InPoint Commercial Real Estate Income Inc

Previous wording

These forward-looking statements are not historical facts but reflect the intent, belief or current expectations of the management of InPoint Commercial Real Estate Income, Inc. (which we refer to herein as the “Company,” “we,” “our” or “us”) based on their knowledge and understanding of the business and industry, the economy and other future conditions. These statements are not guarantees of future performance, and we caution stockholders not to place undue reliance on forward-looking statements. Actual results may differ materially from those expressed or forecasted in the forward-looking statements due to a variety of risks, uncertainties and other factors, including but not limited to the factors listed and described under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on March 15, 2024 (the “Annual Report”), some of which are briefly summarized below:

Current wording

These forward-looking statements are not historical facts but reflect the intent, belief or current expectations of the management of InPoint Commercial Real Estate Income, Inc. (which we refer to herein as the “Company,” “we,” “our” or “us”) based on their knowledge and understanding of the business and industry, the economy and other future conditions. These statements are not guarantees of future performance, and we caution stockholders not to place undue reliance on forward-looking statements. Actual results may differ materially from those expressed or forecasted in the forward-looking statements due to a variety of risks, uncertainties and other factors, including but not limited to the factors listed and described under “Risk Factors” in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on March 15, 2024 (the “Annual Report”), some of which are briefly summarized below:

Previous wording

The following discussion and analysis relate to the three months ended March 31, 2024 and 2023 and as of March 31, 2024 and December 31, 2023. You should read the following discussion and analysis along with our unaudited consolidated financial statements and the related notes included in this Quarterly Report on Form 10-Q.

Current wording

The following discussion and analysis relate to the three and six months ended June 30, 2024 and 2023 and as of June 30, 2024 and December 31, 2023. You should read the following discussion and analysis along with our unaudited consolidated financial statements and the related notes included in this Quarterly Report on Form 10-Q.

Previous wording

In response to inflationary pressures, in 2022 the Federal Reserve began raising its federal funds rate target range and indicated that, due to the persistent high rate of inflation, it would continue to increase rates until a 2% inflation rate is achieved. The Federal Reserve has also been conducting monetary tightening by increasing the sale of bonds it had purchased on the open market. During the third quarter of 2023, the Federal Reserve paused its increase in interest rates to evaluate the impact that the rate increases have had on inflation. While market consensus has been predicting that the Federal Reserve may begin reducing rates as early as in its June 2024 meeting, the economic data from the first quarter of 2024 has shown that inflation continues to be above the Federal Reserve’s 2.0% target. The Federal Reserve has indicated it would need to see inflation decreasing in order to begin decreasing rates which puts doubt into the prediction of rate decreases in 2024.

Current wording

In response to inflationary pressures, in 2022 the Federal Reserve began raising its federal funds rate target range and indicated that, due to the persistent high rate of inflation, it would continue to increase rates until a 2% inflation rate is achieved. The Federal Reserve has also been conducting monetary tightening by increasing the sale of bonds it had purchased on the open market. During the third quarter of 2023, the Federal Reserve paused its increase in interest rates to evaluate the impact that the rate increases have had on inflation. Market consensus has been predicting that the Federal Reserve may begin reducing rates in 2024, however the Federal Reserve has not signaled when a decrease may happen. The economic data from the first half of 2024 has shown that inflation continues to be above the Federal Reserve’s 2.0% target. We expect that the commercial real estate market will continue to experience pressure due to the current interest rate environment, and it may take several quarters and/or rate decreases for the market to improve.

Previous wording

We did not originate any new loans in 2023 or in the first quarter of 2024 as we chose to focus on maintaining our liquidity. We anticipate this to continue at least for the first half of 2024. The commercial real estate lending market tightened as the Federal Reserve raised rates and lenders concerns over property performance increased. Concerns over office properties continue as tenants evaluate the amount of space they need with more employees working from home. In general, property valuations have decreased as capitalization rates for commercial real estate assets have increased with overall interest rates.

Current wording

We did not originate any new loans in 2023 or during the first six months of 2024 as we chose to focus on maintaining our liquidity. We anticipate this to continue through the remainder of 2024. The commercial real estate lending market tightened as the Federal Reserve raised rates and lenders concerns over property performance increased. Concerns over office properties continue as tenants evaluate the amount of space they need with more employees working from home. In general, property valuations have decreased as capitalization rates for commercial real estate assets have increased with overall interest rates.

