Granite Point Mortgage Trust Inc

Previous wording

Granite Point Mortgage Trust Inc. is an internally-managed real estate finance company that focuses primarily on directly originating, investing in and managing senior floating-rate commercial mortgage loans and other debt and debt-like commercial real estate investments. Our investment objective is to preserve our stockholders’ capital while generating attractive risk-adjusted returns over the long term, primarily through dividends derived from current income produced by our investment portfolio. We operate as a REIT, as defined under the Code. We also operate our business in a manner intended to maintain our exclusion from registration under the Investment Company Act. We operate our business as one segment.

Current wording

Granite Point Mortgage Trust Inc. is an internally-managed real estate finance company that focuses primarily on directly originating, investing in and managing senior floating-rate commercial mortgage loans and other debt and debt-like commercial real estate investments, traded on the New York Stock Exchange, or NYSE, under the symbol “GPMT”. Our investment objective is to preserve our stockholders’ capital while generating attractive risk-adjusted returns over the long term, primarily through dividends derived from current income produced by our investment portfolio. We operate as a REIT, as defined under the Code. We also operate our business in a manner intended to maintain our exclusion from registration under the Investment Company Act. We operate our business as one segment.

Previous wording

Interest rates remain at an elevated level and the timing, direction and extent of any future interest rate changes remain uncertain. Although our business model is such that higher interest rates should, all else being equal, generally correlate to higher net income, interest rates having remained elevated for an extended period of time have adversely affected, and may continue to adversely affect, our existing borrowers and the cost of financing their properties and lead to nonperformance. Additionally, higher interest rates and increasing costs may dampen consumer spending and slow corporate profit growth, which may negatively impact the collateral underlying certain of our loans. Higher interest rates have adversely impacted, and may continue to adversely impact, commercial real estate property values. It remains difficult to predict the full impact on macroeconomic conditions and our business of recent events and any future changes in interest rates or inflation.

Current wording

Interest rates remain at an elevated level and the timing, direction and extent of any future interest rate changes remain uncertain. Although our business model is such that higher interest rates should, all else being equal, generally correlate to higher net income, interest rates having remained elevated for an extended period of time have adversely affected, and may continue to adversely affect, our existing borrowers and the cost of financing their properties and lead to non-performance. Additionally, higher interest rates and increasing costs may dampen consumer spending and slow corporate profit growth, which may negatively impact the collateral underlying certain of our loans. Higher interest rates have adversely impacted, and may continue to adversely impact, commercial real estate property values. It remains difficult to predict the full impact on macroeconomic conditions and our business of recent events and any future changes in interest rates or inflation.

Previous wording

The office property market has been experiencing higher vacancies, slower leasing activity and various tenants re-evaluating their need for space due in large part to the continued trend towards remote work. These factors coupled with inflation, high interest rates and limited market liquidity have created a high level of uncertainty with respect to property values. These dynamics have stressed certain borrowers’ ability and willingness to support their properties and perform in accordance with the terms of their loans. Given this uncertainty, it remains difficult to predict the effect these challenging conditions may have on the office property market, our borrowers, their performance under the terms of our loans secured by office properties and our financial results.

Current wording

The office property market has been experiencing higher vacancies, slower leasing activity and various tenants re-evaluating their need for space due in large part to remote and hybrid work arrangements. These factors coupled with inflation, high interest rates and limited market liquidity have created a high level of uncertainty with respect to property values. These dynamics have stressed certain borrowers’ ability and willingness to support their properties and perform in accordance with the terms of their loans. Given this uncertainty, it remains difficult to predict the effect these challenging conditions may have on the office property market, our borrowers, their performance under the terms of our loans secured by office properties and our financial results.

Previous wording

•Recognized GAAP net (loss) attributable to common stockholders of $(66.7) million, or $(1.31) per basic share.

Current wording

•Recognized GAAP net (loss) attributable to common stockholders of $(34.6) million, or $(0.69) per basic share.

Previous wording

•Generated Distributable (Loss) to common stockholders of $(9.1) million, or $(0.18) per basic share, which includes $(6.6) million in write-offs and excludes the $(60.8) million in non-cash provision for credit losses, $(1.5) million of non-cash equity compensation expense, $(1.2) million of non-cash depreciation and amortization on REO and $(0.8) million loss on the extinguishment of debt.

Current wording

•Generated Distributable (loss) to common stockholders of $(38.0) million, or $(0.75) per basic share, which includes $(44.6) million in write-offs and $8.8 million in recoveries of amounts previously written off, and excludes the $(27.9) million in non-cash provision for credit losses, $(2.5) million of non-cash equity compensation expense, $(1.9) million of non-cash depreciation and amortization on REO.

