discounts (895 ) (113 ) (1,571 ) (113 )
Stock dividends received - (171 ) - (171 )
CAD $ 3,411 $ 2,216 $ 6,184 $ 3,631
Weighted-average common shares
outstanding - basic 5,306 5,263 5,165 5,248
Weighted-average common shares
outstanding - diluted (2) 5,815 5,292 5,615 5,248
CAD per share of common stock $ 0.59 $ 0.42 $ 1.10 $ 0.69 (1) We have modified our calculation of CAD to exclude any add back of loan loss
provision, net, beginning with our fiscal year 2021. (2) Weighted-average diluted shares outstanding does not include dilutive effect
of redeemable non-controlling interests.
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The following table provides a reconciliation of CAD including the
dilutive effect of non-controlling interests (in thousands, except per share
amounts):
For the Three Months Ended June For the Six Months Ended June
30, 30,
2021 2020 2021 2020
Net income (loss) attributable to
redeemable noncontrolling interests $ 5,834 $ 14,003 $ 21,663 $ (2,512 )
Net income (loss) attributable to common
stockholders 5,542 5,270 13,909 (1,083 )
Adjustments
Amortization of stock-based compensation 557 39 948 39 Amortization of premiums 2,808 2,028 5,288 3,088 Loan loss provision, net (1) - 81 - 293 Change in unrealized loss on investments held at fair value (3,859 ) (12,067 ) (20,335 ) 14,834 Accretion of discounts (1,680 ) (412 ) (3,332 ) (412 ) Stock dividends received - (627 ) -(627 ) CAD $ 9,202 $ 8,315 $ 18,141 $ 13,620 Weighted-average common shares outstanding - basic 5,306 5,263 5,165 5,248 Weighted-average common shares outstanding - diluted 19,603 18,100 19,40218,000 CAD per common share of common stock and redeemable OP Units and SubOP Units$ 0.47 $ 0.46 $ 0.94 $ 0.76
(1) We have modified our calculation of CAD to exclude any add back of loan loss
provision, net, beginning with our fiscal year 2021.
Book Value per Share / Unit
The following table calculates our book value per share (in thousands, except
per share data):
December 31,
June 30, 2021 2020
Common stockholders' equity $ 107,549 $ 90,733
Shares of common stock outstanding at period end 5,499 5,023
Book value per share of common stock $ 19.56 $ 18.07
Due to the large noncontrolling interest in the OP and Subsidiary OPs (see Note
11 to our consolidated financial statements, for more information), we believe
it is useful to also look at book value on a combined basis as shown in the
table below (in thousands, except per share data):
December 31,
June 30, 2021 2020
Common stockholders' equity $ 107,549 $ 90,733
Redeemable noncontrolling interests in the OP 285,510 275,670
Total equity$ 393,059 $
366,403
Redeemable OP Units and SubOP Units at period end 13,787
13,787
Shares of common stock outstanding at period end 5,499
5,023
Combined shares of common stock and redeemable OP Units and SubOP Units 19,286
18,810
Combined book value per share / unit $ 20.38$ 19.48 33
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Table of Contents Our Portfolio Our portfolio consists of SFR Loans, CMBS B-Pieces, CMBS I/O Strips, mezzanine loans, preferred equity investments, and a common stock investment with a combined unpaid principal balance of$3.0 billion atJune 30, 2021 and assumes the CMBS Entities' assets and liabilities are not consolidated. The following table sets forth additional information relating to our portfolio as ofJune 30, 2021 (dollars in thousands): Current Remaining Investment Principal Term (3) Net Equity Investment (1) Date Amount (2) Location Property Type Coupon (years) SFR Loans 1 Senior loan 2/11/2020$ 508,700 $ 80,248 Various Single-family 4.65 % 7.18 2 Senior loan 2/11/2020 10,486 1,647 Various Single-family 5.35 % 6.59 3 Senior loan 2/11/2020 5,530 802 Various Single-family 5.33 % 2.09 4 Senior loan 2/11/2020 10,432 1,644 Various