10-K 1 bsprt-201810k.htm 10-K Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2018
 OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission file number: 000-55188
BENEFIT STREET PARTNERS REALTY TRUST, INC.
(Exact name of registrant as specified in its charter) 
Maryland
 
46-1406086
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
9 West 57th Street, Suite 4920, New York, NY
 
10019
(Address of principal executive offices)
 
(Zip Code)
(212) 588-6770 
(Registrant's telephone number, including area code)
Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act: Common stock, $0.01 par value per share (Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No
Indicate by check mark whether the registrant submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). x Yes ¨ No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 232.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨
 
Accelerated filer ¨
Non-accelerated filer x

Smaller reporting company x
 
 
Emerging growth company ¨
If an emerging growth company, indicated by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No
There is no established public market for the registrant's shares of common stock. On November 7, 2018, the board of directors of the registrant , upon the recommendation of the registrant’s external advisor, unanimously approved and established an estimated net asset value (“NAV”) per share of the registrant’s common stock of $18.75. The estimated NAV per share is based upon the estimated value of the registrant’s assets less the registrant’s liabilities as of September 30, 2018. For a full description of the methodologies used to value the registrant’s assets and liabilities in connection with the calculation of the estimated NAV per share, see Part II, Item 5, “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.”
The number of outstanding shares of the registrant's common stock on February 28, 2019 was 39,862,149 shares.


DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement to be delivered to stockholders in connection with the registrant's 2019 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K. The registrant intends to file its proxy statement within 120 days after its fiscal year end.

BENEFIT STREET PARTNERS REALTY TRUST, INC.

FORM 10-K
Year Ended December 31, 2018



Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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Forward-Looking Statements
Certain statements included in this Annual Report on Form 10-K are forward-looking statements. Those statements include statements regarding the intent, belief or current expectations of Benefit Street Partners Realty Trust, Inc. ("we," "our," "us," or the "Company") and members of our management team, as well as the assumptions on which such statements are based, and generally are identified by the use of words such as "may," "will," "seeks," "anticipates," "believes," "estimates," "expects," "plans," "intends," "should" or similar expressions. Actual results may differ materially from those contemplated by such forward-looking statements. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time, unless required by law.
Our forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements, and thus our investors should not place undue reliance on these statements. We believe these factors include but are not limited to those described under the section entitled “Risk Factors” in this Annual Report, as such factors may be updated from time to time in our periodic filings with the Securities and Exchange Commission (the “SEC”), which are accessible on the SEC’s website at http://www.sec.gov. These factors include:
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our business and investment strategy;
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our ability to make investments in a timely manner or on acceptable terms;
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current credit market conditions and our ability to obtain long-term financing for our investments in a timely manner and on terms that are consistent with what we project when we invest;
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the effect of general market, real estate market, economic and political conditions, including the recent economic slowdown and dislocation in the global credit markets;
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our ability to make scheduled payments on our debt obligations;
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our ability to generate sufficient cash flows to make distributions to our stockholders;
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our ability to generate sufficient debt and equity capital to fund additional investments;
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our ability to refinance our existing financing arrangements;
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the degree and nature of our competition;
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the availability of qualified personnel;
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we may be deemed to be an investment company under the Investment Company Act of 1940, as amended (the "Investment Company Act"), and thus subject to regulation under the Investment Company Act; and
•
our ability to maintain our qualification as a real estate investment trust ("REIT").

All forward-looking statements should be read in light of the risks identified in Part I, Item 1A of this Annual Report on Form 10-K.



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PART I
Item 1. Business
Benefit Street Partners Realty Trust, Inc. (the “Company”) is a real estate finance company that primarily originates, acquires and manages a diversified portfolio of commercial real estate debt investments secured by properties located within and outside the United States. The Company was incorporated in Maryland on November 15, 2012 and commenced business operations on May 14, 2013. We made a tax election to be treated as a real estate investment trust (a "REIT") for U.S. federal income tax purposes commencing with our taxable year ended December 31, 2013. We believe that we have qualified as a REIT and we intend to continue to meet the requirements for qualification and taxation as a REIT. Substantially all of our business is conducted through Benefit Street Partners Realty Operating Partnership, L.P. (the “OP”), a Delaware limited partnership. We are the sole general partner and directly or indirectly hold all of the units of limited partner interests in the OP. In addition, the Company, through a subsidiary which is treated as a taxable REIT subsidiary (a “TRS”), is indirectly subject to U.S. federal, state and local income taxes.
The Company has no direct employees. Benefit Street Partners L.L.C. serves as our advisor ("Advisor") pursuant to an amended and restated advisory agreement, executed on January 19, 2018 (the "Advisory Agreement"). The Advisor, an investment adviser registered with the U.S. Securities and Exchange Commission ("SEC"), is a credit-focused alternative asset management firm.
Established in 2008, our Advisor's credit platform manages funds for institutions and high-net-worth investors across various credit funds and complementary strategies including high yield, levered loans, private / opportunistic debt, liquid credit, structured credit and commercial real estate debt. These strategies complement each other as they all leverage the sourcing, analytical, compliance, and operational capabilities that encompass the platform. The Advisor manages the Company's affairs on a day-to-day basis. The Advisor receives compensation fees and reimbursements for services related to the investment and management of the Company's assets and the operations of the Company. On February 1, 2019, Franklin Resources, Inc. and Templeton International, Inc. (collectively, “Franklin Templeton”) acquired the Advisor (the “Transaction”). The Transaction did not impact the terms of the amended and restated advisory agreement and the Transaction will not result in any changes to the executive officers of the Company.
The Company invests in commercial real estate debt investments, which may include first mortgage loans, subordinated mortgage loans, mezzanine loans and participations in such loans. The Company also originates conduit loans which the Company intends to sell through its TRS into commercial mortgage-backed securities ("CMBS") securitization transactions.
The Company may also invest in commercial real estate securities. Real estate securities may include CMBS, senior unsecured debt of publicly traded REITs, debt or equity securities of other publicly traded real estate companies and collateralized debt obligations ("CDOs").
Investment Objectives
We plan to implement policies and strategies to achieve our primary investment objectives:
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to pay attractive and stable cash distributions to stockholders; and
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to preserve and return stockholders’ invested capital.
Investment Strategies and Policies
We have three investment strategies. One strategy is to originate, acquire and manage a diversified portfolio of commercial real estate debt, including first mortgage loans, subordinate loans, mezzanine loans and participations in such loans. We expect that our portfolio of debt investments will be secured by real estate located within and outside the United States and diversified by property type and geographic location. The second strategy is to invest in commercial real estate securities, such as CMBS, senior unsecured debt of publicly-traded REITs and CDO notes. The third strategy is to originate conduit loans and sell them through our TRS business into CMBS securitization transactions.
We will seek to create and maintain a portfolio of commercial real estate investments that generate stable income to enable us to pay attractive and consistent cash distributions to our stockholders. Our focus on originating and acquiring commercial real estate debt instruments emphasizes the payment of current returns to investors and preservation of invested capital as our primary investment objectives.
Commercial Real Estate Debt
We originate, fund, acquire and structure commercial real estate debt, including first mortgage loans, mezzanine loans, bridge loans, and other loans related to commercial real estate. We may also acquire some equity participations in the underlying collateral of commercial real estate debt. We structure, underwrite, and originate most of our investments. We use conservative underwriting criteria to focus on risk adjusted returns based on several factors which may include, the leverage point, debt service coverage and sensitivity, lease sustainability studies, market and economic conditions, quality of the

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underlying collateral and location, reputation and track record of the borrower, and a clear exit or refinancing plan for the borrower. Our underwriting process involves comprehensive financial, structural, operational, and legal due diligence to assess any risks in connection with making such investments so that we can optimize pricing and structuring. By originating loans directly, we are able to structure and underwrite loans that satisfy our standards, establish a direct relationship with the borrower, and utilize our own documentation. Described below are some of the types of loans we may originate or acquire. In addition, although we generally prefer the benefits of new origination, market conditions can create situations where holders of commercial real estate debt may be in distress and are therefore willing to sell at prices that compensate the buyer for the lack of control typically associated with directly structured investments.
First Mortgage Loans
We primarily focus on first mortgage loans. First mortgage loans generally finance the acquisition, refinancing or rehabilitation of commercial real estate. First mortgage loans may be either short (one-to-five years) or long (up to ten years) term, may be fixed or floating rate, and are predominantly current-pay loans. We may originate or acquire current-pay first mortgage loans backed by properties that fit our investment strategy. We may selectively syndicate portions of these loans, including senior or junior participations that will effectively provide permanent financing or optimize returns which may include retained origination fees.
First mortgage loans typically provide for a higher recovery rate and lower defaults than other debt positions due to the lender's favorable control position, which at times can include control of the entire capital structure. Because of these attributes, this type of investment typically receives favorable treatment from third-party rating agencies and financing sources, which should increase the liquidity of these investments. However, these loans typically generate lower returns than subordinate debt, such as subordinate loans and mezzanine loans, commonly referred to as B-notes.
B-notes
B- notes consist of subordinate mortgage loans, including structurally subordinated first mortgage loans and junior participations in first mortgage loans or participations in these types of assets. Like first mortgage loans, these loans generally finance the acquisition, refinancing, rehabilitation or construction of commercial real estate. Subordinated mortgage loans or B-notes may be either short (one-to-five years) or long (up to ten years) term, may be fixed or floating rate, and are predominantly current-pay loans. We may originate or acquire current-pay subordinated mortgage loans or B-notes backed by high quality properties that fit our investment strategy. We may create subordinated mortgage loans by tranching our directly originated first mortgage loans generally through syndications of senior first mortgages or buy such assets directly from third party originators. Due to the limited opportunities in this part of the capital structure, we believe there are certain situations that allow us to directly originate or to buy subordinated mortgage investments from third parties on favorable terms.
Bridge Loans
We may offer bridge financing products to borrowers who are typically seeking short-term capital to be used in an acquisition, development or refinancing of a given property. From the borrower’s perspective, shorter term bridge financing is advantageous because it allows time to improve the property value through repositioning without encumbering it with restrictive long-term debt. The terms of these loans generally do not exceed three years.
Mezzanine Loans
Mezzanine loans are secured by one or more direct or indirect ownership interests in an entity that directly or indirectly owns commercial real estate and generally finance the acquisition, refinancing, rehabilitation or construction of commercial real estate. Mezzanine loans may be either short (one-to-five years) or long (up to ten years) term and may be fixed or floating rate. We may originate or acquire mezzanine loans backed by properties that fit our investment strategy. We may own such mezzanine loans directly or we may hold a participation in a mezzanine loan or a sub-participation in a mezzanine loan. These loans are predominantly current-pay loans (although there may be a portion of the interest that accrues) and may provide for participation in the value or cash flow appreciation of the underlying property as described below. With the credit market disruption and resulting dearth of capital available in this part of the capital structure, we believe that the opportunities to both directly originate and to buy mezzanine loans from third parties on favorable terms will continue to be attractive.
Equity Participations or “Kickers”
We may pursue equity participation opportunities in connection with our commercial real estate debt originations if we believe that the risk-reward characteristics of the loan merit additional upside participation related to the potential appreciation in value of the underlying assets securing the loan. Equity participations can be paid in the form of additional interest, exit fees, percentage of sharing in refinance or resale proceeds or warrants in the borrower. Equity participation can also take the form of a conversion feature, sometimes referred to as a "kicker," which permits the lender to convert a loan or preferred equity investment into common equity in the borrower at a negotiated premium to the current net asset value of the borrower. We expect to generate additional revenues from these equity participations as a result of excess cash flows being distributed or as appreciated properties are sold or refinanced.

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Commercial Real Estate Securities
In addition to our focus on origination of and investments in commercial real estate debt, we may also acquire commercial real estate securities, such as CMBS, unsecured REIT debt, CDO notes, and equity investments in entities that own commercial real estate.
CMBS
CMBS are securities that are collateralized by, or evidence ownership interests in, a single commercial mortgage loan or a partial or entire pool of mortgage loans secured by commercial properties. CMBS are generally pass-through certificates that represent beneficial ownership interests in common law trusts whose assets consist of defined portfolios of one or more commercial mortgage loans. They are typically issued in multiple tranches whereby the more senior classes are entitled to priority distributions of specified principal and interest payments from the trust’s underlying assets. The senior classes are often securities which, if rated, would have ratings ranging from low investment grade “BBB-” to higher investment grades “A,” “AA” or “AAA.” The junior, subordinated classes typically would include one or more non-investment grade classes which, if rated, would have ratings below investment grade “BBB.” Losses and other shortfalls from expected amounts to be received on the mortgage pool are borne first by the most subordinate classes, which receive payments only after the more senior classes have received all principal and/or interest to which they are entitled. We may invest in senior or subordinated, investment grade or non-investment grade CMBS, as well as unrated CMBS.
Unsecured Publicly-Traded REIT Debt Securities
We may also choose to acquire senior unsecured debt of publicly-traded equity REITs that acquire and hold real estate. Publicly-traded REITs may own large, diversified pools of commercial real estate properties or they may focus on a specific type of property, such as shopping centers, office buildings, multifamily properties and industrial warehouses. Publicly-traded REITs typically employ moderate leverage. Corporate bonds issued by these types of REITs are usually rated investment grade and benefit from strong covenant protection.
CDO Notes
CDOs are multiple class debt notes, secured by pools of assets, such as CMBS, mezzanine loans, and unsecured REIT debt. Like typical securitization structures, in a CDO, the assets are pledged to a trustee for the benefit of the holders of the bonds. CDOs often have reinvestment periods that typically last for five years, during which time, proceeds from the sale of a collateral asset may be invested in substitute collateral. Upon termination of the reinvestment period, the static pool functions very similarly to a CMBS securitization where repayment of principal allows for redemption of bonds sequentially.
Commercial Real Estate Equity Investments
We may acquire: (i) equity interests (including preferred equity) in an entity (including, without limitation, a partnership or a limited liability company) that is an owner of commercial real property (or in an entity operating or controlling commercial real property, directly or through affiliates), which may be structured to receive a priority return or is senior to the owner's equity (in the case of preferred equity); (ii) certain strategic joint venture opportunities where the risk-return and potential upside through sharing in asset or platform appreciation is compelling; and (iii) private issuances of equity securities (including preferred equity securities) of public companies. Our commercial real estate equity investments may or may not have a scheduled maturity and are expected to be of longer duration (five-to-ten year terms) than our typical portfolio investment. Such investments are expected to be fixed rate (if they have a stated investment rate) and may have accrual structures and provide other distributions or equity participations in overall returns above negotiated levels.
Conduit Loans
The Company originates conduit loans which the Company intends to sell through its TRS into CMBS securitization transactions at a profit. The Conduit loans are typically fixed-rate commercial real estate loans and are long (up to ten years)
term, and are predominantly current-pay loans.
Other Possible Investments
Although we expect that most of our investments will be of the types described above, we may make other investments. We may invest in whatever types of interests in real estate-related assets that we believe are in our best interest which may include the commercial real property underlying our debt investments as a result of a loan workout, foreclosure or similar circumstances. Although we can purchase any type of real estate-related assets, our charter does limit our ability to make certain types of investments.
Investment Process
Our Advisor has the authority to make all the decisions regarding our investments consistent with the investment guidelines and borrowing policies approved by our board of directors and subject to the direction and oversight of our board of directors. With respect to investments in commercial real estate debt, our board of directors has adopted investment guidelines

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that our Advisor must follow when acquiring such assets on our behalf without the approval of our board of directors. We will not, however, purchase assets in which our Advisor, any of our directors or any of their affiliates has an interest without a determination by a majority of our directors (including a majority of the independent directors) not otherwise interested in the transaction that such transaction is fair and reasonable to us and at a price to us no greater than the cost of the asset to the affiliated seller, unless there is substantial justification for the excess amount and such excess is reasonable. Our investment guidelines and borrowing policies may be altered by a majority of our directors without approval of our stockholders. Our Advisor may not alter our investment guidelines or borrowing policies without the approval of a majority of our directors, including a majority of our independent directors.
Borrowing Strategies and Policies
In addition to raising capital through our distribution reinvestment plan (the "DRIP") offering and private placements, our financing strategy includes secured repurchase agreement facilities for loans, securities and securitizations. In addition to our current mix of financing sources, we may also access additional forms of financings, including credit facilities, public and private secured and unsecured debt issuances by us or our subsidiaries.
We expect to use additional debt financing as a source of capital. We intend to employ reasonable levels of borrowing in order to provide more cash available for investment and to generate improved returns. We believe that careful use of leverage will help us to achieve our diversification goals and potentially enhance the returns on our investments. Our board of directors reviews our aggregate borrowings at least quarterly.
Income Taxes
We elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code commencing with the taxable year ended December 31, 2013. In general, as a REIT, if we meet certain organizational and operational requirements and distribute at least 90% of our "REIT taxable income" (determined before the deduction of dividends paid and excluding net capital gains) to our stockholders in a year, we will not be subject to U.S. federal income tax to the extent of the income that we distribute. We believe that we currently qualify and we intend to continue to qualify as a REIT under the Internal Revenue Code of 1986, as amended (the "Code"). If we fail to qualify as a REIT in any taxable year and statutory relief provisions were not to apply, we will be subject to U.S. federal income tax on our income at regular corporate tax rates for the year in which we do not qualify and the succeeding four years. Even if we qualify for taxation as a REIT, we may be subject to certain U.S. federal, state and local taxes on our income and property and U.S. federal income and excise taxes on our undistributed income.
We pay income taxes on our Conduit segment, which is conducted by a wholly-owned taxable REIT subsidiary ("TRS") of the REIT. The income taxes on the Conduit segment are paid at the U.S. federal and applicable state levels.
Competition
Our net income depends, in large part, on our ability to originate investments that provide returns in excess of our borrowing cost. In originating these investments, we compete with other mortgage REITs, specialty finance companies, savings and loan associations, banks, mortgage bankers, insurance companies, mutual funds, institutional investors, investment banking firms, private funds, other lenders, governmental bodies, and other entities, many of which have greater financial resources and lower costs of capital available to them than we have. In addition, there are numerous mortgage REITs with asset acquisition objectives similar to ours, and others may be organized in the future, which may increase competition for the investments suitable for us. Competitive variables include market presence and visibility, size of loans offered and underwriting standards. To the extent that a competitor is willing to risk larger amounts of capital in a particular transaction or to employ more liberal underwriting standards when evaluating potential loans than we are, our investment volume and profit margins for our investment portfolio could be impacted. Our competitors may also be willing to accept lower returns on their investments and may succeed in buying or underwriting the assets that we have targeted. Although we believe that we are well positioned to compete effectively in each facet of our business, there is enormous competition in our market sector and there can be no assurance that we will compete effectively or that we will not encounter increased competition in the future that could limit our ability to conduct our business effectively.
Employees
As of December 31, 2018, we had no direct employees. The employees of the Advisor and other affiliates of the Advisor perform a full range of real estate services for us, including origination, acquisitions, accounting, legal, asset management, wholesale brokerage, and investor relations services. We are dependent on these affiliates for services that are essential to us, including asset acquisition decisions, and other general administrative responsibilities. In the event that any of these companies were unable to provide these services to us, we would be required to provide such services ourselves or obtain such services from other sources.

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Available Information
We electronically file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports, and proxy statements, with the SEC. We also filed with the SEC a registration statement in connection with our dividend reinvestment plan securities offerings. The SEC maintains an internet address at www.sec.gov that contains reports, proxy statements and information statements, and other information, which may be obtained free of charge. In addition, copies of our filings with the SEC may be obtained from the website maintained for us at www.bsprealtytrust.com. Access to these filings is free of charge. We are not incorporating our website or any information from the website into this Form 10-K.
Item 1A. Risk Factors
Risks Related to an Investment in Benefit Street Partners Realty Trust, Inc.
We may be unable to maintain or increase cash distributions over time, or may decide to reduce the amount of distributions for business reasons.
There are many factors that can affect the amount and timing of cash distributions to stockholders. The amount of cash available for distributions is affected by many factors, such as the cash provided by our investments and our obligations to repay indebtedness as well as many other variables. There is no assurance that we will be able to pay or maintain our current level of distributions or that distributions will increase over time. Historically, our distributions have been significantly in excess of our cash flow from operations, a practice which is not sustainable over the long term. We cannot give any assurance that returns from our investments will be sufficient to maintain or increase our cash available for distributions to stockholders. Our actual results may differ significantly from the assumptions used by our board of directors in establishing the distribution rate to stockholders. We may not have sufficient cash from operations to make a distribution required to qualify for or maintain our REIT status, which may materially adversely affect the value of our common stock or Series A redeemable convertible preferred stock (the "Preferred Stock").
Distributions paid in excess of our earnings will decrease the book value and NAV per share of our common stock.
Since our inception we have repeatedly paid distributions in excess of our earnings and we may continue to do so as we have not established any limit on the use of these other sources, except as limited by applicable law. Distributions paid in excess of earnings are effectively a return of stockholder capital and will therefore decrease the book value and NAV per share of our common stock.
No established trading market for our shares currently exists, and as a result, it will be difficult to sell our shares. If our shares are listed they may trade below our estimated NAV per share or our GAAP book value per share.
Our charter does not require our board of directors to seek stockholder approval to liquidate our assets by a specified date, nor does our charter require us to list our shares for trading on a national securities exchange by a specified date or otherwise pursue a transaction to provide liquidity to our stockholders. There is no established trading market for our shares and we currently have no plans to list our shares on a national securities exchange. Until our shares are listed, if ever, our stockholders may have difficulty selling their shares. If our shares are eventually listed, they may trade at prices significantly below our estimated NAV per share and our most recent GAAP book value due to, among other things, significant selling pressure from legacy stockholders that had previously been unable to sell or the market perception that such selling pressure will occur. To address this risk the Company could delay the ability of legacy stockholders to sell all of their shares upon a successful listing. Because of the illiquid nature of our shares, investors should purchase our shares only as a long-term investment and be prepared to hold them for an indefinite period of time.
Our share repurchase program (the "SRP"), which is subject to numerous restrictions, may be canceled at any time and should not be relied upon as a means of liquidity.
We have a SRP that may enable investors to sell their shares to us in limited circumstances. Share repurchases are made at the sole discretion of our board of directors. In its sole discretion, our board of directors could amend, suspend or terminate our SRP upon 30 days prior written notice to stockholders. Further, the SRP includes numerous restrictions that would limit the ability to sell shares. For example, the SRP has historically been limited to the proceeds from our DRIP which has frequently resulted in us not satisfying all SRP requests for a given semester. Due to the foregoing, our SRP should not be relied upon as a means of liquidity.
If our Advisor loses or is unable to obtain key personnel, our ability to implement our investment strategies could be delayed or hindered, which could adversely affect our ability to make distributions and the value of our common stock.
Our success depends to a significant degree upon the contributions of certain of our executive officers and other key personnel of our Advisor, each of whom would be difficult to replace. We cannot guarantee that all, or any particular officer or employee of the Advisor, will remain associated with us and/or our Advisor. If any of our key personnel were to cease their employment with our Advisor, our operating results could suffer. Further, we do not intend to separately maintain key person

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life insurance on any person. We believe that our future success depends, in large part, upon our Advisor’s ability to hire and retain highly skilled managerial, operational and marketing personnel.
Competition for such personnel is intense, and we cannot assure you that our Advisor will be successful in attracting and retaining such skilled personnel. If our Advisor loses or is unable to obtain the services of key personnel, our ability to implement our investment strategies could be delayed or hindered, and the value of your investment may decline.
Our business could suffer in the event our Advisor or any other party that provides us with services essential to our operations experiences system failures or cyber-incidents or a deficiency in cybersecurity.
Despite system redundancy, the implementation of security measures and the existence of a disaster recovery plan for the internal information technology systems of our Advisor and other parties that provide us with services essential to our operations, these systems are vulnerable to damage from any number of sources, including computer viruses, unauthorized access, energy blackouts, natural disasters, terrorism, war and telecommunication failures. Any system failure or accident that causes interruptions in our operations could result in a material disruption to our business.
A cyber-incident is considered to be any adverse event that threatens the confidentiality, integrity or availability of information resources. More specifically, a cyber-incident is an intentional attack or an unintentional event that can result in third parties gaining unauthorized access to systems to disrupt operations, corrupt data, or steal confidential information. As reliance on technology in our industry has increased, so have the risks posed to the systems of our Advisor and other parties that provide us with services essential to our operations, both internal and those that have been outsourced. In addition, the risk of a cyber-incident, including by computer hackers, foreign governments and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. Even the most well protected information, networks, systems and facilities remain potentially vulnerable because the techniques used in such attempted attacks and intrusions evolve and generally are not recognized until launched against a target, and in some cases are designed not to be detected and, in fact, may not be detected.
The remediation costs and lost revenues experienced by a victim of a cyber-incident may be significant and significant resources may be required to repair system damage, protect against the threat of future security breaches or to alleviate problems, including reputational harm, loss of revenues and litigation, caused by any breaches. In addition, a security breach or other significant disruption involving the IT networks and related systems of our Advisor or any other party that provides us with services essential to our operations could:
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result in misstated financial reports, violations of loan covenants, missed reporting deadlines and/or missed permitting deadlines;
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affect our ability to properly monitor our compliance with the rules and regulations regarding our qualification as a REIT;
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result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of, proprietary, confidential, sensitive or otherwise valuable information, which others could use to compete against us or for disruptive, destructive or otherwise harmful purposes and outcomes;
•
require significant management attention and resources to remedy any damages that result;
•
subject us to claims for breach of contract, damages, credits, penalties or termination of leases or other agreements; or
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adversely impact our reputation among our borrowers and investors generally.
Although our Advisor and other parties that provide us with services essential to our operations intend to continue to implement industry-standard security measures, there can be no assurance that those measures will be sufficient, and any material adverse effect experienced by our Advisor and other parties that provide us with services essential to our operations could, in turn, have an adverse impact on us.
Risks Related to Conflicts of Interest
Our Advisor faces conflicts of interest relating to purchasing commercial real estate-related investments, and such conflicts may not be resolved in our favor, which could adversely affect our investment opportunities.
We rely on our Advisor and the executive officers and other key real estate professionals at our Advisor to identify suitable investment opportunities for us. Although there are restrictions in the amended and restated advisory agreement we have entered into with the Advisor with respect to the Advisor’s ability to manage another REIT that competes with us, or to provide any services related to fixed-rate conduit lending to another person, our Advisor and its employees are not otherwise restricted from engaging in investment and investment management activities unrelated to us. Some investment opportunities that are suitable for us may also be suitable for other investment vehicles managed by the Advisor or its affiliates. Thus, the executive officers and real estate professionals of our Advisor could direct attractive investment opportunities to other entities or

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investors. Such events could result in us investing in assets that provide less attractive returns, which may reduce our ability to make distributions.
Our Advisor and its employees face competing demands relating to their time, and this may cause our operating results to suffer.
Our Advisor and its employees are engaged in investment and investment management activities unrelated to us. Because these persons have competing demands on their time and resources, they may have conflicts of interest in allocating their time between our business and these other activities. If this occurs, the returns on our investments may suffer.

Risks Related to Our Corporate Structure
The limit on the number of shares a person may own may discourage a takeover that could otherwise result in a premium price to our stockholders.
Our charter, with certain exceptions, authorizes our directors to take such actions as are necessary and desirable to preserve our qualification as a REIT. Unless exempted by our board of directors, no person or entity may own more than 7.9% in value of the aggregate of our outstanding shares of stock or more than 7.9% (in value or in number of shares, whichever is more restrictive) of any class or series of shares of our stock determined after applying certain rules of attribution. This restriction may have the effect of delaying, deferring or preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all our assets) that might provide a premium price for holders of our common stock.
Our charter permits our board of directors to issue stock with terms that may subordinate the rights of common stockholders or discourage a third party from acquiring us in a manner that might result in a premium price to our stockholders.
Our charter permits our board of directors to issue up to 1,000,000,000 shares of stock. In addition, our board of directors, without any action by our stockholders, may amend our charter from time to time to increase or decrease the aggregate number of shares or the number of shares of any class or series of stock that we have authority to issue. Our board of directors may classify or reclassify any unissued common stock or preferred stock into other classes or series of stock and establish the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption of any such stock. Thus, our board of directors could authorize the issuance of preferred stock with terms and conditions that could have a priority as to distributions and amounts payable upon liquidation over the rights of the holders of our common stock. Preferred stock could also have the effect of delaying, deferring or preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all our assets) that might provide a premium price for holders of our common stock.
Maryland law prohibits certain business combinations, which may make it more difficult for us to be acquired and may limit our stockholders' ability to exit the investment.
Under Maryland law, “business combinations” between a Maryland corporation and an interested stockholder or an affiliate of an interested stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. These business combinations include a merger, consolidation, share exchange or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities. An interested stockholder is defined as:
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any person who beneficially owns, directly or indirectly, 10% or more of the voting power of the corporation’s outstanding voting stock; or
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an affiliate or associate of the corporation who, at any time within the two-year period prior to the date in question, was the beneficial owner, directly or indirectly, of 10% or more of the voting power of the then outstanding stock of the corporation.
A person is not an interested stockholder under the statute if the board of directors approved in advance the transaction by which he or she otherwise would have become an interested stockholder. However, in approving a transaction, the board of directors may provide that its approval is subject to compliance, at or after the time of approval, with any terms and conditions determined by the board of directors.
After the five-year prohibition, any business combination between the Maryland corporation and an interested stockholder generally must be recommended by the board of directors of the corporation and approved by the affirmative vote of at least:

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80% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation; and
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two-thirds of the votes entitled to be cast by holders of voting stock of the corporation other than shares held by the interested stockholder with whom or with whose affiliate the business combination is to be effected or held by an affiliate or associate of the interested stockholder.
These super-majority vote requirements do not apply if the corporation’s common stockholders receive a minimum price, as defined under Maryland law, for their shares in the form of cash or other consideration in the same form as previously paid by the interested stockholder for its shares. The business combination statute permits various exemptions from its provisions, including business combinations that are exempted by the board of directors prior to the time that the interested stockholder becomes an interested stockholder. Pursuant to the statute, our board of directors has exempted any business combination involving our Advisor or any affiliate of our Advisor. Consequently, the five-year prohibition and the super-majority vote requirements will not apply to business combinations between us and our Advisor or any affiliate of our Advisor. As a result, our Advisor and any affiliate of our Advisor may be able to enter into business combinations with us that may not be in the best interest of our stockholders, without compliance with the super-majority vote requirements and the other provisions of the statute. The business combination statute may discourage others from trying to acquire control of us and increase the difficulty of consummating any offer.
Maryland law limits the ability of a third-party to buy a large stake in us and exercise voting power in electing directors, which may discourage a takeover that could otherwise result in a premium price to our stockholders.
The Maryland Control Share Acquisition Act provides that holders of “control shares” of a Maryland corporation acquired in a “control share acquisition” have no voting rights except to the extent approved by stockholders by a vote of stockholders entitled to cast at least two-thirds of the votes entitled to be cast on the matter. Shares of stock owned by the acquirer, by officers or by employees who are directors of the corporation, are excluded from shares entitled to vote on the matter. “Control shares” are voting shares of stock which, if aggregated with all other shares of stock owned by the acquirer or in respect of which the acquirer can exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquirer to exercise voting power in electing directors within specified ranges of voting power. Control shares do not include shares the acquiring person is then entitled to vote as a result of having previously obtained stockholder approval or shares acquired directly from the corporation. A “control share acquisition” means the acquisition of issued and outstanding control shares.
The control share acquisition statute does not apply (a) to shares acquired in a merger, consolidation or share exchange if the corporation is a party to the transaction, or (b) to acquisitions approved or exempted by the charter or bylaws of the corporation.
Our bylaws contain a provision exempting from the Control Share Acquisition Act any and all acquisitions of our stock by any person. There can be no assurance that this provision will not be amended or eliminated at any time in the future.
The value of our common stock may be reduced if we are required to register as an investment company under the Investment Company Act.
We are not registered, and do not intend to register ourselves, our operating partnership or any of our subsidiaries, as an investment company under the Investment Company Act. If we become obligated to register ourselves, our operating partnership or any of our subsidiaries as an investment company, the registered entity would have to comply with a variety of substantive requirements under the Investment Company Act imposing, among other things:
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limitations on capital structure;
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restrictions on specified investments;
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prohibitions on transactions with affiliates; and
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compliance with reporting, record keeping, voting, proxy disclosure and other rules and regulations that would significantly change our operations.
We conduct, and intend to continue to conduct, our operations, directly and through wholly or majority-owned subsidiaries, so that we, our operating partnership and each of our subsidiaries are exempt from registration as an investment company under the Investment Company Act. Under Section 3(a)(1)(A) of the Investment Company Act, a company is an “investment company” if it is, or holds itself out as being, engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities. Under Section 3(a)(1)(C) of the Investment Company Act, a company is deemed to be an “investment company” if it is engaged, or proposes to engage, in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire “investment securities” having a value exceeding 40% of the value of its total assets (exclusive of government securities and cash items) on an unconsolidated basis. “Investment securities” excludes (A) U.S. Government securities, (B) securities issued by employees’ securities companies, and (C)

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securities issued by majority-owned subsidiaries which (i) are not investment companies, and (ii) are not relying on the exception from the definition of investment company under Section 3(c)(1) or 3(c)(7) of the Investment Company Act.
We expect that we will not fall under the definition of, and will therefore not be required to register as, an investment company. We intend to make investments and conduct our operations so that we are not required to register as an investment company. We are organized as a holding company that conducts business primarily through the operating partnership. Both the Company and the operating partnership intend to conduct operations so that each complies with the 40% test. The securities issued to the operating partnership by any wholly-owned or majority-owned subsidiaries that we may form in the future that are excepted from the definition of “investment company” based on Section 3(c)(1) or 3(c)(7) of the Investment Company Act, together with any other investment securities the operating partnership may own, may not have a value in excess of 40% of the value of the operating partnership's total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. We will monitor the Company’s and the operating partnership’s holdings to support continuing and ongoing compliance with these tests but we may be unsuccessful and could fail to comply. We believe neither the Company nor the operating partnership will be considered an investment company under Section 3(a)(1)(A) of the Investment Company Act because neither the Company nor the operating partnership will engage primarily or hold itself out as being engaged primarily in the business of investing, reinvesting or trading in securities. Rather, through the operating partnership's wholly-owned or majority-owned subsidiaries, the Company and the operating partnership are primarily engaged in the non-investment company businesses of these subsidiaries, namely the business of purchasing or otherwise acquiring mortgages and other interests in real estate.
We expect that most of our investments will be held by wholly-owned or majority-owned subsidiaries of the operating partnership and that most of these subsidiaries will rely on the exception from the definition of an investment company under Section 3(c)(5)(C) of the Investment Company Act, which is available for entities “primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate.” This exclusion generally requires that at least 55% of a subsidiary's portfolio be comprised of qualifying real estate assets and at least 80% of its portfolio be comprised of qualifying real estate assets and real estate-related assets (and no more than 20% comprised of miscellaneous assets). For purposes of the exclusions provided by Sections 3(c)(5)(C), we will classify our investments based in large measure on no-action letters issued by the SEC staff and other SEC interpretive guidance and, in the absence of SEC guidance, on our view of what constitutes a qualifying real estate asset and a real estate-related asset. These no-action positions were issued in accordance with factual situations that may be substantially different from the factual situations we may face, and a number of these no-action positions were issued more than twenty years ago. Pursuant to this guidance, and depending on the characteristics of the specific investments, certain mortgage loans, participations in mortgage loans, mortgage-backed securities, mezzanine loans, joint venture investments and the equity securities of other entities may not constitute qualifying real estate investments, and therefore, investments in these types of assets may be limited. The SEC or its staff may not concur with our classification of our assets. Future revisions to the Investment Company Act or further guidance from the SEC or its staff may cause us to lose our exclusion from the definition of investment company or force us to re-evaluate our portfolio and our investment strategy. Such changes may prevent us from operating our business successfully.
We may in the future organize special purpose subsidiaries of the operating partnership that will borrow under or participate in government sponsored incentive programs. We expect that some of these subsidiaries will rely on Section 3(c)(7) for their Investment Company Act exclusion and, therefore, the operating partnership's interest in each of these subsidiaries would constitute an “investment security” for purposes of determining whether the operating partnership passes the 40% test. Also, we may in the future organize one or more subsidiaries that seek to rely on the Investment Company Act exclusion provided to certain structured financing vehicles by Rule 3a-7. Any such subsidiary would need to be structured to comply with any guidance on the restrictions contained in Rule 3a-7 that may be issued by the SEC or its staff. In certain circumstances, compliance with Rule 3a-7 may require, among other things, that the indenture governing the subsidiary include limitations on the types of assets the subsidiary may sell or acquire out of the proceeds of assets that mature, are refinanced or otherwise sold, on the period of time during which such transactions may occur, and on the amount of transactions that may occur. In 2011, the SEC also solicited public comment on issues relating to Rule 3a-7. Accordingly, more specific or different guidance regarding Rule 3a-7 that may be published by the SEC or its staff may affect our ability to rely upon this rule. We expect that the aggregate value of the operating partnership's interests in subsidiaries that seek to rely on Rule 3a-7 will comprise less than 20% of the operating partnership's (and, therefore, the Company's) total assets on an unconsolidated basis.
In the event that the company, or the operating partnership, were to acquire assets that could make either entity fall within the definition of investment company under Section 3(a)(1)(A) or Section 3(a)(1)(C) of the Investment Company Act, we believe that we may still qualify for an exclusion from registration pursuant to Section 3(c)(6). Although the SEC staff has issued little interpretive guidance with respect to Section 3(c)(6), we believe that the Company and the operating partnership may rely on Section 3(c)(6) if 55% of the assets of the operating partnership consist of, and at least 55% of the income of the operating partnership is derived from, qualifying real estate assets owned by wholly-owned or majority-owned subsidiaries of the operating partnership.