Previous wording

•Generated Distributable (Loss), excluding realized losses, to common stockholders of $(2.5) million, or $(0.05) per basic share.

Current wording

•Generated Distributable (loss), excluding write-offs and recoveries, to common stockholders of $(2.2) million, or $(0.04) per basic share.

Previous wording

•Recorded an increase to the allowance for credit losses of $54.2 million, for a total allowance of credit losses of $266.9 million, or approximately 9.7% of total loan commitments of $2.7 billion at June 30, 2024.

Current wording

•Recorded a decrease to the allowance for credit losses of $(7.9) million, for a total allowance of credit losses of $259.0 million, or approximately 10.5% of total loan commitments of $2.5 billion at September 30, 2024.

Previous wording

•Book value per share of common stock at June 30, 2024, was $9.84, inclusive of $(5.27) per share of total CECL reserve.

Current wording

•Book value per share of common stock at September 30, 2024, was $9.25, inclusive of $(5.18) per share of total CECL reserve.

Previous wording

•Funded $17.5 million of prior loan commitments and loan upsizings.

Current wording

•Funded $9.8 million of prior loan commitments and upsizes.

Previous wording

•Realized $68.0 million of total unpaid principal balance in loan repayments, principal paydowns, principal amortization and write-offs.

Current wording

•Realized $(284.7) million of total unpaid principal balance in loan repayments, principal paydowns, principal amortization, resolutions and write-offs.

Previous wording

•Maintained a portfolio of 68 loan investments with an aggregate unpaid principal balance of $2.6 billion and total commitments of $2.7 billion, a weighted average stabilized LTV at origination of 63.7%, and a weighted average all-in yield at origination of Standard Overnight Financing Rate, or SOFR, of S+4.04%.

Current wording

•Maintained a portfolio of 62 loan investments with an aggregate unpaid principal balance of $2.3 billion and total commitments of $2.5 billion, a weighted average stabilized LTV at origination of 63.9%, and a weighted average all-in yield at origination of Standard Overnight Financing Rate, or SOFR, of S+4.06%.

Previous wording

•Repurchased 510,244 shares of common stock at a weighted average purchase price of $3.10 for an aggregate purchase amount of $1.6 million.

Current wording

•Repurchased 0.7 million shares of common stock at a weighted average purchase price of $2.73 for an aggregate purchase amount of $2.0 million.

Previous wording

•At June 30, 2024, carried unrestricted cash of $85.9 million, a portion of which is subject to certain liquidity covenants.

Current wording

•At September 30, 2024, carried unrestricted cash of $113.5 million, a portion of which is subject to certain liquidity covenants, and $53.6 million of unlevered REO assets.

Previous wording

As a commercial real estate finance company, we believe the key financial measures and indicators for our business are earnings per share presented on a GAAP basis, dividends declared on common stock, Distributable Earnings and book value per share of common stock. For the three months ended June 30, 2024, we recorded a GAAP net (loss) per basic share of $(1.31), declared a cash dividend of $0.05 per share of common stock and reported Distributable (Loss) of $(0.18) per basic share. Our book value as of June 30, 2024 was $9.84 per share of common stock, inclusive of $(5.27) per share of total CECL reserves.

Current wording

As a commercial real estate finance company, we believe the key financial measures and indicators for our business are earnings per share presented on a GAAP basis, dividends declared on common stock, Distributable Earnings and book value per share of common stock. For the three months ended September 30, 2024, we recorded a GAAP net (loss) per basic share of $(0.69), declared a cash dividend of $0.05 per share of common stock and reported Distributable (loss) of $(0.75) per basic share. Our book value as of September 30, 2024 was $9.25 per share of common stock, inclusive of $(5.18) per share of total CECL reserves.

Previous wording

The following table sets forth the calculation of basic and diluted earnings (loss) per share and dividends declared per share for the three and six months ended June 30, 2024, and 2023:

Current wording

The following table sets forth the calculation of basic and diluted earnings (loss) per share and dividends declared per share for the three and nine months ended September 30, 2024, and 2023:

Previous wording

While Distributable Earnings excludes the impact of the unrealized non-cash current provision for credit losses, we expect to only recognize such potential credit losses in Distributable Earnings if and when such amounts are deemed non-recoverable. This is generally at the time a loan is repaid, or in the case of foreclosure, when the underlying asset is sold, but non-recoverability may also be concluded if, in our determination, it is nearly certain that all amounts due will not be collected. The realized loss amount reflected in Distributable Earnings will equal the difference between the cash received, or expected to be received, and the carrying value of the asset, and is reflective of our economic experience as it relates to the ultimate realization of the loan. During the three and six months ended June 30, 2024, we recorded provision for credit losses of $(60.8) million and $(136.3) million, respectively, which has been excluded from Distributable Earnings, consistent with other unrealized gains (losses) and other non-cash items pursuant to our existing policy for reporting Distributable Earnings referenced above. During the three and six months ended June 30, 2024, we recorded $(1.2) million and $(2.5) million, respectively, in depreciation and amortization on REO and related intangibles, which has been excluded from Distributable Earnings consistent with other unrealized gains (losses) and other non-cash items pursuant to our existing policy for reporting Distributable Earnings referenced above.