Single-family 5.30 % 7.18 5 Senior loan 2/11/2020 7,500 1,184 Various Single-family 5.08 % 7.01 6 Senior loan 2/11/2020 5,594 884 Various Single-family 5.24 % 7.26 7 Senior loan 2/11/2020 12,158 1,923 Various Single-family 5.54 % 7.26 8 Senior loan 2/11/2020 8,173 1,300 Various Single-family 5.85 % 7.35 9 Senior loan 2/11/2020 51,304 7,798 Various Single-family 4.74 % 4.26 10 Senior loan 2/11/2020 9,583 1,521 Various Single-family 6.10 % 7.26 11 Senior loan 2/11/2020 37,897 5,996 Various Single-family 5.55 % 7.35 12 Senior loan 2/11/2020 6,213 983 Various Single-family 5.47 % 7.35 13 Senior loan 2/11/2020 5,760 914 Various Single-family 5.99 % 7.43 14 Senior loan 2/11/2020 10,113 1,610 Various Single-family 5.72 % 7.43 15 Senior loan 2/11/2020 10,523 1,667 Various Single-family 5.60 % 7.43 16 Senior loan 2/11/2020 5,299 840 Various Single-family 5.46 % 7.51 17 Senior loan 2/11/2020 8,970 1,431 Various Single-family 5.88 % 7.51 18 Senior loan 2/11/2020 6,596 991 Various Single-family 4.83 % 2.59 19 Senior loan 2/11/2020 4,715 747 Various Single-family 5.35 % 7.60 20 Senior loan 2/11/2020 17,092 2,719 Various Single-family 5.61 % 7.60 21 Senior loan 2/11/2020 7,659 1,216 Various Single-family 5.34 % 7.60 22 Senior loan 2/11/2020 7,785 1,240 Various Single-family 5.47 % 7.60 23 Senior loan 2/11/2020 6,734 1,067 Various Single-family 5.46 % 7.67 24 Senior loan 2/11/2020 10,523 1,624 Various Single-family 4.72 % 4.67 25 Senior loan 2/11/2020 62,023 9,807 Various Single-family 4.95 % 7.67 Total 837,362 131,801 4.89 % 6.98 CMBS B-Piece 1 CMBS B-Piece 2/11/2020 61,246 (4 ) 30,317 Various Multifamily 5.81 % 4.66 2 CMBS B-Piece 2/11/2020 49,759 (4 ) 24,818 Various Multifamily 6.09 % 5.41 3 CMBS B-Piece 4/23/2020 81,999 (4 ) 32,063 Various Multifamily 3.62 % 8.66 4 CMBS B-Piece 7/30/2020 64,093 (4 ) 31,267 Various Multifamily 9.09 % 5.99 5 CMBS B-Piece 8/6/2020 108,643 (4 ) 26,633 Various Multifamily 0.00 % 8.99 6 CMBS B-Piece 4/20/2021 76,047 (4 ) 75,819 Various Multifamily 6.26 % 9.66 7 CMBS B-Piece 6/30/2021 98,305 (4 ) 67,523 Various Multifamily 0.00 % 5.51 Total 540,092 288,440 3.73 % 7.22 CMBS I/O Strips 1 CMBS I/O Strip 5/18/2020 17,590 (5 ) 896 Various Multifamily 2.09 % 25.25 2 CMBS I/O Strip 8/6/2020 1,180,533 (5 ) 2,805 Various Multifamily 0.10 % 8.99 3 CMBS I/O Strip 8/6/2020 108,643 (5 ) 8,473 Various Multifamily 3.09 % 8.99 4 CMBS I/O Strip 4/28/2021 (6 ) 64,936 (5 ) 1,937 Various Multifamily 1.71 % 8.58 5 CMBS I/O Strip 5/27/2021 20,000 (5 ) 1,505 Various Multifamily 3.50 % 8.91 6 CMBS I/O Strip 6/7/2021 4,266 (5 ) 208 Various Multifamily 2.39 % 7.41 7 CMBS I/O Strip 6/11/2021 62,333 (5 ) 1,957 Various Multifamily 1.25 % 7.91 8 CMBS I/O Strip 6/21/2021 28,918 (5 ) 732 Various Multifamily 1.31 % 8.91 Total 1,487,218 18,514 0.54 % 9.11 Mezzanine Loan 1 Mezzanine 6/12/2020 7,500 7,500 Houston, TX Multifamily 11.00 % 2.00 2 Mezzanine 10/20/2020 5,470 2,292 Wilmington, DE Multifamily 7.50 % 7.84 3 Mezzanine 10/20/2020 10,380 4,355 White Marsh, MD Multifamily 7.42 % 10.01 4 Mezzanine 10/20/2020 14,253 5,997 Philadelphia, PA Multifamily 7.59 % 7.93 5 Mezzanine 10/20/2020 3,700 1,550 Daytona Beach, FL Multifamily 7.83 % 7.26 6 Mezzanine 10/20/2020 12,000 5,035 Laurel, MD Multifamily 7.71 % 9.76 7 Mezzanine 10/20/2020 3,000 1,259 Temple Hills, MD Multifamily 7.32 % 10.09 8 Mezzanine 10/20/2020 1,500 629 Temple Hills, MD Multifamily 7.22 % 10.09 9 Mezzanine 10/20/2020 5,540 2,321 Lakewood, NJ Multifamily 7.33 % 7.84 10 Mezzanine 10/20/2020 6,829 2,861 Rosedale, MD Multifamily 7.53 % 7.51 11 Mezzanine 10/20/2020 3,620 1,519 North Aurora, IL Multifamily 7.42 % 10.01 12 Mezzanine 10/20/2020 9,610 4,032 Cockeysville, MD Multifamily 7.42 % 10.01 13 Mezzanine 10/20/2020 7,390 3,101 Laurel, MD Multifamily 7.42 % 10.01 14 Mezzanine 10/20/2020 1,082 