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To ensure that neither the Company nor any of its subsidiaries, including the operating partnership, are required to register as an investment company, each entity may be unable to sell assets that it would otherwise want to sell and may need to sell assets that it would otherwise wish to retain. In addition, the Company, the operating partnership or its subsidiaries may be required to acquire additional income- or loss-generating assets that we might not otherwise acquire or forgo opportunities to acquire interests in companies that we would otherwise want to acquire. Although we monitor the portfolio of the Company, the operating partnership and its subsidiaries periodically and prior to each acquisition and disposition, any of these entities may not be able to maintain an exclusion from the definition of investment company. If the Company, the operating partnership or any subsidiary is required to register as an investment company but fails to do so, the unregistered entity would be prohibited from engaging in our business, and criminal and civil actions could be brought against such entity. In addition, the contracts of such entity would be unenforceable unless a court required enforcement, and a court could appoint a receiver to take control of the entity and liquidate its business.
Our board of directors may change our investment policies without stockholder approval, which could alter the nature of our portfolio.
Our investment policies may change over time. The methods of implementing our investment policies also may vary as the commercial debt markets change, new real estate development trends emerge and new investment techniques are developed. Our investment policies, the methods for their implementation, and our other objectives, policies and procedures may be altered by our board of directors without the approval of our stockholders. As a result, the nature of our portfolio could change without our stockholders' consent.
Because of our holding company structure, we depend on our operating partnership and its subsidiaries for cash flow and we will be structurally subordinated in right of payment to the obligations of such operating subsidiary and its subsidiaries, which could adversely affect our ability to make distributions.
We are a holding company with no business operations of our own. Our only significant asset is and will be the general partnership interests of our operating partnership. We conduct, and intend to continue to conduct, all of our business operations through our operating partnership. Accordingly, our only source of cash to pay our obligations is distributions from our operating partnership and its subsidiaries of their net earnings and cash flows. There can be no assurance that our operating partnership or its subsidiaries will be able to, or be permitted to, make distributions to us that will enable us to make distributions to our stockholders from cash flows from operations. Each of our operating partnership’s subsidiaries is a distinct legal entity and, under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from such entities. In addition, because we are a holding company, stockholders' claims will be structurally subordinated to all existing and future liabilities and obligations of our operating partnership and its subsidiaries. Therefore, in the event of our bankruptcy, liquidation or reorganization, our assets and those of our operating partnership and its subsidiaries will be able to satisfy stockholders' claims only after all of our and our operating partnerships and its subsidiaries liabilities and obligations have been paid in full.
Although our Advisor is responsible for calculating our estimated NAV, our Advisor will consider independent valuations of our investments, the accuracy of which our Advisor will not independently verify.
In calculating our NAV, our Advisor will include the net value of our commercial real estate debt and other commercial real estate-related investments, taking into consideration valuations of investments obtained from our independent valuer. Although our Advisor is responsible for the accuracy of the NAV calculation and will provide our independent valuer with our valuation guidelines, which have been approved by our board of directors, our Advisor will not independently verify the appraised value of our investments. As a result, the appraised value of a particular investment may be greater or less than its potential realizable value, which would cause our estimated NAV to be greater or less than the potential realizable NAV.
Our estimated per share NAV may significantly change if the appraised values of our investments materially change.
We expect that our investments will be appraised annually for purposes of establishing our estimated per share NAV. To the extent conditions specific to the investment, or investment conditions generally have changed since the prior appraisal, the estimated appraised value of an investment may decrease significantly.
The estimated per share NAV that we published does not reflect changes in our NAV since such date and does not represent the actual value of your shares on any given day.
We may experience events affecting our investments that may have a material impact on our NAV. For example, if a material borrower becomes insolvent or if investment conditions deteriorate generally, the value of an investment may materially change. Our NAV per share as published will not reflect such subsequent events. As a result, the NAV per share published after the announcement of a material event may differ significantly from our actual NAV per share. The resulting potential disparity may benefit repurchasing or non-repurchasing stockholders, depending on whether NAV is overstated or understated.


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Risks Related to Our Financing Strategy
We use leverage in connection with our investments, which increases the risk of loss associated with our investments.
We finance the origination and acquisition of a portion of our investments with repurchase agreements, collateralized loan obligations ("CLO") and other borrowings. Although the use of leverage may enhance returns and increase the number of investments that we can make, it may also substantially increase the risk of loss. Our ability to execute this strategy depends on various conditions in the financing markets that are beyond our control, including liquidity and credit spreads. We may be unable to obtain additional financing on favorable terms or, with respect to our debt and other investments, on terms that parallel the maturities of the debt originated or other investments acquired, if we are able to obtain additional financing at all. If our strategy is not viable, we will have to find alternative forms of long-term financing for our assets, as secured revolving credit facilities and repurchase facilities may not accommodate long-term financing. This could subject us to more restrictive recourse borrowings and the risk that debt service on less efficient forms of financing would require a larger portion of our cash flows, thereby reducing cash available for distribution, for our operations and for future business opportunities. If alternative financing is not available, we may have to liquidate assets at unfavorable prices to pay off such financing or pay significant fees to extend our financing arrangements. Our return on our investments and cash available for distribution may be reduced to the extent that changes in market conditions cause the cost of our financing to increase relative to the income that we can derive from the assets we originate or acquire.
Lenders may require us to enter into restrictive covenants relating to our operations, which could limit our ability to make distributions.
When providing financing, a lender may impose restrictions on us that affect our distribution and operating policies, and our ability to incur additional borrowings. Financing agreements that we may enter into may contain covenants that limit our ability to further incur borrowings, restrict distributions or that prohibit us from discontinuing insurance coverage or replacing our Advisor. Certain limitations would decrease our operating flexibility and our ability to achieve our operating objectives, including making distributions.
In a period of rising interest rates, our interest expense could increase while the interest we earn on our fixed-rate assets would not change, which would adversely affect our profitability.
Our operating results depend in large part on differences between the income from our assets, reduced by any credit losses and financing costs. Income from our assets may respond more slowly to interest rate fluctuations than the cost of our borrowings. Consequently, changes in interest rates, particularly short-term interest rates, may significantly influence our net income. Increases in these rates will tend to decrease our net income and market value of our assets. Interest rate fluctuations resulting in our interest expense exceeding the income from our assets would result in operating losses for us and may limit our ability to make distributions to our stockholders. In addition, if we need to repay existing borrowings during periods of rising interest rates, we could be required to liquidate one or more of our investments at times that may not permit realization of the maximum return on those investments, which would adversely affect our profitability.
We may not be able to access financing sources on attractive terms, if at all, which could dilute our existing stockholders and adversely affect our ability to grow our business.
We will require outside capital to significantly grow our business. We have and may continue to raise equity capital through private placements to institutions and other investors. Because our common stock is not traded on an exchange, in order to consummate these private placements, we have any may continue to have to sell our common stock at prices that reflect a significant discount to our book value per share. Sales of common stock at less than our book value per share and sales of Preferred Stock that is convertible at less than our book value per share will dilute the value of common stock held by our existing shareholders. In addition, our business may be adversely affected by disruptions in the debt and equity capital markets and institutional lending market, including the lack of access to capital or prohibitively high costs of obtaining or replacing capital. If we cannot obtain sufficient debt and equity capital on acceptable terms, our business and our ability to operate could be severely impacted.
We have broad authority to utilize leverage and high levels of leverage could hinder our ability to make distributions and decrease the value of our common stock.
Our charter does not limit the amount of our leverage. High leverage levels would cause us to incur higher interest charges and higher debt service payments and the agreements governing our borrowings may also include restrictive covenants. These factors could limit the amount of cash we have available to distribute to our stockholders and could result in a decline in the value of our common stock.

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We use short-term borrowings, such as credit facilities and repurchase agreements to finance our investments, which require us to provide additional collateral in the event the lender determines there is a decrease in the fair value of our collateral, these calls for collateral could significantly impact our liquidity position.
We use short-term borrowing through repurchase agreements, credit facilities and other arrangements that put our assets and financial condition at risk. We may need to use such short-term borrowings for extended periods of time to the extent we are unable to access long-term financing. Repurchase agreements economically resemble short-term, variable-rate financing and usually require the maintenance of specific loan-to-collateral value ratios. If the market value of the assets subject to a repurchase agreement decline, we may be required to provide additional collateral or make cash payments to maintain the loan-to-collateral value ratio. If we are unable to provide such collateral or cash repayments, the lender may accelerate the loan or we liquidate the collateral. In a weakening economic environment, or in an environment of widening credit spreads, we would generally expect the value of the commercial real estate debt or securities that serve as collateral for our short-term borrowings to decline, and in such a scenario, it is likely that the terms of our short-term borrowings would require us to provide additional collateral or to make partial repayment, which amounts could be substantial.
Further, such borrowings may require us to maintain a certain amount of cash reserves or to set aside unleveraged assets sufficient to maintain a specified liquidity position that would allow us to satisfy our collateral obligations. In addition, such short-term borrowing facilities may limit the length of time that any given asset may be used as eligible collateral, and these short-term borrowing arrangements may also be restricted to financing certain types of assets, such as first mortgage loans, which could impact our asset allocation. As a result, we may not be able to leverage our assets as fully as we would choose, which could reduce our return on assets. In the event that we are unable to meet these collateral obligations, our financial condition could deteriorate rapidly.
Risks Related to Our Investments
Our commercial real estate debt investments are subject to the risks typically associated with commercial real estate.
Our commercial real estate debt and commercial real estate securities generally are directly or indirectly secured by a lien on real property. The occurrence of a default on a commercial real estate debt investment could result in our acquiring ownership of the property. We do not know whether the values of the properties ultimately securing our commercial real estate debt and loans underlying our securities will remain at the levels existing on the dates of origination of these loans and the dates of origination of the loans ultimately securing our securities, as applicable. If the values of the properties drop, our risk will increase because of the lower value of the security and reduction in borrower equity associated with such loans. In this manner, real estate values could impact the values of our debt and security investments. Therefore, our commercial real estate debt and securities investments are subject to the risks typically associated with real estate.
Our operating results may be adversely affected by a number of risks generally incident to holding real estate debt, including, without limitation:
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natural disasters, such as hurricanes, earthquakes and floods;
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acts of war or terrorism, including the consequences of terrorist attacks;
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adverse changes in national and local economic and real estate conditions;
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an oversupply of (or a reduction in demand for) space in the areas where particular properties securing our loans are located and the attractiveness of particular properties to prospective tenants;
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changes in interest rates and availability of permanent mortgage funds that my render the sale of property difficult or unattractive;
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changes in governmental laws and regulations, fiscal policies and zoning ordinances and the related costs of compliance therewith and the potential for liability under applicable laws;
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costs of remediation and liabilities associated with environmental conditions affecting properties; and
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the potential for uninsured or underinsured property losses; and
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periods of high interest rates and tight money supply.
The value of each property securing our loans is affected significantly by its ability to generate cash flow and net income, which in turn depends on the amount of rental or other income that can be generated net of expenses required to be incurred with respect to the property. Many expenses associated with properties (such as operating expenses and capital expenses) cannot be reduced when there is a reduction in income from the properties.
These factors may have a material adverse effect on the ability of our borrowers to pay their loans and the ability of the borrowers on the underlying loans securing our securities to pay their loans, as well as on the value and the return that we can realize from assets we acquire and originate.

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The commercial real estate debt we originate and invest in and the commercial real estate loans underlying the commercial real estate securities we invest in could be subject to delinquency, foreclosure and loss, which could result in losses to us.
Commercial real estate loans are secured by commercial real estate and are subject to risks of delinquency, foreclosure, loss and bankruptcy of the borrower, all of which are and will continue to be prevalent if the overall economic environment does not continue to improve. The ability of a borrower to repay a loan secured by commercial real estate is typically dependent primarily upon the successful operation of such property rather than upon the existence of independent income or assets of the borrower. If the net operating income of the property is reduced or is not increased, depending on the borrower’s business plan, the borrower’s ability to repay the loan may be impaired. Net operating income of a property can be affected by each of the following factors, among other things:
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macroeconomic and local economic conditions;
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tenant mix;
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success of tenant businesses;
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property management decisions;
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property location and condition;
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property operating costs, including insurance premiums, real estate taxes and maintenance costs;
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competition from comparable types of properties;
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effects on a particular industry applicable to the property, such as hotel vacancy rates;
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changes in governmental rules, regulations and fiscal policies, including environmental legislation;
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changes in laws that increase operating expenses or limit rents that may be charged;
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increases in costs associated with renovation and/or construction
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any need to address environmental contamination at the property;
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the occurrence of any uninsured casualty at the property;
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changes in national, regional or local economic conditions and/or specific industry segments;
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declines in regional or local real estate values;
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branding, marketing and operational strategies;
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declines in regional or local rental or occupancy rates;
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increases in interest rates;
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real estate tax rates and other operating expenses;
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acts of God;
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social unrest and civil disturbances; and
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terrorism
Any one or a combination of these factors may cause a borrower to default on a loan or to declare bankruptcy. If a default or bankruptcy occurs and the underlying asset value is less than the loan amount, we will suffer a loss.
In the event of any default under a commercial real estate loan held directly by us, we will bear a risk of loss of principal or accrued interest to the extent of any deficiency between the value of the collateral and the principal and accrued interest of the commercial real estate loan, which could have a material adverse effect on our cash flow from operations. In the event of a default by a borrower on a non-recourse commercial real estate loan, we will only have recourse to the underlying asset (including any escrowed funds and reserves) collateralizing the commercial real estate loan. If a borrower defaults on one of our commercial real estate debt investments and the underlying property collateralizing the commercial real estate debt is insufficient to satisfy the outstanding balance of the debt, we may suffer a loss of principal or interest. In addition, even if we have recourse to a borrower’s assets, we may not have full recourse to such assets in the event of a borrower bankruptcy as the loan to such borrower will be deemed to be secured only to the extent of the value of the mortgaged property at the time of bankruptcy (as determined by the bankruptcy court), and the lien securing the loan will be subject to the avoidance powers of the bankruptcy trustee or debtor-in-possession to the extent the lien is unenforceable under state law. We are also exposed to these risks though the commercial real estate loans underlying a commercial real estate security we hold may result in us not recovering a portion or all of our investment in such commercial real estate security.

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Delays in liquidating defaulted commercial real estate debt investments could reduce our investment returns.
If we originate or acquire commercial real estate debt investments and there are defaults under those debt investments, we may not be able to repossess and sell the properties securing the commercial real estate debt investment quickly. Foreclosure of a loan can be an expensive and lengthy process that could have a negative effect on our return on the foreclosed loan. Borrowers often resist foreclosure actions by asserting numerous claims, counterclaims and defenses, including but not limited to, lender liability claims, in an effort to prolong the foreclosure action. In some states, foreclosure actions can take several years or more to resolve. At any time during the foreclosure proceedings, the borrower may file for bankruptcy, which would have the effect of staying the foreclosure action and further delaying the foreclosure process. The resulting time delay could reduce the value of our assets in the defaulted loans. Furthermore, an action to foreclose on a property securing a loan is regulated by state statutes and regulations and is subject to the delays and expenses associated with lawsuits if the borrower raises defenses or counterclaims. In the event of default by a borrower, these restrictions, among other things, may impede our ability to foreclose on or sell the property securing the loan or to obtain proceeds sufficient to repay all amounts due to us on the loan. In addition, we may be forced to operate any foreclosed properties for a substantial period of time, which could be a distraction for our management team and may require us to pay significant costs associated with such property.
Subordinate commercial real estate debt that we originate or acquire could constitute a significant portion of our portfolio and may expose us to greater losses.
We acquire and originate subordinate commercial real estate debt, including subordinate mortgage and mezzanine loans and participations in such loans. These types of investments could constitute a significant portion of our portfolio and may involve a higher degree of risk than the type of assets that will constitute the majority of our commercial real estate debt investments, namely first mortgage loans secured by real property. In the event a borrower declares bankruptcy, we may not have full recourse to the assets of the borrower or the assets of the borrower may not be sufficient to satisfy the first mortgage loan and our subordinate debt investment. If a borrower defaults on our subordinate debt or on debt senior to ours, or in the event of a borrower bankruptcy, our subordinate debt will be satisfied only after the senior debt is paid in full. Where debt senior to our debt investment exists, the presence of intercreditor arrangements may limit our ability to amend our debt agreements, assign our debt, accept prepayments, exercise our remedies (through “standstill periods”) and control decisions made in bankruptcy proceedings relating to our borrowers. As a result, we may not recover some or all of our investment. In addition, real properties with subordinate debt may have higher loan-to-value ratios than conventional debt, resulting in less equity in the real property and increasing the risk of loss of principal and interest.
We may be subject to risks associated with construction lending, such as declining real estate values, cost overruns and delays in completion.
Our commercial real estate debt portfolio may include loans made to developers to construct prospective projects. The primary risks to us of construction loans are the potential for cost overruns, the developer’s failing to meet a project delivery schedule and the inability of a developer to sell or refinance the project at completion in accordance with its business plan and repay our commercial real estate loan due to declining real estate values. These risks could cause us to have to fund more money than we originally anticipated in order to complete the project. We may also suffer losses on our commercial real estate debt if the developer is unable to sell the project or refinance our commercial real estate debt investment.
Jurisdictions with one action or security first rules or anti-deficiency legislation may limit the ability to foreclose on the property or to realize the obligation secured by the property by obtaining a deficiency judgment.
In the event of any default under our commercial real estate debt investments and in the loans underlying our commercial real estate securities, we bear the risk of loss of principal and nonpayment of interest and fees to the extent of any deficiency between the value of the collateral and the principal amount of the loan. Certain states in which the collateral securing our commercial real estate debt and securities is located may have laws that prohibit more than one judicial action to enforce a mortgage obligation, requiring the lender to exhaust the real property security for such obligation first or limiting the ability of the lender to recover a deficiency judgment from the obligor following the lender’s realization upon the collateral, in particular if a non-judicial foreclosure is pursued. These statutes may limit the right to foreclose on the property or to realize the obligation secured by the property.
Investments in non-conforming or non-investment grade rated loans or securities involve greater risk of loss.
Some of our investments may not conform to conventional loan standards applied by traditional lenders and either will not be rated or will be rated as non-investment grade by the rating agencies. The non-investment grade ratings for these assets typically result from the overall leverage of the loans, the lack of a strong operating history for the properties underlying the loans, the borrowers’ credit history, the properties’ underlying cash flow or other factors. As a result, these investments may have a higher risk of default and loss than investment grade rated assets. Any loss we incur may be significant and may reduce distributions and adversely affect the value of our common stock.

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Insurance may not cover all potential losses on the properties underlying our investments which may harm the value of our assets.
We generally require that each of the borrowers under our commercial real estate debt investments obtain comprehensive insurance covering the mortgaged property, including liability, fire and extended coverage. However, there are certain types of losses, generally of a catastrophic nature, such as earthquakes, floods and hurricanes that may be uninsurable or not economically insurable. We may not require borrowers to obtain certain types of insurance if it is deemed commercially unreasonable. Inflation, changes in building codes and ordinances, environmental considerations and other factors also might make it infeasible to use insurance proceeds to replace a property if it is damaged or destroyed. Under such circumstances, the insurance proceeds, if any, might not be adequate to restore the economic value of the property, which might impair our security and decrease the value of the property.
Investments that are not insured involve greater risk of loss than insured investments.
We may acquire and originate uninsured loans and assets as part of our investment strategy. Such loans and assets may include first mortgage loans, subordinate mortgage and mezzanine loans and participations in such loans and commercial real estate securities. While holding such interests, we are subject to risks of borrower defaults, bankruptcies, fraud, losses and special hazard losses that are not covered by standard hazard insurance. To the extent we suffer such losses with respect to our uninsured investments, the value of our company and the value of our common stock may be adversely affected.
We invest in CMBS, which may include subordinate securities, which entails certain risks.
We invest in a variety of CMBS, which may include subordinate securities that are subject to the first risk of loss if any losses are realized on the underlying mortgage loans. CMBS entitle the holders thereof to receive payments that depend primarily on the cash flow from a specified pool of commercial or multifamily mortgage loans. Consequently, CMBS will be adversely affected by payment defaults, delinquencies and losses on the underlying commercial real estate loans. Furthermore, if the rental and leasing markets deteriorate, it could reduce cash flow from the loan pools underlying our CMBS investments. The CMBS market is dependent upon liquidity for refinancing and will be negatively impacted by a slowdown in the new issue CMBS market.
Additionally, CMBS is subject to particular risks, including lack of standardized terms and payment of all or substantially all of the principal only at maturity rather than regular amortization of principal. Additional risks may be presented by the type and use of a particular commercial property. Special risks are presented by hospitals, nursing homes, hospitality properties and certain other property types. Commercial property values and net operating income are subject to volatility, which may result in net operating income becoming insufficient to cover debt service on the related commercial real estate loan, particularly if the current economic environment continues to deteriorate. The repayment of loans secured by income-producing properties is typically dependent upon the successful operation of the related real estate project rather than upon the liquidation value of the underlying real estate. Furthermore, the net operating income from and value of any commercial property are subject to various risks. The exercise of remedies and successful realization of liquidation proceeds relating to CMBS may be highly dependent upon the performance of the servicer or special servicer. Expenses of enforcing the underlying commercial real estate loans (including litigation expenses) and expenses of protecting the properties securing the commercial real estate loans may be substantial. Consequently, in the event of a default or loss on one or more commercial real estate loans contained in a securitization, we may not recover a portion or all of our investment.
The CMBS in which we may invest are subject to the risks of the mortgage securities market as a whole and risks of the securitization process.
The value of CMBS may change due to shifts in the market’s perception of issuers and regulatory or tax changes adversely affecting the mortgage securities market as a whole. Due to our investment in subordinate CMBS, we are also subject to several risks created through the securitization process. Our subordinate CMBS are paid interest only to the extent that there are funds available to make payments. To the extent the collateral pool includes delinquent loans, there is a risk that the interest payment on subordinate CMBS will not be fully paid. Subordinate CMBS are also subject to greater credit risk than those CMBS that are senior and generally more highly rated.
We may not control the special servicing of the mortgage loans underlying the CMBS in which we invest and, in such cases, the special servicer may take actions that could adversely affect our interests.
Overall control over the special servicing of the underlying mortgage loans of the CMBS may be held by a directing certificate holder, which is appointed by the holders of the most subordinate class of such CMBS. We ordinarily do not have the right to appoint the directing certificate holder. In connection with the servicing of the specially serviced mortgage loans, the related special servicer may, at the direction of the directing certificate holder, take actions that could adversely affect our interests.

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We may invest in collateralized debt obligations ("CDOs") and such investments involve significant risks.
We may invest in CDOs, which are multiple class securities secured by pools of assets, such as CMBS, subordinate mortgage and mezzanine loans and REIT debt. Like typical securities structures, in a CDO, the assets are pledged to a trustee for the benefit of the holders of the bonds. Like CMBS, CDO notes are affected by payments, defaults, delinquencies and losses on the underlying commercial real estate loans. CDOs often have reinvestment periods that typically last for five years during which proceeds from the sale of a collateral asset may be invested in substitute collateral. Upon termination of the reinvestment period, the static pool functions very similarly to a CMBS where repayment of principal allows for redemption of bonds sequentially. To the extent we invest in the equity securities of a CDO, we will be entitled to all of the income generated by the CDO after the CDO pays all of the interest due on the senior securities and its expenses. However, there will be little or no income or principal available to the holders of CDO equity securities if defaults or losses on the underlying collateral exceed a certain amount. In that event, the value of our investment in any equity class of a CDO could decrease substantially. In addition, the equity securities of CDOs are generally illiquid and often must be held by a REIT and because they represent a leveraged investment in the CDO’s assets, the value of the equity securities will generally have greater fluctuations than the values of the underlying collateral.
We have no established investment criteria limiting the geographic concentration of our investments in commercial real estate debt, commercial real estate securities and other commercial real estate-related investments. If our investments are concentrated in an area that experiences adverse economic conditions, our investments may lose value and we may experience losses.
Certain commercial real estate debt, commercial real estate securities and other commercial real estate-related investments in which we invest may be secured by a single property or properties in one geographic location. These investments may carry the risks associated with significant geographical concentration. We have not established and do not plan to establish any investment criteria to limit our exposure to these risks for future investments. As a result, properties underlying our investments may be overly concentrated in certain geographic areas, and we may experience losses as a result. A worsening of economic conditions in the geographic area in which our investments may be concentrated could have an adverse effect on our business, including reducing the demand for new financings, limiting the ability of borrowers to pay financed amounts and impairing the value of our collateral.
We have no established investment criteria limiting the industry concentration of our investments in commercial real estate debt and commercial real estate-related securities and other commercial real estate investments. If our investments are concentrated in an industry that experiences adverse economic conditions, our investments may lose value and we may experience losses.
Certain commercial real estate debt and other commercial real estate-related investments in which we invest may be secured by a single property or properties serving a particular industry, such as hotel, office or otherwise. These investments may carry the risks associated with significant industry concentration. We have not established and do not plan to establish any investment criteria to limit our exposure to these risks for future investments. As a result, properties underlying our investments may be overly concentrated in certain industries, and we may experience losses as a result. A worsening of economic conditions in an industry in which we are concentrated could have an adverse effect on our business, including reducing the demand for new financings, limiting the ability of borrowers to pay financed amounts and impairing the value of our collateral.
Adjustable-rate commercial real estate loans may entail greater risks of default to us than fixed-rate commercial real estate loans.
Adjustable-rate commercial real estate loans we originate or acquire or that collateralize our commercial real estate securities may have higher delinquency rates than fixed-rate loans. Borrowers with adjustable-rate mortgage loans may be exposed to increased monthly payments if the related interest rate adjusts upward from the initial fixed-rate or a low introductory rate, as applicable, in effect during the initial period of the loan to the rate computed in accordance with the applicable index and margin. This increase in borrowers’ monthly payments, together with any increase in prevailing market interest rates, after the initial fixed-rate period, may result in significantly increased monthly payments for borrowers with adjustable-rate loans, which may make it more difficult for the borrowers to repay the loan or could increase the risk of default of their obligations under the loan.
Changes in interest rates could negatively affect the value of our investments, which could result in reduced income or losses and negatively affect the cash available for distribution.
We may invest in fixed-rate CMBS and other fixed-rate investments. Under a normal yield curve, an investment in these instruments will decline in value if long-term interest rates increase. We will also invest in floating-rate investments, for which decreases in interest rates will have a negative effect on interest income. Declines in fair value may ultimately reduce income or result in losses to us, which may negatively affect cash available for distribution.

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Hedging against interest rate exposure may adversely affect our income, limit our gains or result in losses, which could adversely affect cash available for distribution to our stockholders.
We may enter into interest rate swap agreements or pursue other interest rate hedging strategies. Our hedging activity will vary in scope based on interest rate levels, the type of investments held, and other changing market conditions. Interest rate hedging may fail to protect or could adversely affect us because, among other things:
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interest rate hedging can be expensive, particularly during periods of rising and volatile interest rates;
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available interest rate hedging may not correspond directly with the interest rate risk for which protection is sought;
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the duration of the hedge may not match the duration of the related liability or asset;
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our hedging opportunities may be limited by the treatment of income from hedging transactions under the rules determining REIT qualification;
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the credit quality of the party owing money on the hedge may be downgraded to such an extent that it impairs our ability to sell or assign our side of the hedging transaction;
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the party owing money in the hedging transaction may default on its obligation to pay; and
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we may purchase a hedge that turns out not to be necessary.
Any hedging activity we engage in may adversely affect our income, which could adversely affect cash available for distribution. Therefore, while we may enter into such transactions to seek to reduce interest rate risks, unanticipated changes in interest rates may result in poorer overall investment performance than if we had not engaged in any such hedging transactions. In addition, the degree of correlation between price movements of the instruments used in a hedging strategy and price movements in the portfolio positions being hedged or liabilities being hedged may vary materially. Moreover, for a variety of reasons, we may not be able to establish a perfect correlation between hedging instruments and the investment being hedged. Any such imperfect correlation may prevent us from achieving the intended hedge and expose us to risk of loss.
Hedging instruments often are not traded on regulated exchanges, guaranteed by an exchange or its clearinghouse or regulated by any U.S. or foreign governmental authorities and involve risks and costs.
The cost of using hedging instruments increases as the period covered by the instrument lengthens and during periods of rising and volatile interest rates. We may increase our hedging activity and thus increase our hedging costs during periods when interest rates are volatile or rising and hedging costs have increased. In addition, hedging instruments involve risk since they often are not traded on regulated exchanges, guaranteed by an exchange or its clearing house, or regulated by any U.S. or foreign governmental authorities. Consequently, there are no regulatory or statutory requirements with respect to record keeping, financial responsibility or segregation of customer funds and positions. Furthermore, the enforceability of agreements underlying derivative transactions may depend on compliance with applicable statutory, commodity and other regulatory requirements and, depending on the identity of the counterparty, applicable international requirements. The business failure of a hedging counterparty with whom we enter into a hedging transaction will most likely result in a default. Default by a party with whom we enter into a hedging transaction may result in the loss of unrealized profits and force us to cover our resale commitments, if any, at the then current market price. It may not always be possible to dispose of or close out a hedging position without the consent of the hedging counterparty, and we may not be able to enter into an offsetting contract in order to cover our risk. There can be no assurance that a liquid secondary market will exist for hedging instruments purchased or sold, and we may be required to maintain a position until exercise or expiration, which could result in losses.
Our investments in commercial real estate securities, which may include preferred and common equity, will be subject to the specific risks relating to the particular issuer of the securities and may involve greater risk of loss than secured debt financings.
Our investments in securities, which may include preferred and common equity, will involve special risks relating to the particular issuer of the securities, including the financial condition and business outlook of the issuer. Issuers that are REITs and other real estate companies are subject to the inherent risks associated with real estate and real estate-related investments. Issuers that are finance companies are subject to the inherent risks associated with structured financing investments. Furthermore, securities, including preferred and common equity, may involve greater risk of loss than secured financings due to a variety of factors, including that such investments are generally unsecured and may also be subordinated to other obligations of the issuer. As a result, investments in securities, including preferred and common equity, are subject to risks of: (i) limited liquidity in the secondary trading market; (ii) substantial market price volatility resulting from changes in prevailing interest rates; (iii) subordination to the prior claims of banks and other senior lenders to the issuer; (iv) the operation of mandatory sinking fund or call or redemption provisions during periods of declining interest rates that could cause the issuer to reinvest redemption proceeds in lower yielding assets; (v) the possibility that earnings of the issuer may be insufficient to meet its debt service and distribution obligations; and (vi) the declining creditworthiness and potential for insolvency of the issuer during periods of rising interest rates and economic downturn. These risks may adversely affect the value of outstanding securities,

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including preferred and common equity, and the ability of the issuers thereof to make principal, interest and distribution payments to us.
Many of our investments are illiquid and we may not be able to vary our portfolio in response to changes in economic and other conditions, which may result in losses to us.
Many of our investments are illiquid. As a result, our ability to sell commercial real estate debt, securities or properties in response to changes in economic and other conditions, could be limited, even at distressed prices. The Internal Revenue Code also places limits on our ability to sell properties held for fewer than four years. These considerations could make it difficult for us to dispose of any of our assets even if a disposition were in the best interests of our stockholders. As a result, our ability to vary our portfolio in response to further changes in economic and other conditions may be relatively limited, which may result in losses to us.
Declines in the fair value of our investments may adversely affect periodic reported results of operations and credit availability, which may reduce earnings and, in turn, cash available for distribution.
Most of our security investments will be classified for accounting purposes as “available-for-sale.” These assets will be carried at estimated fair value and temporary changes in the fair value of those assets will be directly charged or credited to equity with no impact on our statement of operations. If we determine that a decline in the estimated fair value of an available-for-sale security falls below its amortized value and is not temporary, we will recognize a loss on that security on the statement of operations, which will reduce our income in the period recognized.
A decline in the fair value of our assets may adversely affect us particularly in instances where we have borrowed money based on the fair value of those assets. If the fair value of those assets declines, the lender may require us to post additional collateral to support the asset. If we were unable to post the additional collateral, our lenders may refuse to continue to lend to us or reduce the amounts they are willing to lend to us. Additionally, we may have to sell assets at a time when we might not otherwise choose to do so. A reduction in credit available may reduce our income and, in turn, cash available for distribution.
Further, lenders may require us to maintain a certain amount of cash reserves or to set aside unlevered assets sufficient to maintain a specified liquidity position, which would allow us to satisfy our collateral obligations. As a result, we may not be able to leverage our assets as fully as we would choose, which could reduce our return on equity. In the event that we are unable to meet these contractual obligations, our financial condition could deteriorate rapidly.
The fair value of our investments may decline for a number of reasons, such as changes in prevailing market rates, increases in defaults, increases in voluntary prepayments for those investments that we have that are subject to prepayment risk, widening of credit spreads and downgrades of ratings of the securities by ratings agencies.
Some of our investments will be carried at estimated fair value as determined by us and, as a result, there may be uncertainty as to the value of these investments.
Some of our investments will be in the form of securities that are recorded at fair value but have limited liquidity or are not publicly-traded. The fair value of these securities and potentially other investments that have limited liquidity or are not publicly-traded may not be readily determinable. We estimate the fair value of these investments on a quarterly basis. Because such valuations are inherently uncertain, may fluctuate over short periods of time and may be based on numerous estimates and assumptions, our determinations of fair value may differ materially from the values that would have been used if a readily available market for these securities existed. The value of our common stock could be adversely affected if our determinations regarding the fair value of these investments are materially higher than the values that we ultimately realize upon their disposal.
Competition with third parties for originating and acquiring investments may reduce our profitability.
We have significant competition with respect to our origination and acquisition of assets with many other companies, including other REITs, insurance companies, commercial banks, private investment funds, hedge funds, specialty finance companies and other investors, many of which have greater resources than us. We may not be able to compete successfully for investments. In addition, the number of entities and the amount of funds competing for suitable investments may increase. If we pay higher prices for investments or originate loans on more generous terms than our competitors, our returns will be lower and the value of our assets may not increase or may decrease significantly below the amount we paid for such assets. If such events occur, our investors may experience a lower return on their investment.
Our due diligence may not reveal all material issues relating to our origination or acquisition of a particular investment.
Before making an investment, we assess the strength and skills of the management of the borrower or the operator of the property and other factors that we believe are material to the performance of the investment. In making the assessment and otherwise conducting customary due diligence, we rely on the resources available to us and, in some cases, an investigation by third parties. This process is particularly important and subjective with respect to newly organized or private entities because there may be little or no information publicly available about the entity. Even if we conduct extensive due diligence on a particular investment, there can be no assurance that this diligence will uncover all material issues relating to such investment,