Current wording

While Distributable Earnings excludes the impact of the unrealized non-cash current provision for credit losses, we expect to only recognize such potential credit losses in Distributable Earnings if and when such amounts are deemed non-recoverable. This is generally at the time a loan is repaid, or in the case of foreclosure, when the underlying asset is sold, but non-recoverability may also be concluded if, in our determination, it is nearly certain that all amounts due will not be collected. The realized loss amount reflected in Distributable Earnings will equal the difference between the cash received, or expected to be received, and the carrying value of the asset, and is reflective of our economic experience as it relates to the ultimate realization of the loan. During the three and nine months ended September 30, 2024, we recorded provision for credit losses of $(27.9) million and $(164.2) million, respectively, which has been excluded from Distributable Earnings, consistent with other unrealized gains (losses) and other non-cash items pursuant to our existing policy for reporting Distributable Earnings referenced above. During the three and nine months ended September 30, 2024, we recorded $(1.9) million and $(4.4) million, respectively, in depreciation and amortization on REO and related intangibles, which has been excluded from Distributable Earnings consistent with other unrealized gains (losses) and other non-cash items pursuant to our existing policy for reporting Distributable Earnings referenced above.

Previous wording

We believe it is useful to our stockholders to present Distributable Earnings before realized losses to reflect our run-rate operating results as (i) our operating results are mainly comprised of net interest income earned on our loan investments net of our operating expenses, which comprise our ongoing operations, (ii) it helps our stockholders in assessing the overall run-rate operating performance of our business, and (iii) it has been a useful reference related to our common dividend as it is one of the factors we and our Board of Directors consider when declaring the dividend. We believe that our stockholders use Distributable Earnings and Distributable Earnings before realized losses, or a comparable supplemental performance measure, to evaluate and compare the performance of our company and our peers.

Current wording

We believe it is useful to our stockholders to present Distributable Earnings before realized losses and recoveries to reflect our run-rate operating results as (i) our operating results are mainly comprised of net interest income earned on our loan investments net of our operating expenses, which comprise our ongoing operations, (ii) it helps our stockholders in assessing the overall run-rate operating performance of our business, and (iii) it has been a useful reference related to our common dividend as it is one of the factors we and our Board of Directors consider when declaring the dividend. We believe that our stockholders use Distributable Earnings and Distributable Earnings before realized losses and recoveries, or a comparable supplemental performance measure, to evaluate and compare the performance of our company and our peers.

Previous wording

The following table provides a reconciliation of GAAP net (loss) attributable to common stockholders to Distributable Earnings for the three and six months ended June 30, 2024, and 2023:

Current wording

The following table provides a reconciliation of GAAP net (loss) attributable to common stockholders to Distributable Earnings (loss) for the three and nine months ended September 30, 2024, and 2023:

Previous wording

Book value per share as of June 30, 2024, includes the impact of an estimated allowance for credit losses of $266.9 million, or $(5.27) per common share. See Note 3 –Loans Held-for-Investment, Net of Allowance for Credit Losses to our Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for a detailed discussion of allowance for credit losses.

Current wording

Book value per share as of September 30, 2024, includes the impact of an estimated allowance for credit losses of $259.0 million, or $(5.18) per common share. See Note 3 –Loans Held-for-Investment, Net of Allowance for Credit Losses to our Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for a detailed discussion of allowance for credit losses.

Previous wording

Interest-earning assets include our 100% loan investment portfolio. At June 30, 2024, our loan portfolio was comprised of 68 investments, of which 67 were senior first mortgage loans totaling $2.7 billion of commitments with an unpaid principal balance of $2.6 billion, and one subordinated loan totaling $13.4 million in commitments and unpaid principal balance. At

Current wording

Interest-earning assets include our 100% loan investment portfolio. At September 30, 2024, our loan portfolio was comprised of 62 investments, of which 61 were senior first mortgage loans totaling $2.4 billion of commitments with an unpaid principal balance of $2.3 billion, and one subordinated loan totaling $13.3 million in commitments and unpaid principal balance. At September 30, 2024, the weighted average risk rating of our loan portfolio was 3.1 as compared to 2.8 at December 31, 2023, weighted by total unpaid principal balance.