454 Vancouver, WA Multifamily 8.70 % 9.35 15 Mezzanine 10/20/2020 2,135 894 Tyler, TX Multifamily 7.74 % 7.26 16 Mezzanine 10/20/2020 1,190 499 Las Vegas, NV Multifamily 7.71 % 7.67 17 Mezzanine 10/20/2020 3,310 1,387 Atlanta, GA Multifamily 6.91 % 8.01 18 Mezzanine 10/20/2020 2,880 1,207 Des Moines, IA Multifamily 7.89 % 7.35 19 Mezzanine 10/20/2020 4,010 1,680 Urbandale, IA Multifamily 7.89 % 7.35 20 Mezzanine 1/21/2021 24,844 24,414 Los Angeles, CA Multifamily 13.25 % 2.56 21 Mezzanine 1/21/2021 1,541 1,514 Los Angeles, CA Multifamily 13.25 % 2.56 131,784 74,501 8.88 % 7.17 Preferred Equity 1 Preferred Equity 2/11/2020 5,056 5,267 Jackson, MS Multifamily 12.50 % 6.42 2 Preferred Equity 5/29/2020 10,000 10,000 Houston, TX Multifamily 11.00 % 8.84 Total 15,056 15,267 11.50 % 8.03 Common Stock 1 Common Stock 11/6/2020 N/A (7 ) 47,959 N/A Self-Storage N/A N/A
(1) Our total portfolio represents the current principal amount of the
consolidated SFR Loans, the mezzanine loans, preferred equity, common stock
and CMBS I/O Strips, as well as the net equity of our CMBS B-Piece
investments.
(2) Net equity represents the carrying value less borrowings collateralized by
the investment.
(3) The weighted-average life is weighted on current principal balance and
assumes no prepayments. The maturity date for preferred equity investments
represents the maturity date of the senior mortgage, as the preferred equity
investments require repayment upon the sale or refinancing of the asset.
(4) The CMBS B-Pieces are shown on an unconsolidated basis reflecting the value
of our investments.
(5) The number shown represents the notional value on which interest is
calculated for the CMBS I/O Strips. CMBS I/O Strips receive no principal
payments and the notional value decreases as the underlying loans are paid
off.
The Company, through the Subsidiary OPs, purchased approximately
tranche of the FHMS K-107 CMBS I/O Strip on
respectively.
(7) Common stock consists of NSP common stock.
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The following table details overall statistics for our portfolio as ofJune 30, 2021 (dollars in thousands): Total Floating Rate Fixed Rate Common Stock Portfolio Investments Investments Investments
Number of investments 64 6 58 1 Principal balance (1)$ 1,579,660 $ 277,529 $ 1,302,131 N/A Carrying value$ 1,579,393 $ 275,860 $ 1,303,534 $ 47,959
Weighted-average cash coupon 5.11 % 6.95 % 4.72 % N/A Weighted-average all-in yield 5.24 % 7.41 % 4.78 % N/A
(1) Cost is used in lieu of principal balance for CMBS I/O Strips.
Liquidity and Capital Resources
Our short-term liquidity requirements consist primarily of funds necessary to
pay for our ongoing commitments to repay borrowings, maintain our investments,
make distributions to our stockholders and other general business needs. Our
investments generate liquidity on an ongoing basis through principal and
interest payments, prepayments and dividends.
Our long-term liquidity requirements consist primarily of acquiring additional
investments, scheduled debt payments and distributions. We expect to meet our
long-term liquidity requirements through various sources of capital, which may
include future debt or equity issuances, net cash provided by operations and
other secured and unsecured borrowings. Our leverage is matched in term and
structure to provide stable contractual spreads which will protect us from
fluctuations in market interest rates over the long-term. However, there are a
number of factors that may have a material adverse effect on our ability to
access these capital sources, including the state of overall equity and credit
markets, our degree of leverage, borrowing restrictions imposed by lenders,
general market conditions for REITs and our operating performance and liquidity.