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or that factors outside of our control will not later arise. If our due diligence fails to identify issues specific to investment, we may be forced to write-down or write-off assets, restructure our operations or incur impairment or other charges that could result in our reporting losses. Charges of this nature could contribute to negative market perceptions about us or our shares of common stock.
Real estate debt restructurings may reduce our net interest income.
We may need to restructure our commercial real estate debt investments if the borrowers are unable to meet their obligations to us and we believe restructuring is the best way to maximize value. In order to preserve long-term value, we may determine to lower the interest rate on our commercial real estate debt investments in connection with a restructuring, which will have an adverse impact on our net interest income. We may also determine to extend the time to maturity and make other concessions with the goal of increasing overall value but there is no assurance that the results of our restructurings will be favorable to us. We may lose some or all of our investment even if we restructure in an effort to increase value.
We may be unable to restructure loans in a manner that we believe maximizes value, particularly if we are one of multiple creditors in large capital structures.
In the current environment, in order to maximize value we may be more likely to extend and work out a loan, rather than pursue foreclosure. However, in situations where there are multiple creditors in large capital structures, it can be particularly difficult to assess the most likely course of action that a lender group or the borrower may take and it may also be difficult to achieve consensus among the lender group as to major decisions. Consequently, there could be a wide range of potential principal recovery outcomes, the timing of which can be unpredictable, based on the strategy pursued by a lender group and/or by a borrower. These multiple creditor situations tend to be associated with larger loans. If we are one of a group of lenders, we may be a lender on a subordinated basis, and may not independently control the decision making. Consequently, we may be unable to restructure a loan in a manner that we believe would maximize value.
We may not be able to realize the benefits of any guarantees we may receive which could harm our ability to preserve our capital upon a default.
We sometimes obtain personal or corporate guarantees, which are not secured, from borrowers or their affiliates. These guarantees are often triggered only upon the occurrence of certain trigger, or “bad boy” events. In cases where guarantees are not fully or partially secured, we typically rely on financial covenants from borrowers and guarantors which are designed to require the borrower or guarantor to maintain certain levels of creditworthiness. As a result of the recent economic recession and persisting market conditions, many borrowers and guarantors face financial difficulties and may be unable to comply with their financial covenants. If the economy does not strengthen, our borrowers could experience additional financial stress. Where we do not have recourse to specific collateral pledged to satisfy such guarantees or recourse loans, we will only have recourse as an unsecured creditor to the general assets of the borrower or guarantor, some or all of which may be pledged to satisfy other lenders. There can be no assurance that a borrower or guarantor will comply with its financial covenants or that sufficient assets will be available to pay amounts owed to us under our commercial real estate debt and related guarantees.
We may be subject to risks associated with future advance obligations, such as declining real estate values and operating performance.
Our commercial real estate debt portfolio may include loans that require us to advance future funds. Future funding obligations subject us to significant risks that the property may have declined in value, projects to be completed with the additional funds may have cost overruns and the borrower may be unable to generate enough cash flow, or sell or refinance the property, in order to repay our commercial real estate loan due. We could determine that we need to fund more money than we originally anticipated in order to maximize the value of our investment even though there is no assurance additional funding would be the best course of action.
While we attempt to align the maturities of our liabilities with the maturities on our assets, we may not be successful in that regard which could harm our operating results and financial condition.
Our general financing strategy will include the use of “match-funded” structures. This means that we will seek to align the maturities of our liabilities with the maturities on our assets in order to manage the risks of being forced to refinance our liabilities prior to the maturities of our assets. We may fail to appropriately employ match-funded structures on favorable terms, or at all. We may also determine not to pursue a match-funded structure with respect to a portion of our financings for a variety of reasons. If we fail to appropriately employ match-funded structures, our exposure to interest rate volatility and exposure to matching liabilities prior to the maturity of the corresponding asset may increase substantially which could harm our operating results, liquidity and financial condition.
Provision for loan losses is difficult to estimate.
Our provision for loan losses is evaluated on a quarterly basis. Our determination of provision for loan losses requires us to make certain estimates and judgments. Our estimates and judgments are based on a number of factors, including projected cash flows from the collateral securing our commercial real estate debt, debt structure, including the availability of reserves and

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recourse guarantees, likelihood of repayment in full at the maturity of a loan, loan-to-value ("LTV"), potential for refinancing and expected market discount rates for varying property types. Our estimates and judgments may not be correct and, therefore, our results of operations and financial condition could be severely impacted.
Risks Related to the Conduit Segment of the Business
We use warehouse facilities that may limit our ability to acquire assets, and we may incur losses if the collateral is liquidated.
We utilize warehouse facilities pursuant to which we accumulate mortgage loans in anticipation of a securitization financing, which assets are pledged as collateral for such facilities until the securitization transaction is consummated. In order to borrow funds to acquire assets under any additional warehouse facilities, we expect that our lenders thereunder would have the right to review the potential assets for which we are seeking financing. We may be unable to obtain the consent of a lender to acquire assets that we believe would be beneficial to us and we may be unable to obtain alternate financing for such assets. In addition, no assurance can be given that a securitization transaction would be consummated with respect to the assets being warehoused. If the securitization is not consummated, the lender could liquidate the warehoused collateral and we would then have to pay any amount by which the original purchase price of the collateral assets exceeds its sale price, subject to negotiated caps, if any, on our exposure. In addition, regardless of whether the securitization is consummated, if any of the warehoused collateral is sold before the consummation, we would have to bear any resulting loss on the sale. No assurance can be given that we will be able to obtain additional warehouse facilities on favorable terms, or at all.
We directly or indirectly utilize non‑recourse securitizations, and such structures expose us to risks that could result in losses to us.
We utilize non‑recourse securitizations of our investments in mortgage loans to the extent consistent with the maintenance of our REIT qualification and exemption from the Investment Company Act in order to generate cash for funding new investments and/or to leverage existing assets. In most instances, this involves us transferring our loans to a special purpose securitization entity in exchange for cash. In some sale transactions, we also retain a subordinated interest in the loans sold. The securitization of our portfolio investments might magnify our exposure to losses on those portfolio investments because the subordinated interest we retain in the loans sold would be subordinate to the senior interest in the loans sold, and we would, therefore, absorb all of the losses sustained with respect to a loan sold before the owners of the senior interest experience any losses. Moreover, we cannot be assured that we will be able to access the securitization market in the future, or be able to do so at favorable rates. The inability to consummate securitizations of our portfolio investments to finance our investments on a long‑term basis could require us to seek other forms of potentially less attractive financing or to liquidate assets at an inopportune time or price, which could adversely affect our performance and our ability to continue to grow our business.
The securitization market is subject to an evolving regulatory environment that may affect certain aspects of these activities.
As a result of the dislocation of the credit markets, the securitization market has become subject to additional regulation. In particular, pursuant to the Dodd‑Frank Wall Street Reform and Consumer Protection Act, various federal agencies have promulgated a rule that generally requires issuers in securitizations to retain 5% of the risk associated with the securities. To the extent we are required to buy significant B‑Pieces in our securitizations, this could reduce our returns in these transactions.
We enter into hedging transactions that could expose us to contingent liabilities in the future.
Subject to maintaining our qualification as a REIT, part of our investment strategy involves entering into hedging transactions that require us to fund cash payments in certain circumstances (such as the early termination of the hedging instrument caused by an event of default or other early termination event, or the decision by a counterparty to request margin securities it is contractually owed under the terms of the hedging instrument). The amount due would be equal to the unrealized loss of the open swap positions with the respective counterparty and could also include other fees and charges. These economic losses will be reflected in our results of operations, and our ability to fund these obligations will depend on the liquidity of our assets and access to capital at the time, and the need to fund these obligations could adversely impact our financial condition.
Hedging may adversely affect our earnings, which could reduce our cash available for distribution to our stockholders.
Subject to maintaining our qualification as a REIT, we pursue various hedging strategies to seek to reduce our exposure to adverse changes in interest rates. Our hedging activity varies in scope based on the level and volatility of interest rates, exchange rates, the types of assets held and other changing market conditions. Hedging may fail to protect or could adversely affect us because, among other things:
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interest rate, currency and/or credit hedging can be expensive and may result in us receiving less interest income;
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available interest rate hedges may not correspond directly with the interest rate risk for which protection is sought;
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due to a credit loss, prepayment or asset sale, the duration of the hedge may not match the duration of the related asset or liability;

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the amount of income that a REIT may earn from hedging transactions (other than hedging transactions that satisfy certain requirements of the Internal Revenue Code or that are done through a taxable REIT subsidiary) to offset losses is limited by U.S. federal tax provisions governing REITs;
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the credit quality of the hedging counterparty owing money on the hedge may be downgraded to such an extent that it impairs our ability to sell or assign our side of the hedging transaction; and
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the hedging counterparty owing money in the hedging transaction may default on its obligation to pay.
We may fail to recalculate, readjust or execute hedges in an efficient manner.
Any hedging activity in which we engage may materially and adversely affect our results of operations and cash flows. Therefore, while we may enter into such transactions seeking to reduce risks, unanticipated changes in interest rates, credit spreads or currencies may result in poorer overall investment performance than if we had not engaged in any such hedging transactions. In addition, the degree of correlation between price movements of the instruments used in a hedging strategy and price movements in the portfolio positions or liabilities being hedged may vary materially. Moreover, for a variety of reasons, we may not seek to establish a perfect correlation between such hedging instruments and the portfolio positions or liabilities being hedged. Any such imperfect correlation may prevent us from achieving the intended hedge and expose us to risk of loss.

Risks Related to Taxation
Our failure to qualify as a REIT could have significant adverse consequences to us and the value of our common stock.
We believe that we have qualified as a REIT for U.S. federal income tax purposes commencing with our taxable year ended December 31, 2013. We intend to continue to meet the requirements for qualification and taxation as a REIT, but we cannot assure stockholders that we qualify as a REIT. Qualification as a REIT involves the application of highly technical and complex Code provisions for which only a limited number of judicial and administrative interpretations exist. Moreover, new tax legislation, administrative guidance or court decisions, in each instance potentially with retroactive effect, could make it more difficult or impossible for us to qualify as a REIT. Even an inadvertent or technical mistake could jeopardize our REIT status. Our qualification as a REIT depends on our satisfaction of certain asset, income, organizational, distribution, stockholder ownership and other requirements on a continuing basis.
If we were to fail to qualify as a REIT in any taxable year and are unable to avail ourselves of certain savings provisions set forth in the Code, we would be subject to U.S federal and applicable state and local income tax on our taxable income at regular corporate rates (including any applicable alternative minimum tax (which alternative minimum tax has been repealed for tax years after 2017)). Losing our REIT status would reduce our net income available for investment or distribution to stockholders because of the additional tax liability. In addition, distributions to stockholders would no longer qualify for the dividends-paid deduction, and we would no longer be required to make distributions. If this occurs, we might be required to borrow or liquidate some investments in order to pay the applicable tax. We would not be able to elect to be taxed as a REIT for four years following the year we first failed to qualify unless the IRS were to grant us relief under certain statutory provisions.
The failure of a mezzanine loan to qualify as a real estate asset could adversely affect our ability to qualify as a REIT.
The Internal Revenue Service ("IRS") has issued Revenue Procedure 2003-65, which provides a safe harbor pursuant to which a mezzanine loan, if it meets certain requirements, will be treated by the IRS as a real estate asset for purposes of the REIT asset tests, and interest derived from such loan will be treated as qualifying mortgage interest for purposes of the REIT 75% gross income test. Although the Revenue Procedure provides a safe harbor on which taxpayers may rely, it does not prescribe rules of substantive tax law. We may originate or acquire mezzanine loans that do not satisfy all of the requirements for reliance on the safe harbor set forth in the Revenue Procedure, in which case, there can be no assurance that the IRS will not challenge the tax treatment of such loans. If such a challenge were sustained, we could fail to qualify as a REIT.
Stockholders who participate in our DRIP may have current tax liability on distributions if they elect to reinvest in our common stock.
Stockholders who participate in our DRIP, will be deemed to have received, for U.S. federal income tax purposes, a distribution equal to the amount reinvested in shares of our common stock and an additional distribution to the extent the shares are purchased at a discount to fair market value. Such amounts will be taxable distributions, to the extent of our current or accumulated earnings and profits. As a result, unless such investor is a tax-exempt entity, such investor may have to use cash from other sources to pay the tax liability on the value of the shares of common stock received.
Even if we qualify as a REIT, we may be subject to tax liabilities that reduce our cash flow for distribution to our stockholders.
Even if we qualify as a REIT, we may be subject to some U.S. federal, state and local taxes on our income or property. For example:

21

•
In order to qualify as a REIT, we must distribute annually at least 90% of our "REIT taxable income" (determined before the deduction of dividends paid and excluding net capital gains) to our stockholders. To the extent that we satisfy the distribution requirement but distribute less than 100% of our REIT taxable income, we will be subject to U.S. federal corporate income tax on our undistributed income.
•
We will be subject to a 4% nondeductible excise tax on the amount, if any, by which distributions we pay in any calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gain net income and 100% of our undistributed income from prior years.
•
If we have net income from the sale of foreclosure property that we hold primarily for sale to customers in the ordinary course of business or other non-qualifying income from foreclosure property, we must pay a tax on that income at the highest corporate income tax rate.
•
If we sell an asset, other than a foreclosure property, that we hold primarily for sale to customers in the ordinary course of business, our gain would be subject to the 100% “prohibited transaction” tax. We might be subject to this tax if we were to dispose of or securitize loans in a manner that is treated as a sale of loans for U.S. federal income tax purposes that is subject to the prohibited transaction tax.
•
Any TRS of ours will be subject to U.S. federal corporate income tax on its taxable income, and non-arm’s length transactions between us and any TRS, could be subject to a 100% tax.
•
We could, in certain circumstances, be required to pay an excise or penalty tax (which could be significant in amount) in order to utilize one or more relief provisions under the Code to maintain our qualification as a REIT.
Any of these taxes would decrease cash available for distribution to our stockholders.
REIT distribution requirements could adversely affect our ability to execute our business plan.
We generally must distribute annually at least 90% of our REIT taxable income (determined before the deduction of dividends paid and excluding net capital gains) in order to qualify as a REIT, and any REIT taxable income that we do not distribute will be subject to U.S. federal corporate tax at regular rates. We intend to continue to make distributions to our stockholders to comply with the REIT requirements of the Code and to avoid U.S. federal corporate income tax and the 4% excise tax imposed on us if we distribute less than our required distribution in any calendar year.
From time to time, we may generate taxable income greater than our income for financial reporting purposes prepared in accordance with GAAP, or differences in timing between the recognition of taxable income and the actual receipt of cash. For example:
•
we may be required to accrue income from mortgage loans, mortgage-backed securities (“MBS”), and other types of debt securities or interests in debt securities before we receive any payments of interest or principal on such assets;
•
we may acquire distressed debt investments that are subsequently modified by agreement with the borrower, which could cause us to have to recognize gain in certain circumstances;
•
we may recognize substantial amounts of “cancellation of debt” income for U.S. federal income tax purposes (but not for GAAP purposes) due to discount repurchases of our liabilities, which could cause our REIT taxable income to exceed our GAAP income;
•
we may deduct our capital losses only to the extent of our capital gains and not against our ordinary income, in computing our REIT taxable income for any given taxable year; and
•
certain of our assets and liabilities are marked-to-market for GAAP purposes but not for tax purposes which could result in losses for GAAP purposes that are not recognized in computing our REIT taxable income; and under the “Tax Cuts and Jobs Act of 2017” (the “TCJA”), we generally must accrue income for U.S. federal income tax purposes no later than when such income is taken into account as revenue in our financial statements, which could create additional differences between REIT taxable income and the receipt of cash attributable to such income.
As a result of both the requirement to distribute 90% of our REIT taxable income each year (and to pay tax on any income that we do not distribute), and the fact that our taxable income may well exceed our cash income due to the factors mentioned above as well as other factors, we may find it difficult or impossible to meet the distribution requirements in certain circumstances while also having adequate cash resources to execute our business plan. In particular, where we experience differences in timing between the recognition of taxable income and the actual receipt of cash, the requirement to distribute a substantial portion of our taxable income could cause us to: (i) sell assets in adverse market conditions, (ii) borrow on unfavorable terms, (iii) distribute amounts that would otherwise be invested in future acquisitions, capital expenditures or repayment of debt or (iv) make a taxable distribution of our shares of our common stock as part of a distribution in which stockholders may elect to receive shares of our common stock or (subject to a limit measured as a percentage of the total distribution) cash, in order to comply with the REIT requirements. These alternatives could increase our costs, reduce our

22

equity, and/or result in stockholders being taxed on distributions of shares of stock without receiving cash sufficient to pay the resulting taxes. Thus, compliance with the REIT requirements may hinder our ability to operate solely on the basis of maximizing profits.
To maintain our REIT status, we may be forced to forgo and/or liquidate otherwise attractive opportunities.
To qualify as a REIT, we must ensure that at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash items, government securities and qualifying real estate assets, including certain mortgage loans and certain kinds of MBS. The remainder of our investment in securities (other than qualified 75% asset test assets) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our assets (other than qualified 75% asset test assets) can consist of the securities of any one issuer, and no more than 20% of the value of our total assets can be represented by securities of one or more TRSs, and no more than 25% of the value of our total assets may be represented by debt instruments issued by "publicly offered REITs" (i.e. REITs which are required to file annual and periodic reports with the SEC under the Exchange Act) that are “nonqualified” (e.g., not secured by real property or interests in real property). If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences. As a result, we may be required to liquidate from our portfolio, or contribute to a TRS, otherwise attractive investments in order to maintain our qualification as a REIT. These actions could have the effect of reducing our income, increasing our income tax liability, and reducing amounts available for distribution to our stockholders. In addition, we may be required to make distributions to stockholders at disadvantageous times or when we do not have funds readily available for distribution, and may be unable to pursue investments (or, in some cases, forego the sale of such investments) that would be otherwise advantageous to us in order to satisfy the source-of-income or asset-diversification requirements for qualifying as a REIT. Thus, compliance with the REIT requirements may hinder our ability to make, and, in certain cases, maintain ownership of certain attractive investments.
The failure of assets subject to repurchase agreements to qualify as real estate assets could adversely affect our ability to qualify as a REIT.
We are party to certain financing arrangements, and may in the future enter into additional financing arrangements, that are structured as sale and repurchase agreements pursuant to which we would nominally sell certain of our assets to a counterparty and simultaneously enter into an agreement to repurchase these assets at a later date in exchange for a purchase price. Economically, these agreements are financings which are secured by the assets sold pursuant thereto. We believe that we would be treated for REIT asset and income test purposes as the owner of the assets that are the subject of any such sale and repurchase agreement notwithstanding that such agreement may transfer record ownership of the assets to the counterparty during the term of the agreement. It is possible, however, that the IRS could assert that we did not own the assets during the term of the sale and repurchase agreement, in which case we could fail to qualify as a REIT.
The “taxable mortgage pool” rules may increase the taxes that we or our stockholders incur, and may limit the manner in which we effect future securitizations.
Certain of our securitizations have resulted in the creation of "taxable mortgage pools" for U.S. federal income tax purposes. As a REIT, so long as we own 100% of the equity interest in a taxable mortgage pool, we generally would not be adversely affected by the characterization as a taxable mortgage pool. Certain categories of stockholders, however, such as non-U.S. stockholders eligible for treaty or other benefits, stockholders with net operating losses, and certain tax-exempt stockholders that are subject to unrelated business income tax, will be subject to increased taxes on the portion of their dividend income from us that is attributable to any "excess inclusion income" that we have generated as a result of our securitization transactions, and may generate as a result of future securitization transactions. In addition, to the extent that our common stock is owned by tax-exempt “disqualified organizations,” such as certain government-related entities and charitable remainder trusts that are not subject to tax on unrelated business income, we will incur a corporate-level tax on a portion of any excess inclusion income. In that case, we may reduce the amount of our distributions to any disqualified organization whose stock ownership gave rise to the tax. Moreover, we could face limitations in selling equity interests in these securitizations to outside investors, or selling any debt securities issued in connection with these securitizations that might be considered to be equity interests for tax purposes. These limitations may prevent us from using certain techniques to maximize our returns from securitization transactions.
The prohibited transactions tax may limit our ability to engage in transactions, including certain methods of securitizing mortgage loans that would be treated as sales for U.S. federal income tax purposes.
A REIT’s net income from prohibited transactions is subject to a 100% tax. In general, prohibited transactions are sales or other dispositions of assets, other than foreclosure property, held primarily for sale to customers in the ordinary course of business. We might be subject to the prohibited transaction tax if we were to dispose of, modify or securitize loans in a manner that is treated as a sale of the loans for U.S. federal income tax purposes. Therefore, in order to avoid the prohibited

23

transactions tax, we may choose not to engage in certain sales or modifications of loans at the REIT level and may limit the structures we utilize for our securitization transactions, even though the sales, modifications or structures might otherwise be beneficial to us. Additionally, we may be subject to the prohibited transaction tax upon a disposition of real property. Although a safe-harbor exception to prohibited transaction treatment is available, there can be no assurance that we can comply with the safe harbor or that we will avoid owning property that may be characterized as held primarily for sale to customers in the ordinary course of business.
It may be possible to reduce the impact of the prohibited transaction tax by conducting certain activities through a TRS. However, to the extent that we engage in such activities through a TRS, the income associated with such activities may be subject to U.S. federal corporate income tax.
Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities.
The REIT provisions of the Code may limit our ability to hedge our assets and operations. Under these provisions, any income that we generate from hedging transactions will be excluded from gross income for purposes of the REIT 75% and 95% gross income tests if the instrument hedges: (i) interest rate risk on liabilities incurred to carry or acquire real estate assets; or (ii) risk of currency fluctuations with respect to any item of income or gain that would be qualifying income under the REIT 75% or 95% gross income tests, and such instrument is properly identified under applicable U.S. Department of Treasury regulations ("Treasury Regulations"). Income from hedging transactions that do not meet these requirements will generally constitute non-qualifying income for purposes of both the REIT 75% and 95% gross income tests. As a result, we may have to limit our use of hedging techniques that might otherwise be advantageous, which could result in greater risks associated with interest rate or other changes than we would otherwise incur.
Liquidation of assets may jeopardize our REIT qualification.
To qualify as a REIT, we must comply with requirements regarding our assets and our sources of income. If we are compelled to liquidate our investments to repay obligations to our lenders, we may be unable to comply with these requirements, ultimately jeopardizing our qualification as a REIT, or we may be subject to a 100% prohibited transaction tax on any resultant gain if we sell assets that are treated as dealer property or inventory.
In connection with our qualification as a REIT, we are required to annually distribute at least 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gain. Although we do not currently intend to do so, in order to satisfy this requirement, we are permitted, subject to certain conditions and limitations, to make distributions that are in part payable in shares of our common stock. Taxable stockholders receiving such distributions will be required to include the full amount of such distributions as ordinary dividend income. As a result, U.S. stockholders may be required to pay income taxes with respect to such distributions in excess of the cash portion of the distribution received. Since there is currently no market for our common stock, U.S. stockholders receiving a distribution of our shares of common stock may not be able to sell shares received in such distribution in order to satisfy any tax imposed on such distribution and therefore may be required to sell other stock or assets owned by them, at a time that may be disadvantageous. Furthermore, with respect to certain non-U.S. stockholders, we may be required to withhold U.S. federal income tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in common stock.
Modification of the terms of our debt investments and mortgage loans underlying our CMBS in conjunction with reductions in the value of the real property securing such loans could cause us to fail to qualify as a REIT.
Our debt and securities investments may be materially affected by a weak real estate market and economy in general. As a result, many of the terms of our debt and the mortgage loans underlying our securities may be modified to avoid taking title to a property. Under the Code, if the terms of a loan are modified in a manner constituting a "significant modification," such modification triggers a deemed exchange of the original loan for the modified loan. In general, under applicable Treasury Regulations if a loan is secured by real property and other property and the highest principal amount of the loan outstanding during a taxable year exceeds the fair market value of the real property securing the loan determined as of the date we agreed to acquire the loan or the date we significantly modified the loan, a portion of the interest income from such loan will not be qualifying income for purposes of the REIT 75% gross income test, but will be qualifying income for purposes of the REIT 95% gross income test. Although the law is not entirely clear, a portion of the loan will likely be a non-qualifying asset for purposes of the REIT 75% asset test. The non-qualifying portion of such a loan would be subject to, among other requirements, the requirement that a REIT not hold securities possessing more than 10% of the total value of the outstanding securities of any one issuer ("10% Value Test").
IRS Revenue Procedure 2014-51 provides a safe harbor pursuant to which we will not be required to redetermine the fair market value of real property securing a loan for purposes of the gross income and asset tests discussed above in connection with a loan modification that is: (i) occasioned by a borrower default; or (ii) made at a time when we reasonably believe that the modification to the loan will substantially reduce a significant risk of default on the original loan. No assurance can be provided that all of our loan modifications have or will qualify for the safe harbor in Revenue Procedure 2014-51. To the extent we significantly modify loans in a manner that does not qualify for that safe harbor, we will be required to redetermine the

24

value of the real property securing the loan at the time it was significantly modified. In determining the value of the real property securing such a loan, we generally will not obtain third-party appraisals, but rather will rely on internal valuations. No assurance can be provided that the IRS will not successfully challenge our internal valuations. If the terms of our debt investments and the mortgage loans underlying our CMBS are "significantly modified" in a manner that does not qualify for the safe harbor in Revenue Procedure 2014-51 and the fair market value of the real property securing such loans has decreased significantly, we could fail the REIT 75% gross income test, the 75% asset test and/or the 10% Value Test. Unless we qualified for relief under certain Code cure provisions, such failures could cause us to fail to continue to qualify as a REIT.
Our qualification as a REIT may depend upon the accuracy of legal opinions or advice rendered or given or statements by the issuers of assets we acquire.
When purchasing securities, we may rely on opinions or advice of counsel for the issuer of such securities, or statements made in related offering documents, for purposes of determining, among other things, whether such securities represent debt or equity securities for U.S. federal income tax purposes, the value of such securities and to what extent those securities constitute qualified real estate assets for purposes of the REIT asset tests and produce qualified income for purposes of the REIT 75% gross income test. The inaccuracy of any such opinions, advice or statements may adversely affect our ability to qualify as a REIT.
Dividends paid by REITs do not qualify for the preferential tax rates that apply to other corporate dividends.
The maximum tax rate for “qualified dividends” paid by non-REIT "C" corporations to U.S stockholders that are individuals, trusts and estates is generally 20%. Dividends payable by REITs to those U.S stockholders, however, generally are not eligible for the reduced rate, except to the extent that certain holding requirements have been met and a REIT’s dividends are attributable to dividends received by a REIT from taxable corporations (such as a TRS), to income that was subject to tax at the REIT/corporate level, or to dividends properly designated by the REIT as “capital gain dividends.” Effective for taxable years beginning after December 31, 2017 and before January 1, 2026, those U.S. stockholders may deduct 20% of their dividends from REITs (excluding qualified dividend income and capital gains dividends). For those U.S. stockholders in the top marginal tax bracket of 37%, the deduction for REIT dividends yields an effective income tax rate of 29.6% on REIT dividends, which is higher than the 20% tax rate on qualified dividend income paid by non-REIT “C” corporations but still lower than the effective rate that applied prior to 2018, which is the first year that this special deduction for REIT dividends is available. Although the reduced rates applicable to dividend income from non-REIT “C” corporations do not adversely affect the taxation of REITs or dividends payable by REITs, it could cause investors who are non-corporate taxpayers to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT “C” corporations that pay dividends, which could adversely affect the value of our common stock.
There is a risk of changes in the tax law applicable to REITs.
The IRS, the United States Treasury Department and Congress frequently review U.S. federal income tax legislation, regulations and other guidance. We cannot predict whether, when or to what extent new U.S. federal tax laws, regulations, interpretations or rulings will be adopted. Any legislative action may prospectively or retroactively modify our tax treatment and, therefore, may adversely affect taxation of us and/or our investors. We urge you to consult with your tax advisor with respect to the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in our stock. Although REITs generally receive certain tax advantages compared to entities taxed as non-REIT “C” corporations, it is possible that future legislation would result in a REIT having fewer tax advantages, and it could become more advantageous for a company that invests in real estate to elect to be treated for U.S. federal income tax purposes as a non-REIT “C” corporation.
The ability of our board of directors to revoke our REIT election without stockholder approval may cause adverse consequences to our stockholders.
Our charter provides that the board of directors may revoke or otherwise terminate our REIT election, without the approval of our stockholders, if the board determines that it is no longer in our best interest to continue to qualify as a REIT. If we cease to qualify as a REIT, we would become subject to U.S. federal income tax on our net taxable income and we generally would no longer be required to distribute any of our net taxable income to our stockholders, which may have adverse consequences on our total return to our stockholders.
Employee Benefit Plan and IRA Risks
If certain investors fail to meet the fiduciary and other standards under the Employment Retirement Income Security Act of 1974 ("ERISA") or the Code as a result of an investment in our stock, such investors could be subject to criminal and civil penalties.
Special considerations apply to the purchase of shares by employee benefit plans subject to the fiduciary rules of Title I of ERISA, including pension or profit sharing plans and entities that hold assets of such plans ("ERISA Plans") and plans and accounts that are not subject to ERISA, but are subject to the prohibited transaction rules of Section 4975 of the Internal

25

Revenue Code, including IRAs, Keogh Plans and medical savings accounts (collectively, we refer to ERISA Plans and plans subject to Section 4975 of the Internal Revenue Code as “Benefit Plans”). If an investor is investing the assets of any Benefit Plan, such investors should be satisfied that:
•
any investment is consistent with the its fiduciary obligations under ERISA and the Internal Revenue Code, or any other applicable governing authority in the case of a government plan; the investment is made in accordance with the documents and instruments governing the Benefit Plan, including the Benefit Plan’s investment policy;
•
the investment satisfies the prudence and diversification requirements of Sections 404(a)(1)(B) and 404(a)(1)(C) of ERISA, if applicable, and other applicable provisions of ERISA and the Internal Revenue Code;
•
the investment will not impair the liquidity of the Benefit Plan;
•
the investment will not produce unrelated business taxable income for the Benefit Plan;
•
they will be able to value the assets of the Benefit Plan annually in accordance with the applicable provisions of ERISA and the Internal Revenue Code; and
•
the investment will not constitute a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Internal Revenue Code.
Fiduciaries may be held personally liable under ERISA for losses as a result of failure to satisfy the fiduciary standards of conduct and other applicable requirements of ERISA. In addition, if an investment in our shares constitutes a non-exempt prohibited transaction under ERISA or the Internal Revenue Code, the fiduciary of the Benefit Plan who authorized or directed the investment may be subject to imposition of excise taxes with respect to the amount invested and an IRA investing in our shares may lose its tax-exempt status.
Governmental plans, church plans and foreign plans that are not subject to ERISA or the prohibited transaction rules of the Internal Revenue Code, may be subject to similar restrictions under other laws. A plan fiduciary making an investment in our shares on behalf of such a plan should satisfy themselves that an investment in our shares satisfies both applicable law and is permitted by the governing plan documents.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Our headquarters are located in a leased space at 9 West 57th Street, Suite 4920, New York, New York 10019.
Item 3. Legal Proceedings.
The Company has no knowledge of material pending legal proceedings, other than ordinary routine litigation incidental to the business, or material pending or threatened regulatory proceedings, against the Company at this time.
Item 4. Mine Safety Disclosures.
Not applicable.

26

PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
No public trading market currently exists for our shares of common stock and we currently have no immediate plans to list our shares on a national securities exchange. Until our shares are listed on a national securities exchange, if ever, our stockholders may not sell their shares unless the buyer meets the applicable suitability and minimum purchase requirements. On November 7, 2018, the board of directors, upon the recommendation of the Advisor, unanimously approved and established an estimated NAV per share of the Company’s common stock of $18.75. The estimated per share NAV is based upon the estimated value of the Company’s assets less the Company’s liabilities as of September 30, 2018. This valuation was performed in accordance with the provisions of Practice Guideline 2013-01, Valuations of Publicly Registered Non-Listed REITs, issued by the Investment Program Association in April 2013, including the use of an independent third-party valuation firm to estimate the fair value of our commercial real estate debt investments and commercial mortgage backed securities. See our current report on Form 10-Q filed with the SEC on November 13, 2018 for our methodology for calculating our estimated per-share NAV.
There is no public trading market for the shares at this time, and there can be no assurance that stockholders would receive $18.75 per share if such a market did exist and they sold their shares or that they will be able to receive such amount for their shares in the future. Nor does this deemed value reflect the distributions that stockholders would be entitled to receive if our investments were sold and the sale proceeds were distributed upon liquidation of our assets. Such a distribution upon liquidation may be less than $18.75 per share for various reasons including changes in values between the September 30, 2018 valuation date and the date of any liquidation. We are currently offering our shares for $18.75 pursuant to the DRIP.
Holders
As of February 28, 2019, we had 39,862,149 shares of common stock outstanding held by a total of 16,223 stockholders.
Distributions
We have elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code commencing with our taxable year ended December 31, 2013. As a REIT, if we meet certain organizational and operational requirements and distribute at least 90% of our "REIT taxable income" (determined before the deduction of dividends paid and excluding net capital gains) to our stockholders in a year, we will not be subject to U.S. federal income tax to the extent of the income that we distribute. Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income and property and U.S. federal income and excise taxes on any undistributed income.
In August 2017, our board of directors authorized and declared a distribution calculated daily at a rate of $0.00394521 per day, which is equivalent to $1.44 per annum per annum, per share of common stock. Distribution payments are dependent on the availability of funds. The board of directors may reduce the amount of distributions paid or suspend distribution payments at any time, and therefore, distribution payments are not assured.
The distributions will be payable by the fifth day following each month end to stockholders of record at the close of business each day during the prior month.
The below table reflects distributions paid in cash and through the DRIP to common stockholders during the years ended December 31, 2018 and 2017 (dollars in thousands):
 
Year Ended December 31,
 
2018
 
2017
Distributions:
 
 
 
 
 
 
 
Cash distributions paid
$
34,467

 
 
 
$
38,828

 
 
Distributions reinvested
14,023

 
 
 
20,051

 
 
Total distributions
$
48,490

 
 
 
$
58,879

 
 
Source of distribution coverage:
 
 
 
 
 
 
 
Net Income (Loss) (GAAP)

$
34,467

 
71.1
%
 
$
33,779

 
57.4
%
Available cash on hand
—

 
—
%
 
5,049

 
8.6
%
Common stock issued under DRIP
14,023

 
28.9
%
 
20,051

 
34.0
%
Total sources of distributions
$
48,490

 
100.0
%
 
$
58,879

 
100.0
%
Net income applicable to common stock (GAAP)
$
49,181

 
 
 
$
33,779

 
 


27

Share-Based Compensation
Restricted Share Plan
We have an employee and director incentive restricted share plan (the “RSP”), which provides us with the ability to grant awards of restricted shares to our directors, officers, and employees (if we ever have employees), employees of the Advisor and its affiliates, employees of entities that provide services to us, directors of the Advisor or of entities that provide services to us or certain consultants to us and the Advisor and its affiliates. The total number of common shares granted under the RSP shall not exceed 5.0% of our authorized common shares, and in any event, will not exceed 4.0 million shares (as such number may be adjusted for stock splits, stock dividends, combinations, and similar events).
Restricted share awards entitle the recipient to receive common shares from us under terms that provide for vesting over a specified period of time or upon attainment of pre-established performance objectives. Such awards would typically be forfeited with respect to the unvested shares upon the termination of the recipient’s employment or other relationship with us. Restricted shares may not, in general, be sold or otherwise transferred until restrictions are removed and the shares have vested. Holders of restricted shares may receive cash distributions prior to the time that the restrictions on the restricted shares have lapsed. Any distributions payable in common shares shall be subject to the same restrictions as the underlying restricted shares. The fair value of the restricted shares will be expensed over the vesting period of five years.
As of December 31, 2018, we have granted 31,970 restricted shares to our independent directors of which 12,935 shares have vested and 5,333 shares were forfeited. The compensation expense associated with the restricted share grants was $157,000 for the year ended December 31, 2018. Additionally, we recorded a distribution payable of $26,623 at December 31, 2018 in connection with these shares.
The following table provides information about our common stock that may be issued under our RSP as of December 31, 2018:
Plan Category
 
Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights
 
Weighted-Average Exercise of Price of Outstanding Options, Warrants, and Rights
 
Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans
Equity compensation plans approved by security holders
 
—

 
—

 
—

Equity compensation plans not approved by security holders
 
—

 
—

 
3,992,398

    Total
 
—

 
—

 
3,992,398


Recent Sale of Unregistered Equity Securities
Commencing in February 2018, the Company has been offering common stock and Series A Convertible Preferred Stock in private placements exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act and certain rules and regulations promulgated thereunder. Pursuant to these private placements, for the year ended December 31, 2018, the Company made the following sales to institutional and individual investors:
Class of Security
Number of Shares
Sale Price
Common Stock
7,534,358
$124.3 million
Preferred Stock
29,249
$146.8 million (1)
(1)Includes accrued dividends as of settlement paid as part of purchase price.
Conversion Terms of the Preferred Stock
Immediately prior to a “Liquidity Event” (defined as (i) the listing of our common stock on a national securities exchange or quotation on an electronic inter-dealer quotation system; (ii) a merger or business combination involving the Company pursuant to which outstanding shares common stock are exchanged for securities of another company which are listed on a national securities exchange or quoted on an electronic inter-dealer quotation system; or (iii) any other transaction or series of transaction that results in all shares of common stock being transferred or exchange for cash or securities which are listed on a national securities exchange or quoted on an electronic inter-dealer quotation system), each outstanding share of Preferred Stock shall convert (the “Mandatory Conversion”) into 299.2 shares of our common stock, subject to anti-dilution adjustments (the “Conversion Rate”). If there has not been a Liquidity Event within six years from the initial issuance of the Preferred Stock, each holder of Preferred Stock shall have the right to convert all, but not less than all, of the Preferred Stock held by such holder into our common stock at the Conversion Rate. Each holder also has the option to convert its shares of Preferred