Previous wording

We continue to evaluate all loans on a quarterly basis and assign our internal risk rating with the majority of our loans continuing to perform as expected. While there has been some increase in competition for new loans in the first quarter of 2024, refinancing risk continues to be a focus. As such, for our CECL reserve, we have placed additional focus on loans with maturity dates up to nine months from the quarter end to determine if the collateral value would be sufficient to cover the outstanding loan principal balance and have recorded an asset-specific CECL reserve when necessary.

Current wording

We continue to evaluate all loans on a quarterly basis and assign our internal risk rating with the majority of our loans continuing to perform as expected. While there has been some increase in competition for new loans in the first six months of 2024, refinancing risk continues to be a focus. As such, for our CECL reserve, we have placed additional focus on loans with maturity dates up to nine months from the quarter end to determine if the collateral value would be sufficient to cover the outstanding loan principal balance and have recorded an asset-specific CECL reserve when necessary.

Previous wording

Net income attributable to common stockholders was $1.9 million, or $0.19 per share, during the three months ended March 31, 2024, which included $0.3 million in provision for credit losses.

Current wording

Net income attributable to common stockholders was $3.5 million, or $0.35 per share, during the three months ended June 30, 2024, which included $1.1 million in reversal of credit losses.

Previous wording

During the first quarter of 2024, we paid an annual gross distribution rate of $1.25 per common share, which represents an annualized rate of 7.5% on our aggregate NAV of $16.6556 as of March 31, 2024. Holders of Class D and Class T shares of common stock received less than the gross distribution amount after the deduction of stockholder servicing fees applicable to those classes.

Current wording

During the second quarter of 2024, we paid an annual gross distribution rate of $1.25 per common share, which represents an annualized rate of 7.5% on our aggregate NAV of $16.5986 as of June 30, 2024. Holders of Class D and Class T shares of common stock received less than the gross distribution amount after the deduction of stockholder servicing fees applicable to those classes.

Previous wording

We had $3.5 million in advances on previously originated loans and loan repayments of $32.2 million resulting in a 4.1% decrease in our loan portfolio to $692.6 million during the three months ended March 31, 2024. The decrease also includes $0.4 million of provision for credit losses.

Current wording

We had $1.9 million in advances on previously originated loans and loan repayments of $11.2 million resulting in a 1.2% decrease in our loan portfolio to $684.4 million during the three months ended June 30, 2024. The decrease is net of $1.1 million of reversal of credit losses.

Previous wording

31 out of our 34 loans were current on their contractual interest payments with no interest deferrals during the three months ended March 31, 2024.

Current wording

30 out of our 33 loans were current on their contractual interest payments with no interest deferrals during the three months ended June 30, 2024.

Previous wording

3 out of our 34 loans were placed on nonaccrual status. After being placed on nonaccrual status, any cash collected, including any interest payments, on such loans is applied against their principal balance.

Current wording

3 out of our 33 loans were placed on nonaccrual status. After being placed on nonaccrual status, any cash collected, including any interest payments, on such loans is applied against their principal balance.

Previous wording

The decrease in the size of our portfolio is primarily due to loan payoffs with no new loans originated during the three months ended March 31, 2024. The decrease in the all-in yield was primarily driven by the three loans placed on nonaccrual status.

Current wording

The decrease in the size of our portfolio is primarily due to loan payoffs with no new loans originated during the six months ended June 30, 2024. The decrease in the all-in yield was primarily driven by the three loans placed on nonaccrual status.

Previous wording

As of March 31, 2024, an 80% undivided senior interest in each of loan numbers 1, 2, 3, and 7, which includes the right to receive priority interest payments at a rate of SOFR+2.00%, was sold by our Operating Partnership pursuant to a Loan Participation Agreement dated November 15, 2021. Our Operating Partnership has retained a 20% undivided subordinate interest in each of these loans.