Asset Metrics Debt Metrics
Investment Fixed/Floating Rate Interest Rate Maturity Date Fixed/Floating Rate Interest Rate Maturity Date
SFR Loans
Senior loan Fixed 4.65% 9/1/2028 Fixed 2.24% 9/1/2028
Senior loan Fixed 5.35% 2/1/2028 Fixed 3.51% 2/1/2028
Senior loan Fixed 5.33% 8/1/2023 Fixed 2.48% 8/1/2023
Senior loan Fixed 5.30% 9/1/2028 Fixed 2.79% 9/1/2028
Senior loan Fixed 5.08% 7/1/2028 Fixed 2.69% 7/1/2028
Senior loan Fixed 5.24% 10/1/2028 Fixed 2.64% 10/1/2028
Senior loan Fixed 5.54% 10/1/2028 Fixed 3.02% 10/1/2028
Senior loan Fixed 5.85% 11/1/2028 Fixed 3.02% 11/1/2028
Senior loan Fixed 4.74% 10/1/2025 Fixed 2.14% 10/1/2025
Senior loan Fixed 6.10% 10/1/2028 Fixed 3.30% 10/1/2028
Senior loan Fixed 5.55% 11/1/2028 Fixed 2.70% 11/1/2028
Senior loan Fixed 5.47% 11/1/2028 Fixed 2.68% 11/1/2028
Senior loan Fixed 5.99% 12/1/2028 Fixed 3.14% 12/1/2028
Senior loan Fixed 5.72% 12/1/2028 Fixed 3.02% 12/1/2028
Senior loan Fixed 5.60% 12/1/2028 Fixed 2.77% 12/1/2028
Senior loan Fixed 5.46% 1/1/2029 Fixed 2.97% 1/1/2029
Senior loan Fixed 5.88% 1/1/2029 Fixed 3.14% 1/1/2029
Senior loan Fixed 4.83% 2/1/2024 Fixed 2.40% 2/1/2024
Senior loan Fixed 5.35% 2/1/2029 Fixed 3.06% 2/1/2029
Senior loan Fixed 5.61% 2/1/2029 Fixed 2.91% 2/1/2029
Senior loan Fixed 5.34% 2/1/2029 Fixed 2.98% 2/1/2029
Senior loan Fixed 5.47% 2/1/2029 Fixed 2.80% 2/1/2029
Senior loan Fixed 5.46% 3/1/2029 Fixed 2.99% 3/1/2029
Senior loan Fixed 4.72% 3/1/2026 Fixed 2.45% 3/1/2026
Senior loan Fixed 4.95% 3/1/2029 Fixed 2.70% 3/1/2029
Mezzanine Loan
Mezzanine Fixed 7.50% 5/1/2029 Fixed 0.30% 5/1/2029
Mezzanine Fixed 7.42% 7/1/2031 Fixed 0.30% 7/1/2031
Mezzanine Fixed 7.59% 6/1/2029 Fixed 0.30% 6/1/2029
Mezzanine Fixed 7.83% 10/1/2028 Fixed 0.30% 10/1/2028
Mezzanine Fixed 7.71% 4/1/2031 Fixed 0.30% 4/1/2031
Mezzanine Fixed 7.32% 8/1/2031 Fixed 0.30% 8/1/2031
Mezzanine Fixed 7.22% 8/1/2031 Fixed 0.30% 8/1/2031
Mezzanine Fixed 7.33% 5/1/2029 Fixed 0.30% 5/1/2029
Mezzanine Fixed 7.53% 7/1/2031 Fixed 0.30% 7/1/2031
Mezzanine Fixed 7.42% 1/1/2029 Fixed 0.30% 1/1/2029
Mezzanine Fixed 7.42% 7/1/2031 Fixed 0.30% 7/1/2031
Mezzanine Fixed 7.42% 4/1/2031 Fixed 0.30% 4/1/2031
Mezzanine Fixed 8.70% 11/1/2030 Fixed 0.30% 11/1/2030
Mezzanine Fixed 7.74% 10/1/2028 Fixed 0.30% 10/1/2028
Mezzanine Fixed 7.71% 3/1/2029 Fixed 0.30% 3/1/2029
Mezzanine Fixed 6.91% 7/1/2029 Fixed 0.30% 7/1/2029
Mezzanine Fixed 7.89% 11/1/2028 Fixed 0.30% 11/1/2028
Mezzanine Fixed 7.89% 11/1/2028 Fixed 0.30% 11/1/2028
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Our primary sources of liquidity and capital resources to date consist of cash generated from our operating results and the following:
KeyBank Bridge Facility OnFebruary 7, 2020 , we, through our subsidiaries, entered into a$95.0 million bridge facility (the "Bridge Facility") withKeyBank National Association ("KeyBank") and immediately drew$95.0 million to fund a portion of the Formation Transaction. We used proceeds from the IPO to pay down the entirety of the Bridge Facility.