28

Stock into common stock upon a Change in Control (as defined in the Articles Supplementary) of the Company. In addition, neither the Company nor a holder of shares of Preferred Stock may redeem shares of the Preferred Stock until six years from the initial issuance of the Preferred Stock, except in cases of a Change in Control (as defined in the Articles Supplementary).
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Our Board unanimously approved an amended and restated share repurchase program (the “SRP”), which became effective on February 28, 2016. The SRP enables stockholders to sell their shares to us. Subject to certain conditions, stockholders that purchased shares of our common stock or received their shares from us (directly or indirectly) through one or more non-cash transactions and have held their shares for a period of at least one year may request that we repurchase their shares of common stock. Repurchase requests made following the death or qualifying disability of a stockholder will not be subject to any minimum holding period.
On August 10, 2017, our Board amended the SRP to provide that the repurchase price per share for requests will be equal to the lesser of (i) our most recent estimated per-share NAV, as approved by our board of directors from time to time, and (ii) our book value per share, computed in accordance with GAAP, multiplied by a percentage equal to (i) 92.5%, if the person seeking repurchase has held his or her shares for a period greater than one year and less than two years; (ii) 95%, if the person seeking repurchase has held his or her shares for a period greater than two years and less than three years; (iii) 97.5%, if the person seeking repurchase has held his or her shares for a period greater than three years and less than four years; or (iv) 100%, if the person seeking repurchase has held his or her shares for a period greater than four years or in the case of requests for death or qualifying disability.Investors in our private placements are not eligible to participate in the SRP for three years.
The Company’s most recent estimated per-share NAV is $18.75 and the Company’s GAAP book value per share as of December 31, 2018 is $18.66.
Repurchases pursuant to the SRP, when requested, generally will be made semiannually (each six-month period ending June 30 or December 31, a “fiscal semester”). Repurchases for any fiscal semester will be limited to a maximum of 2.5% of the weighted average number of shares of common stock outstanding during the previous fiscal year, with a maximum for any fiscal year of 5.0% of the weighted average number of shares of common stock outstanding during the previous fiscal year. Funding for repurchases pursuant to the SRP for any given fiscal semester will be limited to proceeds received during that same fiscal semester through the issuance of common stock pursuant to any DRIP in effect from time to time, provided that the Board has the power, in its sole discretion, to determine the amount of shares repurchased during any fiscal semester as well as the amount of funds to be used for that purpose. In addition, the board of directors may reject a request for redemption at any time. Due to these limitations, we cannot guarantee that we will be able to accommodate all repurchase requests made during any fiscal semester or fiscal year. Pending repurchase requests will be honored on a pro rata basis. We will generally pay repurchase proceeds, less any applicable tax or other withholding required by law, by the 31st day following the end of the fiscal semester during which the repurchase request was made.
When a stockholder requests redemption and the redemption is approved, we will reclassify such obligation from equity to a liability based on the settlement value of the obligation. Shares repurchased under the SRP will have the status of authorized but unissued shares.
Share repurchase activity under the SRP during the year December 31, 2018 was as follows:

29

 
 
Number of Shares Repurchased
 
Average Price per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs

 
Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans or Programs

January 1 - January 31, 2018
 
 
 
 
 
 
 
 
February 1 - February 28, 2018
 
421,809

 
$
18.56

 
421,809

 
 
March 1 - March 31, 2018
 
—

 
N/A

 
—

 
 
April 1 - April 30, 2018
 
—

 
N/A

 
—

 
 
May 1 - May 31, 2018
 
—

 
N/A

 
—

 
 
June 1 - June 30, 2018
 
—

 
N/A

 
—

 
 
July 1 - July 31, 2018
 
387,214

 
$
18.74

 
387,214

 
 
August 1 - August 31, 2018
 
—

 
N/A

 
—

 
 
September 1 - September 30, 2018
 
—

 
N/A

 
—

 
 
October 1 - October 31, 2018
 
—

 
N/A

 
—

 
 
November 1 - November 30, 2018
 
—

 
N/A

 
—

 
 
December 1 - December 31, 2018
 
—

 
N/A

 
—

 
 
Total
 
809,023

 
 
 
809,023

 
 
Item 6. Selected Financial Data.
The following selected financial data should be read in conjunction with the accompanying consolidated financial statements and related notes thereto and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations". The following consolidated balance sheet as of December 31, 2018 and 2017 and consolidated statements of operations the for the years ended December 31, 2018, 2017, 2016, 2015 and 2014 were derived from our consolidated financial statements:
 
 
December 31,
Balance sheet data (dollars in thousands)
 
2018
 
2017
Commercial mortgage loans, held for investment, net
 
$
2,206,830

 
$
1,402,046

Commercial mortgage loans, held-for-sale, measured at fair value
 
76,863

 
28,531

Real estate securities, available for sale, at fair value
 
26,412

 
—

Total assets
 
2,606,078

 
1,583,661

Collateralized loan obligations
 
1,505,279

 
826,150

Repurchase agreements - commercial mortgage loans
 
149,440

 
65,690

Other financing and loan participation - commercial mortgage loans
 
9,902

 
25,698

Repurchase agreements - real estate securities
 
44,539

 
39,035

Total liabilities
 
1,727,064

 
973,322

Total stockholders' equity
 
733,228

 
610,339


30

 
 
Year Ended December 31,
Operating data (dollars in thousands)
 
2018
 
2017
 
2016
 
2015
 
2014
Interest income:
 
 
 
 
 
 
 
 
 
 
Interest income
 
$
152,288

 
$
89,564

 
$
79,404

 
$
59,393

 
$
15,466

Less: Interest expense
 
70,000

 
32,359

 
23,169

 
12,268

 
2,196

Net interest income
 
82,288

 
57,205

 
56,235

 
47,125

 
13,270

Expenses:
 
 
 
 
 
 
 
 
 
 
Asset management and subordinated performance fee
 
10,299

 
9,273

 
9,504

 
7,615

 
604

Acquisition fees and acquisition expenses
 
452

 
4,197

 
806

 
7,916

 
4,386

Administrative services expenses (1)
 
13,446

 
6,765

 
4,376

 
644

 
—

Other expenses
 
13,205

 
9,281

 
7,803

 
5,699

 
2,198

Total expenses
 
37,402

 
29,516

 
22,489

 
21,874

 
7,188

Other (income)/loss:
 
 
 
 
 
 
 
 
 
 
Loan loss provision/(recovery)
 
3,370

 
(715
)
 
1,293

 
318

 
570

Realized (gain)/loss on sale of real estate securities
 
107

 
(172
)
 
1,906

 
—

 
—

Realized (gain)/loss on sale of commercial mortgage loan held-for-sale
 
9

 
(120
)
 
—

 
—

 
(112
)
Realized (gain)/loss on sale of commercial mortgage loan, held-for-sale, measured at fair value
 
(11,288
)
 
(4,523
)
 
—

 
—

 
—

Impairment losses on real estate securities
 
—

 
—

 
310

 
—

 
—

Unrealized (gain)/loss on commercial mortgage loans held-for-sale
 
—

 
(247
)
 
247

 
—

 
—

Unrealized (gain)/loss on commercial mortgage loans, held-for-sale, measured at fair value
 
237

 
—

 
—

 
—

 
—

Unrealized (gain)/loss on derivatives
 
1,374

 
17

 
—

 
—

 
—

Realized (gain)/loss on derivatives
 
(1,827
)
 
(555
)
 
—

 
—

 
—

Total other (income)/loss
 
$
(8,018
)
 
$
(6,315
)
 
$
3,756

 
$
318

 
$
458

Income/(loss) before taxes
 
52,904

 
34,004

 
29,990

 
24,933

 
5,624

Provision/(benefit) for income tax
 
79

 
225

 
—

 
—

 
209

Net income
 
$
52,825

 
$
33,779

 
$
29,990

 
$
24,933

 
$
5,415

Less: Preferred stock dividends
 
(3,644
)
 
—

 
—

 
—

 
—

Net income applicable to common stock
 
$
49,181

 
$
33,779

 
$
29,990

 
$
24,933

 
$
5,415

 
 
 
 
 
 
 
 
 
 
 
Basic net income per share
 
$
1.44

 
$
1.06

 
$
0.95

 
$
1.03

 
$
0.75

Diluted net income per share
 
$
1.44

 
$
1.06

 
$
0.95

 
$
1.03

 
$
0.75

Basic weighted average shares outstanding
 
34,268,707

 
31,772,231

 
31,659,274

 
24,253,905

 
7,227,169

Diluted weighted average shares outstanding
 
36,779,735

 
31,784,889

 
31,666,504

 
24,259,169

 
7,232,559

Distributions per common share
 
$
1.44

 
$
1.80

 
$
2.06

 
$
2.06

 
$
2.06

________________________
(1) During the year ended December 31, 2015 the Company previously reported Administrative services expenses within the Professional fees line. For the year ended December 31, 2016 the amounts are presented separately and the change was applied retrospectively. For the year ended December 31, 2014, the Company did not incur administrative services expenses.

31

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the accompanying financial statements of Benefit Street Partners Realty Trust, Inc. the notes thereto and other financial information included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements reflecting the Company’s current expectations, estimates and assumptions concerning events and financial trends that may affect our future operating results or financial position. Actual results and timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed in the sections of this Annual Report entitled “Risk Factors” and “Forward-Looking Statements.”
Overview
We were incorporated in Maryland on November 15, 2012 and have conducted our operations to qualify as a REIT for U.S. federal income tax purposes beginning with our taxable year ended December 31, 2013. The Company, through a subsidiary which is treated as a TRS, is indirectly subject to U.S. federal, state and local income taxes. On May 14, 2013, we commenced business operations after raising in excess of $2.0 million of equity, the amount required for us to release equity proceeds from escrow. We primarily originate, acquire and manage a diversified portfolio of commercial real estate debt investments secured by properties located within and outside of the United States. Commercial real estate debt investments may include first mortgage loans, subordinated mortgage loans, mezzanine loans and participations in such loans. Substantially all of our business is conducted through the OP, a Delaware limited partnership. We are the sole general partner and directly or indirectly hold all of the units of limited partner interests in the OP.
The Company has no direct employees. We are managed by our Advisor pursuant to the amended and restated advisory agreement executed on January 19, 2018. Our Advisor manages our affairs on a day-to-day basis. The Advisor receives compensation and fees for services related to the investment and management of our assets and our operations.
The Advisor, an SEC-registered investment adviser, is a credit-focused alternative asset management firm. The Advisor manages funds for institutions and high-net-worth investors across various credit funds and complementary strategies including high yield, levered loans, private / opportunistic debt, liquid credit, structured credit and commercial real estate debt. These strategies complement each other as they all leverage the sourcing, analytical, compliance, and operational capabilities that encompass the Advisor’s robust platform. On February 1, 2019, Franklin Resources, Inc. and Templeton International, Inc. (collectively, “Franklin Templeton”) acquired the Advisor (the “Transaction”). The Transaction did not impact the terms of the Amended and Restated Advisory Agreement and the Transaction will not result in any changes to the executive officers of the Company.
The Company invests in commercial real estate debt investments, which may include first mortgage loans, subordinated mortgage loans, mezzanine loans and participations in such loans. The Company also originates conduit loans which the Company intends to sell through its TRS into CMBS securitization transactions at a profit.
The Company may also invest in commercial real estate securities. Real estate securities may include CMBS, senior unsecured debt of publicly traded REITs, debt or equity securities of other publicly traded real estate companies and CDOs.
Estimated Per Share NAV
On November 7, 2018, our board of directors unanimously approved and established an estimated (“NAV”) per share of $18.75. Refer to "Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities" of this Form 10-K for additional information regarding our estimated NAV per share.
Significant Accounting Estimates and Critical Accounting Policies
Our financial statements are prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"), which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Critical accounting policies are those that require the application of management’s most difficult, subjective or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain and that may change in subsequent periods. In preparing the financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. In preparing the financial statements, management has utilized available information, including our past history, industry standards and the current economic environment, among other factors, in forming its estimates and judgments, giving due consideration to materiality. Actual results may differ from these estimates. In addition, other companies may utilize different estimates, which may impact the comparability of our results of operations to those of companies in similar businesses. As our expected operating plans occur, we will describe additional critical accounting policies in the notes to our future financial statements in addition to those discussed below.

32

Set forth below is a summary of the significant accounting estimates and critical accounting policies that management believes are important to the preparation of our financial statements. Certain of our accounting estimates are particularly important for an understanding of our financial position and results of operations and require the application of significant judgment by our management. As a result, these estimates are subject to a degree of uncertainty.
Commercial Mortgage Loans
Commercial mortgage loans that are held for investment purposes and are anticipated to be held until maturity, are carried at cost, net of unamortized acquisition expenses, discounts or premiums and unfunded commitments. Commercial mortgage loans, held for investment purposes, that are deemed to be impaired will be carried at amortized cost less a specific allowance for loan losses. Interest income is recorded on the accrual basis and related discounts, premiums and acquisition expenses on investments are amortized over the life of the investment using the effective interest method. Amortization is reflected as an adjustment to interest income in our consolidated statements of operations. Guaranteed loan exit fees payable by the borrower upon maturity are accreted over the life of the investment using the effective interest method. The accretion of guaranteed loan exit fees is recognized in interest income in our consolidated statements of operations and the associated receivable is included in the consolidated balance sheet.
Commercial mortgage loans that are intended to be sold in the foreseeable future are reported as held-for-sale and are transferred at fair value then recorded at the lower of cost or fair value with changes recorded through the statement of operations.  Unamortized loan origination costs for commercial mortgage loans held-for-sale that are carried at the lower of cost or fair value are capitalized as part of the carrying value of the loans and recognized upon the sale of such loans. Amortization of origination costs ceases upon transfer of commercial mortgage loans to held-for-sale.
The Company has elected to measure commercial mortgage loans held-for-sale in the Company's TRS under the fair value option to better reflect those commercial mortgage loans that are part of securitization warehousing activity. These commercial mortgage loans are included in the Commercial mortgage loans, held-for-sale, measured at fair value in the consolidated balance sheet. Interest income received on commercial mortgage loans held-for-sale is recorded on the accrual basis of accounting and is included in interest income in the consolidated statements of operations. Acquisition expenses on originating these investments are expensed when incurred.
Allowance for Loan Losses
The allowance for loan losses reflects management's estimate of loan losses inherent in the loan portfolio as of the balance sheet date. The reserve is increased through the loan loss provision on the Company's consolidated statement of operations and is decreased by charge-offs when losses are confirmed through the receipt of assets, such as cash in a pre-foreclosure sale or upon ownership control of the underlying collateral in full satisfaction of the loan upon foreclosure or when significant collection efforts have ceased. The Company uses a uniform process for determining its allowance for loan losses. The allowance for loan losses includes a general, formula-based component and an asset-specific component.
General reserves are recorded when (i) available information as of each balance sheet date indicates that it is probable a loss has occurred in the portfolio and (ii) the amount of the loss can be reasonably estimated. The Company currently estimates loss rates based on historical realized losses experienced in the industry and takes into account current collateral and economic conditions affecting the probability and severity of losses when establishing the allowance for loan losses. The Company performs a comprehensive analysis of its loan portfolio and assigns risk ratings to loans that incorporate management's current judgments about their credit quality based on all known and relevant internal and external factors that may affect collectability. The Company considers, among other things, payment status, lien position, borrower financial resources and investment in collateral, collateral type, project economics and geographic location as well as national and regional economic factors. This methodology results in loans being segmented by risk classification into risk rating categories that are associated with estimated probabilities of default and principal loss. Risk rating categories range from "1" to "5" with "1" representing the lowest risk of loss and "5" representing the highest risk of loss.
The asset-specific reserve component relates to reserves for losses on individual impaired loans. The Company considers a loan to be impaired when, based upon current information and events, it believes that it is probable that the Company will be unable to collect all amounts due under the contractual terms of the loan agreement. This assessment is made on an individual loan basis each quarter based on such factors as payment status, lien position, borrower financial resources and investment in collateral, collateral type, project economics and geographical location as well as national and regional economic factors. A reserve is established for an impaired loan when the present value of payments expected to be received, observable market prices or the estimated fair value of the collateral (for loans that are dependent on the collateral for repayment) is lower than the carrying value of that loan.
For collateral dependent impaired loans, impairment is measured using the estimated fair value of collateral less the estimated cost to sell. Valuations are performed or obtained at the time a loan is determined to be impaired and designated non-performing, and they are updated if circumstances indicate that a significant change in value has occurred. The Advisor generally will use the income approach through internally developed valuation models to estimate the fair value of the

33

collateral for such loans. In more limited cases, the Advisor will obtain external "as is" appraisals for loan collateral, generally when third party participations exist.
A loan is also considered impaired if its terms are modified in a troubled debt restructuring ("TDR"). A TDR occurs when a concession is granted and the debtor is experiencing financial difficulties. Impairments on TDR loans are generally measured based on the present value of expected future cash flows discounted at the effective interest rate of the original loans.
The Company designates non-performing loans at such time as (i) loan payments become 90-days past due; (ii) the loan has a maturity default; or (iii) in the opinion of the Company, it is probable the Company will be unable to collect all amounts due according to the contractual terms of the loan. Income recognition will be suspended when a loan is designated non-performing and resumed only when the suspended loan becomes contractually current and performance is demonstrated to have resumed. A loan will be written off when it is no longer realizable and legally discharged.
Real Estate Securities
On the acquisition date, all of our commercial real estate securities will be classified as available for sale and will be carried at fair value, with any unrealized gains or losses reported as a component of accumulated other comprehensive income or loss. However, we may elect the fair value option for certain of our real estate securities, and as a result, any unrealized gains or losses on such real estate securities will be recorded as unrealized gains or losses on investments in our consolidated statement of operations. Related discounts, premiums, and acquisition expenses on investments are amortized over the life of the investment using the effective interest method. Amortization is reflected as an adjustment to interest income in the consolidated statements of operations.
Impairment Analysis of Real Estate Securities
Commercial real estate securities for which the fair value option has not been elected will be periodically evaluated for other-than-temporary impairment. If the fair value of a security is less than its amortized cost, the security is considered impaired. Impairment of a security will be considered to be other-than-temporary when (i) the Advisor has the intent to sell the impaired security; (ii) it is more likely than not we will be required to sell the security; or (iii) the Advisor does not expect to recover the entire amortized cost of the security. If the Advisor determines that an other-than-temporary impairment exists and a sale is likely, the impairment charge will be recognized as an impairment of assets on our consolidated statement of operations. If a sale is not expected, the portion of the impairment charge related to credit factors will be recorded as an impairment of assets on our consolidated statement of operations with the remainder recorded as an unrealized gain or loss on investments reported as a component of accumulated other comprehensive income or loss.
Commercial real estate securities for which the fair value option has been elected will not be evaluated for other-than-temporary impairment as changes in fair value are recorded in our consolidated statement of operations.
Income Taxes
The Company has conducted its operations to qualify as a REIT for U.S. federal income tax purposes beginning with the taxable year ended December 31, 2013. As a REIT, if the Company meets certain organizational and operational requirements and distribute at least 90% of our "REIT taxable income" (determined before the deduction of dividends paid and excluding net capital gains) to our stockholders in a year, it will not be subject to U.S. federal income tax to the extent of the income that it distributes. However, even if the Company qualifies for taxation as a REIT, it may be subject to certain state and local taxes on our income in addition to U.S. federal income and excise taxes on its undistributed income. The Conduit business segment is operated through the Company’s TRS. The TRS is subject to U.S. federal and applicable state income taxes.
Derivatives and Hedging Activities
The Company recognizes all derivatives on the consolidated balance sheets at fair value.  The Company does not designate derivatives as hedges to qualify for hedge accounting for financial reporting purposes and therefore any net payments under, or fluctuations in the fair value of these derivatives have been recognized currently in gain/(loss) on derivative instruments in the accompanying consolidated statements of operations. The Company records derivative asset and liability positions on a gross basis with any collateral posted with or received from counterparties recorded separately on the Company’s consolidated balance sheets. Certain derivatives that the Company has entered into are subject to master netting agreements with its counterparties, allowing for netting of the same transaction, in the same currency, on the same date.
Per Share Data
The Company’s redeemable convertible preferred stock Series A (the "Preferred Stock") is considered a participating security. As such, the Company is required to include the Preferred Stock in the calculation of basic earnings per share and calculate basic earnings per share using the two-class method. The Company’s dilutive earnings per share calculation is computed using the more dilutive result of the treasury stock method, assuming the participating security is a potential common share, or the two-class method, assuming the participating security is not converted. Diluted earnings per share reflects the potential dilution that could occur from shares outstanding if potential shares of common stock with a dilutive effect have been

34

issued in connection with the restricted stock plan or upon conversion of the outstanding shares of the Company’s Preferred Stock, except when doing so would be anti-dilutive.

Results of Operations
Comparison of the Year Ended December 31, 2018 to the Year Ended December 31, 2017
We conduct our business through the following segments:
•
The real estate debt business focuses on originating, acquiring and asset managing commercial real estate debt investments, including first mortgage loans, subordinate mortgages, mezzanine loans and participations in such loans.
•
The real estate securities business focuses on investing in and asset managing commercial real estate securities primarily consisting of CMBS and may include unsecured REIT debt, CDO notes and other securities.
•
The Conduit business operated through the Company's TRS, which is focused on generating superior risk-adjusted returns by originating and subsequently selling fixed-rate commercial real estate loans into the CMBS securitization market at a profit. .
Net Interest Income
Net interest income is generated on our interest-earning assets less related interest-bearing liabilities and is recorded as part of our real estate debt and real estate securities segments.
The following table presents the average balance of interest-earning assets less related interest-bearing liabilities, associated interest income and expense and corresponding yield earned and incurred for the years ended December 31, 2018 and 2017 (dollars in thousands):
 
 
Year Ended December 31,
 
 
2018
 
2017
 
 
Average Carrying Value(1)
 
Interest Income/Expense(2)
 
WA Yield/Financing Cost(3)(4)
 
Average Carrying Value(1)
 
Interest Income/Expense(2)
 
WA Yield/Financing Cost(3)(4)
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
 
Real estate debt
 
$
1,877,159

 
$
144,967

 
7.7
%
 
$
1,208,603

 
$
87,014

 
7.2
%
Real estate conduit
 
106,703

 
6,604

 
6.2
%
 
23,221

 
1,199

 
5.2
%
Real estate securities
 
15,166

 
717

 
4.7
%
 
19,016

 
1,351

 
7.1
%
Total
 
$
1,999,028

 
$
152,288

 
7.6
%
 
$
1,250,840

 
$
89,564

 
7.2
%
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Repurchase Agreements - commercial mortgage loans
 
$
285,257

 
$
17,023

 
6.0
%
 
$
300,199

 
$
14,142

 
4.7
%
Other financing - commercial mortgage loans
 
9,446

 
1,244

 
13.2
%
 
20,086

 
1,213

 
6.0
%
Repurchase Agreements - real estate securities
 
21,986

 
770

 
3.5
%
 
50,379

 
1,499

 
3.0
%
Collateralized loan obligations
 
1,124,424

 
50,679

 
4.5
%
 
406,262

 
15,385

 
3.8
%
Derivative instruments
 
—

 
284

 
N/A

 
—

 
120

 
N/A

Total
 
$
1,441,113

 
$
70,000

 
4.9
%
 
$
776,926

 
$
32,359

 
4.2
%
Net interest income/spread
 
 
 
$
82,288

 
2.7
%
 
 
 
$
57,205

 
3.0
%
Average leverage %(5)
 
72.1
%
 
 
 
 
 
62.1
%
 
 
 
 
Weighted average levered yield(6)
 
 
 
 
 
14.7
%
 
 
 


 
12.1
%
________________________
(1) Based on amortized cost for real estate debt and real estate securities and principal amount for repurchase agreements. Amounts are calculated based on daily averages for the year ended December 31, 2018 and 2017, respectively.
(2) Includes the effect of amortization of premium or accretion of discount and deferred fees.
(3) Calculated as interest income or expense divided by average carrying value.
(4) Annualized.
(5) Calculated by dividing total average interest-bearing liabilities by total average interest-earning assets.
(6) Calculated by dividing net interest income/spread by the net average interest-earning assets and average interest-bearing liabilities.

35

Interest income
Interest income for the years ended December 31, 2018 and 2017 totaled $152.3 million and $89.6 million, respectively. As of December 31, 2018, our portfolio consisted of 100 commercial mortgage loans, seven commercial mortgage loans, held-for-sale, measured at fair value and two investments in CMBS. The main drivers in the increase in interest income were the increase in the 1 Month LIBOR, the benchmark for our loans and an increase of $748.2 million in the average carrying value of our interest-earning assets. The increase in interest income was due to the formation of the TRS in September 2017.
Interest expense
Interest expense for the year ended December 31, 2018 increased to $70.0 million compared to interest expense for the year ended December 31, 2017 of $32.4 million. The increase in interest expense was due to an increase in the 1 Month LIBOR, the benchmark index for our financing lines and an increase of $664.2 million in the average carrying value of our interest-bearing liabilities, of which approximately $718.2 million is an increase due to two CLOs issued in 2018. The increase in interest expense was also due to the formation of the TRS in September 2017.
Realized Gain/Loss on Commercial Mortgage Loans Held-for-Sale
Realized loss on commercial mortgage loans held-for-sale for the year ended December 31, 2018 was $9.0 thousand on sale of five commercial mortgage loans held-for-sale for proceeds of $20.6 million compared to $120.0 thousand for the year ended December 31, 2017 on sale of fifteen commercial mortgage loans held-for-sale for total proceeds of $121.7 million.
Realized gain on commercial mortgage loans held-for-sale, measured at fair value at the TRS for the year ended December 31, 2018 was $11.3 million compared to $4.5 million for the year ended December 31, 2017. The $6.8 million increase in realized gain was due to total proceeds of $567.4 million from the sale of fixed-rate commercial real estate loans into the CMBS securitization market during the year ended December 31, 2018 versus limited transaction of total proceeds of $20.6 million for the year ended December 31, 2017 due to the formation of the TRS in September 2017.
Expenses from operations
Expenses from operations for the years ended December 31, 2018 and 2017 were made up of the following (dollars in thousands):
 
 
Year Ended December 31,
 
 
2018
 
2017
Asset management and subordinated performance fee
 
$
10,299

 
$
9,273

Administrative services expenses
 
13,446

 
6,765

Acquisition fees and acquisition expenses
 
452

 
4,197

Professional fees
 
8,318

 
5,444

Other expenses
 
4,887

 
3,837

Total expenses from operations
 
$
37,402

 
$
29,516


The increase in our expenses from operations was primarily related to asset management and subordinated performance fees, administrative services expenses and professional fees. During the years ended December 31, 2018 and 2017, we incurred asset management and subordinated performance fees of $10.3 million and $9.3 million, respectively. The entire $10.3 million in the asset management and subordinated performance fee line is composed of asset management fees, as there was no subordinated performance fee for 2018 due to applicable conditions not having been satisfied. The increase in asset management fees was due to additional equity raised during the year ended December 31, 2018. For the year ended December 31, 2018, we incurred approximately $13.4 million of administrative service expenses related to general and administrative expense reimbursement, of which the full amount was attributable to our Advisor; compared to $6.8 million of administrative services expense for the year ended December 31, 2017, an increase of approximately $6.6 million. Additionally, during the year ended December 31, 2018 and December 31, 2017 , we incurred $8.3 million and $5.4 million of professional fees, respectively, an increase of approximately $2.9 million. The increases in administrative services expenses and professional fee are due to increases in overall Company growth, origination activities and the addition of the Conduit business.

36

Comparison of the Year Ended December 31, 2017 to the Year Ended December 31, 2016
Net Interest Income
Net interest income is generated on our interest-earning assets less related interest-bearing liabilities and is recorded as part of our real estate debt and real estate securities segments.
The following table presents the average balance of interest-earning assets less related interest-bearing liabilities, associated interest income and expense and corresponding yield earned and incurred for the years ended December 31, 2017 and 2016 (dollars in thousands):
 
 
Year Ended December 31,
 
 
2017
 
2016
 
 
Average Carrying Value(1)
 
Interest Income/Expense(2)
 
WA Yield/Financing Cost(3)(4)
 
Average Carrying Value(1)
 
Interest Income/Expense(2)
 
WA Yield/Financing Cost(3)(4)
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
 
Real estate debt
 
$
1,208,603

 
$
87,014

 
7.2
%
 
$
1,123,992

 
$
73,884

 
6.6
%
Real estate conduit
 
23,221

 
1,199

 
5.2
%
 
—

 
—

 
n/a

Real estate securities
 
19,016

 
1,351

 
7.1
%
 
109,035

 
5,520

 
5.1
%
Total
 
1,250,840

 
89,564

 
7.2
%
 
1,233,027

 
79,404

 
6.4
%
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Repurchase Agreements - Loans
 
$
300,199

 
$
14,142

 
4.7
%
 
$
250,788

 
$
12,079

 
4.8
%
Other financing - commercial mortgage loans
 
20,086

 
1,213

 
6.0
%
 
—

 
—

 
n/a

Repurchase Agreements - Securities
 
50,379

 
1,499

 
3.0
%
 
106,086

 
2,450

 
2.3
%
Collateralized loan obligations
 
406,262

 
15,385

 
3.8
%
 
286,936

 
8,640

 
3.0
%
Derivative instruments
 
—

 
120

 
n/a

 
—

 
—

 
n/a

Total
 
$
776,926

 
$
32,359

 
4.2
%
 
$
643,810

 
$
23,169

 
3.6
%
Net interest income/spread
 
 
 
$
57,205

 
3.0
%
 
 
 
$
56,235

 
2.8
%
Average leverage %(5)
 
62.1
%
 
 
 
 
 
52.2
%
 
 
 
 
Weighted average levered yield(6)
 
 
 
 
 
12.1
%
 
 
 
 
 
9.5
%
________________________
(1) Based on amortized cost for real estate debt and real estate securities and principal amount for repurchase agreements. All amounts are calculated based on quarterly averages for years ended December 31, 2017 and 2016.
(2) Includes the effect of amortization of premium or accretion of discount and deferred fees.
(3) Calculated as interest income or expense divided by average carrying value.
(4) Annualized.
(5) Calculated by dividing total average interest-bearing liabilities by total average interest-earning assets.
(6) Calculated by dividing net interest income/spread by the net of interest-earning assets and interest-bearing liabilities.
Interest income
Interest income for the years ended December 31, 2017 and 2016 totaled $89.6 million and $79.4 million, respectively. As of December 31, 2017, our portfolio consisted of 69 loans and no investments in CMBS. The main driver in the increase in interest income was due to an increase in the 1 Month LIBOR, the benchmark for our loans. As of December 31, 2017, our Loans had an average carrying value of $1,208.6 million and our CMBS investments had an average carrying value of $19.0 million, while as of December 31, 2016, the Loans had an average carrying value of $1,124.0 million and our CMBS investments had an average carrying value of $109.0 million.
Interest expense
Interest expense for the year ended December 31, 2017 increased to $32.4 million compared to interest expense for the year ended December 31, 2016 of $23.2 million, primarily due to increase in average borrowings of approximately $133.1 million year over year, of which approximately $202.3 million is an increase due to the issuance of two CLOs issued in 2017. During the years ended December 31, 2017 and 2016, our total average borrowing outstanding was $776.9 million and $643.8 million, respectively.

37

Expenses from operations
Expenses from operations for the years ended December 31, 2017 and 2016 were made up of the following (dollars in thousands):
 
 
Year Ended December 31,
 
 
2017
 
2016
Asset management and subordinated performance fee
 
$
9,273

 
$
9,504

Administrative services expenses
 
6,765

 
4,376

Acquisition fees and acquisition expenses
 
4,197

 
806

Professional fees
 
5,444

 
5,467

Other expenses
 
3,837

 
2,336

Total expenses from operations
 
$
29,516

 
$
22,489

The increase in our expenses from operations was primarily related to administrative services expenses, acquisition fees and acquisition expenses, and other expenses. During the years ended December 31, 2017 and 2016, we incurred asset management and subordinated performance fees of $9.3 million and $9.5 million, respectively. The entire $9.3 million in the asset management and subordinated performance fee line is composed of asset management fees, as there was no subordinated performance fee for 2017 due to applicable conditions not having been satisfied. For the year ended December 31, 2017, we have incurred approximately $6.8 million of administrative service expenses related to general and administrative expense reimbursement, of which the full amount was attributable to our Advisor. Additionally, we incurred approximately $3.4 million more in acquisition fees during the year ended December 31, 2017 compared to December 31, 2016 primarily due to the fact that we had nominal origination activity in 2016.