Previous wording

We may hold REO as a result of taking title to a loan’s collateral. As of June 30, 2024, we owned two office properties with an aggregate carrying value of $53.6 million, inclusive of $10.8 million of intangible assets included in other assets and other liabilities in our Condensed Consolidated Balance Sheets.

Current wording

We may hold REO as a result of taking title to a loan’s collateral. As of September 30, 2024, we owned two office properties with an aggregate carrying value of $53.6 million, inclusive of $11.0 million of intangible assets included in other assets and other liabilities in our Condensed Consolidated Balance Sheets.

Previous wording

During the three months ended June 30, 2024, we funded $17.5 million under existing loan commitments and loan upsizings. We realized $68.0 million in aggregate reductions in portfolio unpaid principal balance from loan repayments, principal paydowns, principal amortization and loan write-offs. We acquired through a negotiated deed-in-lieu of foreclosure the title to an office property previously held as a loan held-for-investment with a carrying value at closing of $35.7 million. See Note 3 -Loans Held-for-Investment, Net of Allowance for Credit Losses to our Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for further detail.

Current wording

During the three months ended September 30, 2024, we funded $9.8 million under existing loan commitments and loan upsizes. We realized $240.1 million in aggregate reductions in portfolio unpaid principal balance from loan repayments,paydowns and amortization. See Note 3 -Loans Held-for-Investment, Net of Allowance for Credit Losses to our Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for further detail.

Previous wording

The following table details our loan activity by unpaid principal balance for the three and six months ended June 30, 2024, and 2023:

Current wording

The following table details our loan activity by unpaid principal balance for the three and nine months ended September 30, 2024, and 2023:

Previous wording

(3)Stabilized loan-to-value ratio, or stabilized LTV, is calculated as the fully funded loan amount (plus any financing that ispari passu with or senior to such loan), including all contractually provided for future fundings, divided by the as stabilized value (as determined in conformance with USPAP) set forth in the original appraisal. As stabilized value may be based on certain assumptions, such as future construction completion, projected re-tenanting, payment of tenant improvement or leasing commissions allowances or free or abated rent periods, or increased tenant occupancies.

Current wording

(3)Stabilized loan-to-value ratio at origination, or stabilized LTV, is calculated as the fully funded loan amount (plus any financing that ispari passu with or senior to such loan), including all contractually provided for future fundings, divided by the as stabilized value (as determined in conformance with USPAP) set forth in the original appraisal. As stabilized value may be based on certain assumptions, such as future construction completion, projected re-tenanting, payment of tenant improvement or leasing commissions allowances or free or abated rent periods, or increased tenant occupancies.

Previous wording

(5)Initial loan-to-value ratio, or initial LTV, is calculated as the initial loan amount (plus any financing that ispari passu with or senior to such loan) divided by the as is appraised value (as determined in conformance with the Uniform Standards of Professional Appraisal Practice, or USPAP) as of the date of the loan was originated set forth in the original appraisal.

Current wording

(5)Initial loan-to-value ratio, or initial LTV at origination, is calculated as the initial loan amount (plus any financing that ispari passu with or senior to such loan) divided by the as is appraised value (as determined in conformance with the Uniform Standards of Professional Appraisal Practice, or USPAP) as of the date of the loan was originated set forth in the original appraisal.

Previous wording

As of June 30, 2024, and March 31, 2024, the weighted average risk rating of our loan portfolio was 3.0, versus 2.8 as of December 31, 2023, weighted by unpaid principal balance. The change in the weighted average portfolio risk rating versus December, 31, 2023, is mainly a result of select loan risk rating downgrades, including six loans downgraded to a risk rating of “5” partially offset by certain loan risk rating upgrades and loan resolutions.

Current wording

As of September 30, 2024, the weighted average risk rating of our loan portfolio was 3.1, versus 2.8 as of December 31, 2023, weighted by unpaid principal balance. The change in the weighted average portfolio risk rating versus December, 31, 2023, is mainly a result of select loan risk rating downgrades partially offset by certain loan risk rating upgrades and resolutions of several previously risk-rated “5” loans.

Previous wording

As of June 30, 2024, we had ten loans that had a risk rating of “5” with an aggregate principal balance of $545.2 million, for which we recorded an allowance for credit losses of $195.0 million. These ten loans were on nonaccrual status as of June 30, 2024. The performance of these assets, which include four office buildings, four mixed-use properties with an office component, one hotel and one multifamily asset, has been adversely affected to varying degrees by many different factors, such as slower leasing velocity, including leasing challenges of office properties in certain markets related to work from home trends and other submarket dynamics, combined with a significant rise in interest rates contributing to a meaningful reduction in real estate transaction activity, capital markets volatility and limited market liquidity affecting property values and these borrowers’ ability to either sell or refinance their loans, and other property specific factors.

