Ares Commercial Real Estate Corp

Previous wording

Developments During the First Quarter of 2025:

Current wording

Developments During the Second Quarter of 2025:

Previous wording

Continued rising operating costs, such as property insurance and raw material costs for property development and improvements, placed pressure on cash flow performance across many real estate property types in the first quarter of 2025. Office properties, in particular, continue to experience challenges driven by remote work and elevated costs to operate, improve or repurpose office properties. These factors have largely resulted in lower demand for office space and have driven elevated levels of vacancy rates and default rates. Offsetting some of these challenges, there has been a significant decline in new commercial real estate development that began in 2023 and has continued benefitting existing in-demand property types. Ultimately, this lack of new future inventory may result in a shortage of contemporary, in-demand properties in the years to come, furthering the disparity between supply and demand dynamics. In addition, there is a significant amount of unspent capital targeting commercial real estate properties that could support values and elevate transaction activities.

Current wording

Continued rising operating costs, such as property insurance and raw material costs for property development and improvements, placed pressure on cash flow performance across many real estate property types in the second quarter of 2025. Office properties, in particular, continue to experience challenges driven by remote work and elevated costs to operate, improve or repurpose office properties. These factors have largely resulted in lower demand for office space and have driven elevated levels of vacancy rates and default rates. Offsetting some of these challenges, there has been a significant decline in new commercial real estate development that began in 2023 and has continued benefitting existing in-demand property types. Ultimately, this lack of new future inventory may result in a shortage of contemporary, in-demand properties in the years to come, furthering the disparity between supply and demand dynamics. In addition, there is a significant amount of unspent capital targeting commercial real estate properties that could support values and elevate transaction activities.

Previous wording

On July 31, 2024, our board of directors renewed the Repurchase Program of up to $50.0 million, which is expected to be in effect until July 31, 2025, or until the approved dollar amount has been used to repurchase shares. Pursuant to the Repurchase Program, we may repurchase shares of our common stock in amounts, at prices and at such times as we deem appropriate, subject to market conditions and other considerations, including all applicable legal requirements. Repurchases may include purchases on the open market or privately negotiated transactions, under Rule 10b5-1 trading plans, under accelerated share repurchase programs, in tender offers and otherwise. The Repurchase Program does not obligate us to acquire any particular amount of shares of our common stock and may be modified or suspended at any time at our discretion. During the three months ended March 31, 2025, we did not repurchase any shares through the Repurchase Program.

Current wording

On July 31, 2024, our board of directors extended the Repurchase Program of up to $50.0 million, which was expected to be in effect until July 31, 2025, or until the approved dollar amount had been used to repurchase shares. On July 30, 2025, our board of directors further extended the Repurchase Program of up to $50.0 million, which is expected to be in effect until July 31, 2026, or until the approved dollar amount has been used to repurchase shares. Pursuant to the Repurchase Program, we may repurchase shares of our common stock in amounts, at prices and at such times as we deem appropriate, subject to market conditions and other considerations, including all applicable legal requirements. Repurchases may include purchases on the open market or privately negotiated transactions, under Rule 10b5-1 trading plans, under accelerated share repurchase programs, in tender offers and otherwise. The Repurchase Program does not obligate us to acquire any particular amount of shares of our common stock and may be modified or suspended at any time at our discretion. During the three and six months ended June 30, 2025, we did not repurchase any shares through the Repurchase Program.

Previous wording

As of March 31, 2025, our portfolio included 27 loans held for investment, excluding 188 loans that were repaid, sold, converted to real estate owned or written off since inception. As of March 31, 2025, the aggregate originated commitment under these loans at closing was approximately $1.5 billion and outstanding principal was $1.4 billion. During the three months ended March 31, 2025, we funded approximately $7.2 million of outstanding principal and received repayments of $306.8 million of outstanding principal. As of March 31, 2025, 68.3% of our loans have SOFR floors, with a weighted average floor of 0.96%, calculated based on loans with SOFR floors. References to SOFR or “S” are to 30-day SOFR (unless otherwise specifically stated).

Current wording

As of June 30, 2025, our portfolio included 26 loans held for investment, excluding 189 loans that were repaid, sold, converted to real estate owned or written off since inception. As of June 30, 2025, the aggregate originated commitment under these loans at closing was approximately $1.5 billion and outstanding principal was $1.4 billion. During the six months ended June 30, 2025, we funded approximately $19.3 million of outstanding principal and received repayments of $336.9 million of outstanding principal. As of June 30, 2025, 70.8% of our loans have SOFR floors, with a weighted average floor of 0.93%, calculated based on loans with SOFR floors. References to SOFR or “S” are to 30-day SOFR (unless otherwise specifically stated).