Portfolio
As of December 31, 2018 and 2017, our portfolio consisted of 100 and 69 commercial mortgage loans, excluding commercial mortgage loans accounted for under the fair value option, respectively. The commercial mortgage loans held for investment as of December 31, 2018 and December 31, 2017 had a total carrying value, net of allowance for loan losses, of $2,206.8 million and $1,402.0 million, respectively. As of December 31, 2018 and 2017 the Company's total commercial mortgage loans, held for sale, measured at fair value comprised of 7 loans with total fair value of $76.9 million and 3 loans with total fair value of $28.5 million, respectively. As of December 31, 2018, the Company had two CMBS investments with total fair value of $26.4 million. We had no CMBS investments as of December 31, 2017. For our commercial mortgage loans, excluding commercial mortgage loans accounted for under the fair value option, we currently estimate loss rates based on historical realized losses experienced in the industry and take into account current collateral and economic conditions affecting the probability or severity of losses when establishing the allowance for loan losses. We recorded allowance for loan loss as of December 31, 2018 and 2017 in the amount of $4.8 million and $1.5 million, respectively. As of December 31, 2018 the Company had one loan with an unpaid contractual principal balance of $16.8 million and fair value of $12.0 million in non-performing status. For the year ended December 31, 2018, the Company has applied $1.0 million of interest received on this loan as a reduction to the unpaid principal balance. During the year ended December 31, 2018, the Company recorded $4.1 million of asset-specific reserve included in loan loss provision/(recovery) on the consolidated statement of operations. We also had one loan with a principal balance of $14.3 million that had interest past due for greater than 90 days as of December 31, 2018. We continued to accrue interest income on this loan as the loan was well secured, including cash reserves that were sufficient to cover interest due. As of December 31, 2017, we did not have any loans that were past due on their payments, in non-performing status or impaired.
As of December 31, 2018 and 2017, our commercial mortgage loans, excluding commercial mortgage loans accounted for under the fair value option, had a weighted average coupon of 6.7% and 6.7%, and a weighted average remaining life of 1.5 years and 1.3 years, respectively. As of December 31, 2018, our CMBS investments had a weighted average coupon of 5.0% and a remaining life of 4.9 years. We had no CMBS as of December 31, 2017.
The following charts summarize our portfolio as a percentage of par value, including CMBS, by the collateral type, geographical region and coupon rate type as of December 31, 2018 and 2017:
 




38


chart-a8a20996290a56fd8cea02.jpg chart-10830ce07d355774833a02.jpg

39

chart-f5cf8d1c330655139a7a02.jpg chart-3ba0dff198845615be5a02.jpg


40

chart-5aff83df779b592d8cda02.jpgchart-ccd2dbccb7995aada8fa02.jpg

An investments region classification is defined according to the below map based on the location of investments secured property.
usamapregions22july2015a13.jpg


41

The following charts show the par value by contractual maturity year for the investments in our portfolio as of December 31, 2018 and 2017.
chart-6a0180cac5835984beea02.jpg

chart-36c8c99855f85791a09.jpg


42

The following table shows selected data from our commercial mortgage loans portfolio as of December 31, 2018 (dollars in thousands):
Loan Type
Property Type
Par Value
Interest Rate (1)
Effective Yield
Loan to Value (2)
Senior 1
Office
$31,250
1 month LIBOR + 4.50%
7.02%
71.1%
Senior 2
Retail
9,450
1 month LIBOR + 4.90%
7.42%
69.2%
Senior 3
Office
38,385
1 month LIBOR + 5.25%
7.77%
72.1%
Senior 4
Retail
11,684
1 month LIBOR + 4.50%
7.02%
74.8%
Senior 5
Hospitality
16,800
1 month LIBOR + 4.90%
7.42%
74.0%
Senior 6
Retail
14,600
1 month LIBOR + 4.25%
6.77%
65.0%
Senior 7
Office
10,700
1 month LIBOR + 4.65%
7.17%
70.8%
Senior 8
Industrial
20,216
1 month LIBOR + 4.25%
6.77%
68.0%
Senior 9
Retail
7,500
1 month LIBOR + 5.00%
7.52%
59.0%
Senior 10
Industrial
33,655
1 month LIBOR + 4.00%
6.52%
65.0%
Senior 11
Retail
13,700
1 month LIBOR + 4.75%
7.27%
62.6%
Senior 12
Retail
28,900
1 month LIBOR + 4.73%
7.25%
73.1%
Senior 13
Retail
12,953
1 month LIBOR + 5.00%
7.52%
73.3%
Senior 14
Retail
15,750
1 month LIBOR + 5.25%
7.77%
70.5%
Senior 15
Multifamily
17,657
1 month LIBOR + 7.10%
9.62%
76.4%
Senior 16
Hospitality
12,600
1 month LIBOR + 5.50%
8.02%
61.6%
Senior 17
Hospitality
14,300
1 month LIBOR + 5.50%
8.02%
71.2%
Senior 18
Retail
23,650
1 month LIBOR + 5.00%
7.52%
60.9%
Senior 19
Hospitality
14,900
1 month LIBOR + 6.25%
8.77%
69.0%
Senior 20
Office
12,830
1 month LIBOR + 4.45%
6.97%
64.2%
Senior 21
Office
10,400
1 month LIBOR + 5.50%
8.02%
74.0%
Senior 22
Multifamily
39,629
1 month LIBOR + 5.50%
8.02%
76.0%
Senior 23
Retail
7,500
1 month LIBOR + 5.25%
7.77%
70.5%
Senior 24
Multifamily
47,416
1 month LIBOR + 4.50%
7.02%
73.8%
Senior 25
Hospitality
8,875
1 month LIBOR + 6.20%
8.72%
67.7%
Senior 26
Office
26,420
1 month LIBOR + 4.15%
6.67%
69.5%
Senior 27
Multifamily
34,875
1 month LIBOR + 3.75%
6.27%
71.2%
Senior 28
Office
12,400
1 month LIBOR + 4.00%
6.52%
69.7%
Senior 29
Hospitality
10,600
1 month LIBOR + 5.00%
7.52%
61.6%
Senior 30
Office
20,851
1 month LIBOR + 4.25%
6.77%
68.6%
Senior 31
Hospitality
7,700
1 month LIBOR + 5.75%
8.27%
77.0%
Senior 32
Multifamily
18,230
1 month LIBOR + 3.62%
6.14%
69.5%
Senior 33
Multifamily
12,827
1 month LIBOR + 5.75%
8.27%
63.9%
Senior 34
Hospitality
57,075
1 month LIBOR + 5.19%
7.71%
51.8%
Senior 35
Multifamily
13,481
1 month LIBOR + 5.50%
8.02%
68.4%
Senior 36
Multifamily
35,409
1 month LIBOR + 4.50%
7.02%
22.4%
Senior 37
Hospitality
10,250
1 month LIBOR + 5.25%
7.77%
60.7%
Senior 38
Hospitality
15,280
1 month LIBOR + 4.41%
6.92%
48.1%
Senior 39
Multifamily
19,040
1 month LIBOR + 3.60%
6.12%
80.5%
Senior 40
Multifamily
11,841
1 month LIBOR + 3.30%
5.82%
70.9%
Senior 41
Multifamily
27,300
1 month LIBOR + 3.50%
6.02%
75.0%
Senior 42
Office
24,350
1 month LIBOR + 4.65%
7.17%
56.4%
Senior 43
Hospitality
21,000
1 month LIBOR + 4.00%
6.52%
54.8%
Senior 44
Office
19,450
1 month LIBOR + 3.70%
6.22%
58.9%
Senior 45
Multifamily
20,102
1 month LIBOR + 4.25%
6.77%
75.0%
Senior 46
Multifamily
15,429
1 month LIBOR + 3.65%
6.17%
77.0%
Senior 47
Multifamily
42,000
1 month LIBOR + 3.70%
6.22%
63.7%
Senior 48
Hospitality
13,500
1 month LIBOR + 4.75%
7.27%
59.9%
Senior 49
Hospitality
15,000
1 month LIBOR + 4.95%
7.47%
52.6%
Senior 50
Hospitality
25,484
1 month LIBOR + 4.00%
6.52%
68.0%
Senior 51
Hospitality
20,646
1 month LIBOR + 4.40%
6.92%
72.7%
Senior 52
Multifamily
31,750
1 month LIBOR + 3.60%
6.12%
83.6%
Senior 53
Self-Storage
4,120
1 month LIBOR + 4.05%
6.57%
45.5%
Senior 54
Self-Storage
6,496
1 month LIBOR + 5.05%
7.57%
55.8%

43

Loan Type
Property Type
Par Value
Interest Rate (1)
Effective Yield
Loan to Value (2)
Senior 55
Retail
50,732
1 month LIBOR + 4.25%
6.77%
87.1%
Senior 56
Multifamily
7,612
1 month LIBOR + 4.25%
6.77%
80.6%
Senior 57
Office
23,000
1 month LIBOR + 3.65%
6.17%
66.5%
Senior 58
Self-Storage
7,306
1 month LIBOR + 5.05%
7.57%
57.6%
Senior 59
Multifamily
80,071
1 month LIBOR + 3.50%
6.02%
71.8%
Senior 60
Multifamily
40,000
1 month LIBOR + 3.75%
6.27%
70.4%
Senior 61
Self-Storage
2,400
1 month LIBOR + 4.05%
6.57%
37.6%
Senior 62
Multifamily
10,500
1 month LIBOR + 5.54%
8.06%
64.4%
Senior 63
Self-Storage
6,310
1 month LIBOR + 5.05%
7.57%
59.1%
Senior 64
Multifamily
20,909
1 month LIBOR + 3.15%
5.67%
79.7%
Senior 65
Multifamily
11,590
1 month LIBOR + 3.75%
6.27%
85.9%
Senior 66
Multifamily
66,000
1 month LIBOR + 3.75%
6.27%
76.8%
Senior 67
Multifamily
17,250
1 month LIBOR + 3.95%
6.47%
70.0%
Senior 68
Retail
22,203
1 month LIBOR + 4.95%
7.47%
85.4%
Senior 69
Hospitality
22,355
1 month LIBOR + 4.00%
6.52%
68.8%
Senior 70
Hospitality
34,000
1 month LIBOR + 4.50%
7.02%
36.2%
Senior 71
Mixed-Use
101,290
1 month LIBOR + 4.00%
6.52%
67.0%
Senior 72
Mixed-Use
19,357
1 month LIBOR + 4.75%
7.27%
49.0%
Senior 73
Multifamily
11,120
1 month LIBOR + 3.50%
6.02%
74.6%
Senior 74
Multifamily
16,607
1 month LIBOR + 3.30%
5.82%
83.1%
Senior 75
Office
18,700
1 month LIBOR + 3.75%
6.27%
70.0%
Senior 76
Office
50,000
1 month LIBOR + 4.23%
6.75%
59.6%
Senior 77
Self-Storage
3,300
1 month LIBOR + 6.00%
8.52%
58.9%
Senior 78
Multifamily
7,250
1 month LIBOR + 4.00%
6.52%
75.6%
Senior 79
Multifamily
99,305
1 month LIBOR + 3.10%
5.62%
79.1%
Senior 80
Office
12,973
1 month LIBOR + 3.40%
5.92%
67.5%
Senior 81
Multifamily
25,500
1 month LIBOR + 3.50%
6.02%
73.3%
Senior 82
Multifamily
13,600
1 month LIBOR + 3.53%
6.04%
65.4%
Senior 83
Self-Storage
6,125
1 month LIBOR + 5.50%
8.02%
68.1%
Senior 84
Office
35,610
1 month LIBOR + 3.76%
6.28%
62.4%
Senior 85
Office
500
1 month LIBOR + 12.71%
15.23%
62.4%
Senior 86
Multifamily
14,446
1 month LIBOR + 3.15%
5.67%
80.3%
Senior 87
Multifamily
20,284
1 month LIBOR + 3.40%
5.92%
80.5%
Senior 88
Multifamily
29,900
1 month LIBOR + 3.35%
5.87%
73.0%
Senior 89
Multifamily
35,490
1 month LIBOR + 3.10%
5.62%
75.5%
Senior 90
Industrial
12,000
1 month LIBOR + 4.50%
7.02%
71.6%
Senior 91
Self-Storage
13,900
1 month LIBOR + 4.00%
6.52%
69.5%
Senior 92
Multifamily
10,020
1 month LIBOR + 3.45%
5.97%
76.8%
Senior 93
Multifamily
73,620
1 month LIBOR + 3.45%
5.97%
76.3%
Senior 94
Land
16,400
1 month LIBOR + 6.00%
8.52%
45.7%
Senior 95
Hospitality
8,750
1 month LIBOR + 4.80%
7.32%
62.5%
Senior 96
Retail
14,500
1 month LIBOR + 4.75%
7.27%
53.5%
Senior 97
Hospitality
17,965
5.75%
5.75%
52.9%
Senior 98
Retail
29,500
6.25%
6.25%
68.5%
Mezzanine 1
Multifamily
3,480
9.50%
9.50%
84.3%
Mezzanine 2
Office
10,000
10.00%
10.00%
78.7%
 
 
$2,221,936
 
6.7%
68.5%
________________________
(1) Our floating rate loan agreements contain the contractual obligation for the borrower to maintain an interest rate cap to protect against rising interest rates. In a simple interest rate cap, the borrower pays a premium for a notional principal amount based on a capped interest rate (the “cap rate”). When the floating rate exceeds the cap rate, the borrower receives a payment from the cap counterparty equal to the difference between the floating rate and the cap rate on the same notional principal amount for a specified period of time. When interest rates rise, the value of an interest rate cap will increase, thereby reducing the borrower's exposure to rising interest rates.
(2) Loan to value percentage is from metrics at origination.


44

The following table shows selected data from our commercial mortgage loans, held-for-sale, measured at fair value.
Loan Type
Property Type
Par Value
Interest Rate
Effective Yield
Loan to Value (1)
TRS Senior 1
Office
$15,300
5.35%
5.4%
73.2%
TRS Senior 2
Multifamily
4,500
5.53%
5.5%
66.0%
TRS Senior 3
Multifamily
13,400
5.43%
5.4%
64.1%
TRS Senior 4
Multifamily
14,000
5.60%
5.6%
70.5%
TRS Senior 5
Hospitality
27,800
5.35%
5.4%
58.0%
TRS Mezzanine 1
Multifamily
1,100
11.01%
11.0%
68.4%
TRS Mezzanine 2
Multifamily
1,000
11.00%
11.0%
68.9%
 
 
$77,100
 
5.6%
65.1%
________________________
(1) Loan to value percentage is from metrics at origination.
Liquidity and Capital Resources
Our principal demands for cash will be funding our loan investments, continuing debt service obligations, distributions to our stockholders and the payment of our operating and administrative expenses.
We expect to use additional debt and equity financing as a source of capital. Our board of directors currently intends to operate at a leverage level of between one to three times book value of equity. However, our board of directors may change this target without shareholder approval. In addition, in 2018 we raised $270.6 million of common and preferred equity through private placements to institutional and individual investors, and we expect to continue to raise capital in private placements in 2019. We anticipate that our debt and equity financing sources and our anticipated cash generated from operations will be adequate to fund our anticipated uses of capital.
In addition to our current mix of financing sources, we may also access additional forms of financings, including credit facilities, securitizations, public and private, secured and unsecured debt issuances by us or our subsidiaries, or through capital recycling initiatives whereby we sell certain assets in our portfolio and reinvest the proceeds in assets with more attractive risk-adjusted returns.
Collateralized Loan Obligations
On February 15, 2018, the Company called all of the outstanding notes issued by RFT 2015-FL1 Issuer, a wholly owned indirect subsidiary of the Company. The outstanding principal of the notes on the date of the call was $145 million. The Company recognized all the remaining unamortized deferred financing costs of $6.4 million recorded within the Interest expense line of the consolidated statements of operations, which was a non-cash charge.
As of December 31, 2018 and December 31, 2017 the notes issued by BSPRT 2017-FL1 Issuer, a wholly owned indirect subsidiary of the Company, are collateralized by interests in a pool of 15 and 25 mortgage assets having a total principal balance of $216.0 million and $418.1 million, respectively (the “2017-FL1 Mortgage Assets”). The sale of the 2017-FL1 Mortgage Assets to BSPRT 2017-FL1 Issuer was governed by a Mortgage Asset Purchase Agreement dated as of June 29, 2017, between the Company and BSPRT 2017-FL1 Issuer.
As of December 31, 2018 and December 31, 2017 the notes issued by BSPRT 2017-FL2 Issuer, a wholly owned indirect subsidiary of the Company, are collateralized by interests in a pool of 12 and 20 mortgage assets having a total principal balance of $244.6 million and $440.7 million, respectively (the “2017-FL2 Mortgage Assets”). The sale of the 2017-FL2 Mortgage Assets to BSPRT 2017-FL2 Issuer was governed by a Mortgage Asset Purchase Agreement dated as of November 29, 2017, between the Company and BSPRT 2017-FL2 Issuer.
On April 5, 2018, BSPRT 2018-FL3 Issuer, Ltd. (the “Issuer”) and BSPRT 2018-FL3 Co-Issuer, LLC (the “Co-Issuer”), both wholly owned indirect subsidiaries of the Company, collateralized by interests in a pool of 41 mortgage assets having a principal balance of $609.3 million (the "2018-FL3 Mortgage Assets") entered into an indenture with the OP, as advancing agent, U.S. Bank National Association as note administrator and U.S. Bank National Association as trustee, which governs the issuance of approximately $546.0 million principal balance secured floating rate notes (the “Notes”), of which $488.0 million were purchased by third party investors and $58.0 million purchased by a wholly owned subsidiary of the OP. In addition, concurrently with the issuance of the Notes, the Issuer also issued 64,050,000 Preferred Shares, par value of $0.001 per share and with an aggregate liquidation preference and notional amount equal to $1,000 per share (the “Preferred Shares”), which were not offered as part of closing the indenture. For U.S. federal income tax purposes, the Issuer and Co-Issuer are disregarded entities.
On October 12, 2018, BSPRT 2018-FL4 Issuer, Ltd. (the “CLO Issuer”) and BSPRT 2018-FL4 Co-Issuer, LLC (the “Co-CLO Issuer”), both wholly owned indirect subsidiaries of the Company, collateralized by interests in a pool of 41 mortgage assets having a principal balance of $859.3 million (the "2018-FL4 Mortgage Assets") entered into an indenture with the OP, as advancing agent, U.S. Bank National Association as note administrator and U.S. Bank National Association as trustee, which governs the issuance of

45

approximately $770.7 million principal balance secured floating rate notes (the “CLO Notes”), of which $673.0 million were purchased by third party investors and $97.7 million purchased by a wholly owned subsidiary of the OP. In addition, concurrently with the issuance of the CLO Notes, the CLO Issuer also issued 97,694,546 Preferred Shares, par value of $0.001 per share and with an aggregate liquidation preference and notional amount equal to $1,000 per share (the “CLO Preferred Shares”), which were not offered as part of closing the indenture. For U.S. federal income tax purposes, the CLO Issuer and Co-CLO Issuer are disregarded entities.
Repurchase Agreements, Commercial Mortgage Loans
As of December 31, 2018, we have repurchase facilities with JPMorgan Chase Bank, National Association (the "JPM Repo Facility"), U.S Bank National Association (the "USB Repo Facility"), Barclays Bank PLC (the "Barclays Facility"), Wells Fargo Bank, National Association (the "WF Repo Facility"), and Credit Suisse AG (the "CS Repo Facility" and together with JPM Repo Facility, USB Repo Facility, WF Repo Facility, Barclays Facility, the "Repo Facilities").
The Repo Facilities are financing sources through which the Company may pledge one or more mortgage loans to the financing entity in exchange for funds typically at an advance rate of between 65% to 80% of the principal amount of the mortgage loan being pledged.
We expect to use the advances from these Repo Facilities to finance the acquisition or origination of eligible loans, including first mortgage loans, subordinated mortgage loans, mezzanine loans and participation interests therein.
The Repo Facilities generally provide that in the event of a decrease in the value of our collateral, the lenders can demand additional collateral. Should the value of our collateral decrease as a result of deteriorating credit quality, resulting margin calls may cause an adverse change in our liquidity position.
The details of our Repo Facilities at December 31, 2018 and December 31, 2017 are as follows (dollars in thousands):
As of December 31, 2018
 
 
 
 
 
 
 
Ending Weighted Average Interest Rate
 
Initial Term Maturity
Repurchase Facility
 
Committed Financing
 
Amount Outstanding
 
Interest Expense(1)
 
 
JPM Repo Facility (2)
 
$
520,000

 
$
72,906

 
$
7,838

 
4.55
%
 
1/30/2020
GS Repo Facility (3)
 
—

 
—

 
470

 
N/A

 
12/27/2018
USB Repo Facility (4)
 
100,000

 
—

 
594

 
4.71
%
 
6/15/2020
CS Repo Facility (5)
 
300,000

 
76,534

 
6,594

 
4.69
%
 
6/19/2019
WF Repo Facility (6)
 
175,000

 
—

 
86

 
4.71
%
 
11/21/2020
Barclays Facility (7)
 
100,000

 
—

 
1,445

 
6.24
%
 
9/19/2019
Total
 
$
1,195,000

 
$
149,440

 
$
17,027

 
 
 
 
__________________________
(1) For the year ended December 31, 2018. Includes amortization of deferred financing costs.
(2) On January 30, 2018, the committed financing amount was upsized from $300 million to $520 million and the maturity date was amended to January 30, 2020. Includes a one-year extension at our option.
(3) Matured on December 27, 2018. Committed balance was $250 million prior to maturity.
(4) Includes two one-year extensions at the option of an indirect wholly-owned subsidiary of the Company, which may be exercised upon the satisfaction of certain conditions.
(5) On July 19, 2018, the committed financing amount was upsized from $250 million to $300 million. On June 20, 2018, we exercised the extension option upon the satisfaction of certain conditions, and extended the term maturity to June 19, 2019.
(6) Includes three one-year extensions at our option, which may be exercised upon the satisfaction of certain conditions.
(7) On July 30, 2018, the committed financing amount was upsized from $75 million to $100 million. Includes a one-year extension at our option.


46

As of December 31, 2017
 
 
 
 
 
 
 
Ending Weighted Average Interest Rate
 
Initial Term Maturity
Repurchase Facility
 
Committed Financing
 
Amount Outstanding
 
Interest Expense(1)
 
 
JPM Repo Facility (2)
 
$
300,000

 
$
42,042

 
$
8,453

 
3.77
%
 
6/12/2019
GS Repo Facility (3)
 
250,000

 
13,500

 
4,573

 
3.83
%
 
12/27/2018
USB Repo Facility (4)
 
100,000

 
—

 
303

 
N/A

 
6/15/2020
CS Repo Facility (5)
 
250,000

 
10,148

 
577

 
3.99
%
 
8/30/2018
Barclays Facility (6)
 
75,000

 
—

 
236

 
N/A

 
9/19/2019
Total
 
$
975,000

 
$
65,690

 
$
14,142

 
 
 
 
_______________________
(1) For the year ended December 31, 2017. Includes amortization of deferred financing costs.
(2) Includes a one-year extension at our option.
(3) Includes a one-year extension at our option, which may be exercised upon the satisfaction of certain conditions.
(4) Includes two one-year extensions at the option of an indirect wholly-owned subsidiary of the Company, which may be exercised upon the satisfaction of certain conditions.
(5) Prior to the end of each calendar quarter, we may request an extension of the termination date for an additional 364 days from the end of such calendar quarter subject to the satisfaction of certain conditions and approvals.
(6) Includes a one-year extension at our option.
Other financing and loan participation - Commercial Mortgage Loans
We entered into a financing arrangement with Pacific Western Bank for term financing ("PWB Financing") on May 17, 2017. The PWB Financing provided the Company with $36.2 million and was collateralized by a portfolio asset of $54.2 million. The PWB Financing has a maturity date of June 9, 2019. We paid off the outstanding balance in June 2018. As of December 31, 2017, we had $26.2 million outstanding under the PWB Financing.
On December 11, 2018, we transferred $10.0 million of our interest in a term loan to City National Bank ("City National Financing") via a participation agreement. As of December 31, 2018, the City National Financing accrued interest at a per annum rate 4.5%. The Company incurred $0.03 million of interest expense on the City National Financing for the year ended December 31, 2018.
CMBS Master Repurchase Agreements ("MRAs")
We entered into various MRAs that allow us to sell real estate securities while providing a fixed repurchase price for the same real estate securities in the future. The repurchase contracts on each security under an MRA generally mature in 30 to 90 days and terms are adjusted for current market rates as necessary. As of December 31, 2018 and 2017, we entered into six MRAs, of which two and one were in use for each respective periods presented, described below (dollars in thousands):
 
 
 
 
 
 
 
 
Weighted Average
Counterparty
 
Amount
Outstanding
 
Accrued Interest
 
Collateral Pledged(*)
 
Interest Rate
 
Days to Maturity
As of December 31, 2018
 
 
 
 
 
 
 
 
 
 
J.P. Morgan Securities LLC
 
$
21,961

 
$
27

 
$
26,750

 
3.67
%
 
18
Wells Fargo Securities, LLC
 
22,578

 
47

 
28,223

 
3.93
%
 
11
      Total/Weighted Average
 
$
44,539

 
$
74

 
$
54,973

 
3.80
%
 
14.5
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2017
 
 
 
 
 
 
 
 
 
 
J.P. Morgan Securities LLC
 
$
39,035

 
$
11

 
$
56,044

 
3.32
%
 
26
      Total/Weighted Average
 
$
39,035

 
$
11

 
$
56,044

 
3.32
%
 
26
________________________
(*) Collateral includes $28.2 million and $56.0 million of Tranche C of Company issued CLO held by the Company, which eliminates within the Real estate securities, at fair value line of the consolidated balance sheets as of December 31, 2018 and December 31, 2017, respectively.


47

The following tables summarize our Repurchase Agreements, Commercial Mortgage Loans and our MRAs for the years ended December 31, 2018, 2017 and 2016, respectively:
 
 
As of December 31, 2018
 
 
Amount Outstanding
 
Average Outstanding Balance
 
 
Q1
 
Q2
 
Q3
 
Q4
 
Q1
 
Q2
 
Q3
 
Q4
Repurchase Agreements, Commercial Mortgage Loans
 
$
501,310

 
$
304,975

 
$
565,329

 
$
149,440

 
$
313,509

 
$
222,339

 
$
456,636

 
$
183,689

Repurchase Agreements, Real Estate Securities
 
$
—

 
$
10,600

 
$
22,272

 
$
44,540

 
$
19,542

 
$
3,029

 
$
23,056

 
$
42,079

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2017
 
 
Amount Outstanding
 
Average Outstanding Balance
 
 
Q1
 
Q2
 
Q3
 
Q4
 
Q1
 
Q2
 
Q3
 
Q4
Repurchase Agreements, Commercial Mortgage Loans
 
$
340,948

 
$
177,495

 
$
319,386

 
$
65,690

 
$
280,468

 
$
387,988

 
$
237,017

 
$
295,849

Repurchase Agreements, Real Estate Securities
 
$
52,174

 
$
49,071

 
$
39,035

 
$
39,035

 
$
63,611

 
$
66,996

 
$
47,477

 
$
39,035

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2016
 
 
Amount Outstanding
 
Average Outstanding Balance
 
 
Q1
 
Q2
 
Q3
 
Q4
 
Q1
 
Q2
 
Q3
 
Q4
Repurchase Agreements, Commercial Mortgage Loans
 
$
243,583

 
$
262,057

 
$
241,869

 
$
257,664

 
$
231,185

 
$
238,439

 
$
253,860

 
$
257,793

Repurchase Agreements, Real Estate Securities
 
$
120,449

 
$
119,280

 
$
72,698

 
$
66,639

 
$
123,513

 
$
122,539

 
$
114,086

 
$
67,452

 
The use of our warehouse lines is dependent upon a number of factors including but not limited to: origination volume, loan repayments and prepayments, our use of other financing sources such as collateralized loan obligations, our liquidity needs and types of loan assets and underlying collateral that we hold.
In 2018, the maximum average outstanding balance was $560.6 million, at the end of September 30, 2018, of which $534.8 million was related to repurchase agreements on our commercial mortgage loans and $25.8 million for repurchase agreements on our real estate securities.
In 2017, the maximum average outstanding balance was $483.4 million, at the end of June 30, 2017, of which $434.4 million was related to repurchase agreements on our commercial mortgage loans and $49.1 million for repurchase agreements on our real estate securities.
In 2016, the maximum average outstanding balance was $382.5 million, at the end of May 31, 2016, of which $262.6 million was related to repurchase agreements on our commercial mortgage loans and $119.9 million for repurchase agreements on our real estate securities.
Private Placements
Since February 2018 the Company has been conducting offerings of its common stock and Series A preferred stock in offerings exempt from the registration requirements of the Securities Act. The following table summarizes the sales of common stock in these offerings (dollars in thousands, except share amounts):

48

As of December 31, 2018
Total
Closing Date
Shares Issued
 
Purchase Price
June 2018
834,537

 
$
13,723

July 2018
1,669,074

 
27,446

August 2018
3,370,362

 
55,421

September 2018
14,962

 
250

October 2018
89,767

 
1,500

November 2018
206,463

 
3,450

December 2018
1,349,193

 
22,545

Total
7,534,358

 
$
124,335

The following table summarizes the sales of Series A preferred stock in these offerings (dollars in thousands, except share amounts):
As of December 31, 2018
Total
Closing Date
Shares Issued
 
Proceeds
June 2018
2,256

 
$
11,280

July 2018
4,498

 
22,490

August 2018
9,083

 
45,415

September 2018
3,378

 
16,890

December 2018
10,034

 
50,170

Total
29,249

 
$
146,245


Distributions
In order to maintain its election to qualify as a REIT, the Company must currently distribute, at a minimum, an amount equal to 90% of its taxable income, without regard to the deduction for distributions paid and excluding net capital gains. The Company must distribute 100% of its taxable income (including net capital gains) to avoid paying corporate U.S. federal income taxes.
In August 2017, our board of directors authorized and declared ongoing monthly distributions at a rate equivalent to $1.44 per annum, per share.

49

The Company's distributions are payable by the fifth day following each month end to stockholders of record at the close of business each day during the prior month. Distribution payments are dependent on the availability of funds. The Company's board of directors may reduce the amount of distributions paid or suspend distribution payments at any time, and therefore, distributions payments are not assured.
The below table shows the distributions paid on shares outstanding of common stock during the years ended December 31, 2018 and 2017 (dollars in thousands):
Year Ended December 31, 2018
Payment Date
Amount Paid in Cash
 
Amount Issued under DRIP
January 3, 2018
$
2,649

 
$
1,242

February 1, 2018
2,665

 
1,233

March 1, 2018
2,386

 
1,098

April 1, 2018
2,664

 
1,200

May 1, 2018
2,593

 
1,152

June 1, 2018
2,694

 
1,184

July 2, 2018
2,637

 
1,143

August 1, 2018
2,939

 
1,179

September 2, 2018
3,156

 
1,166

October 4, 2018
3,309

 
1,124

November 1, 2018
3,433

 
1,165

December 3, 2018
3,342

 
1,137

Total
$
34,467

 
$
14,023

Year Ended December 31, 2017

Payment Date
Amount Paid in Cash
 
Amount Issued under DRIP
January 3, 2017
$
3,575


$
2,007

February 1, 2017
3,560


1,957

March 1, 2017
3,231


1,770

April 1, 2017
3,621


1,926

May 1, 2017
3,536


1,846

June 1, 2017
3,692


1,887

July 3, 2017
3,607


1,809

August 1, 2017
3,755


1,854

September 1, 2017
2,580


1,283

October 2, 2017
2,513


1,232

November 1, 2017
2,615


1,263

December 4, 2017
2,543


1,217

Total
$
38,828

 
$
20,051

The following table presents the activity in the Company's Series A preferred stock (dollars in thousands, except share amounts):
 
Shares
 
Amount
Balance, December 31, 2017
—

 
$
—

Issuance of preferred stock
29,249

 
146,245

Offering costs
—

 
(510
)
Amortization of offering costs
—

 
51

Balance, December 31, 2018
29,249

 
$
145,786



50

The following table shows the sources for the payment of distributions to common stockholders for the periods presented (dollars in thousands):
 
Year Ended December 31,
 
2018
 
2017
Distributions:
 
 
 
 
 
 
 
Cash distributions paid
$
34,467

 
 
 
$
38,828

 
 
Distributions reinvested
14,023

 
 
 
20,051

 
 
Total distributions
$
48,490

 
 
 
$
58,879

 
 
Source of distribution coverage:
 
 
 
 
 
 
 
Net Income (Loss) (GAAP)

$
34,467

 
71.1
%
 
$
33,779

 
57.4
%
Available cash on hand
—

 
—
%
 
5,049

 
8.6
%
Common stock issued under DRIP
14,023

 
28.9
%
 
20,051

 
34.0
%
Total sources of distributions
$
48,490

 
100.0
%
 
$
58,879

 
100.0
%
Net income applicable to common stock (GAAP)
$
49,181

 
 
 
$
33,779

 
 
Cash Flows
Cash Flows for the Year Ended December 31, 2018
Net cash provided by operating activities for the year ended December 31, 2018 was $7.1 million. Cash inflows were primarily driven by an increase in net income to $52.8 million, offset by net cash outflows of $48.6 million related to originations of and proceeds from sales of commercial mortgage loans, measured at fair value.
Net cash used in investing activities for the year ended December 31, 2018 was $855.8 million. Cash outflows were primarily driven by the origination and acquisition of $1,598.8 million of commercial mortgage loans. Outflows were offset by proceeds from principal repayments of $753.9 million received on commercial mortgage loans, held for investment and proceeds from sale of commercial mortgage loans, held for sale of $16.9 million.
Net cash provided by financing activities for the year ended December 31, 2018 was $961.4 million. Cash inflows were primarily driven by: proceeds of $1,161.0 million from issuance of 2 CLOs, BSPRT 2018-FL3 and BSPRT 2018-FL4; proceeds from net borrowing on the Repo Facilities of $83.8 million; proceeds from net borrowing on our CMBS MRAs of $5.5 million. Inflows were partially offset by the payment of $37.0 million in cash distributions to stockholders, $15.1 million of stock repurchases and repayments on CLOs of $478.2 million.
Cash Flows for the Year Ended December 31, 2017
Net cash provided by operating activities for the year ended December 31, 2017 was $8.4 million. Cash inflows were primarily driven by an increase in net income to $33.8 million, offset by net cash outflows of $24.0 million related to originations of and proceeds from sales of commercial mortgage loans, measured at fair value.
Net cash used in investing activities for the year ended December 31, 2017 was $332.8 million. Cash outflows were primarily driven by the origination and acquisition of $837.0 million of commercial mortgage loans. Outflows were offset by proceeds from principal repayments of $381.9 million received on commercial mortgage loans, held for investment and proceeds from sale of commercial mortgage loans, held for sale of $121.7 million.
Net cash provided by financing activities for the year ended December 31, 2017 was $293.0 million. Cash inflows were primarily driven by proceeds of $700.9 million from issuance of two CLOs, BSPRT 2017-FL1 and BSPRT 2017-FL2. This was partially offset by cash outflows of $192.0 million from net repayments on the Repo Facilities, $27.6 million from net payment on our CMBS MRAs, the payment of $38.8 million in cash distributions to stockholders, $20.5 million of stock repurchases and repayments on CLOs of $143.1 million
Election as a REIT
We elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code commencing with the taxable year ended December 31, 2013. As a REIT, if we meet certain organizational and operational requirements and distribute at least 90% of our "REIT taxable income" (determined before the deduction of dividends paid and excluding net capital gains) to our stockholders in a year, we will not be subject to U.S. federal income tax to the extent of the income that we distribute. Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income and property, and U.S. federal income and excise taxes on our undistributed income.

51

Contractual Obligations and Commitments
Our contractual obligations, excluding interest obligations (as amounts are not fixed or determinable), as of December 31, 2018 are summarized as follows (dollars in thousands):
 
 
Less than 1 year
 
1 to 3 years
 
3 to 5 years
 
More than 5 years
 
Total
Unfunded loan commitments (1)
 
$
34,667

 
$
283,700

 
$
—

 
$
—

 
$
318,367

JPM Repo Facility
 
—

 
72,906

 
—

 
—

 
72,906

CS Repo Facility
 
76,534

 
—

 
—

 
—

 
76,534

CLOs (2)
 
—

 
—

 
—

 
1,525,636

 
1,525,636

JPM MRA
 
21,961

 
—

 
—

 
—

 
21,961

WF MRA
 
22,578

 
—

 
—

 
—

 
22,578

Total
 
$
155,740

 
$
356,606

 
$
—

 
$
1,525,636

 
$
2,037,982

________________________
(1) The allocation of our unfunded loan commitments is based on the earlier of the commitment expiration date or the loan maturity date.
(2) Excludes $16.0 million of Tranche E notes and $14.9 million of Tranche F notes issued by 2017-FL2 Issuer; $36.6 million of Tranche E notes and $21.4 million of Tranche F notes issued by BSPRT 2018-FL3 Issuer; $28.2 million of Tranche E notes, $35.8 million of Tranche F notes and $33.7 million of Tranche G notes issued by BSPRT 2018-FL4 Issuer, which are held by the Company and are eliminated within the Collateralized loan obligations line of the consolidated balance sheets as of December 31, 2018.
In addition, we have contractual obligations under our agreements with the Advisor as described below.
Related Party Arrangements
Benefit Street Partners L.L.C.
Amended Advisory Agreement
On January 19, 2018, we entered into an amendment and restatement of the Advisory Agreement. The amended Advisory Agreement amends and restates the Advisory Agreement, dated as of September 29, 2016, by and among the Company, the Operating Partnership and the Advisor.
The Nominating and Corporate Governance Committee (the “Committee”) of our Board, which consists solely of the Company’s independent directors, negotiated, approved and recommended that the Board approve, the amended Advisory Agreement. The Committee engaged independent legal counsel to assist the Committee in negotiating the amended Advisory Agreement.
The Advisor will continue to provide the daily management for the Company and the Operating Partnership, including an investment program consistent with the investment objectives and policies of the Company as determined and adopted from time to time by the Board. The Advisor shall continue to be entitled to an asset management fee equal to one and one-half percent (1.5%) of Equity (as defined in the amended Advisory Agreement). The Advisor shall continue to be entitled to an annual subordinated performance fee equal to fifteen percent (15%) of the Total Return (as defined in the amended Advisory Agreement) over a six percent (6%) per annum hurdle, subject to certain limitations. The Advisor shall not be entitled to acquisition or disposition fees. The Company or the Operating Partnership shall continue to pay directly or reimburse the Advisor for all the expenses paid or actually incurred by the Advisor in connection with the services it provides to the Company and the Operating Partnership pursuant to the amended Advisory Agreement, subject to certain limitations.
The initial term of the amended Advisory Agreement is three-years and shall be automatically renewed for additional one-year periods, unless either party elects not to renew. The Company may terminate the amended Advisory Agreement for a Cause Event (as defined in the amended Advisory Agreement) without payment of a termination fee. Following the expiration of a term, and upon 180 days’ prior written notice, the Company may, without cause, elect not to renew the amended Advisory Agreement upon the determination by two-thirds of the Company’s independent directors that (i) there has been unsatisfactory performance by the Advisor or (ii) that the asset management fee and annual subordinated performance fee payable to the Advisor are not fair, subject to certain conditions. In such case, the Company shall be obligated to pay a termination fee.
Pursuant to the amended Advisory Agreement, the Advisor and/or its affiliates are required to acquire equity securities of the Company equal to a purchase price of not less than $10 million, subject to certain conditions. During the term of the amended Advisory Agreement, the Advisor shall not, directly or indirectly, manage or advise another REIT that is engaged in the business of the Company in any geographical region in which the Company has a significant investment, or provide any services related to fixed-rate conduit lending to any other person, subject to certain conditions.

52

Advisory Agreement Fees and Reimbursements
Pursuant to the Advisory Agreement, we are or were required to make the following payments and reimbursements to the Advisor:
•
We reimburse our Advisor’s costs of providing services pursuant to the Advisory Agreement, except the salaries and benefits paid by the Advisor to our executive officers.
•
We pay our Advisor, or its affiliates, a monthly asset management fee equal to one-twelfth of 1.5% of stockholder’s equity as calculated pursuant to the Advisory Agreement.
•
We will pay our Advisor an annual subordinated performance fee calculated on the basis of total return to stockholders, payable monthly in arrears, such that for any year in which total return on stockholders’ capital exceeds 6.0% per annum, our Advisor will be entitled to 15.0% of the excess total return; provided that in no event will the annual subordinated performance fee payable to our Advisor exceed 10.0% of the aggregate total return for such year.
•
Until September 2017, we paid our Advisor an acquisition fee of 1.0% of the principal amount funded by us to originate or acquire commercial mortgage loans and 1.0% of the anticipated net equity funded by us to acquire real estate securities.
•
We reimburse our Advisor for insourced expenses incurred by our Advisor on our behalf related to selecting, evaluating, originating and acquiring investments in an amount up to 0.5% of the principal amount funded by us to originate or acquire commercial mortgage loans and up to 0.5% of the anticipated net equity funded by us to acquire real estate securities investments.
Investment in Common and Preferred Stock
Refer to “Note 7 - Stock Transactions” for a description of the Company’s private placements. In 2018, officers of the Company and other employees of the Advisor and its affiliates (“Manager Investors”) acquired common stock and Series A preferred stock in these private placements on substantially the same terms as purchases by third party institutional investors unaffiliated with the Company or the Advisor. As of December 30, 2018, the Manager Investors have acquired in these private placements 2,012,959 shares of common stock for an aggregate purchase price of $33.6 million and 115 shares of Series A preferred stock for an aggregate purchase price (which included accrued dividends) of $0.6 million
The Manager Investors have agreed with the Advisor not to sell or otherwise transfer the securities purchased in the private placement without the consent of the Advisor, prior to 180 days after a listing of the Company’s common stock on a national securities exchange. In addition, the Manager Investors will not be eligible to participate in the SRP for at least three years.
The board of directors and the Nominating and Corporate Governance Committee of the board of directors each reviewed and unanimously approved the Company’s issuance of shares to the Manager Investors and the terms of the offering.
Loan Acquisitions
In December 2017, we purchased a commercial mortgage loan from an entity that is an affiliate of our Advisor, for an aggregate purchase price of $17.1 million. The loan is included in "Commercial mortgage loans, held-for-investment" in the consolidated balance sheet. The purchase of the commercial mortgage loan and the $17.1 million purchase price were approved by the Company’s board of directors and the Nominating and Corporate Governance Committee, which consists solely of independent directors.
On February 22, 2018, the Company purchased commercial mortgage loans from an entity that is an affiliate of our Advisor, for an aggregate purchase price of $27.8 million. The purchase of the commercial mortgage loans and the $27.8 million purchase price were approved by the Company’s board of directors. These loans are expected to be sold into a securitization vehicle through our TRS segment. On April 18, 2018, we sold $23.3 million of these commercial mortgage loans into a CMBS securitization. The remaining $4.5 million of these commercial mortgage loans are recorded in commercial mortgage loans, held-for-sale, measured at fair value on the consolidated balance sheet as of December 31, 2018.