Current wording

As of June 30, 2024, an 80% undivided senior interest in each of loan numbers 1, 2, 3, and 7, which includes the right to receive priority interest payments at a rate of one-month term USD Secured Overnight Financing Rate (“SOFR”)+2.00%, was sold by our Operating Partnership pursuant to a Loan Participation Agreement dated November 15, 2021. Our Operating Partnership has retained a 20% undivided subordinate interest in each of these loans.

Previous wording

Cash coupon is the stated rate on the loan. All-in yield is the present value of all future principal and interest payments on the loan and does not include any origination fees or deferred commitment fees. Loan numbers 2, 9 and 14 are on nonaccrual basis as of March 31, 2024 and excluded from the total. The total is the weighted average of the stated yield, excluding any default interest, as of March 31, 2024. Our first mortgage loans are all floating rate and each contains a minimum SOFR floor. As of March 31, 2024, the weighted average SOFR floor was 0.68%.

Current wording

Cash coupon is the stated rate on the loan. All-in yield is the present value of all future principal and interest payments on the loan and does not include any origination fees or deferred commitment fees. Loan numbers 2, 9 and 13 are on nonaccrual basis as of June 30, 2024 and excluded from the total. The total is the weighted average of the stated yield, excluding any default interest, as of June 30, 2024. Our first mortgage loans are all floating rate and each contains a minimum SOFR floor. As of June 30, 2024, the weighted average SOFR floor was 0.69%.

Previous wording

The loan matured on April 9, 2023 and is currently accruing default interest. The Company is negotiating an extension to allow the borrower to obtain long-term financing. The Company expects to complete the loan extension in the second quarter of 2024. The property securing the loan is class A office and is 94% occupied as of April 15, 2024. The Company has reviewed the loan and based on the current estimated LTV does not believe the loan is impaired.

Current wording

The loan matured on April 9, 2023 and is currently accruing default interest. The Company is negotiating an extension to allow the borrower to obtain long-term financing. The Company expects to complete the loan extension in the third quarter of 2024. The property securing the loan is class A office and is 91% occupied as of May 31, 2024. The Company has reviewed the loan and based on the current estimated LTV does not believe the loan is impaired.

Previous wording

The loan matured on May 9, 2024. The Company is negotiating an additional loan extension with the sponsor. If the loan is not extended, the Company will begin the foreclosure process with respect to the underlying property. The loan is on nonaccrual status and based on the estimated LTV, the Company recorded a $7.1 million asset-specific CECL reserve as of March 31, 2024.

Current wording

The loan matured on May 9, 2024. The Company was unable to negotiate an additional loan extension or pay-off with the sponsor. The Company has begun the foreclosure process with respect to the underlying property and expects to complete the process in October 2024. The loan is on nonaccrual status and based on the estimated LTV, the Company recorded a $6.9 million asset-specific CECL reserve as of June 30, 2024.

Previous wording

The loan matured on October 9, 2023 and is currently in maturity default. The Company has been negotiating an extension with the borrower which is expected to be completed in the second quarter 2024. The Company has reviewed the loan and based on the estimated LTV recorded a $1.0 million asset-specific CECL reserve as of March 31, 2024.

Current wording

The loan matures on March 9, 2025. The Company plans to negotiate an extension with the sponsor prior to the maturity date. The Company has reviewed the loan and based on the estimated LTV recorded a $1.0 million asset-specific CECL reserve as of June 30, 2024.

Previous wording

The following table allocates the loan principal balance and the net loss exposure based on our internal risk ratings as of March 31, 2024:

Current wording

The following table allocates the loan principal balance and the net loan exposure based on our internal risk ratings as of June 30, 2024:

Previous wording

(1) Net loss exposure excludes the amount of loan participation sold. See “Note 5 – Loan Participations Sold, Net”.

Current wording

(1) Net loan exposure excludes the amount of loan participation sold. See “Note 5 – Loan Participations Sold, Net.” Further, net loan exposure is calculated net of the CECL reserve recorded on the loans. See “Note 3 – Commercial Mortgage Loans Held for Investment – Allowance for Credit Losses.”

Previous wording

We entered into master repurchase agreements to fund our loan portfolio. As of March 31, 2024 and December 31, 2023, we had total borrowings of $435,439 (which is net of $0 unamortized debt issuance costs) and $457,438 (which is net of $0 of unamortized debt issuance costs), respectively. During the three months ended March 31, 2024 and the year ended December 31, 2023, we had weighted average borrowings of $507,542 and $562,396 and weighted average borrowing costs of 7.4% and 7.4%, respectively.