Previous wording

Our board of directors declared a regular cash dividend of $0.15 per common share for the second quarter of 2025. The second quarter 2025 dividend will be payable on July 15, 2025 to common stockholders of record as of June 30, 2025.

Current wording

Our board of directors declared a regular cash dividend of $0.15 per common share for the third quarter of 2025. The third quarter 2025 dividend will be payable on October 15, 2025 to common stockholders of record as of September 30, 2025.

Previous wording

The following table sets forth a summary of our consolidated results of operations for the three months ended March 31, 2025 and 2024 ($ in thousands):

Current wording

The following table sets forth a summary of our consolidated results of operations for the three and six months ended June 30, 2025 and 2024 ($ in thousands):

Previous wording

The following tables set forth select details of our consolidated results of operations for the three months ended March 31, 2025 and 2024 ($ in thousands):

Current wording

The following tables set forth select details of our consolidated results of operations for the three and six months ended June 30, 2025 and 2024 ($ in thousands):

Previous wording

For the three months ended March 31, 2025 and 2024, net interest margin was approximately $9.3 million and $15.2 million, respectively. For the three months ended March 31, 2025 and 2024, interest income of $27.5 million and $44.0 million, respectively, was generated by weighted average earning assets of $1.5 billion and $2.2 billion, respectively, offset by $18.2 million and $28.8 million, respectively, of interest expense, unused fees and amortization of deferred loan costs. The weighted average borrowings under the Secured Funding Agreements, Notes Payable, the Secured Term Loan and securitization debt, as applicable, were $1.1 billion for the three months ended March 31, 2025 and $1.6 billion for the three months ended March 31, 2024. The decrease in net interest margin for the three months ended March 31, 2025 compared to the three months ended March 31, 2024 relates to a decrease in our weighted average earning assets and weighted average borrowings for the three months ended March 31, 2025 and a decrease in SOFR rates on our loans held for investment for the three months ended March 31, 2025 as compared to the three months ended March 31, 2024.

Current wording

For the three months ended June 30, 2025 and 2024, net interest margin was approximately $7.0 million and $13.4 million, respectively. For the three months ended June 30, 2025 and 2024, interest income of $23.1 million and $40.8 million, respectively, was generated by weighted average earning assets of $1.4 billion and $2.1 billion, respectively, offset by $16.1 million and $27.5 million, respectively, of interest expense, unused fees and amortization of deferred loan costs. The weighted average borrowings under the Secured Funding Agreements, Notes Payable, the Secured Term Loan and securitization debt, as applicable, were $0.9 billion for the three months ended June 30, 2025 and $1.5 billion for the three months ended June 30, 2024. The decrease in net interest margin for the three months ended June 30, 2025 compared to the three months ended June 30, 2024 relates to a decrease in our weighted average earning assets and weighted average borrowings for the three months ended June 30, 2025 and a decrease in SOFR rates on our loans held for investment for the three months ended June 30, 2025 as compared to the three months ended June 30, 2024.

Previous wording

On September 19, 2024, we acquired legal title to an office property located in North Carolina through a deed in lieu of foreclosure. Prior to September 19, 2024, the office property collateralized a $68.6 million senior mortgage loan that we held that was in maturity default due to the failure of the borrower to repay the outstanding principal balance of the loan by the May 2024 maturity date. In conjunction with the deed in lieu of foreclosure, we derecognized the $68.6 million senior mortgage loan and recognized the office property as real estate owned. Revenues from this property consist primarily of rental revenue from operating leases. For the three months ended March 31, 2025, revenue from real estate owned related to this property was $2.4 million.

Current wording

On September 19, 2024, we acquired legal title to an office property located in North Carolina through a deed in lieu of foreclosure. Prior to September 19, 2024, the office property collateralized a $68.6 million senior mortgage loan that we held that was in maturity default due to the failure of the borrower to repay the outstanding principal balance of the loan by the May 2024 maturity date. In conjunction with the deed in lieu of foreclosure, we derecognized the $68.6 million senior mortgage loan and recognized the office property as real estate owned. Revenues from this property consist primarily of rental revenue from operating leases. For the three and six months ended June 30, 2025, revenue from real estate owned related to this property was $2.3 million and $4.7 million, respectively.

