Claros Mortgage Trust Inc

Previous wording

As a CRE finance company, we believe the key financial measures and indicators for our business are net income (loss) per share, Distributable Earnings (Loss) per share, Distributable Earnings per share prior to realized gains and losses, which includes principal charge-offs, dividends declared per share, book value per share, adjusted book value per share, Net Debt-to-Equity Ratio and Total Leverage Ratio. During the year ended December 31, 2023, we had net income per share of $0.02, Distributable Earnings (Loss) per share of $0.28, and Distributable Earnings per share prior to realized gains and principal charge-offs of $1.31, and dividends declared per share of $1.24. As of December 31, 2023, our book value per share was $16.28, our adjusted book value per share was $17.03, our Net-Debt-to-Equity Ratio was 2.4x, and our Total Leverage Ratio was 2.8x. We use Net Debt-to-Equity Ratio and Total Leverage Ratio, financial measures which are not prepared in accordance with GAAP, to evaluate our financial leverage, which in the case of our Total Leverage Ratio, makes certain adjustments that we believe provide a more conservative measure of our financial condition.

Current wording

As a CRE finance company, we believe the key financial measures and indicators for our business are net income (loss) per share, Distributable Earnings (Loss) per share, Distributable Earnings per share prior to realized gains and losses, which includes charge-offs of principal and/or accrued interest receivable, dividends declared per share, book value per share, adjusted book value per share, Net Debt-to-Equity Ratio and Total Leverage Ratio. During the year ended December 31, 2024, we had net loss per share of $1.60, Distributable Loss per share of $0.67, Distributable Earnings per share prior to realized gains and losses of $0.81, and dividends declared per share of $0.60. As of December 31, 2024, our book value per share was $14.12, our adjusted book value per share was $15.17, our Net Debt-to-Equity Ratio was 2.4x, and our Total Leverage Ratio was 2.8x. We use Net Debt-to-Equity Ratio and Total Leverage Ratio, financial measures which are not prepared in accordance with GAAP, to evaluate our financial leverage, which in the case of our Total Leverage Ratio, makes certain adjustments that we believe provide a more conservative measure of our financial condition.

Previous wording

Net Income Per Share and Dividends Declared Per Share

Current wording

Net (Loss) Income Per Share and Dividends Declared Per Share

Previous wording

The following table sets forth the calculation of basic and diluted net income per share and dividends declared per share ($ in thousands, except share and per share data):

Current wording

The following table sets forth the calculation of basic and diluted net (loss) income per share and dividends declared per share ($ in thousands, except share and per share data):

Previous wording

Distributable Earnings (Loss) is a non-GAAP measure used to evaluate our performance excluding the effects of certain transactions, non-cash items and GAAP adjustments, as determined by our Manager. Distributable Earnings (Loss) is a non-GAAP measure, which we define as net income (loss) in accordance with GAAP, excluding (i) non-cash stock-based compensation expense, (ii) real estate depreciation and amortization, (iii) any unrealized gains or losses from mark-to-market valuation changes (other than permanent impairments) that are included in net income (loss) for the applicable period, (iv) one-time events pursuant to changes in GAAP and (v) certain non-cash items, which in the judgment of our Manager, should not be included in Distributable Earnings (Loss). Furthermore, the Company presents Distributable Earnings prior to realized gains and losses, which includes principal charge-offs, as the Company believes this more easily allows our Board, Manager, and investors to compare our operating performance to our peers, to assess our ability to declare and pay dividends, and to determine our compliance with certain financial covenants. Pursuant to the Management Agreement, we use Core Earnings, which is substantially the same as Distributable Earnings (Loss) excluding incentive fees, to determine the incentive fees we pay our Manager.

Current wording

Distributable Earnings (Loss) is a non-GAAP measure used to evaluate our performance excluding the effects of certain transactions, non-cash items and GAAP adjustments, as determined by our Manager. Distributable Earnings (Loss) is a non-GAAP measure, which we define as net income (loss) in accordance with GAAP, excluding (i) non-cash stock-based compensation expense, (ii) real estate owned held-for-investment depreciation and amortization, (iii) any unrealized gains or losses from mark-to-market valuation changes (other than permanent impairments) that are included in net income (loss) for the applicable period, (iv) one-time events pursuant to changes in GAAP and (v) certain non-cash items, which in the judgment of our Manager, should not be included in Distributable Earnings (Loss). Furthermore, we present Distributable Earnings prior to realized gains and losses, which such gains and losses include charge-offs of principal and/or accrued interest receivable, as we believe this more easily allows our Board, Manager, and investors to compare our operating performance to our peers, to assess our ability to declare and pay dividends, and to determine our compliance with certain financial covenants. Pursuant to the Management Agreement, we use Core Earnings, which is substantially the same as Distributable Earnings (Loss) excluding incentive fees, to determine the incentive fees we pay our Manager.