Current wording

We entered into master repurchase agreements to fund our loan portfolio. As of June 30, 2024 and December 31, 2023, we had total borrowings of $422,944 (which is net of $0 unamortized debt issuance costs) and $457,438 (which is net of $0 of unamortized debt issuance costs), respectively. During the six months ended June 30, 2024 and the year ended December 31, 2023, we had weighted average borrowings of $499,552 and $562,396 and weighted average borrowing costs of 7.5% and 7.4%, respectively.

Previous wording

Interest income excludes $638 and $63 for the three months ended March 31, 2024 and 2023, respectively, related to bank deposits not included in the investment portfolio.

Current wording

Interest income excludes $582 and $130 for the three months ended June 30, 2024 and 2023, respectively, related to bank deposits not included in the investment portfolio.

Previous wording

During the three months ended March 31, 2023, the Renaissance O’Hare generated $2,921 in revenue. We sold the Renaissance O’Hare in September 2023.

Current wording

During the three months ended June 30, 2023, the Renaissance O’Hare generated $5,326 in revenue. We sold the Renaissance O’Hare in September 2023.

Previous wording

Net operating expenses for the three months ended March 31, 2024 and 2023 were $1,900 and $5,324, respectively. The primary driver of the decrease in net operating expenses was the sale of Renaissance O’Hare.

Current wording

Net operating expenses for the three months ended June 30, 2024 and 2023 were $1,723 and $13,899, respectively. The primary driver of the decrease in net operating expenses was the sale of Renaissance O’Hare in September 2023.

Previous wording

Stockholder servicing fees only apply to Class T, Class S, and Class D shares. For purposes of NAV, we recognize the stockholder servicing fee as a reduction of NAV on a monthly basis as such fee is paid. Under GAAP, we accrue the full cost of the stockholder servicing fee as an offering cost at the time we sell Class T, Class S, and Class D shares. As of March 31, 2024, we have accrued under GAAP $645 of stockholder servicing fees payable to the Dealer Manager related to the Class T and Class D shares sold. As of March 31, 2024, we have not sold any Class S shares and, therefore, we have not accrued any stockholder servicing fees payable to the Dealer Manager related to Class S shares. The Dealer Manager does not retain any of these fees, all of which are retained by, or reallowed (paid) to, participating broker-dealers and servicing broker-dealers for ongoing stockholder services performed by such broker-dealers.

Current wording

Stockholder servicing fees only apply to Class T, Class S, and Class D shares. For purposes of NAV, we recognize the stockholder servicing fee as a reduction of NAV on a monthly basis as such fee is paid. Under GAAP, we accrue the full cost of the stockholder servicing fee as an offering cost at the time we sell Class T, Class S, and Class D shares. As of June 30, 2024, we had accrued under GAAP $645 of stockholder servicing fees payable to the Dealer Manager related to the Class T and Class D shares sold. As of June 30, 2024, we had not sold any Class S shares and, therefore, we had not accrued any stockholder servicing fees payable to the Dealer Manager related to Class S shares. The Dealer Manager does not retain any of these fees, all of which are retained by, or reallowed (paid) to, participating broker-dealers and servicing broker-dealers for ongoing stockholder services performed by such broker-dealers.

Previous wording

Real Estate-Related Securities and Derivatives. Our real estate-related securities investments will generally focus on non-distressed public and private real estate debt, including, but not limited to, CMBS and other forms of debt. Additionally, we may make open market purchases of common stock in public equity REITs. We may also invest in derivatives. Our principal investments in derivative instruments may include investments in interest rate swaps, interest rate cap or floor contracts, futures or forward contracts, options or repurchase agreements. Our real estate-related securities and derivative investments are recorded at fair market value in our financial statements, in accordance with ASC Topic 820. The valuation of these assets is obtained from market quotations obtained from third-party pricing service providers or broker-dealers. Pursuant to the valuation guidelines adopted by our Board, if market quotations are not readily available (or are otherwise not reliable for a particular investment), the fair value is determined in good faith by our Advisor. Due to the inherent uncertainty of these estimates, estimates of fair value may differ from the values that would have been used had a ready market for these investments existed and the differences could be material. Market quotes are considered not readily available in circumstances where there is an absence of current or reliable market-based data (e.g., trade information, bid/ask information, or broker-dealer quotations). Our