Previous wording

On September 8, 2023, we acquired legal title to a mixed-use property located in Florida through a consensual foreclosure. Prior to September 8, 2023, the mixed-use property collateralized an $82.9 million senior mortgage loan that we held that was in maturity default due to the failure of the borrower to repay the outstanding principal balance of the loan by the February 2023 maturity date. In conjunction with the consensual foreclosure, we derecognized the $82.9 million senior mortgage loan and recognized the mixed-use property as real estate owned. Revenues from this property consist primarily of rental revenue from operating leases. For the three months ended March 31, 2025 and 2024, revenue from real estate owned related to this property was $3.3 million and $3.5 million, respectively.

Current wording

On September 8, 2023, we acquired legal title to a mixed-use property located in Florida through a consensual foreclosure. Prior to September 8, 2023, the mixed-use property collateralized an $82.9 million senior mortgage loan that we held that was in maturity default due to the failure of the borrower to repay the outstanding principal balance of the loan by the February 2023 maturity date. In conjunction with the consensual foreclosure, we derecognized the $82.9 million senior mortgage loan and recognized the mixed-use property as real estate owned. Revenues from this property consist primarily of rental revenue from operating leases. For the three and six months ended June 30, 2025, revenue from real estate owned related to this property was $3.3 million and $6.5 million, respectively. For the three and six months ended June 30, 2024, revenue from real estate owned related to this property was $3.2 million and $6.7 million, respectively.

Previous wording

See the Related Party Expenses, Other Expenses and Expenses from Real Estate Owned discussions below for the cause of the changes in operating expenses for the three months ended March 31, 2025 compared to the three months ended March 31, 2024.

Current wording

See the Related Party Expenses, Other Expenses and Expenses from Real Estate Owned discussions below for the cause of the changes in operating expenses for the three and six months ended June 30, 2025 compared to the three and six months ended June 30, 2024, respectively.

Previous wording

For the three months ended March 31, 2025, related party expenses included $2.6 million in management fees due to our Manager pursuant to the Management Agreement. No incentive fees were incurred for the three months ended March 31, 2025. For the three months ended March 31, 2025, related party expenses also included $1.0 million for our share of allocable general and administrative expenses for which we were required to reimburse our Manager pursuant to the Management Agreement. For the three months ended March 31, 2024, related party expenses included $2.8 million in management fees due to our Manager pursuant to the Management Agreement. No incentive fees were incurred for the three months ended March 31, 2024. For the three months ended March 31, 2024, related party expenses also included $1.1 million for our share of allocable general and administrative expenses for which we were required to reimburse our Manager pursuant to the Management Agreement. The decrease in management fees for the three months ended March 31, 2025 compared to the three months ended March 31, 2024 primarily relates to a decrease in our weighted average stockholders’ equity for the three months ended March 31, 2025 as a result of realized losses on loans and the sale of real estate owned. The decrease in allocable general and administrative expenses due to our Manager for the three months ended March 31, 2025 compared to the three months ended March 31, 2024 relates to changes in the mix of employees of our Manager that allocated time to us year over year.

Current wording

For the three months ended June 30, 2025, related party expenses included $2.4 million in management fees due to our Manager pursuant to the Management Agreement. No incentive fees were incurred for the three months ended June 30, 2025. For the three months ended June 30, 2025, related party expenses also included $1.0 million for our share of allocable general and administrative expenses for which we were required to reimburse our Manager pursuant to the Management Agreement. For the three months ended June 30, 2024, related party expenses included $2.7 million in management fees due to our Manager pursuant to the Management Agreement. No incentive fees were incurred for the three months ended June 30, 2024. For the three months ended June 30, 2024, related party expenses also included $1.3 million for our share of allocable general and administrative expenses for which we were required to reimburse our Manager pursuant to the Management Agreement. The decrease in management fees for the three months ended June 30, 2025 compared to the three months ended June 30, 2024 primarily relates to a decrease in our weighted average stockholders’ equity for the three months ended June 30, 2025 as a result of realized losses on loans and the sale of real estate owned. The decrease in allocable general and administrative expenses due to our Manager for the three months ended June 30, 2025 compared to the three months ended June 30, 2024 relates to changes in the mix of employees of our Manager that allocated time to us year over year.

Previous wording

For the three months ended March 31, 2025 and 2024, professional fees were $0.9 million and $0.5 million, respectively. The increase in professional fees for the three months ended March 31, 2025 compared to the three months ended March 31, 2024 primarily relates to an increase in our use of third-party professionals due to changes in transaction activity year over year. For the three months ended March 31, 2025 and 2024, general and administrative expenses were $1.7 million and $2.1 million, respectively. The decrease in general and administrative expenses for the three months ended March 31, 2025 compared to the three months ended March 31, 2024 primarily relates to a decrease in stock-based compensation expense due to a reduction in the weighted average grant date fair value for restricted stock and restricted stock unit awards granted after March 31, 2024.