53

The table below shows the compensation and reimbursement payable to the Former Advisor, its affiliates, entities under
common control with the Former Advisor and the Former Dealer Manager for services relating to the Company's public
offering as of December 31, 2018 and 2017 (dollars in thousands):
 
Payable as of
 
December 31, 2018
 
December 31, 2017
Total compensation and reimbursement for services provided by the Former Advisor, its affiliates, entities under common control with the Former Advisor and the Former Dealer Manager
$
—

 
$
480

The payables as of December 31, 2018 and 2017 in the table above are included in Due to affiliates on the Company's
consolidated balance sheets. The fees incurred are recorded within the Additional paid in capital line in the consolidated balance sheets.
The table below shows the costs incurred due to arrangements with our Advisor and its affiliates during the years ended December 31, 2018, 2017 and 2016 and the associated payable as of December 31, 2018 and 2017 (dollars in thousands):See Note 9 - Related Party Transactions and Arrangements for further detail.
 
 
Year Ended December 31,
 
Payable as of December 31,
 
 
2018
 
2017
 
2016
 
2018
 
2017
Acquisition fees and expenses (1)
 
452

 
4,197

 
806

 
1

 
—

Administrative services expenses
 
13,446

 
6,765

 
4,376

 
1,224

 
3,480

Asset management and subordinated performance fee
 
10,299

 
9,273

 
9,504

 
1,072

 
2,315

Other related party expenses (2)
 
1,259

 
394

 
90

 
932

 
146

Total
 
$
25,456

 
$
20,629

 
$
14,776

 
$
3,229

 
$
5,941

________________________
(1) Total acquisition fees and expenses paid during the years ended December 31, 2018 and 2017 were $8.1 million and $10.2 million, respectively, of which $7.6 million and $6.0 million were capitalized within the commercial mortgage loans, held for investment line of the consolidated balance sheets for years ended December 31, 2018 and 2017.
(2)These are primarily related to reimbursable costs incurred for the increase in loan origination activities. These amounts are included in Other expenses in the Company's consolidated statements of operations.
The payables as of December 31, 2018 and 2017 in the table above are included in Due to affiliates on our consolidated balance sheets.
Off Balance Sheet Arrangements
We currently have no off balance sheet arrangements as of December 31, 2018 and through the date of the filing of this Form 10-K.
Non-GAAP Financial Measures
Funds from Operations and Modified Funds from Operations
Due to certain unique operating characteristics of real estate companies, as discussed below, the National Association of Real Estate Investment Trusts ("NAREIT") and the Investment Program Association ("IPA") industry trade groups, have each promulgated measures respectively known as funds from operations ("FFO") and modified funds from operations ("MFFO"), which we believe to be appropriate supplemental measures to reflect the operating performance of a REIT. The use of FFO and MFFO is recommended by the REIT industry as supplemental performance measures. However, FFO and MFFO are not substitutes to generally accepted accounting principles ("GAAP") net income or loss. We believe our presentations of FFO and MFFO assist investors in analyzing and comparing our operating and financial performance between reporting periods
We define FFO, a non-GAAP measure, consistent with the standards established by the White Paper on FFO approved by the Board of Governors of NAREIT, as revised in February 2004 (the "White Paper"). The White Paper defines FFO as net income or loss computed in accordance with GAAP, excluding gains or losses from sales of depreciable property, property and asset impairment write-downs, depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect FFO. Our business plan is to operate as a mortgage REIT with our portfolio consisting of commercial mortgage loan investments and investments in real estate securities. We will typically have no FFO adjustments to our net income or loss computed in accordance with GAAP as a

54

result of operating as a mortgage REIT. Although we have the ability to acquire real property, we have not acquired any at this time and as such have not had any FFO adjustments to our net income or loss computed in accordance with GAAP.
We define MFFO, a non-GAAP measure, consistent with the IPA's Guideline 2010 - 01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds from Operations (the "Practice Guideline") issued by the IPA in November 2010. We define MFFO as FFO further adjusted for the following items, as applicable: acquisition fees; accretion of discounts and amortization of premiums and other loan expenses on debt investments; fair value adjustments on real estate related investments such as commercial real estate securities or derivative investments included in net income; impairments of real estate related investments, gains or losses included in net income from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, unrealized gains or losses from fair value adjustments on real estate securities, including commercial mortgage backed securities and other securities, interest rate swaps and other derivatives not deemed to be hedges and foreign exchanges holdings; unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, and after adjustments for consolidated and unconsolidated partnerships and joint ventures, with such adjustments calculated to reflect MFFO on the same basis. The accretion of discounts and amortization of premiums and other loan expenses on debt investments, gains and losses on hedges, foreign exchange, derivatives or securities holdings, unrealized gains and losses resulting from consolidations, as well as other listed cash flow adjustments are adjustments made to net income in calculating the cash flows provided by operating activities and, in some cases, reflect gains or losses which are unrealized and may not ultimately be realized. While we will be responsible for managing interest rate, hedge and foreign exchange risk, we expect to retain an outside consultant to review all our hedging agreements. Inasmuch as interest rate hedges are not a fundamental part of our operations, we believe it is appropriate to exclude such gains and losses in calculating MFFO, as such gains and losses are not reflective of our core operations.
Our MFFO calculation excludes impairments of real estate related investments, including loans. We assess the credit quality of our investments and adequacy of loan loss reserves on a quarterly basis, or more frequently as necessary. For loans classified as held-for-investment, we establish and maintain a general allowance for loan losses inherent in our portfolio at the reporting date and, where appropriate, a specific allowance for loan losses for loans we have determined to be impaired at the reporting date. An individual loan is considered impaired when it is deemed probable that we will not be able to collect all amounts due according to the contractual terms of the loan. Real estate related securities are evaluated for other-than-temporary impairment when the fair value of a security falls below its net amortized cost. Significant judgment is required in this analysis. We consider the estimated net recoverable value of the loan or security as well as other factors, including but not limited to the fair value of any collateral, the amount and the status of any senior debt, the prospects for the borrower and the competitive situation of the region where the borrower does business. Fair value is typically estimated based upon discounting the expected future cash flows of the underlying collateral taking into consideration the discount rate, capitalization rate, occupancy, creditworthiness of major tenants and many other factors. This requires significant judgment and because it is based upon projections of future economic events, which are inherently subjective, the amounts ultimately realized may differ materially from the carrying value as of the balance sheet date. If upon completion of the assessment, the estimated fair value of the underlying collateral is less than the net carrying value of the loan, a specific allowance for loan losses is recorded. In the case of real estate securities, all or a portion of a deemed impairment may be recorded. Due to our limited life, any allowance for loan losses or impairment of real estate securities recorded may be difficult to recover.
The table below reflects the items deducted or added to net income or loss in our calculation of FFO and MFFO for the years ended December 31, 2018, 2017 and 2016 (dollars in thousands):
 
 
Year Ended December 31,
 
 
2018
 
2017
 
2016
Funds From Operations:
 
 
 
 
 
 
Net income
 
$
52,825

 
$
33,779

 
$
29,990

Funds from operations
 
$
52,825

 
$
33,779

 
$
29,990

Modified Funds From Operations:
 
 
 
 
 
 
Funds from operations
 
$
52,825

 
$
33,779

 
$
29,990

Amortization of premiums, discounts and fees on investments, net
 
(4,572
)
 
(2,554
)
 
(2,336
)
Acquisition fees and acquisition expenses
 
452

 
4,197

 
806

Impairment losses on real estate securities
 
—

 
—

 
310

Unrealized (gain) loss on financial instruments
 
1,611

 
(230
)
 
247

Loan loss (recovery)/provision
 
3,370

 
(715
)
 
1,293

Modified funds from operations
 
$
53,686

 
$
34,477

 
$
30,310



55

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Credit Risk
Our investments are subject to a high degree of credit risk. Credit risk is the exposure to loss from loan defaults. Default rates are subject to a wide variety of factors, including, but not limited to, borrower financial condition, property performance, property management, supply/demand factors, construction trends, consumer behavior, regional economics, interest rates, the strength of the U.S. economy, and other factors beyond our control. All loans are subject to a certain probability of default. We manage credit risk through the underwriting process, acquiring our investments at the appropriate discount to face value, if any, and establishing loss assumptions. We also carefully monitor the performance of the loans, as well as external factors that may affect their value.
Interest Rate Risk
Our market risk arises primarily from interest rate risk relating to interest rate fluctuations. Many factors including governmental monetary and tax policies, domestic and international economic and political considerations and other factors that are beyond our control contribute to interest rate risk. To meet our short and long-term liquidity requirements, we may borrow funds at fixed and variable rates. Our interest rate risk management objectives are to limit the impact of interest rate changes in earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, from time to time, we may enter into interest rate hedge contracts such as swaps, collars and treasury lock agreements in order to mitigate our interest rate risk with respect to various debt instruments. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in benefits of lower interest rates with respect to our portfolio of investments with fixed interest rates. We do not have any foreign denominated investments, and thus, we are not exposed to foreign currency fluctuations.
As of December 31, 2018 and 2017, our portfolio included 98 and 64 variable rate investments, respectively, based on LIBOR for various terms. Borrowings under our repurchase agreements are also based on LIBOR. The following table quantifies the potential changes in interest income net of interest expense should interest rates increase by 25 or 50 basis points or decrease by 25 basis points, assuming that our current balance sheet was to remain constant and no actions were taken to alter our existing interest rate sensitivity (dollars in thousands):
 
 
Estimated Percentage Change in Interest Income Net of Interest Expense
Change in Interest Rates
 
December 31, 2018
 
December 31, 2017
(-) 25 Basis Points
 
(1.38
)%
 
(1.61
)%
Base Interest Rate
 
—
 %
 
—
 %
(+) 50 Basis Points
 
2.75
 %
 
3.23
 %
(+) 100 Basis Points
 
5.50
 %
 
6.45
 %
Item 8. Financial Statements and Supplementary Data.
The information required by this Item 8 is hereby incorporated by reference to our Consolidated Financial Statements beginning on page F-1 of this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Disclosure Controls and Procedures
In accordance with Rules 13a-15(b) and 15d-15(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this Annual Report on Form 10-K. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded, as of the end of such period, that our disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in our reports that we file or submit under the Exchange Act.
Internal Control Over Financial Reporting
Management's Annual Reporting on Internal Controls over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act.

56

In connection with the preparation of our Annual Report on Form 10-K, our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2018. In making that assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013).
Based on its assessment, our management concluded that, as of December 31, 2018, our internal control over financial reporting was effective.
The rules of the SEC do not require, and this Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting.
Changes in Internal Control Over Financial Reporting
During the quarter ended December 31, 2017, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
None.



57

PART III

Item 10. Directors, Executive Officers and Corporate Governance.
We have adopted a Code of Ethics that applies to all of our executive officers and directors, including but not limited to, our principal executive officer and principal financial officer. A copy of our Code of Ethics may be obtained, free of charge, by sending a written request to our executive office – 9 West 57th Street - Suite 4920, New York, NY 10019, attention Chief Financial Officer of Benefit Street Partners Realty Trust, Inc. In addition, the Code of Ethics is available on the Company’s website at www.bsprealtytrust.com by clicking on “Investor Relations - Corporate Governance - Code of Ethics.” Any amendments and waivers to our Code of Ethics will be disclosed on our website.
The information required by this Item is incorporated by reference to our definitive proxy statement to be filed with the SEC with respect to our 2019 annual meeting of stockholders.
Item 11. Executive Compensation.
The information required by this Item is incorporated by reference to our definitive proxy statement to be filed with the SEC with respect to our 2019 annual meeting of stockholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this Item is incorporated by reference to our definitive proxy statement to be filed with the SEC with respect to our 2019 annual meeting of stockholders.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this Item is incorporated by reference to our definitive proxy statement to be filed with the SEC with respect to our 2019 annual meeting of stockholders.
Item 14. Principal Accounting Fees and Services.
The information required by this Item is incorporated by reference to our definitive proxy statement to be filed with the SEC with respect to our 2019 annual meeting of stockholders.

58

PART IV
Item 15. Exhibits and Financial Statement Schedules.
(a)    Financial Statement Schedules
See the Index to Consolidated Financial Statements on page F-1 of this report.
(b)    Exhibits
See the Index to Exhibit below.
Item 16. Form 10-K Summary.
None.
INDEX TO EXHIBITS
The following exhibits are included in this Annual Report on Form 10-K for the year ended December 31, 2018 (and are numbered in accordance with Item 601 of Regulation S-K).
Exhibit No.
 
Description
3.1(1)
 
3.1 (2)
 
3.1 (3)
 
3.1(4)
 
4.1(5)
 
4.2(6)
 
10.1(6)
 
10.2(6)
 
10.3(7)
 
10.4(8)
 
10.5(9)
 
10.6(10)
 
10.7(11)
 
10.8(12)
 
10.9(13)
 
10.10(14)
 
10.12(15)
 
10.13(15)
 
10.14(16)
 
10.15(17)
 
10.16(17)
 
10.17(17)
 
10.18(17)
 
10.19(18)
 

59

10.20(18)
 
10.21(19)
 
10.22(19)
 
10.23(20)
 
10.24(21)
 
10.25(22)
 
10.26(23)
 
10.27(24)
 
10.28(4)
 
10.29*

 
10.30*
 
10.31*
 
10.32*
 
21*
 
23.1*
 
23.2*
 
31.1*
 
31.2*
 
32*
 
101*
 
____________________________________________
*Filed herewith.
(1)
Filed as an exhibit to our current report on Form 8-K filed with the SEC on August 17, 2017.
(2)
Filed as an exhibit to our current report on Form 8-K filed with the SEC on June 26, 2018.
(3)
Filed as an exhibit to our current report on Form 8-K filed with the SEC on December 11, 2018.
(4)
Filed as an exhibit to our quarterly report on Form 10-Q for the quarter ended September 30, 2018 filed with the SEC on November 9, 2018.
(5)
Filed as an exhibit to our current report on Form 8-K filed with the SEC on January 6, 2015.
(6)
Filed as an exhibit to our annual report on Form 10-K for the year ended December 31, 2016 filed with the SEC on March 29, 2017.
(7)
Filed as an exhibit to Pre-Effective Amendment No. 1 to Post-Effective Amendment No. 7 to our Registration Statement on Form S-11 filed with the SEC on July 11, 2014.
(8)
Filed as an exhibit to Pre-Effective Amendment No.1 to Post-Effective Amendment No.12 to our Registration Statement on Form S-11 filed with the SEC on July 8, 2015.
(9)
Filed as an exhibit to Pre-Effective Amendment No. 1 to Post-Effective Amendment No. 13 filed with the SEC on October 8, 2015.

60

(10)
Filed as an exhibit to our annual report on Form 10-K for the year ended December 31, 2015 filed with the SEC on March 11, 2016.
(11)
Filed as an exhibit to our current report on Form 8-K filed with the SEC on October 12, 2016.
(12)
Filed as an exhibit to Pre-Effective Amendment No. 1 to Post-Effective Amendment No. 8 to our Registration Statement on Form S-11 filed with the SEC on October 8, 2014.
(13)
Filed as an exhibit to our current report on Form 8-K filed with the SEC on October 23, 2015.
(14)
Filed as an exhibit to our quarterly report on Form 10-Q for the quarter ended September 30, 2016 filed with the SEC on November 14, 2016.
(15)
Filed as an exhibit to our current report on Form 8-K filed with the SEC on January 3, 2017.
(16)
Filed as an exhibit to our current report on Form 8-K filed with the SEC on July 6, 2017.
(17)
Filed as an exhibit to Amendment No. 1 to our quarterly report on Form 10-Q for the quarter ended June 30, 2017 filed with the SEC on August 23, 2017.
(18)
Filed as an exhibit to our current report on Form 8-K filed with the SEC on September 7, 2017.
(19)
Filed as an exhibit to our current report on Form 8-K filed with the SEC on September 25, 2017.
(20)
Filed as an exhibit to our current report on Form 8-K filed with the SEC on December 5, 2017.
(21)
Filed as an exhibit to our current report on Form 8-K filed with the SEC on January 23, 2018.
(22)
Filed as an exhibit to our current report on Form 8-K filed with the SEC on February 16, 2018.
(23)
Filed as an exhibit to our current report on Form 8-K filed with the SEC on April 11, 2018.
(24)
Filed as an exhibit to our current report on Form 8-K filed with the SEC on June 6, 2018.


61

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized this 15th day of March, 2019.
 
Benefit Street Partners Realty Trust, Inc. 
 
By
/s/ Richard J. Byrne
 
 
Richard J. Byrne
 
 
Chief Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this annual report on Form 10-K has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Name
 
Capacity
 
Date
 
 
 
 
 
/s/ Richard J. Byrne
 
Chief Executive Officer and President
 
March 29, 2019
Richard J. Byrne
 
(Principal Executive Officer)
 
 
 
 
 
 
 
/s/ Jerome S. Baglien
 
Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)
 
March 29, 2019
Jerome S. Baglien
 
 
 
 
 
 
 
 
/s/ Elizabeth K. Tuppeny
 
Lead Independent Director
 
March 29, 2019
Elizabeth K. Tuppeny
 
 
 
 
 
 
 
 
 
/s/ Buford Ortale
 
Director
 
March 29, 2019
Buford Ortale
 
 
 
 
 
 
 
 
 
/s/ Jamie Handwerker
 
Director
 
March 29, 2019
Jamie Handwerker
 
 
 
 
 
 
 
 
 
/s/ Peter McDonough
 
Director
 
March 29, 2019
Peter McDonough
 
 
 
 

62


BENEFIT STREET PARTNERS REALTY TRUST, INC.



F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Stockholders and the Board of Directors of Benefit Street Partners Realty Trust, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Benefit Street Partners Realty Trust, Inc. (the “Company”) as of December 31, 2018 and 2017, the related consolidated statements of operations, comprehensive income, stockholders' equity and cash flows for each of the two years in the period ended December 31, 2018, and the related notes and schedule (collectively referred to as the “consolidated financial statements“). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.
We also audited the adjustments described in Note 2 that were applied to restate the 2016 consolidated financial statements. In our opinion, such adjustments are appropriate and have been properly applied. However, we were not engaged to audit, review or apply any procedures to the 2016 consolidated financial statements of the Company other than with respect to the adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2016 consolidated financial statements taken as a whole.

Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.


/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2017.


New York, New York
March 29, 2019



F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
Benefit Street Partners Realty Trust, Inc.:

We have audited, before the effects of the adjustments to retrospectively apply the change in accounting described in Note 2, the accompanying consolidated statements of operations, comprehensive income (loss), changes in stockholders’ equity, and cash flows of Benefit Street Partners Realty Trust, Inc. (formerly Realty Finance Trust, Inc.) and subsidiaries (the Company) for the year ended December 31, 2016. The 2016 financial statements before the effects of the adjustments discussed in Note 2 are not presented herein. The 2016 consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the 2016 financial statements, before the effects of the adjustments to retrospectively apply the change in accounting described in Note 2, present fairly, in all material respects, the results of the Company’s operations and its cash flows for the year then ended in conformity with U.S. generally accepted accounting principles.

We were not engaged to audit, review, or apply any procedures to the adjustments to retrospectively apply the change in accounting described in Note 2 and, accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied. Those adjustments were audited by other auditors.


/s/ KPMG LLP

New York, New York
March 29, 2017





F-3

BENEFIT STREET PARTNERS REALTY TRUST, INC.

CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
(Audited)
 
December 31, 2018
 
December 31, 2017
ASSETS
 
 
 
Cash and cash equivalents
$
191,390

 
$
83,711

Restricted cash
13,029

 
7,997

Commercial mortgage loans, held for investment, net of allowance of 4,836 and 1,466
2,206,830

 
1,402,046

Commercial mortgage loans, held-for-sale, measured at fair value
76,863

 
28,531

Real estate securities, available for sale, at fair value
26,412

 
—

Derivative instruments, at fair value
846

 
132

Receivable for loan repayment (1)
73,684

 
49,085

Accrued interest receivable
12,789

 
8,152

Prepaid expenses and other assets
4,235

 
4,007

Total assets
$
2,606,078

 
$
1,583,661

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Collateralized loan obligations
$
1,505,279

 
$
826,150

Repurchase agreements - commercial mortgage loans
149,440

 
65,690

Repurchase agreements - real estate securities
44,539

 
39,035

Other financing and loan participation - commercial mortgage loans
9,902

 
25,698

Derivative instruments, at fair value
1,319

 
357

Interest payable
3,025

 
1,544

Distributions payable
5,834

 
3,917

Accounts payable and accrued expenses
4,497

 
4,510

Due to affiliates
3,229

 
6,421

Total liabilities
$
1,727,064

 
$
973,322

Commitment and contingencies (See Note 8)


 


Redeemable convertible preferred stock Series A, $0.01 par value, 40,000 authorized, 29,249 issued and outstanding as of December 31, 2018 and none issued and outstanding as of December 31, 2017
$
145,786

 
$
—

Equity:
 
 
 
Preferred stock, $0.01 par value, 50,000,000 authorized, none issued and outstanding as of December 31, 2018 and 2017
—

 
—

Common stock, $0.01 par value, 949,999,000 shares authorized, 39,303,710 and 31,834,072 shares issued and outstanding as of December 31, 2018 and 2017, respectively
395

 
320

Additional paid-in capital
827,558

 
704,101

Accumulated other comprehensive income (loss)
(459
)
 
—

Accumulated deficit
(94,266
)
 
(94,082
)
Total stockholders' equity
733,228

 
610,339

Total liabilities, redeemable convertible preferred stock and stockholders' equity
$
2,606,078

 
$
1,583,661

___________________
(1) Includes $73.7 million and $48.7 million of cash held by servicer related to loan payoffs pledged to the CLOs as of December 31, 2018 and December 31, 2017, respectively.
The accompanying notes are an integral part of these consolidated financial statements.


F-4


BENEFIT STREET PARTNERS REALTY TRUST, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(Audited)
 
Year Ended December 31,
 
2018
 
2017
 
2016
Interest income:
 
 
 
 
 
Interest income
$
152,288

 
$
89,564

 
$
79,404

Less: Interest expense
70,000

 
32,359

 
23,169

Net interest income
82,288

 
57,205

 
56,235

Expenses:
 
 
 
 
 
Asset management and subordinated performance fee
10,299

 
9,273

 
9,504

Acquisition fees and acquisition expenses
452

 
4,197

 
806

Administrative services expenses
13,446

 
6,765

 
4,376

Professional fees
8,318

 
5,444

 
5,467

Other expenses
4,887

 
3,837

 
2,336

Total expenses
37,402

 
29,516

 
22,489

Other (income)/loss:
 
 
 
 
 
Loan loss provision/(recovery)
3,370

 
(715
)
 
1,293

Realized (gain)/loss on sale of real estate securities
107

 
(172
)
 
1,906

Realized (gain)/loss on sale of commercial mortgage loan held-for-sale
9

 
(120
)
 
—

Realized (gain)/loss on sale of commercial mortgage loan, held-for-sale, measured at fair value
(11,288
)
 
(4,523
)
 
—

Impairment losses on real estate securities
—

 
—

 
310

Unrealized (gain)/loss on commercial mortgage loans held-for-sale
—

 
(247
)
 
247

Unrealized (gain)/loss on commercial mortgage loans, held-for-sale, measured at fair value
237

 
—

 
—

Unrealized (gain)/loss on derivatives
1,374

 
17

 
—

Realized (gain)/loss on derivatives
(1,827
)
 
(555
)
 
—

Total other (income)/loss
$
(8,018
)
 
$
(6,315
)
 
$
3,756

Income/(loss) before taxes
52,904

 
34,004

 
29,990

Provision/(benefit) for income tax
79

 
225

 
—

Net income
$
52,825

 
$
33,779

 
$
29,990

Less: Preferred stock dividends
$
(3,644
)
 
$
—

 
$
—

Net income applicable to common stock
$
49,181

 
$
33,779

 
$
29,990

 
 
 
 
 
 
Basic net income per share
$
1.44

 
$
1.06

 
$
0.95

Diluted net income per share
$
1.44

 
$
1.06

 
$
0.95

Basic weighted average shares outstanding
34,268,707

 
31,772,231

 
31,659,274

Diluted weighted average shares outstanding
36,779,735

 
31,784,889

 
31,666,504




The accompanying notes are an integral part of these consolidated financial statements.


F-5


BENEFIT STREET PARTNERS REALTY TRUST, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars In thousands)
(Audited)
 
Year Ended December 31,
 
2018
 
2017
 
2016
Net income
$
52,825

 
$
33,779

 
$
29,990

Unrealized gain/(loss) on available-for-sale securities
(459
)
 
500

 
1,754

Comprehensive income attributable to Benefit Street Partners Realty Trust, Inc.
$
52,366

 
$
34,279

 
$
31,744




The accompanying notes are an integral part of these consolidated financial statements.


F-6


BENEFIT STREET PARTNERS REALTY TRUST, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands, except share data)
 
Convertible Stock
 
Common Stock
 
 
 
 
 
 
 
 
 
Number of Shares
 
Amount
 
Number of Shares
 
Par Value
 
Additional Paid-In Capital
 
Accumulated Other Comprehensive Loss
 
Accumulated Deficit
 
Total Stockholders' Equity
Balance, December 31, 2015
1,000

 
$
1

 
31,385,280

 
$
314

 
$
691,590

 
$
(2,254
)
 
$
(35,322
)
 
$
654,329

Common stock repurchases
—

 
—

 
(537,209
)
 
(5
)
 
(12,965
)
 
—

 
—

 
(12,970
)
Common stock offering costs(1)
—

 
—

 
—

 
—

 
793

 
—

 
—

 
793

Common stock issued through distribution reinvestment plan
—

 
—

 
1,031,812

 
10

 
25,037

 
—

 
—

 
25,047

Share-based compensation
—

 
—

 
4,748

 
—

 
44

 
—

 
—

 
44

Net income
—

 
—

 
—

 
—

 
—

 
—

 
29,990

 
29,990

Distributions declared
—

 
—

 
—

 
—

 
—

 
—

 
(65,337
)
 
(65,337
)
Conversion of convertible stocks
(1,000
)
 
(1
)
 
—

 
—

 
1

 
—

 
—

 
—

Other comprehensive loss
—

 
—

 
—

 
—

 
—

 
1,754

 
—

 
1,754

Balance, December 31, 2016
—

 
$
—

 
31,884,631

 
$
319

 
$
704,500

 
$
(500
)
 
$
(70,669
)
 
$
633,650

Common stock repurchases
—

 
—

 
(1,072,708
)
 
(11
)
 
(20,535
)
 
—

 
—

 
(20,546
)
Common stock issued through distribution reinvestment plan
—

 
—

 
1,016,165

 
12

 
20,039

 
—

 
—

 
20,051

Share-based compensation
—

 
—

 
5,984

 
—

 
97

 
—

 
—

 
97

Net income
—

 
—

 
—

 
—

 
—

 
—

 
33,779

 
33,779

Distributions declared
—

 
—

 
—

 
—

 
—

 
—

 
(57,192
)
 
(57,192
)
Other comprehensive loss
—

 
—

 
—

 
—

 
—

 
500

 
—

 
500

Balance, December 31, 2017
—

 
$
—

 
31,834,072

 
$
320

 
$
704,101

 
$
—

 
$
(94,082
)
 
$
610,339

Issuance of common stock


 
—

 
7,533,834

 
75

 
124,260

 
—

 
—

 
124,335

Common stock repurchases


 
—

 
(809,023
)
 
(8
)
 
(15,077
)
 
—

 
—

 
(15,085
)
Common stock issued through distribution reinvestment plan


 
—

 
739,052

 
8

 
14,015

 
—

 
—

 
14,023

Share-based compensation


 
—

 
5,775

 
—

 
157

 
—

 
—

 
157

Offering costs
—

 
—

 
—

 
—

 
102

 
—

 
—

 
102

Net income
—

 
—

 
—

 
—

 
—

 
—

 
52,825

 
52,825

Distributions declared
—

 
—

 
—

 
—

 
—

 
—

 
(53,009
)
 
(53,009
)
Other comprehensive income
—

 
—

 
—

 
—

 
—

 
(459
)
 
—

 
(459
)
Balance, December 31, 2018
—

 
$
—

 
39,303,710

 
$
395

 
$
827,558

 
$
(459
)
 
$
(94,266
)
 
$
733,228

_______________________
(1) During 2016, the Company received reimbursement of excess payment of $0.8 million from the former external manager for previously paid offering costs.

The accompanying notes are an integral part of these consolidated financial statements.


F-7
BENEFIT STREET PARTNERS REALTY TRUST, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)



 
For the Years Ended December 31,
 
2018
 
2017
 
2016
Cash flows from operating activities:
 
 
 
 
 
Net income
$
52,825

 
$
33,779

 
$
29,990

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
Premium amortization and (discount accretion), net
(4,572
)
 
(2,554
)
 
(2,336
)
Accretion of deferred commitment fees
(1,577
)
 
(1,372
)
 
(1,535
)
Amortization of deferred financing costs
12,681

 
4,650

 
4,048

Share-based compensation
157

 
97

 
44

Unrealized (gain)/loss on commercial mortgage loans held-for-sale
237

 
(247
)
 
247

Unrealized (gain)/losses on derivative instruments
1,374

 
17

 
—

Loan loss (recovery)/provision
3,370

 
(715
)
 
1,293

Realized (gain) / loss on sale of real estate securities
107

 
—

 
1,906

Impairment losses on real estate securities
—

 
—

 
310

Origination of commercial mortgage loans, held-for-sale
(621,597
)
 
(156,101
)
 
—

Proceeds from sale of commercial mortgage loans, held-for-sale
573,010

 
132,093

 
—

Changes in assets and liabilities:
 
 
 
 
 
Accrued interest receivable
(3,060
)
 
(2,197
)
 
940

Prepaid expenses and other assets
(4,133
)
 
(5,441
)
 
(85
)
Accounts payable and accrued expenses
(13
)
 
3,341

 
360

Due to affiliates
(3,192
)
 
2,357

 
(263
)
Interest payable
1,481

 
647

 
105

Net cash (used in)/provided by operating activities
$
7,098

 
$
8,354

 
$
35,024

Cash flows from investing activities:
 
 
 
 
 
Origination and purchase of commercial mortgage loans, held for investment
$
(1,598,786
)
 
$
(836,961
)
 
$
(53,640
)
Proceeds from sale of commercial mortgage loans, held for sale
16,910

 
121,658

 
44,355

Principal repayments received on commercial mortgage loans, held for investment
753,921

 
381,933

 
67,396

Receivable for loan repayment
—

 
(48,684
)
 
—

Purchase of real estate securities
(39,510
)
 
—

 
—

Proceeds from sale of real estate securities
12,456

 
34,888

 
79,082

Principal repayments received on real estate securities
—

 
15,000

 
2,218

Purchase of derivative instruments
(804
)
 
(592
)
 
—

Net cash (used in)/provided by investing activities
$
(855,813
)
 
$
(332,758
)
 
$
139,411

Cash flows from financing activities:
 
 
 
 
 
Proceeds from issuances of common stock
$
124,335

 
$
—

 
$
—

Proceeds from issuances of redeemable convertible preferred stock
146,245

 
—

 
—

Common stock repurchases
(15,085
)
 
(20,546
)
 
(18,965
)
Reimbursements/(payments) of offering costs and fees related to stock issuances(1)
(887
)
 
—

 
793

Borrowings under collateralized loan obligation
1,161,002

 
700,862

 
—

Repayments of collateralized loan obligation
(478,177
)
 
(143,086
)
 
(9,150
)
Borrowings on repurchase agreements - commercial mortgage loans
1,833,838

 
652,978

 
233,855

Repayments of repurchase agreements - commercial mortgage loans
(1,750,088
)
 
(844,952
)
 
(182,430
)
Borrowings on repurchase agreements - real estate securities
280,837

 
499,290

 
1,208,244

Repayments of repurchase agreements - real estate securities
(275,332
)
 
(526,894
)
 
(1,258,816
)

F-8
BENEFIT STREET PARTNERS REALTY TRUST, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)



Proceeds from other financing and loan participation - commercial mortgage loans
10,000

 
36,200

 
—

Repayments on other financing and loan participation - commercial mortgage loans
(26,182
)
 
(10,017
)
 
—

Payments of deferred financing costs
(12,128
)
 
(11,964
)
 
(4,819
)
Distributions paid
(36,952
)
 
(38,828
)
 
(40,251
)
Net cash (used in)/provided by financing activities:
$
961,426

 
$
293,043

 
$
(71,539
)
Net change in cash, cash equivalents and restricted cash
$
112,711

 
$
(31,361
)
 
$
102,896

Cash, cash equivalents and restricted cash, beginning of period
91,708

 
123,069

 
20,173

Cash, cash equivalents and restricted cash, end of period
$
204,419

 
$
91,708

 
$
123,069

 
 
 
 
 
 
Supplemental disclosures of cash flow information:
 
 
 
 
 
Taxes paid
$
355

 
$
—

 
$
—

Interest paid
53,029

 
27,062

 
19,016

Supplemental disclosures of non-cash flow information:
 
 
 
 
 
Common stock issued through distribution reinvestment plan
14,023

 
20,051

 
25,047

Loans transferred to commercial real estate loans, held-for-sale, transferred at fair value
16,750

 
100,005

 
21,179

 
 
 
 
 
 
Reconciliation of cash, cash equivalents and restricted cash at end of period:
 
 
 
 
 
Cash and cash equivalents
$
191,390

 
$
83,711

 
$
118,048

Restricted cash
13,029

 
7,997

 
5,021

Cash, cash equivalents and restricted cash, end of period
$
204,419

 
$
91,708

 
$
123,069

 
 
 
 
 
 
_______________________
(1) During 2016, the Company received reimbursement of excess payment of $0.8 million from the Former Advisor for Offering costs.

The accompanying notes are an integral part of these consolidated financial statements.