Previous wording

In order to maintain our status as a REIT, we are required to distribute at least 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gain, as dividends. Distributable Earnings (Loss), Distributable Earnings prior to realized gains and losses, and other similar measures, have historically been a useful indicator over time of a mortgage REIT’s ability to cover its dividends, and to mortgage REITs themselves in determining the amount of any dividends to declare. Distributable Earnings (Loss) and Distributable Earnings prior to realized gains and losses are key factors, among others, considered by the Board in setting the dividend each quarter and as such we believe Distributable Earnings (Loss) and Distributable Earnings prior to realized gains and losses are also useful to investors.

Current wording

In order to maintain our status as a REIT, we are required to distribute at least 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gain, as dividends. Distributable Earnings (Loss), Distributable Earnings prior to realized gains and losses, and other similar measures, have historically been a useful indicator over time of a mortgage REIT’s ability to cover its dividends, and to mortgage REITs themselves in determining the amount of any dividends to declare. Distributable Earnings (Loss) and Distributable Earnings prior to realized gains and losses are key factors, among others, considered by our Board in determining the dividend each quarter and as such we believe Distributable Earnings (Loss) and Distributable Earnings prior to realized gains and losses are also useful to investors.

Previous wording

While Distributable Earnings (Loss) excludes the impact of our provision for or reversal of current expected credit loss reserve, principal charge-offs are recognized through Distributable Earnings (Loss) when deemed non-recoverable. Non-recoverability is determined (i) upon the resolution of a loan (i.e., when the loan is repaid, fully or partially, or when we acquire title in the case of foreclosure, deed-in-lieu of foreclosure, or assignment-in-lieu of foreclosure), or (ii) with respect to any amount due under any loan, when such amount is determined to be uncollectible.

Current wording

While Distributable Earnings (Loss) excludes the impact of our provision for or reversal of current expected credit loss reserve, charge-offs of principal and/or accrued interest receivable are recognized through Distributable Earnings (Loss) when deemed non-recoverable. Non-recoverability is determined (i) upon the resolution of a loan (i.e., when the loan is repaid, fully or partially, when we acquire title in the case of foreclosure, deed-in-lieu of foreclosure, or assignment-in-lieu of foreclosure, or when the loan is sold or anticipated to be sold for an amount less than its carrying value), or (ii) with respect to any amount due under any loan, when such amount is determined to be uncollectible.

Previous wording

In determining Distributable Earnings (Loss) per share and Distributable Earnings per share prior to realized gains and losses, the dilutive effect of unvested RSUs is considered. The weighted average diluted shares outstanding used for Distributable Earnings (Loss) has been adjusted from weighted average diluted shares under GAAP to include weighted average unvested RSUs.

Current wording

In determining Distributable Earnings (Loss) per share and Distributable Earnings per share prior to realized gains and losses, the dilutive effect of unvested RSUs is considered. The weighted average diluted shares outstanding used for Distributable Earnings (Loss) and Distributable Earnings per share prior to realized gains and losses have been adjusted from weighted average diluted shares under GAAP to include weighted average unvested RSUs.

Previous wording

The table below summarizes the reconciliation from weighted average diluted shares under GAAP to the weighted average diluted shares used for Distributable Earnings (Loss) for the years ended December 31, 2023 and 2022:

Current wording

The table below summarizes the reconciliation from weighted average diluted shares under GAAP to the weighted average diluted shares used for Distributable (Loss) Earnings and Distributable Earnings prior to realized gains and losses for the years ended December 31, 2024 and 2023:

Previous wording

The following table provides a reconciliation of net income attributable to common stock to Distributable Earnings (Loss) and Distributable Earnings prior to realized gains and principal charge-offs ($ in thousands, except share and per share data):

Current wording

The following table provides a reconciliation of net (loss) income to Distributable (Loss) Earnings and Distributable Earnings prior to realized gains and losses ($ in thousands, except share and per share data):

Previous wording

We believe that presenting book value per share adjusted for the general current expected credit loss reserve and accumulated depreciation and amortization on our real estate owned and related lease intangibles is useful for investors as it enhances the comparability across the industry. We believe that our investors and lenders consider book value excluding these items as an important metric related to our overall capitalization.

Current wording

We believe that presenting book value per share adjusted for our general current expected credit loss reserve and accumulated depreciation and amortization on our real estate owned held-for-investment and related lease intangibles is useful for investors as it enhances the comparability to our peers. We believe that our investors and lenders consider book value excluding these items as an important metric related to our overall capitalization.