Current wording

For the six months ended June 30, 2025 and 2024, professional fees were $1.6 million and $1.3 million, respectively. The increase in professional fees for the six months ended June 30, 2025 compared to the six months ended June 30, 2024 primarily relates to an increase in our use of third-party professionals due to changes in transaction activity year over year. For the six months ended June 30, 2025 and 2024, general and administrative expenses were $3.7 million and $4.0 million, respectively. The decrease in general and administrative expenses for the six months ended June 30, 2025 compared to the six months ended June 30, 2024 primarily relates to a decrease in stock-based compensation expense due to a reduction in the weighted average grant date fair value for restricted stock and restricted stock unit awards granted after June 30, 2024.

Previous wording

For thethree months ended March 31, 2025 and 2024, expenses from real estate owned were comprised of the following ($ in thousands):

Current wording

For thethree and six months ended June 30, 2025 and 2024, expenses from real estate owned were comprised of the following ($ in thousands):

Previous wording

For the three months ended March 31, 2025 and 2024, mixed-use property operating expenses were $1.2 million and $1.0 million, respectively. Mixed-use property operating expenses consisted primarily of expenses incurred in the day-to-day operation of our mixed-use property, including common area maintenance costs, property taxes and insurance. Common area maintenance costs include items such as maintenance and repairs, utilities, janitorial services, security and property management fees. The increase in mixed-use property operating expenses for the three months ended March 31, 2025 compared to the three months ended March 31, 2024 is primarily due to an increase in insurance costs and non-recurring repairs and maintenance.

Current wording

For both the three months ended June 30, 2025 and 2024, mixed-use property operating expenses were $1.1 million. For the six months ended June 30, 2025 and 2024, mixed-use property operating expenses were $2.3 million and $2.1 million, respectively. Mixed-use property operating expenses consisted primarily of expenses incurred in the day-to-day operation of our mixed-use property, including common area maintenance costs, property taxes and insurance. Common area maintenance costs include items such as maintenance and repairs, utilities, janitorial services, security and property management fees. The increase in mixed-use property operating expenses for the six months ended June 30, 2025 compared to the six months ended June 30, 2024 is primarily due to an increase in insurance costs.

Previous wording

For the three months ended March 31, 2025, office property operating expenses were $1.1 million, which consists of operating expenses for our office property, which was acquired on September 19, 2024. For the three months ended March 31, 2024, there were no office property operating expenses incurred as we did not acquire legal title to the office property until September 19, 2024. Office property operating expenses consisted primarily of expenses incurred in the day-to-day operation of our office property, including common area maintenance costs, property taxes and insurance. Common area maintenance costs include items such as maintenance and repairs, utilities, janitorial services, security and property management fees.

Current wording

For the three and six months ended June 30, 2025, office property operating expenses were $1.3 million and $2.4 million, which consists of operating expenses for our multi-building office property, which was acquired on September 19, 2024. For both the three and six months ended June 30, 2024, office property operating expenses were $0.1 million, which consisted of operating expenses for our office property, which was acquired on June 12, 2024 and sold on November 15, 2024. Office property operating expenses consisted primarily of expenses incurred in the day-to-day operation of our office properties, including common area maintenance costs, property taxes and insurance. Common area maintenance costs include items such as maintenance and repairs, utilities, janitorial services, security and property management fees.

Previous wording

For the three months ended March 31, 2025 and 2024, depreciation and amortization expense were $2.2 million and $1.0 million, respectively, and relates primarily to our mixed-use property that was acquired on September 8, 2023 and our office property acquired on September 19, 2024. The increase in depreciation and amortization expense for the three months ended March 31, 2025 compared to the three months ended March 31, 2024 is primarily due to the three months ended March 31, 2024 only including depreciation and amortization expense related to the mixed-use property as we did not acquire legal title to the office property until September 19, 2024.

Current wording

For the three and six months ended June 30, 2025, depreciation and amortization expense was $2.2 million and $4.4 million, respectively, and relate primarily to our mixed-use property acquired on September 8, 2023 and our office property acquired on September 19, 2024. For the three and six months ended June 30, 2024, depreciation and amortization expense was $1.0 million and $2.0 million, respectively, and relate primarily to our mixed-use property acquired on September 8, 2023. The increase in depreciation and amortization expense for the three and six months ended June 30, 2025 compared to the three and six months ended June 30, 2024 is primarily due to the three and six months ended June 30, 2024 only including depreciation and amortization expense related to the mixed-use property as we did not acquire legal title to the office property until September 19, 2024.