F-9
BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018


Note 1 - Organization and Business Operations
Benefit Street Partners Realty Trust, Inc. (the "Company") is a real estate finance company that primarily originates, acquires and manages a diversified portfolio of commercial real estate debt investments secured by properties located within and outside the United States. The Company was incorporated in Maryland on November 15, 2012 and commenced operations on May 14, 2013.
The Company made a tax election to be treated as a real estate investment trust (a "REIT") for U.S. federal income tax purposes commencing with its taxable year ended December 31, 2013. The Company believes that it has qualified as a REIT and intends to continue to meet the requirements for qualification and taxation as a REIT. In addition, the Company, through a subsidiary which is treated as a taxable REIT subsidiary (a "TRS") is indirectly subject to U.S federal, state and local income taxes. The majority of the Company's business is conducted through Benefit Street Partners Realty Operating Partnership, L.P. (the “OP”), a Delaware limited partnership. The Company is the sole general partner and directly or indirectly holds all of the units of limited partner interests in the OP.
The Company has no direct employees. Benefit Street Partners L.L.C. serves as the Company's advisor (the "Advisor") pursuant to an amended and restated advisory agreement, executed on January 19, 2018 (the "Advisory Agreement"). The Advisor is a wholly owned subsidiary of Franklin Resources, Inc. that, together with its various subsidiaries, operates as Franklin Templeton. The Advisor, an investment adviser registered with the U.S. Securities and Exchange Commission (“SEC”), is a credit-focused alternative asset management firm. Established in 2008, the Advisor's credit platform manages funds for institutions and high-net-worth investors across various credit funds and complementary strategies including high yield, levered loans, private / opportunistic debt, liquid credit, structured credit and commercial real estate debt. These strategies complement each other as they all leverage the sourcing, analytical, compliance, and operational capabilities that encompass the platform. As of December 31, 2018, the Advisor was in partnership with Providence Equity Partners L.L.C., a global private equity firm. Effective February 1, 2019, the Advisor is wholly owned by Franklin Templeton, a global investment management firm. The Advisor manages the Company's affairs on a day-to-day basis. The Advisor receives compensation and fees for services related to the investment and management of the Company's assets and the operations of the Company. Prior to September 29, 2016, Realty Finance Advisor, LLC ("Former Advisor") was the Company's advisor. The Former Advisor was controlled by AR Global Investments, LLC ("AR Global").
The Company invests in commercial real estate debt investments, which may include first mortgage loans, subordinated mortgage loans, mezzanine loans and participations in such loans. The Company also originates conduit loans which the Company intends to sell through its TRS into commercial mortgage-backed securities ("CMBS") at a profit. The Company also invests in commercial real estate securities. Real estate securities may include CMBS, senior unsecured debt of publicly traded REITs, debt or equity securities of other publicly traded real estate companies and collateralized debt obligations ("CDOs").
Note 2 - Summary of Significant Accounting Policies
Basis of Accounting
The accompanying consolidated financial statements and related footnotes have been prepared on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America ("GAAP") and pursuant to the requirements for reporting on Form 10-K and Regulation S-X, as appropriate. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities as of the date of the financial statements and the reported amounts of income and expenses during the reported periods. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ materially. In the opinion of management, the annual data includes all adjustments, of a normal and recurring nature, necessary for a fair statement of the results for the periods presented.
Certain prior period amounts have been reclassified to conform with current presentation. In the opinion of management, all normal recurring adjustments considered necessary for a fair statement of the results of the periods presented have been included. The current period’s results of operations will not necessarily be indicative of results in any subsequent reporting period.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company, the OP and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. In determining whether the Company has a controlling financial interest in a joint venture and the requirement to consolidate the accounts of that entity, management considers factors such as ownership interest, authority to make decisions and contractual and substantive participating rights of

F-10
BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018

the other partners or members, as well as whether the entity is a variable interest entity ("VIE") for which the Company is the primary beneficiary.
The Company has determined the OP is a VIE of which the Company is the primary beneficiary. Substantially all of the Company's assets and liabilities are held by the OP.
The Company consolidates all entities that it controls through either majority ownership or voting rights. In addition, the Company consolidates all VIEs of which the Company is considered the primary beneficiary. VIEs are entities in which equity investors (i) do not have the characteristics of a controlling financial interest and/or (ii) do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The entity that consolidates a VIE is its primary beneficiary and is generally the entity with (i) the power to direct the activities that most significantly affect the VIE’s economic performance and (ii) the right to receive benefits from the VIE or the obligation to absorb losses of the VIE that could be significant to the VIE.
The accompanying consolidated financial statements include the accounts of collateralized loan obligations ("CLOs") issued and securitized by wholly owned subsidiaries of the Company. The Company has determined the CLOs are VIEs of which the Company's subsidiary is the primary beneficiary. The assets and liabilities of the CLOs are consolidated in the accompanying consolidated balance sheet in accordance with ASC 810, Consolidation.
Acquisition Fees and Acquisition Expenses
The Company has historically incurred acquisition fees and acquisition expenses payable to the Advisor. The Company’s obligation to pay the Advisor acquisition fees terminated in September 2017. Prior to then, the Company paid the Advisor an acquisition fee based on the principal amount funded by the Company to originate or acquire commercial mortgage loan investments or on the anticipated net equity funded by the Company to acquire real estate securities. Acquisition fees and acquisition expenses paid to the Company's Advisor in connection with the origination and acquisition of commercial mortgage loan investments and acquisition of real estate securities were evaluated based on the nature of the expense to determine if they should be expensed in the period incurred or capitalized and amortized over the life of the investment. The Company capitalizes certain direct costs relating to the loan origination activities and the cost is amortized over the life of the loan. Pursuant to the Advisory Agreement, the Advisor is entitled to an acquisition fee of 1.0% of the principal amount funded by the Company to originate or acquire commercial mortgage loans (or anticipated net equity funded by the Company in the case of acquisition of real estate securities) until the aggregate purchase price for all investments acquired reaches $600,000,000 and reimbursement for insourced acquisition expenses of 0.5%. In September 2017, the Company's aggregate purchase price for all investments acquired reached $600,000,000, which concurrently terminated the 1.0% acquisition fee payments to the Advisor for all investments subsequent to the limit being reached.
Commercial Mortgage Loans
Held-for-Investment - Commercial mortgage loans that are held for investment purposes and are anticipated to be held until maturity, are carried at cost, net of unamortized acquisition expenses, discounts or premiums and unfunded commitments. Commercial mortgage loans, held for investment purposes, that are deemed to be impaired are carried at amortized cost less a specific allowance for loan losses. Interest income is recorded on the accrual basis and related discounts, premiums and acquisition expenses on investments are amortized over the life of the investment using the effective interest method. Amortization is reflected as an adjustment to interest income in the Company’s consolidated statements of operations. Guaranteed loan exit fees payable by the borrower upon maturity are accreted over the life of the investment using the effective interest method. The accretion of guaranteed loan exit fees is recognized in interest income in the Company's consolidated statements of operation.
Held-for-Sale - Commercial mortgage loans that are intended to be sold in the foreseeable future are reported as held-for-sale and are transferred at fair value and recorded at the lower of cost or fair value with changes recorded through the statements of operations. Unamortized loan origination costs for commercial mortgage loans held-for-sale that are carried at the lower of cost or fair value are capitalized as part of the carrying value of the loans and recognized upon the sale of such loans. Amortization of origination costs ceases upon transfer of commercial mortgage loans to held-for-sale.
Held-for-Sale, Accounted for Under the Fair Value Option - The fair value option provides an option to elect fair value as an alternative measurement for selected financial assets, financial liabilities, and written loan commitments. The Company has elected to measure commercial mortgage loans held-for-sale in the Company's TRS under the fair value option. These commercial mortgage loans are included in the Commercial mortgage loans, held-for-sale, measured at fair value in the consolidated balance sheet. Interest income received on commercial mortgage loans held-for-sale is recorded on the accrual basis of accounting and is included in interest income in the consolidated statements of operations.
As of December 31, 2018 the fair value amount and the contractual principal outstanding of commercial mortgage loans accounted for under the fair value option was $76.9 million and $77.1 million, respectively. As of December 31, 2017, the fair value amount and the contractual principal outstanding of commercial mortgage loans accounted for under the fair value option

F-11
BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018

was $28.5 million and $28.5 million, respectively. None of the Company's commercial mortgage loans accounted for under the fair value option are in default or greater than ninety days past due. For the year ended December 31, 2018 and December 31, 2017, the Company has a realized gain of $11.3 million and $4.5 million relating to the sale of commercial mortgage loans that are accounted for under the fair value option, respectively. The Company had no commercial mortgage loans accounted for under the fair value option at December 31, 2016. Acquisition expenses on originating these investments are expensed when incurred.
Allowance for Loan Losses
The allowance for loan losses reflects management's estimate of loan losses inherent in the loan portfolio as of the balance sheet date. The reserve is increased or decreased through the loan loss provision or (recovery) on the Company's consolidated statements of operations and is decreased by charge-offs when losses are confirmed through the receipt of assets, such as cash in a pre-foreclosure sale or upon ownership control of the underlying collateral in full satisfaction of the loan upon foreclosure or when significant collection efforts have ceased. The Company uses a uniform process for determining its allowance for loan losses. The allowance for loan losses includes a general, formula-based component and an asset-specific component.
General reserves are recorded when (i) available information as of each balance sheet date indicates that it is probable a loss has occurred in the portfolio and (ii) the amount of the loss can be reasonably estimated. The Company estimates loss rates based on historical realized losses experienced in the industry, given the fact the Company has not experienced significant losses, and takes into account current collateral and economic conditions affecting the probability and severity of losses when establishing the allowance for loan losses. The Company performs a comprehensive analysis of its loan portfolio and assigns risk ratings to loans that incorporate management's current judgments about their credit quality based on all known and relevant internal and external factors that may affect collectability. The Company considers, among other things, payment status, lien position, borrower financial resources and investment in collateral, collateral type, project economics and geographic location as well as national and regional economic factors. This methodology results in loans being segmented by risk classification into risk rating categories that are associated with estimated probabilities of default and principal loss. Ratings range from "1" to "5" with "1" representing the lowest risk of loss and "5" representing the highest risk of loss.
The asset-specific reserve component relates to reserves for losses on individual impaired loans. The Company considers a loan to be impaired when, based upon current information and events, it believes that it is probable that the Company will be unable to collect all amounts due under the contractual terms of the loan agreement. This assessment is made on an individual loan basis each quarter based on such factors as payment status, lien position, borrower financial resources and investment in collateral, collateral type, project economics and geographical location as well as national and regional economic factors. A reserve is established for an impaired loan when the present value of payments expected to be received, observable market prices or the estimated fair value of the collateral (for loans that are dependent on the collateral for repayment) is lower than the carrying value of that loan.
For collateral dependent impaired loans, impairment is measured using the estimated fair value of collateral less the estimated cost to sell. Valuations are performed or obtained at the time a loan is determined to be impaired and designated non-performing, and they are updated if circumstances indicate that a significant change in value has occurred. The Advisor generally will use either the income approach through internally developed valuation models to estimate the fair value of the collateral for such loans or obtain external "as is" appraisals for loan collateral.
A loan is also considered impaired if its terms are modified in a troubled debt restructuring ("TDR"). A TDR occurs when a concession is granted and the debtor is experiencing financial difficulties. Impairments on TDR loans are generally measured based on the present value of expected future cash flows discounted at the effective interest rate of the original loans.
The Company generally designates non-performing loans at such time as (i) loan payments become 90-days past due; (ii) the loan has a maturity default; or (iii) in the opinion of the Company, it is probable the Company will be unable to collect all amounts due according to the contractual terms of the loan. Income recognition will generally be suspended when a loan is designated non-performing unless the loan is well secured, and resumed only when the suspended loan becomes contractually current and performance is demonstrated to have resumed. A loan will be written off when it is no longer realizable and legally discharged.
Real Estate Securities
On the acquisition date, all of the Company’s commercial real estate securities were classified as available for sale and carried at fair value, and subsequently any unrealized gains or losses are recognized as a component of accumulated other comprehensive income or loss. The Company may elect the fair value option for its real estate securities, and as a result, any unrealized gains or losses on such real estate securities will be recorded in the Company’s consolidated statement of operations. No such election has been made to date. Related discounts, premiums and acquisition expenses on investments are amortized over the life of the investment using the effective interest method. Amortization is reflected as an adjustment to interest income in the Company’s consolidated statements of operations.

F-12
BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018

Impairment Analysis of Real Estate Securities
Commercial real estate securities for which the fair value option has not been elected are periodically evaluated for other-than-temporary impairment. If the fair value of a security is less than its amortized cost, the security is considered impaired. Impairment of a security is considered other-than-temporary when (i) the Company has the intent to sell the impaired security; (ii) it is more likely than not the Company will be required to sell the security; or (iii) the Company does not expect to recover the entire amortized cost of the security. If the Company determines that an other-than-temporary impairment exists and a sale is likely, the impairment charge is recognized as an impairment of assets on the Company's consolidated statement of operations. If a sale is not expected, the portion of the impairment charge related to credit factors is recorded as an impairment of assets on the Company's consolidated statement of operations with the remainder recorded as an unrealized gain or loss on investments reported as a component of accumulated other comprehensive income or loss.
Repurchase Agreements
Commercial mortgage loans and real estate securities sold under repurchase agreements have been treated as collateralized financing transactions because the Company maintains effective control over the transferred securities. Commercial mortgage loans and real estate securities financed through a repurchase agreement remain on the Company’s consolidated balance sheet as an asset and cash received from the purchaser is recorded as a liability. Interest paid in accordance with repurchase agreements is recorded in interest expense on the Company's consolidated statements of operations.
Cash and Cash Equivalents
Cash represents deposits with high quality financial institutions. These deposits are guaranteed by the Federal Deposit Insurance Company up to an insurance limit. Cash equivalents include short-term, liquid investments in money market funds with original maturities of 90 days or less when purchased.
Restricted Cash
Restricted cash primarily consists of cash pledged as margin on repurchase agreements and derivative transactions. The duration of this restricted cash generally matches the duration of the related repurchase agreements or derivative transaction.
Deferred Financing Costs
The deferred financing costs related to the Company's various Master Repurchase Agreements as well as certain prepaid subscription costs are included in Prepaid expenses and other assets on the consolidated balance sheets. Deferred financing cost on the Company's collateralized debt obligations ("CLO") are netted against the Company's CLO payable in the Collateralized debt obligations on the consolidated balance sheets. Deferred financing costs are amortized over the terms of the respective financing agreement using the effective interest method and included in interest expense on the Company's consolidated statements of operations. Unamortized deferred financing costs are generally expensed when the associated debt is refinanced or repaid before maturity.
Share Repurchase Program
The Company has a Share Repurchase Program (the "SRP"), which became effective as of February 28, 2016, that enables stockholders to sell their shares to the Company.
Subject to certain conditions, stockholders that purchased shares of our common stock or received their shares from us (directly or indirectly) through one or more non-cash transactions and have held their shares for a period of at least one year may request that we repurchase their shares of common stock so long as the repurchase otherwise complies with the provisions of Maryland law. Repurchase requests made following the death or qualifying disability of a stockholder will not be subject to any minimum holding period.
On August 10, 2017, our board of directors amended the SRP to provide that the repurchase price per share for requests will be equal to the lesser of (i) our most recent estimated per-share NAV, as approved by our board of directors from time to time, and (ii) our book value per share, computed in accordance with GAAP, multiplied by a percentage equal to (i) 92.5%, if the person seeking repurchase has held his or her shares for a period greater than one year and less than two years; (ii) 95%, if the person seeking repurchase has held his or her shares for a period greater than two years and less than three years; (iii) 97.5%, if the person seeking repurchase has held his or her shares for a period greater than three years and less than four years; or (iv) 100%, if the person seeking repurchase has held his or her shares for a period greater than four years or in the case of requests for death or disability.
Repurchases pursuant to the SRP, when requested, generally will be made semiannually (each six-month period ending June 30 or December 31, a “fiscal semester”). Repurchases for any fiscal semester will be limited to a maximum of 2.5% of the weighted average number of shares of common stock outstanding during the previous fiscal year, with a maximum for any fiscal year of 5.0% of the weighted average number of shares of common stock outstanding during the previous fiscal year. Funding for repurchases pursuant to the SRP for any given fiscal semester will be limited to proceeds received during that same fiscal semester through the issuance of common stock pursuant to any Dividend Reinvestment Plan ("DRIP") in effect from

F-13
BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018

time to time, provided that the board of directors has the power, in its sole discretion, to determine the amount of shares repurchased during any fiscal semester as well as the amount of funds to be used for that purpose. Due to these limitations, we cannot guarantee that we will be able to accommodate all repurchase requests made during any fiscal semester or fiscal year. However, a stockholder may withdraw its request at any time or ask that we honor the request when funds are available. Pending repurchase requests will be honored on a pro rata basis. We will generally pay repurchase proceeds, less any applicable tax or other withholding required by law, by the 31st day following the end of the fiscal semester during which the repurchase request was made.
When a stockholder requests a redemption and the redemption is approved by the board of directors, we will reclassify such obligation from equity to a liability based on the settlement value of the obligation. Shares repurchased under the SRP will have the status of authorized but unissued shares.
Offering and Related Costs
The Company is currently offering shares of the Company’s common stock and convertible redeemable preferred stock series A on a best effort basis (the “Offering”). In connection with the Offering, the Company incurred various offering costs and will continue to incur these costs until the Offering is complete. These offering costs include but were are not limited to legal, accounting, printing, mailing and filing fees, and diligence expenses of broker-dealers. Offering costs for the common stock is recorded in the Company’s stockholders’ equity, while the offering costs for the convertible redeemable stock series A is included within Redeemable convertible preferred stock Series A on the Company’s consolidated balance sheet.
Distribution Reinvestment Plan
Pursuant to the DRIP, stockholders may elect to reinvest distributions by purchasing shares of common stock in lieu of receiving cash. No dealer manager fees or selling commissions are paid with respect to shares purchased pursuant to the DRIP. Participants purchasing shares pursuant to the DRIP have the same rights and are treated in the same manner as if such shares were issued pursuant to the Offering. The board of directors may designate that certain cash or other distributions be excluded from the DRIP. The Company has the right to amend any aspect of the DRIP or terminate the DRIP with ten days’ notice to participants. Shares issued under the DRIP are recorded to equity in the consolidated balance sheet in the period distributions are declared.
Share-Based Compensation
The Company has a share-based incentive plan for certain of the Company's directors, officers and employees of the Advisor and its affiliates. Share-based awards are measured at the grant date fair value and is recognized as compensation expense on a on a straight line basis over the related vesting period of the award. See Note 10 - Share-Based Compensation.
Income Taxes
The Company has conducted its operations to qualify as a REIT for U.S. federal income tax purposes beginning with its taxable year ended December 31, 2013. As a REIT, if the Company meets certain organizational and operational requirements and distributes at least 90% of its "REIT taxable income" (determined before the deduction of dividends paid and excluding net capital gains) to its stockholders in a year, it will not be subject to U.S. federal income tax to the extent of the income that it distributes. However, even if the Company qualifies for taxation as a REIT, it may be subject to certain state and local taxes on income in addition to U.S. federal income and excise taxes on its undistributed income. The Company, through its TRS, is indirectly subject to U.S. federal, state and local income taxes. The Company’s TRS is not consolidated for U.S. federal income tax purposes, but is instead taxed as a C corporation. For financial reporting purposes, the TRS is consolidated and a provision for current and deferred taxes is established for the portion of earnings recognized by the Company with respect to its interest in its TRS. Total income tax expense for the year ended December 31, 2018 and December 31, 2017 were $0.1 million and $0.2 million, respectively. There was no income tax provision for the year ended December 31, 2016.
The Company uses a more-likely-than-not threshold for recognition and derecognition of tax positions taken or to be taken in a tax return. The Company has assessed its tax positions for all open tax years beginning with December 31, 2015 and concluded that there were no uncertainties to be recognized. The Company’s accounting policy with respect to interest and penalties related to tax uncertainties is to classify these amounts as provision for income taxes.
The tax characteristic of $1.44 distributions per common share declared during 2018 was $1.43 ordinary income and $0.01 return of capital. Of the $1.43 of ordinary income, $0.02 represents qualified dividend and $1.41 represents the amount of the ordinary dividend that may be eligible for the 20% deduction applicable to qualified REIT dividends under Internal Revenue Code Section 199A. The tax characteristics of $216.03 per preferred share declared during 2018 was all ordinary income. Of the $216.03 of ordinary income, $2.28 represents qualified dividend and $213.75 represents the amount of the ordinary dividend that may be eligible for the 20% deduction applicable to qualified REIT dividends under Section 199A. The tax characteristics of the $1.80 distributions per common share declared during 2017 was $1.07 ordinary income and $0.73 return of capital.

F-14
BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018

The Company utilizes the TRS to reduce the impact of the prohibited transaction tax and to avoid penalty for the holding of assets not qualifying as real estate assets for purposes of the REIT asset tests. Any income associated with a TRS is fully taxable because the TRS is subject to federal and state income taxes as a domestic C corporation based upon its net income.
Enacted on December 22, 2017, the recently passed Tax Cuts and Jobs Act ("TCJA") made many significant changes to the U.S. federal income tax laws applicable to businesses and their owners, including REITs and their stockholders, and may lessen the relative competitive advantage of operating as a REIT rather than as a C corporation. Pursuant to this legislation, as of January 1, 2018, (1) the federal income tax rate applicable to corporations is reduced to 21%, (2) the highest marginal individual income tax rate is reduced to 37% (through taxable years ending in 2025), (3) the corporate alternative minimum tax is repealed, and (4) the backup withholding rate for U.S. stockholders is reduced to 24%. Generally, under the new interest expense limitation rules, the Company's business interest expense deduction cannot exceed the sum of business interest income, 30% of adjusted taxable income (cannot be less than zero), and any floor plan financing interest expense for the taxable year. The Company completed its assessment of the income tax provisions of the sections of the TCJA that were effective for the year ended December 31, 2018, and there were no material amounts recorded.
Derivatives and Hedging Activities
In the normal course of business, the Company is exposed to the effect of interest rate changes and may undertake a strategy to limit these risks through the use of derivatives.  The Company uses derivatives primarily to economically hedge against interest rates, CMBS spreads and macro market risk in order to minimize volatility.  The Company may use a variety of derivative instruments that are considered conventional, including but not limited to: Treasury note futures and credit derivatives on various indices including CMBX and CDX.
The Company recognizes all derivatives on the consolidated balance sheets at fair value.  The Company does not designate derivatives as hedges to qualify for hedge accounting for financial reporting purposes and therefore any net payments under, or fluctuations in the fair value of these derivatives have been recognized currently in unrealized gain/(loss) on derivative instruments in the accompanying consolidated statements of operations. The Company records derivative asset and liability positions on a gross basis with any collateral posted with or received from counterparties recorded separately within Restricted cash on the Company’s consolidated balance sheets. Certain derivatives that the Company has entered into are subject to master netting agreements with its counterparties, allowing for netting of the same transaction, in the same currency, on the same date.
Per Share Data
The Company’s Series A redeemable convertible preferred stock (the "Preferred Stock") is considered a participating security. As such, the Company is required to include the Preferred Stock in the calculation of basic earnings per share and calculate basic earnings per share using the two-class method. The Company’s dilutive earnings per share calculation is computed using the more dilutive result of the treasury stock method, assuming the participating security is a potential common share, or the two-class method, assuming the participating security is not converted. The Company calculates basic earnings per share by dividing net income applicable to common stock for the period by the weighted-average number of shares of common stock outstanding for that period. Diluted earnings per share reflects the potential dilution that could occur from shares outstanding if potential shares of common stock with a dilutive effect have been issued in connection with the restricted stock plan or upon conversion of the outstanding shares of the Company’s Preferred Stock, except when doing so would be anti-dilutive.
Reportable Segments
The Company has determined that it has three reportable segments based on how the chief operating decision maker reviews and manages the business. The three reporting segments are as follows:
•
The real estate debt business which is focused on originating, acquiring and asset managing commercial real estate debt investments, including first mortgage loans, subordinate mortgages, mezzanine loans and participations in such loans.
•
The real estate securities business which is focused on investing in and asset managing commercial real estate securities primarily consisting of CMBS and may include unsecured REIT debt, CDO notes and other securities.
•
The commercial Conduit business in the Company's TRS, which is focused on originating and subsequently selling fixed-rate commercial real estate loans into the CMBS securitization market.
See Note 14 - Segment Reporting for further information regarding the Company's segments.
Redeemable Convertible Preferred Stock
The Company’s Preferred Stock is classified outside of permanent equity in the consolidated balance sheets. Subject to certain conditions, the Preferred Stock is redeemable at the option of the holder of Preferred Stock, outside of the control of the Company. As set forth in the Articles Supplementary (the “Articles Supplementary”) to the Company’s Articles of Amendment and Restatement, the Preferred Stock is redeemable for shares of the Company's common stock, $0.01 par value per share (the

F-15
BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018

"Common Stock") at the option of the shareholder upon a change of control (as defined in the Articles Supplementary) or after the sixth anniversary of the date of issuance. A change in control of the Company occurs if any person acquires more than 50% of the total economic interests or voting power of all securities of the Company, other than in a liquidity event.
Shares of Preferred Stock rank senior to shares of Common Stock with respect to rights to receive dividends and to participate in distributions or payments upon any voluntary or involuntary liquidation, dissolution or winding up of the Company. Dividends payable on each share of Preferred Stock will be equal to the greater of (i) an amount equal to $16.67 per share and (ii) the monthly dividend that would have been paid had such share of Preferred Stock been converted to a share of Common Stock, subject to proration in the event that such share of Preferred Stock was not outstanding for the full month.
Immediately prior to a “Liquidity Event,” each outstanding share of Preferred Stock shall convert (the “Mandatory Conversion”) into 299.2 shares of Common Stock, subject to anti-dilution adjustments (the “Conversion Rate”). A “Liquidity Event” is defined as (i) the listing of the Common Stock on a national securities exchange or quotation on an electronic inter-dealer quotation system; (ii) a merger or business combination involving the Company pursuant to which outstanding shares Common Stock are exchanged for securities of another company which are listed on a national securities exchange or quoted on an electronic inter-dealer quotation system; or (iii) any other transaction or series of transaction that results in all shares of Common Stock being transferred or exchange for cash or securities which are listed on a national securities exchange or quoted on an electronic inter-dealer quotation system. If there has not been a Liquidity Event within six years from the initial issuance of the Preferred Stock, each holder of Preferred Stock shall have the right to convert all, but not less than all, of the Preferred Stock held by such holder into Common Stock at the Conversion Rate. Each holder also has the option to convert its shares of Preferred Stock into Common Stock upon a change in control (as defined in the Articles Supplementary) of the Company. In addition, neither the Company nor a holder of shares of Preferred Stock may redeem shares of the Preferred Stock until six years from the initial issuance of the Preferred Stock, except in cases of a change in control (as defined in the Articles Supplementary).
Holders of the Preferred Stock are entitled to vote on each matter submitted to a vote of the stockholders of the Company upon which the holders of Common Stock are entitled to vote, upon which the holders of the Preferred Stock and holders of the Common Stock shall vote together as a single class. The number of votes applicable to a share of Preferred Stock will be equal to the number of shares of Common Stock a share of Preferred Stock could have been converted into as of the record date set for purposes of such stockholder vote (rounded down to the nearest whole number of shares of Common Stock). In addition, the affirmative vote of the holders of two-thirds of the outstanding shares of Preferred Stock is required to approve the issuance of any equity securities senior to the Preferred Stock and to take certain actions materially adverse to the holders of the Preferred Stock.
Recently Adopted Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” or ASU 2014-09. ASU 2014-09 broadly amends the accounting guidance for revenue recognition. ASU 2014-09 is effective for the first interim or annual period beginning after December 15, 2017, and is to be applied retrospectively. The Company adopted this guidance on January 1, 2018 and it did not have a material impact on our consolidated financial statements.
In August 2016, the FASB issued 2016, the FASB issued ASU 2016-15, "Statement of cash flows (Topic 230): Classification of certain cash receipts and cash payments," or ASU 2016-15. The ASU 2016-15 guidance amends how certain transactions should be classified and presented in the statement of cash flows as either operating, investing or financing activities. Among other things, the update provides specific guidance on where to classify debt prepayment and extinguishment costs, payments for contingent consideration made after a business combination and distributions received from equity method investments. The Company adopted this guidance on January 1, 2018. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18, "Statement of cash flows (Topic 230): Restricted Cash" or ASU 2016-18. The amendment requires restricted cash to be included in the beginning-of-period and end-of-period total cash amounts. As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash in the statement of cash flows. The Company adopted this guidance on January 1, 2018. The adoption included retrospectively adjusting the 2017 and 2016 consolidated statements of cash flows to include restricted cash to beginning of the period and end of period cash and cash equivalents. Additionally, net cash (used in)/provided by financing activities was adjusted to include changes in restricted cash.  The adoption did not have a material impact on our consolidated financial statements.

F-16
BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018

Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13 “Financial Instruments - Credit Losses - Measurement of Credit Losses on Financial Instruments (Topic 326),” ("ASU 2016-13"). ASU 2016-13 changes how entities measure credit losses for financial assets carried at amortized cost. The update eliminates the requirement that a credit loss must be probable before it can be recognized and instead requires an entity to recognize the current estimate of all expected credit losses. Additionally, the update requires credit losses on available-for-sale debt securities to be carried as an allowance rather than as a direct write-down of the asset. The amendments become effective for reporting periods beginning after December 15, 2019. The amendments may be adopted early for reporting periods beginning after December 15, 2018. The Company is currently evaluating the impact of this new guidance.
In February 2018, the FASB issued ASU 2018-02 “Income Statement - Reporting Comprehensive Income” (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income" ("ASU 2018-02") guidance that allows an entity to elect to reclassify the stranded tax effects related to the Tax Cuts and Jobs Act of 2017 from accumulated other comprehensive income into retained earnings. The amendments become effective for reporting periods beginning after December 15, 2018, and early adoption is permitted. The effect from adoption of this guidance is not expected to be material.
In June 2018, the FASB issued ASU 2018-07 “Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting,” ("ASU 2018-07"). ASU 2018-07 expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The guidance is intended to align the accounting for such payments to nonemployees with the existing requirements for share-based payments granted to employees. The amendments become effective for reporting periods beginning after December 15, 2018. The Company is currently evaluating the impact of this new guidance.
In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820), Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement" ("ASU 2018-13"). The guidance provides amendments to the fair value measurement disclosure requirements of ASC 820. ASU 2018-13 is effective for all entities for fiscal years beginning after December 15, 2019, including interim periods therein. Early adoption is permitted for any eliminated or modified disclosures upon issuance of this ASU. The Company is currently evaluating the impact of this new guidance.

.


F-17
BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018

Note 3 - Commercial Mortgage Loans
The following table is a summary of the Company's commercial mortgage loans, held-for-investment, carrying values by class (dollars in thousands):
 
December 31, 2018
 
December 31, 2017
Senior loans
$
2,198,555

 
$
1,368,425

Mezzanine loans
13,111

 
35,087

Total gross carrying value of loans
2,211,666

 
1,403,512

Less: Allowance for loan losses
4,836

 
1,466

Total commercial mortgage loans, held-for-investment, net
$
2,206,830

 
$
1,402,046

The following table presents the activity in the Company's allowance for loan losses (dollars in thousands):
 
Year Ended December 31,
 
2018
 
2017
Beginning of period
$
1,466

 
$
2,181

Loan loss provision/(recovery) (1)
3,370

 
(715
)
Charge-offs
—

 
—

Recoveries
—

 
—

Ending allowance for loan losses
$
4,836

 
$
1,466

(1) Includes $4.1 million loan loss provision specifically reserved on one loan in non-performing status as of December 31, 2018.
As of December 31, 2018 and 2017, the Company's total commercial mortgage loan portfolio, excluding commercial mortgage loans accounted for under the fair value option, was comprised of 100 and 69 loans, respectively.
The following table represents the composition by loan type of the Company's commercial mortgage loans portfolio, excluding commercial mortgage loans, held-for-sale, measured at fair value (dollars in thousands).
 
 
December 31, 2018
 
December 31, 2017
Loan Type
 
Par Value
 
Percentage
 
Par Value
 
Percentage
Multifamily
 
$
1,001,540

 
45.2
%
 
$
505,189

 
35.9
%
Office
 
357,819

 
16.1
%
 
455,698

 
32.4
%
Retail
 
262,622

 
11.8
%
 
209,598

 
14.9
%
Hospitality
 
347,080

 
15.6
%
 
184,025

 
13.1
%
Industrial
 
65,871

 
3.0
%
 
53,208

 
3.7
%
Mixed-Use
 
120,647

 
5.4
%
 
—

 
—
%
Self-Storage
 
49,957

 
2.2
%
 
—

 
—
%
Land
 
16,400

 
0.7
%
 
—

 
—
%
Total
 
$
2,221,936

 
100.0
%
 
$
1,407,718

 
100.0
%

As of December 31, 2018 and 2017, the Company's total commercial mortgage loans, held-for-sale, measured at fair value comprised of 7 and 3 loans, respectively.

F-18
BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018

The following table represents the composition by loan type of the Company's commercial mortgage loans, held-for-sale, measured at fair value (dollars in thousands).
 
 
December 31, 2018
 
December 31, 2017
Loan Type
 
Par Value
 
Percentage
 
Par Value
 
Percentage
Multifamily
 
$
34,000

 
44.1
%
 
$
28,531

 
100.0
%
Hospitality
 
27,800

 
36.1
%
 
—

 
—
%
Office
 
15,300

 
19.8
%
 
—

 
—
%
Total
 
$
77,100

 
100.0
%
 
$
28,531

 
100.0
%

Credit Characteristics
As part of the Company's process for monitoring the credit quality of its commercial mortgage loans, excluding those held-for-sale, measured at fair value, it performs a quarterly loan portfolio assessment and assigns risk ratings to each of its loans. The loans are scored on a scale of 1 to 5 as follows:
Investment Rating
 
Summary Description
1
 
Investment exceeding fundamental performance expectations and/or capital gain expected. Trends and risk factors since time of investment are favorable.
2
 
Performing consistent with expectations and a full return of principal and interest expected. Trends and risk factors are neutral to favorable.
3
 
Performing investments requiring closer monitoring. Trends and risk factors show some deterioration.
4
 
Underperforming investment with the potential of some interest loss but still expecting a positive return on investment. Trends and risk factors are negative.
5
 
Underperforming investment with expected loss of interest and some principal.
All commercial mortgage loans, excluding loans classified as commercial mortgage loans, held-for-sale, measured at fair value within the consolidated balance sheets, are assigned an initial risk rating of 2.0. As of December 31, 2018 and 2017, the weighted average risk ratings of loans were 2.1 and 2.2, respectively.
The following table represents the allocation by risk rating for the Company's commercial mortgage loans, excluding loans classified as commercial mortgage loans, held-for-sale, measured at fair value:
December 31, 2018
 
December 31, 2017
Risk
  
Number
  
Par
 
Risk
  
Number
  
Par
Rating
 
of Loans
 
Value
 
Rating
 
of Loans
 
Value
1
  
2

  
$
23,250

 
1
  
2

  
25,820

2
  
87

  
1,965,186

 
2
  
54

  
1,171,125

3
  
9

  
202,400

 
3
  
13

  
210,773

4
  
1

  
14,300

 
4
  
—

  
—

5
  
1

  
16,800

 
5
  
—

  
—

 
  
100

  
$
2,221,936

 
 
 
69

  
$
1,407,718

 
 
 
 
 
 
 
 
 
 
 

As of December 31, 2018, the Company had one loan with an unpaid principal balance of $16.8 million and fair value of $12.0 million in non-performing status. For the year ended December 31, 2018, the Company has applied $1.0 million of interest received on this loan as a reduction to the unpaid principal balance. During the year ended December 31, 2018, the Company recorded $4.1 million of asset-specific reserve included in loan loss provision/(recovery) on the consolidated statement of operations. The Company also had one loan with a principal balance of $14.3 million that had interest past due for greater than 90 days as of December 31, 2018. The Company continued to accrue interest income on this loan as the loan was

F-19
BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018

well secured, including cash reserves that were sufficient to cover interest due. As of December 31, 2017, the Company did not have any loans that were past due on their payments, in non-accrual status or impaired.
For the year ended December 31, 2018 and 2017, the activity in the Company's commercial mortgage loans, held-for-investment portfolio was as follows (dollars in thousands):
 
Year Ended December 31,
 
2018
 
2017
Balance at Beginning of Year
$
1,402,046

 
$
1,046,556

Acquisitions and originations
1,608,512

 
837,861

Principal repayments
(778,520
)
 
(381,933
)
Discount accretion and premium amortization
4,648

 
2,554

Loans transferred to commercial real estate loans, held-for-sale
(16,750
)
 
(100,005
)
Net fees capitalized into carrying value of loans
(9,736
)
 
(3,702
)
Loan loss recovery/(provision)
(3,370
)
 
715

Balance at End of Year
$
2,206,830

 
$
1,402,046


F-20
BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018

Note 4 - Real Estate Securities
The following is a summary of the Company's real estate securities, CMBS (dollars in thousands):
 
 
 
 
Weighted Average
 
 
 
 
 
 
Number of Investments
 
Interest Rate
 
Maturity
 
Par Value
 
Fair Value
December 31, 2018
 
2

 
5.0
%
 
December 2023
 
$
26,750

 
$
26,412

December 31, 2017
 
—

 
—
%
 
N/A
 
$
—

 
—

The Company classified its CMBS investments as available-for-sale as of December 31, 2018 and 2017. These investments are reported at fair value in the consolidated balance sheet with changes in fair value recorded in accumulated other comprehensive income (loss).
The following table shows the amortized cost, unrealized gains/losses and fair value of the Company's CMBS investments (dollars in thousands):
 
 
Amortized Cost
 
Unrealized Gains
 
Unrealized Losses
 
Fair Value
December 31, 2018
 
$
26,871

 
$
—

 
$
(459
)
 
$
26,412

December 31, 2017
 
$
—

 
$
—

 
$
—

 
$
—


As of December 31, 2018 the Company held two CMBS positions with an aggregate carrying value of $26.9 million and an unrealized loss of $0.5 million, of which no position had an unrealized loss for a period greater than twelve months. As of December 31, 2017, the Company held no CMBS positions.
For the year ended December 31, 2018, and December 31, 2017, the Company has recognized a loss of approximately $0.1 million, and a gain of $0.2 million from the CMBS positions respectively, recorded within realized (gain) loss on sale of real estate securities in the consolidated statement of operations.