Raymond James Bridge Facility
OnJuly 30, 2020 , we, through our subsidiaries, entered into an$86.0 million bridge facility (the "RJ Bridge Facility") withRaymond James Bank, N.A. and drew$21.0 million onJuly 30, 2020 and$65.0 million onAugust 7, 2020 . We used proceeds from the RJ Bridge Facility to finance the acquisitions of the FREMF 2020-KF81 and FREMF 2020-K113 securitization. The RJ Bridge Facility was repaid in full inAugust 2020 .
Freddie Mac Credit Facilities
Prior to the Formation Transaction, two of our subsidiaries entered into a loan and security agreement, datedJuly 12, 2019 , with Freddie Mac (the "Credit Facility"). Under the Credit Facility, these entities borrowed approximately$788.8 million in connection with their acquisition of senior pooled mortgage loans backed by SFR properties (the "Underlying Loans"). No additional borrowings can be made under the Credit Facility, and our obligations will be secured by the Underlying Loans. The Credit Facility was assumed by the Company as part of the Formation Transaction. As such, the remaining outstanding balance of$788.8 million was contributed to the Company onFebruary 11, 2020 . Our borrowings under the Credit Facility will mature onJuly 12, 2029 . However, if an Underlying Loan matures prior toJuly 12, 2029 , we will be required to repay the portion of the Credit Facility that is allocated to that loan (see Note 7 to our consolidated financial statements for additional information). As ofJune 30, 2021 , the outstanding balance on the Credit Facility was$765.4 million . OnOctober 20, 2020 , the Company acquired a portfolio of 18 mezzanine loans with an aggregate principal amount outstanding of approximately$97.9 million . Freddie Mac provided seller financing of approximately$59.9 million with a weighted average fixed interest rate of 0.30%. Proceeds from the OP Notes offering and cash on hand were used to fund the remainder of the purchase price. Cash Generated from IPO OnFebruary 11, 2020 , we completed our IPO in which we sold 5,350,000 shares of common stock (including 350,000 shares pursuant to the partial exercise of the underwriters' option to purchase additional shares) at a price of$19.00 per share for gross proceeds of approximately$101.7 million . The IPO generated net proceeds of approximately$91.5 million to us after deducting underwriting discounts and commissions of approximately$6.9 million and offering expenses of approximately$3.3 million . We contributed the net proceeds from the IPO to our OP in exchange for OP Units and our OP contributed the net proceeds from the IPO to our Subsidiary OPs for SubOP Units. Our Subsidiary OPs used the net proceeds from the IPO to repay the amount outstanding under the$95 million Bridge Facility, consistent with our investment strategy and guidelines. Preferred Stock Offering As discussed in Note 9 to our consolidated financial statements, onJuly 24, 2020 , the Company issued 2,000,000 shares of its 8.50% Series A Cumulative Redeemable Preferred Stock (the "Series A Preferred Stock") at a price to the public of$24.00 per share, for gross proceeds of$48.0 million before deducting underwriting discounts and commissions and other estimated offering expenses. The Series A Preferred Stock has a$25.00 per share liquidation preference. OP Notes Offering OnOctober 15, 2020 , the OP issued the OP Notes with a coupon rate of 7.5% and aggregate principal amount of$36.5 million at approximately 99% of par value for proceeds of approximately$36.1 million before offering costs. Repurchase Agreements From time to time, we may enter into repurchase agreements to finance the acquisition of our target assets. Repurchase agreements will effectively allow us to borrow against loans and securities that we own in an amount equal to (1) the market value of such loans and/or securities multiplied by (2) the applicable advance rate. Under these agreements, we will sell our loans 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 will receive the principal and interest on the related loans and securities and pay interest to the lender under the repurchase agreement. At any point in time, the amounts and the cost of our repurchase borrowings will be based on the assets being financed. For example, higher risk assets will result in lower advance rates (i.e., levels of leverage) at higher borrowing costs. In addition, these facilities may include various financial covenants and limited recourse guarantees. As discussed in Note 7 to our consolidated financial statements, in connection with our recent CMBS acquisitions, we, through the OP and the Subsidiary OPs, have borrowed approximately$177.6 million under our repurchase agreements and posted approximately$1.8 billion par value of our CMBS B-Piece and CMBS I/O Strip investments as collateral. The CMBS B-Pieces and CMBS I/O Strips held as collateral are illiquid and irreplaceable in nature. These assets are restricted solely to satisfy the interest and principal balances owed to the lender. 36
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The table below provides additional details regarding recent borrowings under the master repurchase agreements:
June 30, 2021
Facility Collateral
Weighted
Weighted average
average Weighted life
Outstanding Carrying Final stated interest rate average life Outstanding Amortized Carrying (years)
Date issued face amount value maturity (1) (years) (2) face amount cost basis value (3) (2)
Master
Repurchase
Agreements
CMBS
Mizuho(4) Apr 2020 177,625 177,625 N/A (5) 1.86 % 0.04 1,848,933 381,356 333,895 8.7
(1) Weighted-average interest rate using unpaid principal balances.