Previous wording

For the three months ended March 31, 2025 and 2024, the (provision for) reversal of current expected credit losses, net was $5.3 million and $22.3 million, respectively. For the three months ended March 31, 2025, the net reversal of current expected credit losses is primarily due to a relative improvement in the near-term macroeconomic forecasts, shorter average remaining loan term and loan repayments during the three months ended March 31, 2025. For the three months ended March 31, 2024, the net reversal of current expected credit losses was primarily due to realized losses on two risk rated “5” loans, resulting in a reversal of the associated CECL Reserves, shorter average remaining loan term and loan repayments during the three months ended March 31, 2024. These factors were partially offset by an increase in the CECL Reserves for risk rated “4” and “5” loans in the portfolio as a result of the impact of the current macroeconomic environment, including high inflation and interest rates, volatility and reduced liquidity in the office sector and other loan-specific factors during the three months ended March 31, 2024.

Current wording

For the three months ended June 30, 2025 and 2024, the (provision for) reversal of current expected credit losses, net was $20.2 million and $2.4 million, respectively. For the three months ended June 30, 2025, the net reversal of current expected credit losses is primarily due to a realized loss on an office (life sciences) loan, resulting in a reversal of the associated CECL Reserve, shorter average remaining loan term, loan repayments and other loan-specific attributes during the three months ended June 30, 2025. These factors were partially offset by a relative decline in the near-term macroeconomic forecasts, including higher tariffs, high inflation and interest rates, and other loan-specific attributes during the three months ended June 30, 2025. For the three months ended June 30, 2024, the net reversal of current expected credit losses was primarily due to a realized loss on a risk rated “5” loan, resulting in a reversal of the associated CECL Reserve, and shorter average remaining loan term during the three months ended June 30, 2024. These factors were partially offset by an increase in the CECL Reserves for risk rated “4” and “5” loans in the portfolio as a result of the impact of the current macroeconomic environment, including high inflation and interest rates, volatility and reduced liquidity in the office sector and other loan-specific attributes during the three months ended June 30, 2024.

Previous wording

In December 2023, we entered into a sale agreement with a third party to sell a senior mortgage loan with outstanding principal of $37.9 million, which was collateralized by a mixed-use property located in California. As of December 31, 2023, the sale had not yet closed and the loan was reclassified from held for investment to held for sale and was carried at the lower of carrying value or fair value in our consolidated balance sheets. We recognized an unrealized loss of $1.0 million in our consolidated statements of operations upon reclassifying the loan to held for sale as the carrying value of the senior mortgage loan exceeded fair value as determined by the agreed upon sale price of the loan and loan reserves. In January 2024, we closed the sale of the senior mortgage loan. At the time of the sale, the senior mortgage loan was in maturity default due to the failure of the borrower to repay the outstanding principal balance of the loan by the March 2023 maturity date. This $1.0 million unrealized loss was realized during the three months ended March 31, 2024.

Current wording

In December 2023, we entered into a sale agreement with a third party to sell a senior mortgage loan with outstanding principal of $37.9 million, which was collateralized by a mixed-use property located in California. As of December 31, 2023, the sale had not yet closed and the loan was reclassified from held for investment to held for sale and was carried at the lower of carrying value or fair value in our consolidated balance sheets. We recognized an unrealized loss of $1.0 million in our consolidated statements of operations upon reclassifying the loan to held for sale as the carrying value of the senior mortgage loan exceeded fair value as determined by the agreed upon sale price of the loan and loan reserves. In January 2024, we closed the sale of the senior mortgage loan. At the time of the sale, the senior mortgage loan was in maturity default due to the failure of the borrower to repay the outstanding principal balance of the loan by the March 2023 maturity date. This $1.0 million unrealized loss was realized during the six months ended June 30, 2024.

Previous wording

In February 2024, we received a discounted payoff on a senior mortgage loan with outstanding principal of $18.8 million, which was collateralized by a multifamily property located in Washington. The discounted payoff was received in conjunction with a short sale of the multifamily property by the borrower to a third party. At the time of the discounted payoff, the senior mortgage loan was in default due to the failure of the borrower to repay the outstanding principal balance of the loan by the September 2023 maturity date. For the three months ended March 31, 2024, we recognized a realized loss of $1.7 million in our consolidated statements of operations upon the payoff of the senior mortgage loan as the carrying value exceeded the net proceeds from the payoff of the loan.

Current wording

In February 2024, we received a discounted payoff on a senior mortgage loan with outstanding principal of $18.8 million, which was collateralized by a multifamily property located in Washington. The discounted payoff was received in conjunction with a sale of the multifamily property by the borrower. At the time of the discounted payoff, the senior mortgage loan was in default due to the failure of the borrower to repay the outstanding principal balance of the loan by the September 2023 maturity date. For the six months ended June 30, 2024, we recognized a realized loss of $1.7 million in our consolidated statements of operations upon the payoff of the senior mortgage loan as the carrying value exceeded the net proceeds from the payoff of the loan.