Current wording

Real Estate-Related Securities and Derivatives. Our real estate-related securities investments will generally focus on non-distressed public and private real estate debt, including, but not limited to, CMBS and other forms of debt. Additionally, we may make open market purchases of common stock in public equity REITs. We may also invest in derivatives. Our principal investments in derivative instruments may include investments in interest rate swaps, interest rate cap or floor contracts, futures or forward contracts, options or repurchase agreements. Our real estate-related securities and derivative investments are recorded at fair market value in our financial statements, in accordance with ASC Topic 820. The valuation of these assets is obtained from market quotations obtained from third-party pricing service providers or broker-dealers. Pursuant to the valuation guidelines adopted by our Board, if market quotations are not readily available (or are otherwise not reliable for a particular investment), the fair value is determined in good faith by our Advisor. Due to the inherent uncertainty of these estimates, estimates of fair value may differ from the values that would have been used had a ready market for these investments existed and the differences could be material. Market quotes are considered not readily available in circumstances where there is an absence of current or reliable market-based data (e.g., trade information, bid/ask information, or broker-dealer quotations). Our Board has delegated to our Advisor the responsibility for monitoring significant events that may materially affect the values of our real estate-related securities and derivative investments and for determining whether the value of the applicable investments should be reevaluated in light of such significant events.

Previous wording

Each class of our common stock, including Class P common stock that was not offered to the public, have an undivided interest in our assets and liabilities, other than class-specific liabilities. Our NAV is calculated by the independent valuation advisor for each of these classes. Our Advisor is responsible for reviewing and confirming our NAV, and overseeing the process around the calculation of our NAV, in each case, as calculated by the independent valuation advisor. Because stockholder servicing fees allocable to a specific class of shares will only be included in the NAV calculation for that class, the NAV per share for our share classes may differ.

Current wording

Each class of our common stock, including Class P common stock that was not offered to the public, has an undivided interest in our assets and liabilities, other than class-specific liabilities. Our NAV is calculated by the independent valuation advisor for each of these classes. Our Advisor is responsible for reviewing and confirming our NAV, and overseeing the process around the calculation of our NAV, in each case, as calculated by the independent valuation advisor. Because stockholder servicing fees allocable to a specific class of shares will only be included in the NAV calculation for that class, the NAV per share for our share classes may differ.

Previous wording

Our primary sources of liquidity include $60.4 million in cash, $221 million in available capacity on our borrowing facilities, and $20 million in available borrowing capacity from our revolving credit letter agreements with IREIC and Sound Point. We may seek additional sources of liquidity from syndicated financing in the form of collateralized loan obligations, sale of loan participations, other borrowings, including additional repurchase agreement facilities and borrowings not related to a specific investment and future offerings of equity and debt securities.

Current wording

Our primary sources of liquidity include $44.6 million in cash, $243 million in available capacity on our borrowing facilities, and $20 million in available borrowing capacity from our revolving credit letter agreements with IREIC and Sound Point. We may seek additional sources of liquidity from syndicated financing in the form of collateralized loan obligations, sale of loan participations, other borrowings, including additional repurchase agreement facilities and borrowings not related to a specific investment and future offerings of equity and debt securities.

Previous wording

We experienced a net increase in cash and cash equivalents of $6,253 for the three months ended March 31, 2024 compared to a net decrease of $9,686 for the three months ended March 31, 2023. During the three months ended March 31, 2024, we funded $3,482 in mortgage loans, received $32,197 in principal payments from our loans, paid down $21,999 on our borrowing facilities, and paid distributions of $4,645.

Current wording

We experienced a net decrease in cash and cash equivalents of $9,586 for the six months ended June 30, 2024 compared to a net increase of $15,226 for the six months ended June 30, 2023. During the six months ended June 30, 2024, we funded $5,387 in mortgage loans, received $43,410 in principal payments from our loans, paid down $43,992, which is net of draws of $8,201, on our borrowing facilities, and paid distributions of $9,291.