(2) Weighted-average life is determined using the maximum maturity date of the
corresponding loans, assuming all extension options are exercised by the
borrower.
(3) CMBS are shown at fair value.
In
collateralized by portions of the CMBS B-Pieces and CMBS I/O Strips. (5) The master repurchase agreement with Mizuho does not have a stated maturity
date. The transactions in place have a one-month to two-month tenor and are
expected to roll accordingly.
At-The-Market Offering
On March 31, 2021 , the Company, the OP and the Manager separately entered into
the Equity Distribution Agreements with the Sales Agents, pursuant to which the
Company may issue and sell from time to time shares of the Company's common
stock and Series A Preferred Stock having an aggregate sales price of up to
$100.0 million in the ATM Program. The Equity Distribution Agreements provide
for the issuance and sale of common stock or Series A Preferred Stock by the
Company through a sales agent acting as a sales agent or directly to the sales
agent acting as principal for its own account at a price agreed upon at the time
of sale. No issuances of securities under the ATM Program occurred in the
quarter ended March 31, 2021 . For additional information about the ATM Program,
see Note 13 to our consolidated financial statements.
Company Notes Offering
On April 20, 2021 , the Company issued $75 million in aggregate principal amount
of its 5.75% Senior Unsecured Notes due 2026 at a price equal to 99.5% of par
value for proceeds of approximately $73.1 million after original issue discount
and underwriting fees.
LIBOR Transition
Approximately 5.8% of our portfolio by unpaid principal balance as of June 30,
2021 pays interest at a variable rate that is tied to LIBOR, and it is
anticipated that future investments we make may have variable interest rates
tied to LIBOR. On March 5, 2021 , the Financial Conduct Authority of the U.K .
(the "FCA") announced that all of the LIBOR settings will either cease to be
provided by any administrator or no longer be representative (i) immediately
after December 31, 2021 , in the case of the 1-week and 2-month US dollar
settings; and (ii) immediately after June 30, 2023 , in the case of the remaining
one-month, three-month, six-month and twelve-month US dollar settings. The
tenors that were extended to June 30, 2023 are more widely used and are the
tenors used in our LIBOR-based debt. The U.S. Federal Reserve , in conjunction
with the Alternative Reference Rates Committee, a steering committee convened by
the U.S. Federal Reserve Board and comprised of large U.S. financial
institutions, has identified as a best-practice replacement the Secured
Overnight Financing Rate ("SOFR"), a new index calculated by short-term
repurchase agreements backed by U.S. Treasury securities. Although there have
been a few issuances utilizing SOFR, it is unknown whether SOFR or another
alternative reference rate will attain market acceptance as a replacement for
LIBOR. In connection with the foregoing, we may need to renegotiate some of our
agreements to determine a replacement index or rate of interest. As of June 30,
2021 , the Company has not received any LIBOR transition notices under its loan
agreements. Any changes to benchmark interest rates could increase our financing
costs, which could impact our results of operations, cash flows and the market
value of our investments and result in mismatches with the interest rate of
investments that we are financing. On April 20, 2021 , the Company, through the
Subsidiary OPs, purchased approximately $76.0 million in aggregate principal
amount of the Class CS tranche of the Freddie Mac KF-108 CMBS at a price equal
to 100% of par value, representing 100% of the Class CS tranche. This investment
has a coupon of 6.25% plus 30-day SOFR. The Company currently does not have any
other investments tied to SOFR.