Previous wording

In March 2024, we received a discounted payoff on a senior mortgage loan with outstanding principal of $56.9 million, which was collateralized by an office property located in Illinois. The discounted payoff was received in conjunction with a short sale of the office property by the borrower to a third party. At the time of the discounted payoff, the senior mortgage loan was in default due to the failure of the borrower to repay the outstanding principal balance of the loan by the February 2024 maturity date. For the three months ended March 31, 2024, we recognized a realized loss of $43.1 million in our consolidated statements of operations upon the payoff of the senior mortgage loan as the carrying value exceeded the net proceeds from the payoff of the loan.

Current wording

In March 2024, we received a discounted payoff on a senior mortgage loan with outstanding principal of $56.9 million, which was collateralized by an office property located in Illinois. The discounted payoff was received in conjunction with a sale of the office property by the borrower. At the time of the discounted payoff, the senior mortgage loan was in default due to the failure of the borrower to repay the outstanding principal balance of the loan by the February 2024 maturity date. For the six months ended June 30, 2024, we recognized a realized loss of $43.1 million in our consolidated statements of operations upon the payoff of the senior mortgage loan as the carrying value exceeded the net proceeds from the payoff of the loan.

Previous wording

As described above, the sale of the senior mortgage loan with outstanding principal of $37.9 million, which was collateralized by a mixed-use property located in California, had not yet closed as of December 31, 2023. As such, we recognized an unrealized loss of $1.0 million in our consolidated statements of operations upon reclassifying the loan to held for sale for the year ended December 31, 2023. In January 2024, we closed the sale of the senior mortgage loan and the $1.0 million unrealized loss related to this senior mortgage loan for the year ended December 31, 2023 was realized during the three months ended March 31, 2024.

Current wording

As described above, the sale of the senior mortgage loan with outstanding principal of $37.9 million, which was collateralized by a mixed-use property located in California, had not yet closed as of December 31, 2023. As such, we recognized an unrealized loss of $1.0 million in our consolidated statements of operations upon reclassifying the loan to held for sale for the year ended December 31, 2023. In January 2024, we closed the sale of the senior mortgage loan and the $1.0 million unrealized loss related to this senior mortgage loan for the year ended December 31, 2023 was realized during the six months ended June 30, 2024.

Previous wording

We expect our primary sources of cash to continue to be sufficient to fund our operating activities and cash commitments for investing and financing activities for at least the next 12 months and thereafter for the foreseeable future. As a result of the current macroeconomic environment, certain borrowers have been unable to make interest and principal payments timely, including at the maturity date of the borrower’s loan. We increase our CECL Reserve from time to time, as necessary, to reflect this risk. Our Secured Funding Agreements contain margin call provisions following the occurrence of certain mortgage loan credit events. If we are unable to make the required payment or if we fail to meet or satisfy any of the covenants in our Financing Agreements, we would be in default under these agreements, and our lenders could elect to declare outstanding amounts due and payable, terminate their commitments, require the posting of additional collateral, including cash to satisfy margin calls, and enforce their interests against existing collateral. For example, certain of our Financing Agreements contain (i) negative covenants that limit, among other things, our ability to repurchase our common stock, make distributions to our stockholders, employ leverage beyond certain amounts, sell assets, engage in mergers or consolidations, grant liens, and enter into transactions with affiliates (including amending the Management Agreement in a material respect) and (ii) operating and financial covenants, including those requiring us to maintain a certain tangible net worth, asset coverage ratio, total net leverage ratio and loan concentration. We are also subject to cross-default and acceleration rights with respect to our Financing Agreements. If we experience borrower default as a result of the current macroeconomic conditions, we may not be able to negotiate modifications to our borrowings with our lenders or receive financing from our Secured Funding Agreements with respect to our commitments to fund our loans held for investment in the future. See “Summary of Financing Agreements” below for a description of our Financing Agreements.