Previous wording

On May 6, 2019, we, through our wholly owned subsidiary, entered into an uncommitted master repurchase agreement (the “JPM Repo Facility”) with JPMorgan Chase Bank, National Association (“JPM”). The JPM Repo Facility provides up to $150,000 in advances that we expect to use to finance the acquisition or origination of eligible loans and participation interests therein. Advances made prior to December 2021 under the JPM Repo Facility accrue interest at per annum rates equal to the sum of (i) the applicable LIBOR index rate plus (ii) a margin of between 1.75% to 2.50% with no floor, depending on the attributes of the purchased assets. Advances made subsequent to December 2021 under the JPM Repo Facility accrue interest at per annum rates equal to the sum of SOFR plus an agreed upon margin. As of March 31, 2024, all of the advances made under the JPM Repo Facility were indexed to SOFR and have margins between 1.85% and 2.85% with a floor between 0.00% and 2.00%. In May 2022, the maturity date of the JPM Repo Facility was extended to May 6, 2023. On May 5, 2023, we entered into an amendment that extended the maturity date to May 6, 2026, with the option to extend the maturity date further to May 6, 2028 subject to two optional one-year extensions. The amendment also increased the maximum facility amount to $526,076. We used the increased capacity to pay off the balance on the Atlas Repo Facility. The JPM Repo Facility is subject to certain financial covenants. We were in compliance with all financial covenant requirements as of March 31, 2024 and December 31, 2023.

Current wording

On May 6, 2019, we, through our wholly owned subsidiary, entered into an uncommitted master repurchase agreement (the “JPM Repo Facility”) with JPMorgan Chase Bank, National Association (“JPM”). The JPM Repo Facility provides up to $150,000 in advances that we expect to use to finance the acquisition or origination of eligible loans and participation interests therein. Advances made prior to December 2021 under the JPM Repo Facility accrue interest at per annum rates equal to the sum of (i) the applicable LIBOR index rate plus (ii) a margin of between 1.75% to 2.50% with no floor, depending on the attributes of the purchased assets. Advances made subsequent to December 2021 under the JPM Repo Facility accrue interest at per annum rates equal to the sum of SOFR plus an agreed upon margin. As of June 30, 2024, all of the advances made under the JPM Repo Facility were indexed to SOFR and have margins between 1.85% and 2.85% with a floor between 0.00% and 2.00%. In May 2022, the maturity date of the JPM Repo Facility was extended to May 6, 2023. On May 5, 2023, we entered into an amendment that extended the maturity date to May 6, 2026, with the option to extend the maturity date further to May 6, 2028 subject to two optional one-year extensions. The amendment also increased the maximum facility amount to $526,076. We used the increased capacity to pay off the balance on the Atlas Repo Facility. The JPM

Previous wording

On March 10, 2021, we, through our wholly owned subsidiary, entered into a credit facility with Western Alliance Bank (the “WA Credit Facility,” together with the Atlas Repo Facility and the JPM Repo Facility, the “Facilities”). The WA Credit Facility provides for loan advances up to the lesser of $75,000 or the borrowing base. The borrowing base consists of eligible assets pledged to and accepted by Western Alliance in its discretion up to the lower of (i) 60% to 70% of loan-to-unpaid balance or (ii) 45% to 50% of the loan-to-appraised value (depending on the property type underlying the asset, for both (i) and (ii)). Assets that would otherwise be eligible become ineligible after being pledged as part of the borrowing base for 36 months. Advances under the WA Credit Facility accrue interest at an annual rate equal to one-month LIBOR plus 3.25% with a floor of 0.75%. The initial maturity date of the WA Credit Facility was March 10, 2023. On March 9, 2023, we extended the maturity date of the WA Credit Facility to March 10, 2025, modified that loan advances are up to the lesser of $40,000 or the borrowing base, and changed the index rate from LIBOR to SOFR. In addition, the spread increased to 3.50% and the floor to 2.50%. We have an option to convert the loan made pursuant to the WA Credit Facility upon its initial maturity to a term loan with the same interest rate and floor and a maturity of two years in exchange for, among other things, a conversion fee of 0.25% of the outstanding amount at the time of conversion. The WA Credit Facility requires maintenance of an average unrestricted aggregate deposit account balance with Western Alliance of not less than $3,750 until the calendar quarter ending on June 30, 2023 and not less than $5,000 commencing with the calendar quarter ending on September 30, 2023. Failure to meet the minimum deposit balance will result in, among other things, the interest rate of the WA Credit Facility increasing by 0.50% per annum for each quarter in which the compensating balances are not maintained. The WA Credit Facility is subject to certain financial covenants. One of the covenants requires that we have a debt service coverage ratio of at least 1.50 measured on a quarterly basis. On March 4, 2024, we executed a second loan modification and waiver agreement that temporarily decreased the debt service coverage ratio to 1.40 for the three-month period ended March 31, 2024. For the three-month period ended March 31, 2024 and December 31, 2023, we had a debt service coverage ratio of 1.44 and 1.47, respectively. Western Alliance agreed to waive this covenant as of December 31, 2023. As a result, we were in compliance with all financial covenant requirements as of March 31, 2024 and December 31, 2023.