Previous wording

The following table details our individual loan receivables held-for-investment based on unpaid principal balances as of December 31, 2023 ($ in thousands):

Current wording

The following table details our individual loans receivable held-for-investment based on unpaid principal balances as of December 31, 2024 ($ in thousands):

Previous wording

LTV represents “loan-to-value” or “loan-to-cost,” which is calculated as our total loan commitment from time to time, as if fully funded, plus any financings that are pari passu with or senior to our loan, divided by our estimate of either (1) the value of the underlying real estate, determined in accordance with our underwriting process (typically consistent with, if not less than, the value set forth in a third-party appraisal) or (2) the borrower’s projected, fully funded cost basis in the asset, in each case as we deem appropriate for the relevant loan and other loans with similar characteristics. Underwritten values and projected costs should not be assumed to reflect our judgment of current market values or project costs, which may have changed materially since the date of origination. LTV is updated only in connection with a partial loan paydown and/or release of collateral, material changes to expected project costs, the receipt of a new appraisal (typically in connection with financing or refinancing activity) or a change in our loan commitment. Totals represent weighted average based on loan commitment, including non-consolidated senior interests and pari passu interests. Loans with specific CECL reserves are reflected as 100% LTV.

Current wording

Origination LTV represents “loan-to-value” or “loan-to-cost,” which is calculated as our total loan commitment upon origination, as if fully funded, plus any financings that are pari passu with or senior to our loan, divided by our estimate of either (1) the value of the underlying real estate, determined in accordance with our underwriting process (typically consistent with, if not less than, the value set forth in a third-party appraisal) or (2) the borrower’s projected, fully funded cost basis in the asset, in each case as we deem appropriate for the relevant loan and other loans with similar characteristics. Underwritten values and projected costs should not be assumed to reflect our judgment of current market values or project costs, which may have changed materially since the date of origination. Weighted average origination LTV of 70.4% is based on loan commitment, including non-consolidated senior interests and pari passu interests, and excludes risk rated 5 loans.

Previous wording

On February 8, 2021, we acquired legal title to a portfolio of seven limited service hotels located in New York, NY through a foreclosure. Prior to the foreclosure, the hotel portfolio represented the collateral for a mezzanine loan held by us with an unpaid principal balance of $103.9 million and a securitized senior mortgage with an unpaid principal balance of $300.0 million held by third parties. Both loans were in default as a result of the borrower failing to pay debt service. Upon foreclosure, we assumed the securitized senior mortgage, which is non-recourse to us, and recorded a gain of $1.4 million based upon the hotel portfolio’s $414.0 million estimated fair value as determined by a third-party appraisal. As of December 31, 2023, the hotel portfolio appears as part of real estate owned, net on our consolidated balance sheet and is encumbered by a $290.0 million securitized senior mortgage, which is included as a liability on our consolidated balance sheet. On February 7, 2024, we modified this loan agreement to provide for, among other things, an extension of the contractual maturity date to November 9, 2024, a $10.0 million principal paydown, and partial recourse to us.

Current wording

On February 8, 2021, we acquired legal title to a portfolio of seven limited service hotels located in New York, NY through a foreclosure. As of December 31, 2024, the hotel portfolio appears as real estate owned held-for-sale on our consolidated balance sheet and is encumbered by a $275.0 million securitized senior mortgage, which is included as a liability on our consolidated balance sheets.

Previous wording

On June 30, 2023, we acquired legal title to a mixed-use property located in New York, NY and the equity interests therein through an assignment-in-lieu of foreclosure. The mixed-use property contains office, retail, and signage components. Prior to the assignment-in-lieu of foreclosure, the mixed-use property and a pledge of equity interests therein represented the collateral for a senior loan with an unpaid principal balance of $208.8 million, which was in default as a result of the borrower failing to pay debt service. As of December 31, 2023, the mixed-use property appears as part of real estate owned, net and related lease intangibles, net appear within other assets and other liabilities on our consolidated balance sheet and is unencumbered.

Current wording

On June 30, 2023, we acquired legal title to a mixed-use property located in New York, NY and the equity interests in the borrower through an assignment-in-lieu of foreclosure and is comprised of office, retail, and signage components. As of December 31, 2024, the mixed-use property appears as part of real estate owned, net and related lease intangibles, net appear within other assets and other liabilities on our consolidated balance sheet.

Previous wording

Refer to Note 5 to our consolidated financial statements for additional details.

Current wording

See Note 5 to our consolidated financial statements for additional details.

Previous wording

Our Manager proactively manages the loans in our portfolio from closing to final repayment and our Sponsor has dedicated asset management employees to perform asset management services. Following the closing of an investment, the asset management team rigorously monitors the loan, with an emphasis on ongoing analyses of both quantitative and qualitative matters, including financial, legal, and market conditions. Through the final repayment of a loan, the asset management team maintains regular contact with borrowers, servicers and local market experts monitoring performance of the collateral, anticipating borrower, property and market issues, and enforcing our rights and remedies when appropriate.