Current wording

As of September 30, 2024, we had nine loans that had a risk rating of “5” with an aggregate principal balance of $508.5 million, for which we recorded an allowance for credit losses of $200.3 million. These nine loans were on nonaccrual status as of September 30, 2024. The performance of these assets, which include five office buildings, two mixed-use properties with an office component and two hotel properties, has been adversely affected to varying degrees by many different factors, such as slower leasing velocity, including leasing challenges of office properties in certain markets related to work from home trends and other submarket dynamics, combined with a significant rise in interest rates contributing to a meaningful reduction in real estate transaction activity, capital markets volatility and limited market liquidity affecting property values and these borrowers’ ability to either sell or refinance their loans, and other property specific factors.

Previous wording

During the three months ended June 30, 2024, we completed the modification of a first mortgage loan secured by a design building property located in New York, NY, with an outstanding principal balance of $37.5 million as of March 31, 2024. The terms of the modification included, among others, a restructuring of the $37.5 million loan into (i) a $33.3 million senior loan, with $3.0 million in unfunded commitments, and (ii) a $4.2 million mezzanine note; a $2.6 million capital infusion from the sponsor to further support the collateral property; a change to the restructured senior loan’s coupon to S+3.00%, which was reduced from S+4.65%; an increase in the exit fee from 0.25% to 5.70% of the loan amount, and an extension of term to a maturity date of June 9, 2027. The mezzanine note is non-interest bearing and is subject to a distribution waterfall and is subordinate to certain amounts of sponsor’s equity, as defined in the loan agreement. As of June 30, 2024, the mezzanine note was deemed uncollectible, resulting in a write-off of $(4.2) million. The restructured senior loan with an outstanding principal balance of $33.3 million was risk-rated “3” as of June 30, 2024.

Current wording

As noted above, during the three months ended September 30, 2024, we completed the modification of a first mortgage loan secured by a mixed-use multifamily, event space and office property located in Pittsburgh, PA, with an outstanding principal balance of $51.0 million at the time of modification. The terms of the modification included, among others: (i) a new $2.0 million capital infusion from the sponsor to further support the collateral property; (ii) a restructuring of the $51.0 million whole loan into a $32.0 million senior loan, with a $7.0 million unfunded commitment, and a $19.0 million mezzanine note. The restructured senior loan earns a fixed rate coupon rate of 5.75%, adjusted from a floating rate coupon of S+3.40%, has an exit fee that was increased from 1.25% to 5.75% of the loan amount, and an extended maturity date of July 9, 2027. The mezzanine note is non-interest bearing and is subject to a distribution waterfall and is subordinate to certain amounts of sponsor’s equity, as defined in the loan agreement. The loan had been considered collateral-dependent, had a risk rating of “5” and had previously been placed on nonaccrual status. As of September 30, 2024, the mezzanine note was deemed uncollectible, resulting in the write-off of $(19.0) million noted above.

Previous wording

As of June 30, 2024, our portfolio financing consisted of repurchase and secured credit facilities collateralized by loans held-for-investment and our one REO asset, and securitized debt obligations collateralized by pools of loans held-for-investment issued in CRE CLOs. Our non-mark-to-market financing sources accounted for approximately 56.4% of portfolio loan-level financing as of June 30, 2024.

Current wording

As of September 30, 2024, our portfolio financing consisted of repurchase and secured credit facilities collateralized by loans held-for-investment and our one REO asset, and securitized debt obligations collateralized by pools of loans held-for-investment issued in CRE CLOs. Our non-mark-to-market financing sources accounted for approximately 56.1% of portfolio loan-level financing as of September 30, 2024.

Previous wording

As of June 30, 2024, we had repurchase facilities in place with four counterparties with aggregate outstanding borrowings of $0.8 billion, which financed a portion of our loans held-for-investment and real estate owned. As of June 30, 2024, the weighted average borrowing rate on our repurchase facilities was 8.7%, the weighted average advance rate was 66.9%, and the term to maturity ranged from 13 days to approximately 1.1 years, with a weighted average remaining maturity of 1.0 year.

Current wording

As of September 30, 2024, we had repurchase facilities in place with three counterparties with aggregate outstanding borrowings of $0.7 billion, which financed a portion of our loans held-for-investment and real estate owned. As of September 30, 2024, the weighted average borrowing rate on our repurchase facilities was 8.5%, the weighted average advance rate was 64.6%, and the term to maturity ranged from approximately 0.6 years to approximately 0.8 years, with a weighted average remaining maturity of 0.8 years.