Current wording

We expect our primary sources of cash to continue to be sufficient to fund our operating activities and cash commitments for investing and financing activities for at least the next 12 months and thereafter for the foreseeable future. As a result of the current macroeconomic environment, certain borrowers have been unable to make interest and principal payments timely, including at the maturity date of the borrower’s loan. We increase our CECL Reserve from time to time, as necessary, to reflect this risk. Our Secured Funding Agreements contain margin call provisions following the occurrence of certain mortgage loan credit events. If we are unable to make the required payment or if we fail to meet or satisfy any of the covenants in our Financing Agreements, we would be in default under these agreements, and our lenders could elect to declare outstanding amounts due and payable, terminate their commitments, require the posting of additional collateral, including cash to satisfy margin calls, and enforce their interests against existing collateral. For example, certain of our Financing Agreements contain (i) negative covenants that limit, among other things, our ability to repurchase our common stock, make distributions to our stockholders, employ leverage beyond certain amounts, sell assets, engage in mergers or consolidations, grant liens, and enter into transactions with affiliates (including amending the Management Agreement in a material respect) and (ii) operating and financial covenants, including those requiring us to maintain a certain tangible net worth, asset coverage ratio, total net leverage ratio and loan concentration. We are also subject to cross-default and acceleration rights with respect to our Financing Agreements. If we experience borrower default as a result of the current macroeconomic conditions or otherwise, we may not be able to negotiate modifications to our borrowings with our lenders or receive financing from our Secured Funding Agreements with respect to our commitments to fund our loans held for investment in the future. See “Summary of Financing Agreements” below for a description of our Financing Agreements.

Previous wording

As of May 2, 2025, we had approximately $147 million in liquidity including $113 million of cash and $34 million of availability under our Secured Funding Agreements.

Current wording

As of July 31, 2025, we had approximately $129 million in liquidity including $45 million of cash and $84 million of availability under our Secured Funding Agreements.

Previous wording

The following table sets forth changes in cash, cash equivalents and restricted cash for the three months ended March 31, 2025 and 2024 ($ in thousands):

Current wording

The following table sets forth changes in cash, cash equivalents and restricted cash for the six months ended June 30, 2025 and 2024 ($ in thousands):

Previous wording

During the three months ended March 31, 2025 and 2024, cash, cash equivalents and restricted cash increased (decreased) by $62.8 million and $(10.9) million, respectively.

Current wording

During the six months ended June 30, 2025 and 2024, cash, cash equivalents and restricted cash increased (decreased) by $27.8 million and $(39.8) million, respectively.

Previous wording

For the three months ended March 31, 2025 and 2024, net cash provided by operating activities totaled $8.0 million and $11.4 million, respectively. For the three months ended March 31, 2025, adjustments to net income (loss) related to operating activities primarily included the net reversal of current expected credit losses of $5.3 million, accretion of discounts, deferred loan origination fees and costs of $1.3 million, amortization of deferred financing costs of $1.2 million and change in other assets of $1.6 million. For the three months ended March 31, 2024, adjustments to net income (loss) related to operating activities primarily included the net reversal of current expected credit losses of $22.3 million, accretion of discounts, deferred loan origination fees and costs of $1.3 million, amortization of deferred financing costs of $1.1 million, change in other assets of $0.5 million and realized losses on loans of $45.7 million.

Current wording

For the six months ended June 30, 2025 and 2024, net cash provided by operating activities totaled $12.9 million and $20.0 million, respectively. For the six months ended June 30, 2025, adjustments to net income (loss) related to operating activities primarily included the net reversal of current expected credit losses of $25.5 million, accretion of discounts, deferred loan origination fees and costs of $2.0 million, amortization of deferred financing costs of $2.4 million and realized losses on loans of $33.0 million. For the six months ended June 30, 2024, adjustments to net income (loss) related to operating activities primarily included the net reversal of current expected credit losses of $24.6 million, accretion of discounts, deferred loan origination fees and costs of $2.5 million, amortization of deferred financing costs of $2.4 million, change in other assets of $1.4 million and realized losses on loans of $62.1 million.

Previous wording

For the three months ended March 31, 2025, net cash provided by investing activities totaled $298.7 million and was primarily related to cash received from principal collections and cost-recovery proceeds on loans held for investment exceeding the cash used for the origination and funding of loans held for investment for the three months ended March 31, 2025. For the three months ended March 31, 2024, net cash provided by investing activities totaled $134.0 million and was primarily related to cash received from principal collections and cost-recovery proceeds on loans held for investment and from the sale of loans held for sale exceeding the cash used for the origination and funding of loans held for investment.

Current wording

For the six months ended June 30, 2025, net cash provided by investing activities totaled $325.0 million and was primarily related to cash received from principal collections and cost-recovery proceeds on loans held for investment exceeding the cash used for the origination and funding of loans held for investment. For the six months ended June 30, 2024, net cash provided by investing activities totaled $133.7 million and was primarily related to cash received from principal collections and cost-recovery proceeds on loans held for investment and from the sale of loans held for sale exceeding the cash used for the origination and funding of loans held for investment.