Current wording

Our Manager proactively manages the loans in our portfolio from closing to final repayment or resolution and our Sponsor has dedicated asset management employees to perform asset management services. Following the closing of an investment, the asset management team rigorously monitors the loan, with an emphasis on ongoing analyses of both quantitative and qualitative matters, including financial, legal, and market conditions. Through the final repayment or resolution of a loan, the asset management team maintains regular contact with borrowers, servicers and local market experts monitoring performance of the collateral, anticipating borrower, property and market issues, and enforcing our rights and remedies when appropriate.

Previous wording

Some of our borrowers may experience delays in the execution of their business plans or changes in market conditions which may impact the performance of the underlying collateral asset, borrower, or sponsor. As a transitional lender, we may from time to time execute loan modifications with borrowers when and if appropriate, which may include additional equity contributions from them, repurposing of reserves, pledge of additional collateral or other forms of credit support, provide additional guarantees, temporary deferrals of interest or principal, and/or partial deferral of coupon interest as payment-in-kind interest. To the extent warranted by ongoing conditions specific to our borrowers or overall market conditions, we may make additional modifications when and if appropriate, and depending on the business plans, financial condition, liquidity and results of operations of our borrowers, among other factors.

Current wording

Some of our borrowers may experience delays in the execution of their business plans, changes in their capital position and available liquidity, and/or changes in market conditions which may impact the performance of the underlying collateral asset, borrower, or sponsor. As a transitional lender, we may from time to time execute loan modifications with borrowers when and if appropriate, which may include additional equity contributions from them, repurposing of reserves, pledges of additional collateral or other forms of credit support, additional guarantees, temporary deferrals of interest or principal, partial deferral of coupon interest as payment-in-kind interest, and/or a discounted loan payoff. To the extent warranted by ongoing conditions specific to our borrowers or overall market conditions, we may make additional modifications when and if appropriate, and depending on the business plans, financial condition, liquidity and results of operations of our borrowers, among other factors.

Previous wording

Our Manager evaluates the credit quality of each of our loans receivable on an individual basis and assigns a risk rating at least quarterly. We have developed a loan grading system for all of our outstanding loans receivable that are collateralized directly or indirectly by real estate. Grading criteria include, but are not limited to, as-is or as-stabilized debt yield, term of loan, property type, property or collateral location, loan type and other more subjective variables that include, but is not limited to, as-is or as-stabilized collateral value, market conditions, industry conditions and sponsor’s financial stability. While evaluating the credit quality of each loan within our portfolio, we assess these quantitative and qualitative factors as a whole and with no pre-prescribed weight on their impact to our determination of a loan’s risk rating. However, based upon the facts and circumstances for each loan and the overall market conditions, we may consider certain previously mentioned factors more or less relevant than others. We utilize the grading system to determine each loan’s risk of loss and to provide a determination as to whether an individual loan is impaired and whether a specific CECL reserve is necessary. Based on a 5-point scale, the loans are graded “1” through “5,” from less risk to greater risk, respectively. The weighted average risk rating of our total loan portfolio was 3.3 at December 31, 2023.

Current wording

Our Manager evaluates the credit quality of each of our loans receivable on an individual basis and assigns a risk rating at least quarterly. We have developed a loan grading system for all of our outstanding loans receivable that are collateralized directly or indirectly by real estate. Grading criteria include, but are not limited to, as-is or as-stabilized debt yield, term of loan, property type, property or collateral location, loan type, structure, collateral cash flow volatility and other more subjective variables that include, but are not limited to, as-is or as-stabilized collateral value, market conditions, industry conditions, borrower/sponsor financial stability, and borrower/sponsor exit plan. While evaluating the credit quality of each loan within our portfolio, we assess these quantitative and qualitative factors as a whole and with no pre-prescribed weight on their impact to our determination of a loan’s risk rating. However, based upon the facts and circumstances for each loan and the overall market conditions, we may consider certain previously mentioned factors more or less relevant than others. We utilize the grading system to determine each loan’s risk of loss and to provide a determination as to whether an individual loan is impaired and whether a specific CECL reserve is necessary. Based on a 5-point scale, the loans are graded “1” through “5,” from less risk to greater risk, respectively. The weighted average risk rating of our total loan portfolio was 3.6 at December 31, 2024.

Previous wording

The current expected credit loss reserve required under GAAP reflects our current estimate of potential credit losses related to our loan commitments. See Note 2 to our consolidated financial statements for further detail of our current expected credit loss reserve methodology.

Current wording

The current expected credit loss reserve required under GAAP reflects our current estimate of potential credit losses related to our loan portfolio, which may fluctuate depending on market conditions and changes in our loan portfolio. See Note 2 to our consolidated financial statements for further detail of our current expected credit loss reserve methodology.

Previous wording

During the year ended December 31, 2023, we recorded a provision for current expected credit losses of $153.7 million, which consisted of a $159.6 million increase in our specific CECL reserve prior to principal charge-offs, and a reversal of $6.0 million of general CECL reserves. The reversal of general CECL reserves was primarily attributable to the seasoning of our portfolio and a reduction in the size of our loan portfolio subject to determination of the general CECL reserve, partially offset by deteriorating macroeconomic conditions. As of December 31, 2023, our total current expected credit loss reserve was $152.7 million. See discussion above regarding principal charge-offs related to loans classified as held-for-sale as of December 31, 2023.