Previous wording

Under our existing repurchase facilities, our counterparties may make margin calls as a result of a perceived decline in the value of our assets collateralizing the given secured financing arrangement due to a credit event or, under a limited number of our repurchase facilities, due to market events. To cover a margin call, we may transfer cash or other loan collateral to such a counterparty. Should the value of our assets suddenly decrease, significant margin calls on our mark-to-market repurchase facilities could result, causing an adverse change in our liquidity position.

Current wording

Under our existing repurchase facilities, our counterparties may make margin calls as a result of a perceived decline in the value of our assets collateralizing the given facility due to a credit event or, under a limited number of our repurchase facilities, due to market events. To cover a margin call, we may transfer cash or other collateral to such a counterparty. Should the value of our assets suddenly decrease, significant margin calls on our mark-to-market repurchase facilities could result, causing an adverse change in our liquidity position.

Previous wording

We have financed certain pools of our loans through the issuance of CRE CLOs. At June 30, 2024, we had two CRE CLOs outstanding: GPMT 2021-FL4 and GPMT 2021-FL3, totaling $0.9 billion of outstanding borrowings, financing 37 of our existing first mortgage loan investments with an aggregate principal balance, inclusive of restricted cash, of $1.2 billion. As of June 30, 2024, our CRE CLOs financed 45.4% of our total loan portfolio principal balance on a term-matched, non-recourse and non-mark-to-market basis with attractive cost of funds.

Current wording

We have financed certain pools of our loans through the issuance of CRE CLOs. At September 30, 2024, we had two CRE CLOs outstanding: GPMT 2021-FL4 and GPMT 2021-FL3, totaling $0.8 billion of outstanding borrowings, financing 33 of our existing first mortgage loan investments with an aggregate principal balance, inclusive of restricted cash, of $1.1 billion. As of September 30, 2024, our CRE CLOs financed 45.5% of our total loan portfolio principal balance on a term-matched, non-recourse and non-mark-to-market basis with attractive cost of funds.

Previous wording

We are subject to a variety of financial covenants under our secured financing agreements. The following represent the most restrictive financial covenants to which we are subject across our secured finance agreements:

Current wording

We are subject to a variety of financial covenants under our secured financing arrangements. The following represent the most restrictive financial covenants to which we are subject across our secured finance arrangements:

Previous wording

As of June 30, 2024, the total debt-to-equity ratio with respect to our loans held-for-investment was 2.5:1.0, and our recourse leverage ratio was 1.1:1.0. The period-over-period increase in our leverage ratios was mainly related to a decrease in total equity balance due to higher CECL reserves recorded during the period.

Current wording

As of September 30, 2024, the total debt-to-equity ratio with respect to our loans held-for-investment was 2.2:1.0, and our recourse leverage ratio was 1.0:1.0. The following table represents our recourse leverage ratio and total leverage ratio as of September 30, 2024, and December 31, 2023. The period-over-period increase in our leverage ratios was mainly related to a decrease in total equity balance due to higher CECL reserves recorded during the nine months ended September 30, 2024, which was partially offset by lower borrowings due to loan repayments and paydowns.

Previous wording

Our business strategy seeks to minimize our exposure to changes in interest rates by matching benchmark indices on our assets with those on our asset level borrowings. Accordingly, our business model is such that, in general, rising interest rates will increase our net interest income, while declining interest rates will decrease our net interest income, subject to the impact of interest rate floors on our floating rate assets and certain liabilities. As of June 30, 2024, 98.3% of our loan investments by principal balance earned a floating rate of interest and were financed with liabilities that pay interest on a floating rate basis, which resulted in an amount of net floating rate exposure, subject to the impact of interest rate floors on certain of our floating rate loan investments, of $0.8 billion. As of June 30, 2024, 1.7% of our loan investments by principal balance earned a fixed rate of interest and were financed with liabilities that pay interest on a floating rate basis, which resulted in a negative correlation to rising interest rates on that amount of our financing.

Current wording

Our business strategy seeks to minimize our exposure to changes in interest rates by matching benchmark indices on our assets with those on our asset level borrowings. Accordingly, our business model is such that, in general, rising interest rates will increase our net interest income, while declining interest rates will decrease our net interest income, subject to the impact of interest rate floors on our floating rate assets and certain liabilities. As of September 30, 2024, 96.7% of our loan investments by principal balance earned a floating rate of interest and were financed with liabilities that pay interest on a floating rate basis, which resulted in an amount of net floating rate exposure, subject to the impact of interest rate floors on certain of our floating rate loan investments, of $0.7 billion. As of September 30, 2024, 3.3% of our loan investments by principal balance earned a fixed rate of interest and were financed with liabilities that pay interest on a floating rate basis, which resulted in a negative correlation to rising interest rates on that amount of our financing.