Previous wording

For the three months ended March 31, 2025, net cash used in financing activities totaled $244.0 million and was primarily related to repayments of our Secured Funding Agreements of $28.9 million, repayments of debt of consolidated VIEs of $304.0 million, repayments of our Secured Term Loan of $10.0 million and dividends paid of $13.9 million, partially offset by proceeds from our Secured Funding Agreements of $114.8 million. For the three months ended March 31, 2024, net cash used in financing activities totaled $156.3 million and was primarily related to repayments of our Secured Funding Agreements of $22.3 million, repayments of debt of consolidated VIEs of $128.2 million and dividends paid of $18.2 million, partially offset by proceeds from our Secured Funding Agreements of $12.8 million.

Current wording

For the six months ended June 30, 2025, net cash used in financing activities totaled $310.0 million and was primarily related to repayments of our Secured Funding Agreements of $61.4 million, repayments of debt of consolidated VIEs of $318.4 million, repayments of our Secured Term Loan of $20.0 million and dividends paid of $22.3 million, partially offset by proceeds from our Secured Funding Agreements of $114.8 million. For the six months ended June 30, 2024, net cash used in financing activities totaled $193.6 million and was primarily related to repayments of our Secured Funding Agreements of $26.7 million, repayments of debt of consolidated VIEs of $135.1 million, repayments of our Secured Term Loan of $10.0 million and dividends paid of $32.0 million, partially offset by proceeds from our Secured Funding Agreements of $12.8 million.

Previous wording

(4)The master repurchase and securities contract with Morgan Stanley (the “Morgan Stanley Facility”) is subject to one 12-month extension, which may be exercised at our option provided that certain conditions are met and applicable extension fees are paid.

Current wording

(4)In June 2025, we amended the master repurchase and securities contract with Morgan Stanley (the “Morgan Stanley Facility”) to, among other things, (1) extend the initial maturity date to July 16, 2026, subject to one 12-month extension, which may be exercised at our option provided that certain conditions are met and the applicable extension fee is paid and (2) reduce the commitment from $250.0 million to $150.0 million, which includes an accordion provision such that the maximum commitment may be increased to up to $250.0 million at our option, subject to the satisfaction of certain conditions, including payment of an upsize fee.

Previous wording

(5)The maturity date of the Credit and Guaranty Agreement with the lenders referred to therein and Cortland Capital Market Services LLC, as administrative agent and collateral agent for the lenders (the “Secured Term Loan”) is November 12, 2026. Advances under the Secured Term Loan are set to the following fixed rates: (i) 4.50% per annum until May 1, 2025 and (ii) after May 1, 2025 through November 12, 2026, the interest rate increases 0.25% every three months. The Secured Term Loan has a contingent interest rate increase of 4.00% if the outstanding principal amount of the Secured Term Loan is not paid down to the following amounts on specific dates as follows: (i) $120.0 million as of February 1, 2025, (ii) $110.0 million as of May 1, 2025, (iii) $100.0 million as of August 1, 2025 and (iv) $90.0 million as of November 1, 2025. In January 2025, we elected to repay $10.0 million of outstanding principal on the Secured Term Loan at par.

Current wording

(5)The maturity date of the Credit and Guaranty Agreement with the lenders referred to therein and Cortland Capital Market Services LLC, as administrative agent and collateral agent for the lenders (the “Secured Term Loan”) is November 12, 2026. Advances under the Secured Term Loan are set to the following fixed rates: (i) 4.50% per annum until May 1, 2025 and (ii) after May 1, 2025 through November 12, 2026, the interest rate increases 0.25% every three months. The Secured Term Loan has a contingent interest rate increase of 4.00% if the outstanding principal amount of the Secured Term Loan is not paid down to the following amounts on specific dates as follows: (i) $120.0 million as of February 1, 2025, (ii) $110.0 million as of May 1, 2025, (iii) $100.0 million as of August 1, 2025 and (iv) $90.0 million as of November 1, 2025. In each of January 2025 and April 2025, we elected to repay $10.0 million of outstanding principal on the Secured Term Loan at par.

Previous wording

As of March 31, 2025, both the carrying amount and outstanding principal of our FL4 CLO Securitization was $152.0 million. See Note 14 to our consolidated financial statements included in this quarterly report on Form 10-Q for additional terms and details of our FL4 CLO Securitization.

Current wording

As of June 30, 2025, both the carrying amount and outstanding principal of our FL4 CLO Securitization was $137.6 million. See Note 14 to our consolidated financial statements included in this quarterly report on Form 10-Q for additional terms and details of our FL4 CLO Securitization.