Current wording

During the year ended December 31, 2023, we recorded a provision for current expected credit losses of $153.7 million, which consisted of a $6.0 million reversal of our general CECL reserve and a $159.6 million increase in our specific CECL reserve prior to a principal charge-off. This reversal of general CECL reserves was primarily attributable to the seasoning of our loan portfolio and a reduction in the size of our loan portfolio, partially offset by deteriorating macroeconomic conditions. As of December 31, 2023, our total current expected credit loss reserve was $152.7 million.

Previous wording

Fair market values used to determine specific CECL reserves are calculated using a discounted cash flow model, a sales comparison approach, or a market capitalization approach. Estimates of fair market values used to determine specific CECL reserves as of December 31, 2023 include assumptions of property specific cash flows over estimated holding periods, assumptions of property redevelopment costs, discount rates ranging from 7.5% to 9.5%, and market and terminal capitalization rates ranging from 6.0% to 8.3%. These assumptions are based upon the nature of the properties, recent sales and lease comparables, and anticipated real estate and capital market conditions.

Current wording

Fair values used to determine specific CECL reserves are calculated using a discounted cash flow model, a sales comparison approach, or a market capitalization approach. Estimates of fair values used to determine specific CECL reserves as of December 31, 2024 include assumptions of property specific cash flows over estimated holding periods, assumptions of property redevelopment costs, assumptions of leasing activities, discount rates ranging from 6.0% to 9.5%, and market and terminal capitalization rates ranging from 5.0% to 8.25%. These assumptions are based upon the nature of the properties, recent sales and lease comparables, recent and projected property cash flows, and anticipated real estate and capital market conditions.

Previous wording

Weighted average spread over the applicable benchmark rate is based on unpaid principal balance. One-month term Secured Overnight Financing Rate (“SOFR”) as of December 31, 2023 was 5.35%. Fixed rate loans are presented as a spread over the relevant floating benchmark rates.

Current wording

Weighted average spread over the applicable benchmark rate is based on unpaid principal balance. SOFR as of December 31, 2024 was 4.33%.

Previous wording

We finance certain of our loans using repurchase agreements and a term participation facility. As of December 31, 2023, aggregate borrowings outstanding under our repurchase agreements and term participation facility totaled $4.3 billion, with a weighted average coupon of SOFR plus 2.76% per annum based on unpaid principal balance. As of December 31, 2023, outstanding borrowings under these facilities had a weighted average term to initial maturity and fully extended maturity of 1.2 years and 2.7 years, respectively, assuming all conditions to extend are met.

Current wording

We finance certain of our loans using repurchase agreements and a term participation facility. As of December 31, 2024, aggregate borrowings outstanding under our repurchase agreements and term participation facility totaled $3.7 billion, with a weighted average spread of SOFR plus 2.75% per annum based on unpaid principal balance. As of December 31, 2024, the loans receivable securing the outstanding borrowings under these facilities had a weighted average term to initial maturity and fully extended maturity of 0.6 years and 1.6 years, respectively, assuming all conditions to extend are met.

Previous wording

Each repurchase agreement contains “margin maintenance” provisions, which are designed to allow the counterparty to require the delivery of cash or other assets to de-lever financings on assets that are determined to have experienced a diminution in value. Since inception through December 31, 2023, we have not received any margin calls under any of our repurchase agreements. As of December 31, 2023, six of our loans were financed under the term participation facility.

Current wording

Each repurchase agreement contains “margin maintenance” provisions, which are designed to allow the counterparty to require the delivery of cash or other assets to de-lever financings on assets that are determined to have experienced a diminution in value. Since inception through December 31, 2024, we have not received any margin calls under any of our repurchase agreements.

Previous wording

We finance certain of our loans via the sale of a participation in such loans, and we present the loan participations sold as a liability on our consolidated balance sheet when such arrangements do not qualify as sales under GAAP. In instances where we have multiple loan participations with the same lender, the financings are generally not cross-collateralized. Each of our loan participations sold is generally term-matched to its underlying loan. As of December 31, 2023, two of our loans were financed with loan participations sold.

Current wording

We may finance certain of our loans via the sale of a participation in such loans, and we present the loan participations sold as a liability on our consolidated balance sheet when such arrangements do not qualify as sales under GAAP. In instances where we have multiple loan participations with the same lender, the financings are generally not cross-collateralized. Each of our loan participations sold is generally term-matched to its underlying loan. As of December 31, 2024, we had no loan participations sold.

Previous wording

We finance certain of our loans via secured financings that are generally non-recourse and are term-matched to the underlying loan. We refer to such financings as notes payable and they are secured by the related loans receivable. As of December 31, 2023, five of our loans were financed with notes payable.