Previous wording

The following tables present the components of interest income and average annualized net asset yield earned by asset type, the components of interest expense and average annualized cost of funds on borrowings incurred by collateral type and net interest income and average annualized net interest rate spread for the six months ended June 30, 2024, and 2023. The net asset yield reflects the impact of loans held on nonaccrual status.

Current wording

The following tables present the components of interest income and average annualized net asset yield earned by asset type, the components of interest expense and average annualized cost of funds on borrowings incurred by collateral type and net interest income and average annualized net interest rate spread for the nine months ended September 30, 2024, and 2023. The net asset yield reflects the impact of loans held on nonaccrual status.

Previous wording

(4)Included in collateralized borrowings is the Centennial repurchase facility with an outstanding balance of $6.8 million as of June 30, 2023. The facility was terminated during the three months ended June 30, 2024 as shown in Note 6 -Secured Financing Agreements, which became collateralized by real estate owned on May 16, 2023. During the three and six months ended June 30, 2024, the facility had an average balance collateralized by real estate owned of $1.2 million and $3.5 million, respectively. During the three and six months ended June 30, 2024, the facility accrued interest expense of $32.0 thousand and $187.0 thousand, respectively, related to the balance collateralized by real estate owned. During the three and six months ended June 30, 2023, the facility had an average balance collateralized by real estate owned of $3.4 million and $1.7 million, respectively. During the three and six months ended June 30, 2023, the facility accrued interest expense of $87.7 thousand while collateralized by real estate owned.

Current wording

(4)Included in collateralized borrowings is the Centennial repurchase facility with an outstanding balance of $7.0 million as of September 30, 2023. The facility was terminated during the three months ended June 30, 2024 as shown in Note 6 -Secured Financing Agreements, which became collateralized by real estate owned on May 16, 2023. During the nine months ended September 30, 2024, the facility had an average balance collateralized by real estate owned of $2.4 million. During the nine months ended September 30, 2024, the facility accrued interest expense of $187.0 thousand, related to the balance collateralized by real estate owned. During the three and nine months ended September 30, 2023, the facility had an average balance collateralized by real estate owned of $6.9 million and $3.5 million, respectively. During the three and nine months ended September 30, 2023, the facility accrued interest expense of $3.2 million and $3.3 million while collateralized by real estate owned, respectively.

Previous wording

The results of our operations are affected by a number of factors and primarily depend on, among other things, the level of our net interest income, the availability and cost of financing for us, the market value of our assets, the credit performance of our assets and the supply of, and demand for, commercial real estate loans, other commercial real estate debt instruments and other financial assets available for investment in the market and available as a source of refinancing of our assets. Our interest income, which reflects the amortization of origination fees and direct costs, is recognized based on the contractual rate and the outstanding principal balance of the loans we originate. The objective of the interest method is to arrive at a periodic interest income that yields a level rate of return over the loan term. Interest rates vary according to the type of loan or security, conditions in the financial markets, credit-worthiness of our borrowers, competition and other factors, none of which can be predicted with any certainty. Our operating results may also be impacted by credit losses in excess of initial anticipations or unanticipated credit events experienced by our borrowers. We continue to monitor the effects on each of these factors in light of the continued volatility in global markets, driven by investor concerns over inflation, rising interest rates, slowing economic growth and geopolitical uncertainty, and how they will affect our operating results.

Current wording

The results of our operations are affected by a number of factors and primarily depend on, among other things, the level of our net interest income, the availability and cost of financing for us, the market value of our assets, the credit performance of our assets and the supply of, and demand for, commercial real estate loans, other commercial real estate debt instruments and other financial assets available for investment in the market and available as a source of refinancing of our assets. Our interest income, which reflects the amortization of origination fees and direct costs, is recognized based on the contractual rate and the outstanding principal balance of the loans we originate. The objective of the interest method is to arrive at a periodic interest income that yields a level rate of return over the loan term. Interest rates vary according to the type of loan or security, conditions in the financial markets, credit-worthiness of our borrowers, competition and other factors, none of which can be predicted with any certainty. Our operating results may also be impacted by credit losses in excess of initial anticipations or unanticipated credit events experienced by our borrowers. We continue to monitor the effects on each of these factors in light of the continued volatility in global markets, driven by investor concerns over inflation, elevated interest rates and geopolitical uncertainty, and how they will affect our operating results.