Current wording

On March 10, 2021, we, through our wholly owned subsidiary, entered into a credit facility with Western Alliance Bank (the “WA Credit Facility,” together with the Atlas Repo Facility and the JPM Repo Facility, the “Facilities”). The WA Credit Facility provides for loan advances up to the lesser of $75,000 or the borrowing base. The borrowing base consists of eligible assets pledged to and accepted by Western Alliance in its discretion up to the lower of (i) 60% to 70% of loan-to-unpaid balance or (ii) 45% to 50% of the loan-to-appraised value (depending on the property type underlying the asset, for both (i) and (ii)). Assets that would otherwise be eligible become ineligible after being pledged as part of the borrowing base for 36 months. Advances under the WA Credit Facility accrue interest at an annual rate equal to one-month LIBOR plus 3.25% with a floor of 0.75%. The initial maturity date of the WA Credit Facility was March 10, 2023. On March 9, 2023, we extended the maturity date of the WA Credit Facility to March 10, 2025, modified that loan advances are up to the lesser of $40,000 or the borrowing base, and changed the index rate from LIBOR to SOFR. In addition, the spread increased to 3.50% and the floor to 2.50%. We have an option to convert the loan made pursuant to the WA Credit Facility upon its initial maturity to a term loan with the same interest rate and floor and a maturity of two years in exchange for, among other things, a conversion fee of 0.25% of the outstanding amount at the time of conversion. The WA Credit Facility requires maintenance of an average unrestricted aggregate deposit account balance with Western Alliance of not less than $3,750 until the calendar quarter ending on June 30, 2023 and not less than $5,000 commencing with the calendar quarter ending on September 30, 2023. Failure to meet the minimum deposit balance will result in, among other things, the interest rate of the WA Credit Facility increasing by 0.50% per annum for each quarter in which the compensating balances are not maintained. We paid off the outstanding balance on the WA Credit Facility in May 2024 and had no outstanding balance as of June 30, 2024. As there were no borrowings outstanding, we were not subject to any financial covenants.

Previous wording

Excludes $0 of unamortized debt issuance costs at March 31, 2024 and December 31, 2023.

Current wording

Excludes $0 of unamortized debt issuance costs as of June 30, 2024 and December 31, 2023.

Previous wording

During the three months ended March 31, 2024 and 2023, we recorded $626 and $1,441 of interest expense related to loan participations sold, respectively.

Current wording

During the six months ended June 30, 2024 and 2023, we recorded $1,456 and $2,988 of interest expense related to loan participations sold, respectively.

Previous wording

During the three months ended March 31, 2024, 100% of our distributions were paid from cash flows from operating activities generated during the period. During the three months ended March 31, 2023, 39.1% of our distributions were paid from cash flow from operating activities generated during the period, and the remainder was paid using cash generated during prior periods.

Current wording

During the six months ended June 30, 2024 and 2023, 100% of our distributions were paid from cash flows from operating activities generated during the period.

Previous wording

We currently have no off-balance sheet arrangements that are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources excluding future loan advance commitments as disclosed in “Note 8 – Commitments and Contingencies.

Current wording

As of June 30, 2024, we had no off-balance sheet arrangements that were reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources excluding future loan advance commitments as disclosed in “Note 8 – Commitments and Contingencies.