Current wording

We finance certain of our loans via secured financings that are term-matched to the underlying loan, some of which are partially recourse to us. We refer to such financings as notes payable and they are secured by the related loans receivable. As of December 31, 2024, three of our loans were financed with notes payable.

Previous wording

We have a secured term loan which we originally entered into on August 9, 2019. Our secured term loan is presented net of any original issue discount and transaction expenses which are deferred and recognized as interest expense over the life of the loan using the effective interest method. The secured term loan matures on August 9, 2026 and as of December 31, 2023 has an unpaid principal balance of $725.5 million and a carrying value of $712.6 million. During the year ended December 31, 2023, we purchased and retired $22.0 million of principal of our secured term loan for a price of $19.3 million, recognizing a $2.2 million gain on extinguishment of debt, inclusive of $0.5 million of unamortized deferred financing costs.

Current wording

We have a secured term loan which we originally entered into on August 9, 2019. Our secured term loan is presented net of any original issue discount and transaction expenses which are deferred and recognized as interest expense over the life of the loan using the effective interest method. The secured term loan matures on August 9, 2026 and as of December 31, 2024 has an unpaid principal balance of $717.8 million and a carrying value of $709.8 million.

Previous wording

On February 8, 2021 in connection with a foreclosure of a hotel portfolio we assumed a securitized senior mortgage, which is non-recourse to us, with a then unpaid principal balance of $300.0 million. On June 2, 2021, the terms of the securitized senior mortgage were modified to include an extension of the maturity date to February 9, 2024 and a principal repayment of $10.0 million. As of December 31, 2023, our debt related to real estate owned has an unpaid principal balance of $290.0 million, a carrying value of $289.9 million and a stated rate of one-month SOFR plus 2.83%, subject to a one-month SOFR floor of 0.75%. See Derivatives below for further detail of our interest rate cap. On February 7, 2024, we modified this loan agreement to provide for, among other things, an extension of the contractual maturity date to November 9, 2024, a $10.0 million principal paydown, and partial recourse to us. Concurrent with this modification, we purchased an interest rate cap for $0.5 million which provides for a strike rate of 5.00% through the extended contractual maturity date.

Current wording

On February 8, 2021 we assumed a $300.0 million securitized senior mortgage in connection with a foreclosure of a hotel portfolio. On June 1, 2021, the terms of the securitized senior mortgage were modified to include an extension of the maturity date to February 9, 2024 and a principal repayment of $10.0 million. On February 7, 2024, we modified our debt related to real estate owned to provide for, among other things, an extension of the contractual maturity date to November 9, 2024, a $10.0 million principal paydown, and the designation of a portion of the loan becoming partial recourse to us. Concurrent with this modification, we purchased an interest rate cap with a notional amount of $280.0 million and a strike rate of 5.00% through the then extended contractual maturity date. We subsequently further extended the contractual maturity date to February 9, 2025 and concurrently purchased an interest rate cap with a notional amount of $275.0 million and a strike rate through the further extended contractual maturity date. As of December 31, 2024, our debt related to real estate owned has an unpaid principal balance of $275.0 million, a carrying value of $274.6 million and a stated rate of SOFR plus 2.94%. See Derivatives below for further detail of our interest rate cap. Upon maturity of our debt related to real estate owned, we entered into a forbearance agreement with our lender which expires on May 9, 2025.

Previous wording

The interest rate cap effectively limits the maximum interest rate of our debt related to real estate owned to 5.83%. Changes in the fair value of our interest rate cap are recorded as an unrealized gain or loss on interest rate cap on our consolidated statements of operations and the fair value is recorded in other assets on our consolidated balance sheets. Proceeds received from our counterparty related to the interest rate cap are recorded as proceeds from interest rate cap on our consolidated statements of operations. During the years ended December 31, 2023 and 2022, we recognized approximately $6.1 million and $0.5 million, respectively, as proceeds from interest rate cap.

Current wording

Changes in the fair value of our interest rate cap are recorded as an unrealized gain or loss on interest rate cap on our consolidated statements of operations and the fair value is recorded in other assets on our consolidated balance sheets. Proceeds received from our counterparty related to the interest rate cap are recorded as proceeds from interest rate cap on our consolidated statements of operations. As of December 31, 2024, the fair value of our interest rate cap was de minimis, and as of December 31, 2023, the fair value of our interest rate cap was $0.9 million. During the years ended December 31, 2024, 2023, and 2022, we recognized $1.3 million, $6.1 million, and $0.5 million, respectively, of proceeds from interest rate cap.