Previous wording

Our business model is mainly focused on directly originating, investing in and managing senior floating-rate commercial mortgage loans and other debt and debt-like commercial real estate investments. As a result of this strategy, our operating performance is subject to overall market demand for commercial real estate loan products and other debt and debt-like commercial real estate investments. We manage originations and acquisitions of our target investments by diversifying our investment portfolio across geographical regions, local markets, property types, borrower types and loan structures. We do not limit our investments to any number of geographical areas or property types for our originations so that we develop a well-diversified investment portfolio. Additionally, our team has extensive experience originating and acquiring commercial real estate loans and other debt and debt-like commercial real estate investments, through a network of long-standing relationships with borrowers, sponsors and industry brokers. Investor concerns over inflation, elevated interest rates, slowing economic growth, and geopolitical uncertainty have resulted in significant disruptions and volatility in financial markets, uncertainty about the overall macroeconomic outlook and a dislocation in the commercial real estate sector, including reduced borrower demand, wider credit spreads, higher lending rates, increased capitalization rates on properties and significantly lower transaction volume. This dislocation in capital markets and decline in real estate sale transaction and refinancing activities have negatively impacted, and will likely continue to negatively impact, the volume of loan repayments and prepayments on select property types (which are a significant source of our overall liquidity) and the volume of our originations of new loan investments.

Current wording

Our business model is mainly focused on directly originating, investing in and managing senior floating-rate commercial mortgage loans and other debt and debt-like commercial real estate investments. As a result of this strategy, our operating performance is subject to overall market demand for commercial real estate loan products and other debt and debt-like commercial real estate investments. We manage originations and acquisitions of our target investments by diversifying our investment portfolio across geographical regions, local markets, property types, borrower types and loan structures. We do not limit our investments to any number of geographical areas or property types for our originations so that we develop a well-diversified investment portfolio. Additionally, our team has extensive experience originating and acquiring commercial real estate loans and other debt and debt-like commercial real estate investments, through a network of long-standing relationships with borrowers, sponsors and industry brokers. Investor concerns over inflation, elevated interest rates and geopolitical uncertainty have resulted in significant disruptions and volatility in financial markets, uncertainty about the overall macroeconomic outlook and a dislocation in the commercial real estate sector, including reduced borrower demand, wider credit spreads, higher lending rates, increased capitalization rates on properties and significantly lower transaction volume. This dislocation in capital markets and decline in real estate sale transaction and refinancing activities have negatively impacted, and will likely continue to negatively impact, the volume of loan repayments and prepayments on select property types (which are a significant source of our overall liquidity) and the volume of our originations of new loan investments.

Previous wording

We are subject to the availability and cost of financing to successfully execute on our business strategy and generate attractive risk-adjusted returns to our stockholders. Much of our financing is in the form of repurchase agreements or other types of credit facilities provided to us by our lender counterparties. We mitigate this counterparty risk by seeking to diversify our lending partners, focusing on establishing borrowing relationships with strong counterparties and continuously monitoring them through a thoughtful approach to counterparty risk oversight. Additionally, as part of our broader risk management strategy, and to the extent available in the market, we finance our business through other means, which may include, but are not to be limited to, securitizations, note sales and issuance of secured and unsecured debt and equity instruments. We continue to actively explore additional types of funding facilities in order to further diversify our financing sources. Investor concerns over inflation trends, high interest rates, slowing economic growth, and geopolitical uncertainty have resulted in significant disruptions and volatility in financial markets and uncertainty about the overall macroeconomic and capital markets outlook. These conditions have negatively impacted, and may continue to negatively impact, real estate and real estate capital markets, which could make it more difficult for us to obtain or maintain financing.

Current wording

We are subject to the availability and cost of financing to successfully execute on our business strategy and generate attractive risk-adjusted returns to our stockholders. Much of our financing is in the form of repurchase agreements or other types of credit facilities provided to us by our lender counterparties. We mitigate this counterparty risk by seeking to diversify our lending partners, focusing on establishing borrowing relationships with strong counterparties and continuously monitoring them through a thoughtful approach to counterparty risk oversight. Additionally, as part of our broader risk management strategy, and to the extent available in the market, we finance our business through other means, which may include, but are not to be limited to, securitizations, note sales and issuance of secured and unsecured debt and equity instruments. We continue to actively explore additional types of funding facilities in order to further diversify our financing sources. Investor concerns over inflation trends, high interest rates and geopolitical uncertainty have resulted in significant disruptions and volatility in financial markets and uncertainty about the overall macroeconomic and capital markets outlook. These conditions have negatively impacted, and may continue to negatively impact, real estate and real estate capital markets, which could make it more difficult for us to obtain or maintain financing.