Other Potential Sources of Financing
We may seek additional sources of liquidity from further repurchase facilities, other borrowings and future offerings of common and preferred equity and debt securities and contributions from existing holders of the OP or Subsidiary OPs. In addition, we may apply our existing cash and cash equivalents and cash flows from operations to any liquidity needs. As ofJune 30, 2021 , our cash and cash equivalents were$30.0 million . We believe that our available cash, expected operating cash flows, and potential debt or equity financings will provide sufficient funds for our operations, anticipated scheduled debt service payments and dividend requirements for the twelve-month period followingJune 30, 2021 . Cash Flows The following table presents selected data from our Consolidated Statements of Cash Flows for the six months endedJune 30, 2021 andJune 30, 2020 (in thousands): For the Six Months Ended June 30, 2021 2020 Net cash provided by operating activities $ 22,841 $ 11,909 Net cash provided by (used in) investing activities 45,069 (21,377 ) Net cash provided by (used in) financing activities (70,703 ) 10,434
Net increase (decrease) in cash, cash equivalents and restricted cash
(2,793 ) 966
Cash, cash equivalents and restricted cash, beginning of period
33,471 -
Cash, cash equivalents and restricted cash, end of
period $ 30,678 $ 966
Cash flows from operating activities. During the six months ended June 30, 2021 ,
net cash provided by operating activities was $22.8 million compared to net
cash provided by operating activities of $11.9 million for the six months ended
June 30, 2020 . This increase was primarily due to the interest income generated
by our investments and the change in unrealized loss on investments held at fair
value.
Cash flows from investing activities. During the six months ended June 30, 2021 ,
net cash provided by investing activities was $45.1 million compared to net
cash used in operating activities of $21.4 million for the six months ended June
30, 2020 . This increase was primarily driven by proceeds received from payments
on mortgage loans held in VIEs.
Cash flows from financing activities. During the six months ended June 30, 2021 ,
net cash used in financing activities was $70.7 million compared to net
cash provided by financing activities of $10.4 million for the six months ended
June 30, 2020 . This increase was primarily driven by distributions to
bondholders of VIEs.
Emerging Growth Company and Smaller Reporting Company Status
Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 13(a) of the Exchange Act, for complying with new or revised accounting standards applicable to public companies. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of this extended transition period. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates for such new or revised standards. We may elect to comply with public company effective dates at any time, and such election would be irrevocable pursuant to Section 107(b) of the JOBS Act.
We are also a "smaller reporting company" as defined in Regulation S-K under the Securities Act, and may elect to take advantage of certain of the scaled disclosures available to smaller reporting companies. We may be a smaller reporting company even after we are no longer an "emerging growth company."
Income Taxes We intend to elect to be treated as a REIT forU.S. federal income tax purposes, beginning with our taxable year endedDecember 31, 2020 . We believe that our organization and proposed method of operation will enable us to meet the requirements for qualification and taxation as a REIT. To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of our annual REIT taxable income to stockholders. As a REIT, we will be subject to federal income tax on our undistributed REIT taxable income and net capital gain and to a 4% nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year are less than the sum of (1) 85% of our ordinary income, (2) 95% of our capital gain net income and (3) 100% of our undistributed income from prior years. Taxable income from certain non-REIT activities is managed through a TRS and is subject to applicable federal, state, and local income and margin taxes. We had no significant taxes associated with our TRS for the six months endedJune 30, 2021 . 37
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If we fail to qualify as a REIT in any taxable year, we will be subject toU.S. federal income tax on our taxable income at regular corporate income tax rates, and dividends paid to our stockholders would not be deductible by us in computing taxable income. Any resulting corporate liability could be substantial and could materially and adversely affect our net income and net cash available for distribution to stockholders. Unless we were entitled to relief under certain Code provisions, we also would be disqualified from re-electing to be taxed as a REIT for the four taxable years following the year in which we failed to qualify to be taxed as a REIT. We evaluate the accounting and disclosure of tax positions taken or expected to be taken in the course of preparing our tax returns to determine whether the tax positions are "more-likely-than-not" (greater than 50 percent probability) of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. Our management is required to analyze all open tax years, as defined by the statute of limitations, for all major jurisdictions, which include federal and certain states. We have no examinations in progress and none are expected at this time. We recognize our tax positions and evaluate them using a two-step process. First, we determine whether a tax position is more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Second, we will determine the amount of benefit to recognize and record the amount that is more likely than not to be realized upon ultimate settlement. We had no material unrecognized tax benefit or expense, accrued interest or penalties as ofJune 30, 2021 . Dividends We intend to make regular quarterly dividend payments to holders of our common stock. We also intend to make the accrued dividend payments on the Series A Preferred Stock, which are payable quarterly in arrears as provided in the articles supplementary setting forth the terms of the Series A Preferred Stock.U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains. As a REIT, we will be subject to federal income