Previous wording

On June 29, 2022, we entered into a full recourse revolving credit facility with $150.0 million in capacity. The facility generally provides interim financing for eligible loans for up to 180 days at an initial advance rate between 55% and 75%, which begins to decline after the 90th day. The facility matures on June 29, 2025 and we incur interest at a rate of SOFR, plus a 0.10% credit spread adjustment, plus a spread of 2.25%. With the consent of our lenders, and subject to certain conditions, the commitment of the facility may be increased up to $500.0 million. As of December 31, 2023 and 2022, we had no outstanding balance on the facility.

Current wording

On June 29, 2022, we entered into a full recourse revolving credit facility with $150.0 million in capacity, which generally provided interim financing for eligible loans for up to 180 days at an initial advance rate of up to 75%. As of December 31, 2023, we had no outstanding balance on the facility. On September 25, 2024, we terminated this facility, at which point we had no outstanding balance.

Previous wording

Our financing agreements generally contain certain financial covenants. For example, our ratio of earnings before interest, taxes, depreciation, and amortization (“EBITDA”), to interest charges, as defined in the agreements, shall be not less than either 1.3 to 1.0 or 1.5 to 1.0. Further, (i) our tangible net worth, as defined in the agreements, shall not be less than $2.06 billion as of each measurement date plus 75% of proceeds from future equity issuances; (ii) cash liquidity shall not be less than the greater of (x) $50 million or (y) 5% of our recourse indebtedness; and (iii) our indebtedness shall not exceed 77.8% of our total assets. As of December 31, 2023 and December 31, 2022, we are in compliance with all covenants under our financing agreements. The requirements set forth in (i) through (iii) above are based upon the most restrictive financial covenants in place as of the reporting date. For the quarters ended December 31, 2023 and March 31, 2024, we modified certain of our EBITDA to interest charges covenants to provide for a minimum ratio of 1.3 to

Current wording

Our financing agreements generally contain certain financial covenants. For example, our ratio of earnings before interest, taxes, depreciation, and amortization to interest charges (“Interest Coverage Ratio”), as defined in our repurchase agreements, and term participation facility shall not be less than 1.1 to 1.0, whereas our ratio of earnings before interest, taxes, depreciation, and amortization to interest charges as defined in our secured term loan shall not be less than 1.5 to 1.0. Further, (i) our tangible net worth, as defined in the agreements, shall not be less than $1.86 billion as of each measurement date; (ii) cash liquidity shall not be less than the greater of (x) $50 million or (y) 5% of our recourse indebtedness (which includes our secured term loan); and (iii) our indebtedness shall not exceed 77.8% of our total assets. As of December 31, 2024, we are in compliance with all covenants under our financing agreements. The requirements set forth in (i) through (iii) above are based upon the most restrictive financial covenants in place as of the reporting date. Commencing with the quarter ended December 31, 2025, our Interest Coverage Ratio shall not be less than 1.3 to 1.0. Further, we have modified our covenants to provide that for the quarters ended March 31, 2025 and June 30, 2025, our cash liquidity shall not be less than the greater of (x) $20 million or (y) 3% of our recourse indebtedness (which includes our secured term loan).

Previous wording

1.0 for such covenants which previously required a minimum ratio of 1.4 to 1.0. Future compliance with our financial covenants is dependent upon the results of our operating activities, our financial condition, and the overall market conditions in which we and our borrowers operate. As market conditions evolve, we may work with our counterparties to request modifications of financial covenants as needed.

Current wording

Future compliance with our financial covenants is dependent upon the results of our operating activities, our financial condition, and the overall market conditions in which we and our borrowers operate. The impact of macroeconomic conditions on the commercial real estate and capital markets, including high benchmark interest rates compared to recent historical standards, may make it more difficult for us to satisfy these covenants in the future. Non-compliance with financial covenants may result in our lenders exercising their rights and remedies as provided for in the respective agreements. As market conditions evolve, we may continue to work with our counterparties on modifying financial covenants as needed; however, there is no assurance that our counterparties will agree to such modifications.

Previous wording

The following table summarizes our non-consolidated senior interests and related retained subordinate interests as of December 31, 2023 ($ in thousands):

Current wording

The following table summarizes our non-consolidated senior interests and related retained subordinate interests, excluding for loans classified as held-for-sale, as of December 31, 2024 ($ in thousands):

Previous wording

Our business model seeks to minimize our exposure to changing interest rates by originating floating rate loans and financing them with floating rate liabilities. Further, we seek to match the benchmark index in the floating rate loans we originate with the benchmark index used in the related floating rate financings. Generally, we use SOFR as the benchmark index in both our floating rate loans and floating rate financings. As of December 31, 2023, 98.0% of our loans based on unpaid principal balance were floating rate and indexed to SOFR. The majority of our floating rate loans were financed with floating rate liabilities indexed to SOFR, which resulted in approximately $1.2 billion of net floating rate exposure.