tax on our undistributed REIT taxable income and net capital gain and to a 4% nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year are less than the sum of (1) 85% of our ordinary income, (2) 95% of our capital gain net income and (3) 100% of our undistributed income from prior years. We intend to make regular quarterly dividend payments of all or substantially all of our taxable income, which is not used to pay a dividend on the Series A Preferred Stock, to holders of our common stock out of assets legally available for this purpose, if and to the extent authorized by our Board. Before we make any dividend payments, whether forU.S. federal income tax purposes or otherwise, we must first meet both our operating requirements and debt service on our debt payable. If our cash available for distribution is less than our taxable income, we could be required to sell assets, borrow funds or raise additional capital to make cash dividends or we may make a portion of the required dividend in the form of a taxable distribution of stock or debt securities. We will make dividend payments to holders of our common stock based on our estimate of taxable earnings per share of common stock, but not earnings calculated pursuant to GAAP. Our dividends and taxable income and GAAP earnings will typically differ due to items such as depreciation and amortization, fair-value adjustments, differences in premium amortization and discount accretion, and non-deductible G&A expenses. Our quarterly dividends per share of our common stock may be substantially different than our quarterly taxable earnings and GAAP earnings per share. Our Board declared our second quarterly dividend of 2021 to common stockholders of$0.4750 per share onApril 26, 2021 , which was paid onJune 30, 2021 to common stockholders of record onJune 15, 2021 . OnJune 25, 2021 , our Board declared the fourth preferred stock dividend of$0.53125 per share, which was paid onJuly 26, 2021 to preferred stockholders of record onJuly 15, 2021 . In addition, the REIT Sub paid a distribution of$30.00 per Preferred Membership Unit onJune 30, 2021 to holders of records of the Preferred Membership Units onJune 15, 2021 .
Off-Balance Sheet Arrangements
As ofJune 30, 2021 , we had no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. Commitments and Contingencies The Company is not aware of any contractual obligations, legal proceedings, or any other contingent obligations incurred in the normal course of business that would have a material adverse effect on our consolidated financial statements.
Critical Accounting Policies and Estimates
Management's discussion and analysis of financial condition and results of
operations is based upon our consolidated financial statements, which have been
prepared in accordance with GAAP. The preparation of these financial statements
requires our management to make judgments, assumptions and estimates that affect
the reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. We evaluate these judgments,
assumptions and estimates for changes that would affect the reported amounts.
These estimates are based on management's historical industry experience and on
various other judgments and assumptions that are believed to be reasonable under
the circumstances. Actual results may differ from these judgments, assumptions
and estimates. Below is a discussion of the accounting policies that we consider
critical to understanding our financial condition or results of operations where
there is uncertainty or where significant judgment is required. A discussion of
recent accounting pronouncements and our significant accounting policies,
including further discussion of the accounting policies described below, can be
found in Note 2 to our consolidated financial statements.
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Allowance for Loan Losses
The Company performs a quarterly evaluation of loans classified as held for
investment for impairment on a loan by loan basis in accordance with ASC
310-10-35, Receivables, Subsequent Measurement ("ASC 310-10-35"). If we deem
that it is probable that we will be unable to collect all amounts owed according
to the contractual terms of a loan, impairment of that loan is indicated. If we
consider a loan to be impaired, we will establish an allowance for loan losses,
through a valuation provision in earnings that reduces carrying value of the
loan to the present value of expected future cash flows discounted at the loan's
contractual effective rate or the fair value of the collateral, if repayment is
expected solely from the collateral. For non-impaired loans with no specific
allowance the Company determines an allowance for loan losses in accordance with
ASC 450-20, Loss Contingencies ("ASC 450-20"), which represents management's
best estimate of incurred losses inherent in the portfolio at the balance sheet
date, excluding impaired loans and loans carried at fair value. Management
considers quantitative factors likely to cause estimated credit losses including
default rate and loss severity rates. The Company also evaluates qualitative
factors such as macroeconomic conditions, evaluations of underlying collateral,
trends in delinquencies and non-performing assets. Increases to (or reversals
of) the allowance for loan loss are included in "Loan loss provision, net" on
the accompanying Consolidated Statements of Operations.
Significant judgment is required in determining impairment and in estimating the
resulting loss allowance, and actual losses, if any, could materially differ
from those estimates.
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Table of Contents REIT Tax Election We intend to elect to be treated as a REIT under Sections 856 through 860 of the Code. To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute at least 90% of our "REIT taxable income," as defined by the Code, to our stockholders. Taxable income from certain non-REIT activities is managed through a TRS and is subject to applicable federal, state, and local income and margin taxes. We had no significant taxes associated with our TRS for the six months endedJune 30, 2021 and 2020. We believe that our organization and current and proposed method of operation will allow us to qualify for taxation as a REIT, but no assurance can be given that we will operate in a manner so as to qualify as a REIT.
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