Current wording

Our business model seeks to minimize our exposure to changing interest rates by originating floating rate loans and financing them with floating rate liabilities. Further, we seek to match the benchmark index in the floating rate loans we originate with the benchmark index used in the related floating rate financings. Generally, we use SOFR as the benchmark index in both our floating rate loans and floating rate financings. As of December 31, 2024, 97.9% of our loans receivable held-for-investment based on unpaid principal balance were floating rate and indexed to SOFR. All of our encumbered floating rate loans were financed with floating rate liabilities indexed to SOFR, which resulted in approximately $1.3 billion of net floating rate exposure.

Previous wording

As of December 31, 2023, we have an interest rate cap on our debt related to real estate owned with a notional amount of $290.0 million, a strike rate of 3.00%, and a maturity date of February 15, 2024. The interest rate cap effectively limits the maximum interest rate of our debt related to real estate owned to 5.83%. On February 7, 2024, we modified our debt related to real estate owned and concurrently purchased an interest rate cap for $0.5 million which provides for a strike rate of 5.00% through the extended contractual maturity date. We have not employed other interest rate derivatives (interest rate swaps, caps, collars or floors) to hedge our asset or liability portfolio, but we may do so in the future.

Current wording

As of December 31, 2024, we have an interest rate cap on our debt related to real estate owned with a notional amount of $275.0 million, a strike rate of 5.00%, and a maturity date of February 9, 2025. The interest rate cap effectively limits the maximum interest rate of our debt related to real estate owned to 7.94% through its maturity. We have not employed other interest rate derivatives (interest rate swaps, caps, collars or floors) to hedge our asset or liability portfolio, but we may do so in the future.

Previous wording

Total net revenue increased $19.3 million during the year ended December 31, 2023, as compared to December 31, 2022. The increase is primarily due to an increase in revenue from real estate owned of $15.7 million due to higher overall average occupancy, ADR, and RevPAR levels at the hotel portfolio compared to the year ended December 31, 2022 and revenue generated from the mixed-use property we acquired legal title to on June 30, 2023. The increase was also due to an increase in net interest income of $3.6 million for the comparative period, which was driven by an increase in interest income of $227.2 million, primarily as a result of reference rate increases and an increased average loans receivable balance, partially offset by a greater portion of the loan portfolio being on non-accrual during the year ended December 31, 2023, and further offset by an increase in interest expense of $223.6 million as a result of increased borrowing levels and reference rate increases.

Current wording

Total net revenue decreased $58.1 million during the year ended December 31, 2024, compared to the year ended December 31, 2023. The decrease is primarily due to a decrease in net interest income of $66.3 million, which was driven by a decrease in interest income of $96.5 million, as a result of a reduction in the size of our loan portfolio and an increase in the portion of loans on non-accrual status during the year ended December 31, 2024 as compared to the year ended December 31, 2023, partially offset by a decrease in interest expense of $30.2 million primarily as a result of lower average borrowing levels. The decrease in total net revenue was partially offset by an increase in revenue from real estate owned of $8.2 million due to revenue generated from the mixed-use property we acquired legal title to on June 30, 2023 being included for the full year and higher overall average occupancy, RevPAR, and ADR levels at our hotel portfolio compared to the year ended December 31, 2023.

Previous wording

Expenses are primarily comprised of base management fees payable to our Manager, incentive fees payable to our Manager, general and administrative expenses, stock-based compensation expense, operating expenses from real estate owned, interest expense from debt related to real estate owned, and depreciation and amortization on real estate owned. Expenses increased by $25.5 million during the year ended December 31, 2023 as compared to the year ended December 31, 2022, primarily due to:

Current wording

Expenses are primarily comprised of base management fees payable to our Manager, incentive fees payable to our Manager, general and administrative expenses, stock-based compensation expense, operating expenses from real estate owned, interest expense from debt related to real estate owned, and depreciation and amortization on real estate owned. Expenses increased by $9.6 million during the year ended December 31, 2024 as compared to the year ended December 31, 2023, primarily due to:

Previous wording

an increase in operating expenses from real estate owned of $7.5 million during the comparative period, due to increased

Current wording

an increase in operating expenses from real estate owned of $8.3 million during the comparative period, due to an increase in professional fees incurred primarily as a result of the modification of our debt related to real estate owned, an increase in variable operating expenses in connection with higher occupancy levels at our hotel portfolio, and expenses incurred at the mixed-use property we acquired legal title to on June 30, 2023 being included for the full year;

Previous wording

an increase in interest expense on debt related to real estate owned of $9.5 million primarily as a result of reference rate increases over the comparative period;

Current wording

an increase in interest expense on debt related to real estate owned of $3.0 million primarily as a result of increased deferred financing costs recognized from fees incurred upon the modification of our debt related to real estate owned over the comparative period;

Previous wording

an increase in stock-based compensation of $9.1 million during the comparative period, due to restricted stock units

Current wording

an increase in stock-based compensation of $1.5 million during the comparative period, due to restricted stock units granted during the year ended December 31, 2024, net of restricted stock grant forfeitures;