F-21
BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018

The following table provides information on the amounts of gains (losses) on the Company's real estate securities, CMBS, available-for-sale (dollars in thousands):
 
 
Year Ended December 31,
 
 
2018
 
2017
 
2016
Unrealized gain/(loss) available-for-sale securities
 
$
(459
)
 
$
19

 
$
329

Reclassification of net (gain)/loss on available-for-sale securities included in net income (loss)
 
—

 
481

 
1,425

Unrealized gain/(loss) available-for-sale securities, net of reclassification adjustment
 
$
(459
)
 
$
500

 
$
1,754

The amounts reclassified for net (gain) loss on available-for-sale securities are included in the realized (gain) loss on sale of real estate securities in the Company's consolidated statements of operations. The Company's unrealized gain/(loss) on available-for-sale securities is net of tax. Due to the Company's designation as a REIT, there was no tax impact on unrealized gain (loss) on available-for-sale securities.

F-22
BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018

Note 5 - Debt
Repurchase Agreements - Commercial Mortgage Loans
The Company entered into repurchase facilities with JPMorgan Chase Bank, National Association (the "JPM Repo Facility"), Goldman Sachs Bank USA (the "GS Repo Facility"), U.S Bank National Association (the "USB Repo Facility"), Barclays Bank PLC (the "Barclays Facility"), Wells Fargo Bank, National Association (the "WF Repo Facility"), and Credit Suisse AG (the "CS Repo Facility" and together with JPM Repo Facility, GS Repo Facility, USB Repo Facility, WF Repo Facility, Barclays Facility, the "Repo Facilities").
The Repo Facilities are financing sources through which the Company may pledge one or more mortgage loans to the financing entity in exchange for funds typically at an advance rate of between 65% to 80% of the principal amount of the mortgage loan being pledged.
The details of the Company's Repo Facilities at December 31, 2018 and December 31, 2017 are as follows (dollars in thousands):
As of December 31, 2018
 
 
 
 
 
 
 
Ending Weighted Average Interest Rate
 
Initial Term Maturity
Repurchase Facility
 
Committed Financing
 
Amount Outstanding
 
Interest Expense(1)
 
 
JPM Repo Facility (2)
 
$
520,000

 
$
72,906

 
$
7,838

 
4.55
%
 
1/30/2020
GS Repo Facility (3)
 
—

 
—

 
470

 
N/A

 
12/27/2018
USB Repo Facility (4)
 
100,000

 
—

 
594

 
4.71
%
 
6/15/2020
CS Repo Facility (5)
 
300,000

 
76,534

 
6,594

 
4.69
%
 
6/19/2019
WF Repo Facility (6)
 
175,000

 
—

 
86

 
4.71
%
 
11/21/2020
Barclays Facility (7)
 
100,000

 
—

 
1,445

 
6.24
%
 
9/19/2019
Total
 
$
1,195,000

 
$
149,440

 
$
17,027

 
 
 
 
__________________________
(1) For the year ended December 31, 2018. Includes amortization of deferred financing costs.
(2) On January 30, 2018 the committed financing amount was upsized from $300 million to $520 million and the maturity date was amended to January 30, 2020. Includes a one-year extension at the Company's option.
(3) Matured on December 27, 2018. Committed balance was $250 million prior to maturity.
(4) Includes two one-year extensions at the option of an indirect wholly-owned subsidiary of the Company, which may be exercised upon the satisfaction of certain conditions.
(5) On July 19, 2018, the committed financing amount was upsized from $250 million to $300 million. On June 20, 2018, the Company exercised the extension option upon the satisfaction of certain conditions, and extended the term maturity to June 19, 2019.
(6) Includes three one-year extensions at the Company’s option, which may be exercised upon the satisfaction of certain conditions.
(7) On July 30, 2018, the committed financing amount was upsized from $75 million to $100 million. Includes a one-year extension at the Company's option.



F-23
BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018

As of December 31, 2017
 
 
 
 
 
 
 
Ending Weighted Average Interest Rate
 
Initial Term Maturity
Repurchase Facility
 
Committed Financing
 
Amount Outstanding
 
Interest Expense(1)
 
 
JPM Repo Facility (2)
 
$
300,000

 
$
42,042

 
$
8,453

 
3.77
%
 
6/12/2019
GS Repo Facility (3)
 
250,000

 
13,500

 
4,573

 
3.83
%
 
12/27/2018
USB Repo Facility (4)
 
100,000

 
—

 
303

 
N/A

 
6/15/2020
CS Repo Facility (5)
 
250,000

 
10,148

 
577

 
3.99
%
 
8/30/2018
Barclays Facility (6)
 
75,000

 
—

 
236

 
N/A

 
9/19/2019
Total
 
$
975,000

 
$
65,690

 
$
14,142

 
 
 
 
_______________________
(1) For the year ended December 31, 2017. Includes amortization of deferred financing costs.
(2) Includes a one-year extension at the Company's option.
(3) Includes a one-year extension at the Company’s option, which may be exercised upon the satisfaction of certain conditions.
(4) Includes two one-year extensions at the option of an indirect wholly-owned subsidiary of the Company, which may be exercised upon the satisfaction of certain conditions.
(5) Prior to the end of each calendar quarter, the Company may request an extension of the termination date for an additional 364 days from the end of such calendar quarter subject to the satisfaction of certain conditions and approvals.
(6) Includes a one-year extension at the Company's option.
The Company expects to use the advances from the Repo Facilities to finance the acquisition or origination of eligible loans, including first mortgage loans, subordinated mortgage loans, mezzanine loans and participation interests therein.
The Repo Facilities generally provide that in the event of a decrease in the value of the Company's collateral, the lenders can demand additional collateral. As of December 31, 2018 and December 31, 2017, the Company is in compliance with all debt covenants.
Other financing and loan participation - Commercial Mortgage Loans
The Company entered into a financing arrangement with Pacific Western Bank for term financing (“PWB Financing”) on May 17, 2017. The PWB Financing provided the Company with $36.2 million and was collateralized by a portfolio asset of $54.2 million. The PWB Financing accrued interest at per annum rates equal to the sum of (i) the applicable LIBOR index rate plus (ii) a margin of 4.0%. The PWB Financing had a maturity date of June 9, 2019. The Company paid off the outstanding balance in June 2018. As of December 31, 2017, the Company had $26.2 million of outstanding principal under the PWB Financing. The Company incurred $1.2 million and $1.2 million of interest expense on the PWB Financing for the year ended December 31, 2018 and December 31, 2017, including amortization of deferred financing costs, respectively.
On December 11, 2018, the Company transferred $10.0 million of its interest in a term loan to City National Bank ("City National Financing") via a participation agreement. As of December 31, 2018, the City National Financing accrued interest at an annual rate of 4.5%. The Company incurred $0.03 million of interest expense on the City National Financing for the year ended December 31, 2018.
Repurchase Agreements - Real Estate Securities
The Company has entered into various Master Repurchase Agreements (the "MRAs") that allow the Company to sell real estate securities while providing a fixed repurchase price for the same real estate securities in the future. The repurchase contracts on each security under an MRA generally mature in 30-90 days and terms are adjusted for current market rates as necessary.

F-24
BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018

Below is a summary of the Company's MRAs as of December 31, 2018 and 2017 (dollars in thousands):
 
 
 
 
 
 
 
 
Weighted Average
Counterparty
 
Amount Outstanding
 
Accrued Interest
 
Collateral Pledged (1)
 
Interest Rate
 
Days to Maturity
As of December 31, 2018
 
 
 
 
 
 
 
 
 
 
JP Morgan Securities LLC
 
$
21,961

 
$
27

 
$
26,750

 
3.67
%
 
18
Wells Fargo Securities, LLC
 
22,578

 
47

 
28,223

 
3.93
%
 
11
Total
 
$
44,539

 
$
74

 
$
54,973

 
3.80
%
 
14.5
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2017
 
 
 
 
 
 
 
 
 
 
JP Morgan Securities LLC
 
$
39,035

 
$
11

 
$
56,044

 
3.32
%
 
26
Total/Weighted Average
 
$
39,035

 
$
11

 
$
56,044

 
3.32
%
 
26
________________________
1 Includes $28.2 million and $56.0 million of CLO notes, held by the Company, which is eliminated within the Real estate securities, at fair value line of the consolidated balance sheets as of as of December 31, 2018 and December 31, 2017, respectively.

F-25
BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018

Collateralized Loan Obligation
On February 15, 2018, the Company called all of the outstanding notes issued by RFT 2015-FL1 Issuer, a wholly owned indirect subsidiary of the Company. The outstanding principal of the notes on the date of the call was $145.0 million. The Company recognized all the remaining unamortized deferred financing costs of $6.4 million within the Interest expense line of the consolidated statements of operations, which was a non-cash charge.
As of December 31, 2018 and December 31, 2017 the notes issued by BSPRT 2017-FL1 Issuer, a wholly owned indirect subsidiary of the Company, are collateralized by interests in a pool of 15 and 25 mortgage assets having a total principal balance of $216.0 million and $418.1 million, respectively (the “2017-FL1 Mortgage Assets”). The sale of the 2017-FL1 Mortgage Assets to BSPRT 2017-FL1 Issuer is governed by a Mortgage Asset Purchase Agreement dated as of June 29, 2017, between the Company and BSPRT 2017-FL1 Issuer.
As of December 31, 2018 and December 31, 2017 the notes issued by BSPRT 2017-FL2 Issuer, a wholly owned indirect subsidiary of the Company, are collateralized by interests in a pool of 12 and 20 mortgage assets having a total principal balance of $244.6 million and $440.7 million, respectively (the “2017-FL2 Mortgage Assets”). The sale of the 2017-FL2 Mortgage Assets to BSPRT 2017-FL2 Issuer is governed by a Mortgage Asset Purchase Agreement dated as of November 29, 2017, between the Company and BSPRT 2017-FL2 Issuer.
On April 5, 2018, BSPRT 2018-FL3 Issuer, Ltd. (the “Issuer”) and BSPRT 2018-FL3 Co-Issuer, LLC (the “Co-Issuer”), both wholly owned indirect subsidiaries of the Company, collateralized by interests in a pool of 41 mortgage assets having a principal balance of $609.3 million (the "2018-FL3 Mortgage Assets") entered into an indenture with the OP, as advancing agent, U.S. Bank National Association as note administrator and U.S. Bank National Association as trustee, which governs the issuance of approximately $546.0 million principal balance secured floating rate notes (the “Notes”), of which $488.0 million were purchased by third party investors and $58.0 million purchased by a wholly owned subsidiary of the OP. In addition, concurrently with the issuance of the Notes, the Issuer also issued 64,050,000 Preferred Shares, par value of $0.001 per share and with an aggregate liquidation preference and notional amount equal to $1,000 per share (the “Preferred Shares”), which were not offered as part of closing the indenture. For U.S. federal income tax purposes, the Issuer and Co-Issuer are disregarded entities.
On October 12, 2018, BSPRT 2018-FL4 Issuer, Ltd. (the “CLO Issuer”) and BSPRT 2018-FL4 Co-Issuer, LLC (the “Co-CLO Issuer”), both wholly owned indirect subsidiaries of the Company, collateralized by interests in a pool of 41 mortgage assets having a principal balance of $859.3 million (the "2018-FL4 Mortgage Assets") entered into an indenture with the OP, as advancing agent, U.S. Bank National Association as note administrator and U.S. Bank National Association as trustee, which governs the issuance of approximately $770.7 million principal balance secured floating rate notes (the “CLO Notes”), of which $673.0 million were purchased by third party investors and $97.7 million purchased by a wholly owned subsidiary of the OP. In addition, concurrently with the issuance of the CLO Notes, the CLO Issuer also issued 97,694,546 Preferred Shares, par value of $0.001 per share and with an aggregate liquidation preference and notional amount equal to $1,000 per share (the “CLO Preferred Shares”), which were not offered as part of closing the indenture. For U.S. federal income tax purposes, the CLO Issuer and Co-CLO Issuer are disregarded entities.












F-26
BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018

The Company, through its wholly-owned subsidiaries, holds the preferred equity tranches of all four of the above CLOs of approximately $288.8 million. The following table represents the terms of the notes issued by the 2015-FL1 Issuer, 2017-FL1 Issuer, 2017-FL2 Issuer, 2018-FL3 Issuer and 2018-FL4 Issuer (the "CLOs), respectively (dollars in thousands):
CLO Facility
 
As of December 31, 2018
 
Par Value Issued
 
Par Value Outstanding (1)
 
Interest Rate
 
Maturity Date
2017-FL1 Issuer
 
Tranche A
 
$
223,600

 
$
48,557

 
1M LIBOR + 135
 
6/15/2027
2017-FL1 Issuer
 
Tranche B
 
48,000

 
48,000

 
1M LIBOR + 240
 
6/15/2027
2017-FL1 Issuer
 
Tranche C
 
67,900

 
67,900

 
1M LIBOR + 425
 
6/15/2027
2017-FL2 Issuer
 
Tranche A
 
237,970

 
76,785

 
1M LIBOR + 82
 
10/15/2034
2017-FL2 Issuer
 
Tranche A-S
 
36,357

 
36,357

 
1M LIBOR + 110
 
10/15/2034
2017-FL2 Issuer
 
Tranche B
 
26,441

 
26,441

 
1M LIBOR + 140
 
10/15/2034
2017-FL2 Issuer
 
Tranche C
 
25,339

 
25,339

 
1M LIBOR + 215
 
10/15/2034
2017-FL2 Issuer
 
Tranche D
 
35,255

 
35,255

 
1M LIBOR + 345
 
10/15/2034
2018-FL3 Issuer
 
Tranche A
 
286,700

 
286,700

 
1M LIBOR + 105
 
3/15/2028
2018-FL3 Issuer
 
Tranche A-S
 
77,775

 
77,775

 
1M LIBOR + 135
 
3/15/2028
2018-FL3 Issuer
 
Tranche B
 
41,175

 
41,175

 
1M LIBOR + 165
 
3/15/2028
2018-FL3 Issuer
 
Tranche C
 
39,650

 
39,650

 
1M LIBOR + 255
 
3/15/2028
2018-FL3 Issuer
 
Tranche D
 
42,700

 
42,700

 
1M LIBOR + 345
 
3/15/2028
2018-FL4 Issuer
 
Tranche A
 
416,827

 
416,827

 
1M LIBOR + 105
 
9/15/2035
2018-FL4 Issuer
 
Tranche A-S
 
73,813

 
73,813

 
1M LIBOR + 130
 
9/15/2035
2018-FL4 Issuer
 
Tranche B
 
56,446

 
56,446

 
1M LIBOR + 160
 
9/15/2035
2018-FL4 Issuer
 
Tranche C
 
68,385

 
68,385

 
1M LIBOR + 210
 
9/15/2035
2018-FL4 Issuer
 
Tranche D
 
57,531

 
57,531

 
1M LIBOR + 275
 
9/15/2035
 
 
 
 
$
1,861,864

 
$
1,525,636

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CLO Facility
 
As of December 31, 2017
 
Par Value Issued
 
Par Value Outstanding (1)
 
Interest Rate
 
Maturity Date
2015-FL1 Issuer
 
Tranche A
 
$
231,345

 
$
79,109

 
1M LIBOR + 175
 
8/1/2030
2015-FL1 Issuer
 
Tranche B
 
42,841

 
42,841

 
1M LIBOR + 388
 
8/1/2030
2015-FL1 Issuer
 
Tranche C
 
76,044

 
20,000

 
1M LIBOR + 525
 
8/1/2030
2017-FL1 Issuer
 
Tranche A
 
223,600

 
223,600

 
1M LIBOR + 135
 
7/1/2027
2017-FL1 Issuer
 
Tranche B
 
48,000

 
48,000

 
1M LIBOR + 240
 
7/1/2027
2017-FL1 Issuer
 
Tranche C
 
67,900

 
67,900

 
1M LIBOR + 425
 
7/1/2027
2017-FL2 Issuer
 
Tranche A
 
237,970

 
237,970

 
1M LIBOR + 82
 
10/15/2034
2017-FL2 Issuer
 
Tranche A-S
 
36,357

 
36,357

 
1M LIBOR + 110
 
10/15/2034
2017-FL2 Issuer
 
Tranche B
 
26,441

 
26,441

 
1M LIBOR + 140
 
10/15/2034
2017-FL2 Issuer
 
Tranche C
 
25,339

 
25,339

 
1M LIBOR + 215
 
10/15/2034
2017-FL2 Issuer
 
Tranche D
 
35,255

 
35,255

 
1M LIBOR + 345
 
10/15/2034
 
 
 
 
$
1,051,092

 
$
842,812

 
 
 
 
________________________
(1) Excludes $186.5 million and $86.7 million of CLO notes, held by the Company, which are eliminated within the collateralized loan obligation line of the consolidated balance sheets as of December 31, 2018 and December 31, 2017.


F-27
BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018

The below table reflects the total assets and liabilities of the Company's four CLOs. The CLOs are considered VIEs and are consolidated into the Company's consolidated financial statements as of December 31, 2018 and December 31, 2017 as the Company is the primary beneficiary of the VIE. The Company is the primary beneficiary of the CLOs because (i) the Company has the power to direct the activities that most significantly affect the VIE’s economic performance and (ii) the right to receive benefits from the VIEs or the obligation to absorb losses of the VIEs that could be significant to the VIE.
Assets (dollars in thousands)
 
December 31, 2018
 
December 31, 2017
Cash (1)
 
$
74,157

 
$
49,017

Commercial mortgage loans, held for investment, net (2)
 
1,921,428

 
1,033,427

Accrued interest receivable
 
6,353

 
4,212

Total Assets
 
$
2,001,938

 
$
1,086,656

 
 
 
 
 
Liabilities
 
 
 
 
Notes payable (3)(4)
 
$
1,712,129

 
$
912,800

Accrued interest payable
 
3,163

 
1,462

Total Liabilities
 
$
1,715,292

 
$
914,262

________________________
(1) Includes $73.7 million and $48.7 million of cash held by the servicer related to CLO loan payoffs as of December 31, 2018 and December 31, 2017.
(2) The balance is presented net of allowance for loan loss of $0.6 million and $1.3 million as of December 31, 2018 and December 31, 2017, respectively.
(3) Includes $186.5 million and $86.7 million of CLO notes, held by the Company, which are eliminated within the collateralized loan obligation line of the consolidated balance sheets as of December 31, 2018 and December 31, 2017.
(4) The balance is presented net of deferred financing cost and discount of $20.4 million and $16.9 million as of December 31, 2018 and December 31, 2017, respectively.


F-28
BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018

Note 6 - Net Income Per Share
The Company uses the two-class method in calculating basic and diluted EPS, however the Company did not have any undistributed earnings in the periods presented, which is required in the two-class presentation method. The below table represents the Company's earnings per share and distribution per share for the years ended December 31, 2018, 2017 and 2016, respectively (dollars in thousands, except share amounts):
 
Year Ended December 31,
 
2018
 
2017
 
2016
Net income
$
52,825

 
$
33,779

 
$
29,990

Less: Preferred stock dividends
(3,644
)
 
—

 
—

Less: Preferred stock undistributed income
—

 
—

 
—

Net income applicable to common stock
$
49,181

 
$
33,779

 
$
29,990

Basic weighted average shares outstanding
34,268,707

 
31,772,231

 
31,659,274

Basic net income per share
$
1.44

 
$
1.06

 
$
0.95

 
 
 
 
 
 
Net income
$
52,825

 
$
33,779

 
$
29,990

Basic weighted average shares outstanding
34,268,707

 
31,772,231

 
31,659,274

Unvested restricted shares
14,229

 
12,658

 
7,230

Conversion of redeemable convertible preferred stock
2,496,799

 
—

 
—

Diluted weighted average shares outstanding
36,779,735

 
31,784,889

 
31,666,504

Diluted net income per share
$
1.44

 
$
1.06

 
$
0.95

Note 7 - Stock Transactions
As of December 31, 2018 and 2017, the Company had 39,303,710 and 31,834,072 shares of common stock outstanding, respectively, including shares issued pursuant to the DRIP, share repurchases and unvested restricted shares. As of December 31, 2018 and 2017, the Company had 29,249 shares and no shares outstanding, respectively, of Preferred Stock.
Private Placements
Since February 2018 the Company has been conducting offerings of its common stock and Series A preferred stock in offerings exempt from the registration requirements of the Securities Act. The following table summarizes the sales of common stock in these offerings (dollars in thousands, except share amounts):
 
Total
As of December 31, 2018
Shares Issued
 
Proceeds
June 2018
834,537

 
$
13,723

July 2018
1,669,074

 
27,446

August 2018
3,370,362

 
55,421

September 2018
14,962

 
250

October 2018
89,767

 
1,500

November 2018
206,463

 
3,450

December 2018
1,349,193

 
22,545

Total
7,534,358

 
$
124,335


As of December 31, 2018, the Company did not have any outstanding binding purchase commitments for common stock.

F-29
BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018

The following table summarizes the sales of Series A preferred stock in these offerings (dollars in thousands, except share amounts):
 
Total
As of December 31, 2018
Shares Issued
 
Proceeds
June 2018
2,256

 
$
11,280

July 2018
4,498

 
22,490

August 2018
9,083

 
45,415

September 2018
3,378

 
16,890

December 2018
10,034

 
50,170

Total
29,249

 
$
146,245

As of December 31, 2018, the Company did not have any outstanding binding purchase commitments for Preferred Stock.

The following table presents the activity in the Company's Series A preferred stock (dollars in thousands, except share amounts):
 
Shares
 
Amount
Balance, December 31, 2017
—

 
$
—

Issuance of preferred stock
29,249

 
146,245

Offering costs
—

 
(510
)
Amortization of offering costs
—

 
51

Balance, December 31, 2018
29,249

 
$
145,786

 
 
 
 
Distributions
In order to maintain its election to qualify as a REIT, the Company must currently distribute, at a minimum, an amount equal to 90% of its taxable income, without regard to the deduction for distributions paid and excluding net capital gains. The Company must distribute 100% of its taxable income (including net capital gains) to avoid paying corporate U.S. federal income taxes. The Company's distributions are payable by the fifth day following each month end to stockholders of record at the close of business each day during the prior month. Distribution payments are dependent on the availability of funds. The Company's board of directors may reduce the amount of distributions paid or suspend distribution payments at any time, and therefore, distributions payments are not assured.
For the year ended December 31, 2018 and 2017, the Company declared daily common stock distributions equivalent to $1.44 per annum per share and $1.80 per annum per share, respectively. As of December 31, 2018, and 2017, the Company had declared but unpaid common stock distributions of $4.7 million and $3.9 million, respectively. Additionally, as of December 31, 2018, the Company had declared but unpaid Series A preferred stock distributions of $1.1 million. These amounts are included in Distributions payable on the Company’s audited consolidated balance sheets.
The Company's distributions are payable by the fifth day following each month end to stockholders of record at the close of business each day during the prior month. Distribution payments are dependent on the availability of funds. The board of directors may reduce the amount of distributions paid or suspend distribution payments at any time, and therefore, distributions payments are not assured. The Company distributed $48.5 million during the year ended December 31, 2018, comprised of $34.5 million in cash and $14.0 million in shares of common stock issued under the DRIP. The Company distributed $58.9 million during the year ended December 31, 2017, comprised of $38.8 million in cash and $20.1 million in shares of common stock issued under the DRIP.
Share Repurchase Program
The Company's board of directors unanimously approved an amended and restated share repurchase program (the “SRP”), which became effective on February 28, 2016. The SRP enables stockholders to sell their shares to the Company. Subject to certain conditions, stockholders that purchased shares of the Company's common stock or received their shares from us

F-30
BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018

(directly or indirectly) through one or more non-cash transactions and have held their shares for a period of at least one year may request that the Company repurchase their shares of common stock so long as the repurchase otherwise complies with the provisions of Maryland law. Repurchase requests made following the death or qualifying disability of a stockholder will not be subject to any minimum holding period.
On August 10, 2017, the Company's board of directors amended the SRP to provide that the repurchase price per share for requests will be equal to the lesser of (i) the Company’s most recent estimated per-share NAV, as approved by the Company’s board of directors from time to time, and (ii) the Company’s book value per share, computed in accordance with GAAP, multiplied by a percentage equal to (i) 92.5%, if the person seeking repurchase has held his or her shares for a period greater than one year and less than two years; (ii) 95%, if the person seeking repurchase has held his or her shares for a period greater than two years and less than three years; (iii) 97.5%, if the person seeking repurchase has held his or her shares for a period greater than three years and less than four years; or (iv) 100%, if the person seeking repurchase has held his or her shares for a period greater than four years or in the case of requests for death or disability.
The Company’s most recent estimated per-share NAV is $18.75, as determined by the board of directors, as of September 30, 2018. The Company’s GAAP book value per share as of December 31, 2018 is $18.66.
Repurchase requests related to death or a qualifying disability must satisfy certain conditions, each of which are assessed by and at the sole discretion of the Company, including the following conditions. In the case of death, the shareholder must be a natural person (or a revocable grantor trust) and the Company must receive a written notice from the estate of the shareholder, the recipient of the shares through bequest or inheritance, or the trustee in the case of a revocable grantor trust. In the case of a “qualifying disability”, the shareholder must be a natural person (or a revocable grantor trust) and the Company must receive a written notice from the shareholder, or the trustee in the case of a revocable grantor trust, that the condition was not pre-existing on the date the shares were acquired. In order for a disability to be considered a “qualifying disability”, the shareholder must receive and provide evidence (the shareholder application and the notice of final determination) of disability based upon a physical or mental condition or impairment made by a government agency responsible for reviewing and determining disability retirement benefits (e.g. the Social Security Administration).
Repurchases pursuant to the SRP, when requested, generally will be made semiannually (each six-month period ending June 30 or December 31, a “fiscal semester”). Repurchases for any fiscal semester will be limited to a maximum of 2.5% of the weighted average number of shares of common stock outstanding during the previous fiscal year, with a maximum for any fiscal year of 5.0% of the weighted average number of shares of common stock outstanding during the previous fiscal year. Funding for repurchases pursuant to the SRP for any given fiscal semester will be limited to proceeds received during that same fiscal semester through the issuance of common stock pursuant to any DRIP in effect from time to time, provided that the Company's board of directors has the power, in its sole discretion, to determine the amount of shares repurchased during any fiscal semester as well as the amount of funds to be used for that purpose. Any repurchase requests received during such fiscal semester will be paid at the price, computed as described above on the last day of such fiscal semester. Due to these limitations, the Company cannot guarantee that the Company will be able to accommodate all repurchase requests made during any fiscal semester or fiscal year. However, a stockholder may withdraw its request at any time or ask that the Company honors the request when funds are available. Pending repurchase requests will be honored on a pro rata basis. The Company will generally pay repurchase proceeds, less any applicable tax or other withholding required by law, by the 31st day following the end of the fiscal semester during which the repurchase request was made.
When a stockholder requests redemption and the redemption is approved, the Company will reclassify such obligation from equity to a liability based on the settlement value of the obligation. Shares repurchased under the SRP will have the status of authorized but unissued shares.

F-31
BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018

The following table reflects the number of shares repurchased under the SRP cumulatively through December 31, 2018:
 
Number of Requests
 
Number of Shares Repurchased
 
Average Price per Share
Cumulative as of December 31, 2017
2,125

 
1,991,391

 
$21.36
January 1 - January 31, 2018(1)
889

 
421,809

 
18.56

February 1 - February 28, 2018
—

 
—

 
—

March 1 - March 31, 2018
—

 
—

 
—

April 1 - April 30, 2018
—

 
—

 
—

May 1 - May 31, 2018
—

 
—

 
—

June 1 - June 30, 2018
—

 
—

 
—

July 1 - July 31, 2018
831

 
387,214

 
18.74

August 1 - August 31, 2018
—

 
—

 
—

September 1 - September 30, 2018
—

 
—

 
—

October 1 - October 31, 2018
—

 
—

 
—

November 1 - November 30, 2018
—

 
—

 
—

December 1 - December 31, 2018
—

 
—

 
—

Cumulative as of December 31, 2018
3,845

 
2,800,414

 
$
20.65

_______________________
(1) Reflects shares repurchased in January 2018 pursuant to repurchase requests submitted for the fiscal semester ended December 31, 2017. As permitted under the SRP, the Board authorized repurchases up to the amount of proceeds reinvested through our DRIP. As a result, redemption requests in the amount of 185,689 shares were not fulfilled.

Note 8 - Commitments and Contingencies
Unfunded Commitments Under Commercial Mortgage Loans
As of December 31, 2018 and 2017, the Company had the below unfunded commitments to the Company's borrowers.
Funding Expiration
December 31, 2018
 
December 31, 2017
2018
—

 
36,475

2019
34,667

 
26,465

2020
176,760

 
20,598

2021
106,940

 
—

2022
—

 
—

2023
—

 
—

2024 and beyond
—

 
—

 
$
318,367

 
$
83,538

The borrowers are required to meet or maintain certain metrics in order to qualify for the unfunded commitment amounts.
Litigation and Regulatory Matters
In the ordinary course of business, the Company may become subject to litigation, claims and regulatory matters. The Company has no knowledge of material legal or regulatory proceedings pending or known to be contemplated against the Company at this time.

F-32
BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018

Note 9 - Related Party Transactions and Arrangements
Advisory Agreement Fees and Reimbursements
Pursuant to the Advisory Agreement, the Company makes or was required to make the following payments and reimbursements to the Advisor:
•The Company reimburses the Advisor’s costs of providing services pursuant to the Advisory Agreement, except the salaries and benefits paid by the Advisor to the Company’s executive officers.
•The Company pays the Advisor, or its affiliates, a monthly asset management fee equal to one-twelfth of 1.5% of stockholder’s equity as calculated pursuant to the Advisory Agreement.
•The Company will pay the Advisor an annual subordinated performance fee calculated on the basis of total return to stockholders, payable monthly in arrears, such that for any year in which total return on stockholders’ capital exceeds 6.0% per annum, our Advisor will be entitled to 15.0% of the excess total return; provided that in no event will the annual subordinated performance fee payable to our Advisor exceed 10.0% of the aggregate total return for such year.
•Until September 2017, the Company paid its Advisor an acquisition fee of 1.0% of the principal amount funded by us to originate or acquire commercial mortgage loans and 1.0% of the anticipated net equity funded by the Company to acquire real estate securities.
•The Company reimburses the Advisor for insourced expenses incurred by the Advisor on the Company‘s behalf related to selecting, evaluating, originating and acquiring investments in an amount up to 0.5% of the principal amount funded by the Company to originate or acquire commercial mortgage loans and up to 0.5% of the anticipated net equity funded by the Company to acquire real estate securities investments.
Until September 29, 2016, the Former Advisor served as the Company's advisor.
The table below shows the compensation and reimbursement payable to the Former Advisor, its affiliates, entities under common control with the Former Advisor and the Former Dealer Manager for services relating to the Company's public offering as of December 31, 2018 and 2017 (dollars in thousands):
 
Payable as of
 
December 31, 2018
 
December 31, 2017
Total compensation and reimbursement for services provided by the Former Advisor, its affiliates, entities under common control with the Former Advisor and the Former Dealer Manager
$
—

 
$
480

The payables as of December 31, 2018 and 2017 in the table above are included in Due to affiliates on the Company's consolidated balance sheets. The fees incurred are recorded within the Additional paid in capital line in the consolidated balance sheets.
The table below shows the costs incurred due to arrangements with our Advisor and its affiliates during the years ended December 31, 2018, 2017 and 2016 and the associated payable as of December 31, 2018 and 2017 (dollars in thousands):
 
 
Year Ended December 31,
 
Payable as of December 31,
 
 
2018
 
2017
 
2016
 
2018
 
2017
Acquisition fees and acquisition expenses (1)
 
$
452

 
$
4,197

 
$
806

 
$
1

 
$
—

Administrative services expenses
 
13,446

 
6,765

 
4,376

 
1,224

 
3,480

Asset management and subordinated performance fee
 
10,299

 
9,273

 
9,504

 
1,072

 
2,315

Other related party expenses(2)
 
1,259

 
394

 
90

 
932

 
146

Total related party fees and reimbursements
 
$
25,456

 
$
20,629

 
$
14,776

 
$
3,229

 
$
5,941

________________________

F-33
BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018

(1) Total acquisition fees and expenses paid during the years ended December 31, 2018 and 2017 were $8.1 million and $10.2 million respectively, of which $7.6 million and $6.0 million were capitalized within the commercial mortgage loans, held for investment line of the consolidated balance sheets for years ended December 31, 2018 and 2017.
(2) These are primarily related to reimbursable costs incurred related to the increase in loan origination activities. These amounts are included in Other expenses in the Company's consolidated statements of operations.
The payables as of December 31, 2018 and 2017 in the table above are included in Due to affiliates on the Company's consolidated balance sheets.
Purchases of Common Stock and Preferred Stock
Refer to Note 7 - Stock Transactions for a description of the Company’s private placements. Officers of the Company and other employees of the Advisor and its affiliates (“Manager Investors”) have acquired common stock and Series A preferred stock in these private placements on substantially the same terms applying to purchases by third party accredited investors unaffiliated with the Company or the Advisor. As of December 31, 2018, the Manager Investors have acquired in these private placements 2,012,959 shares of common stock for an aggregate purchase price of $33.6 million and 115 shares of Series A preferred stock for an aggregate purchase price (which includes accrued dividends) of $0.6 million. As of December 31, 2018, there were no remaining Manager Investors commitments for common stock and no remaining Manager Investors commitments for Preferred Stock.
Other Transactions
On February 22, 2018, the Company purchased commercial mortgage loans, held-for-sale from an entity that is an affiliate of our Advisor, for an aggregate purchase price of $27.8 million. The purchase of the commercial mortgage loans and the $27.8 million purchase price were approved by the Company’s board of directors. On April 18, 2018, the Company sold $23.3 million of these commercial mortgage loans into a CMBS securitization. The remaining $4.5 million of these commercial mortgage loans are recorded in commercial mortgage loans, held-for-sale, measured at fair value on the consolidated balance sheet as of December 31, 2018.
In December 2017, the Company purchased a commercial mortgage loan from an entity that is an affiliate of our Advisor, for an aggregate purchase price of $17.1 million and is included in Commercial mortgage loans, held-for-investment in the consolidated balance sheet. The purchase of the commercial mortgage loan and the $17.1 million purchase price were approved by the Company’s board of directors and the Nominating and Corporate Governance Committee, which consists solely of independent directors.

Note 10 - Share-Based Compensation
Restricted Share Plan
The Company has an employee and director incentive restricted share plan (the "RSP"), which provides the Company with the ability to grant awards of restricted shares to the Company’s directors, officers and employees (if the Company ever has employees), employees of the Advisor and its affiliates, employees of entities that provide services to the Company, directors of the Advisor or of entities that provide services to the Company, the Advisor and its affiliates. The total number of common shares granted under the RSP shall not exceed 5.0% of the Company’s authorized common shares pursuant to the Offering, and in any event, will not exceed 4.0 million shares (as such number may be adjusted for stock splits, stock distributions, combinations and similar events).
Restricted share awards entitle the recipient to receive common shares from the Company under terms that provide for vesting over a specified period of time or upon attainment of pre-established performance objectives. Such awards would typically be forfeited with respect to the unvested shares upon the termination of the recipient’s employment or other relationship with the Company. Restricted shares may not, in general, be sold or otherwise transferred until restrictions are removed and the shares have vested. Holders of restricted shares may receive cash distributions prior to the time that the restrictions on the restricted shares have lapsed. Any distributions payable in common shares shall be subject to the same restrictions as the underlying restricted shares. The fair value of the restricted share awards are expensed over the vesting period.
As of December 31, 2018, the Company had granted 31,970 restricted shares to its independent directors, of which 5,333 were forfeited and 12,935 have vested, leaving a balance of 13,702 unvested restricted shares. As of December 31, 2017, the Company had granted 21,398 restricted shares to its independent directors, of which 5,333 were forfeited and 4,683 have vested, leaving a balance of 11,382 unvested restricted shares. The compensation expense associated with the restricted share

F-34
BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018

grants was $157 thousand, $97 thousand and $44 thousand, for the years ended December 31, 2018, 2017 and 2016, respectively and are included within Other expenses line on the consolidated statements of operations.
Note 11 - Fair Value of Financial Instruments
GAAP establishes a hierarchy of valuation techniques based on the observability of inputs used in measuring financial instruments at fair values. GAAP establishes market-based or observable inputs as the preferred source of values, followed by valuation models using management assumptions in the absence of market inputs. The three levels of the hierarchy are described below:
•
Level I - Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
•
Level II - Inputs (other than quoted prices included in Level I) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.
•
Level III - Unobservable inputs that reflect the entity's own assumptions about the assumptions that market participants would use in the pricing of the asset or liability and are consequently not based on market activity, but rather through particular valuation techniques.
The determination of where an asset or liability falls in the above hierarchy requires significant judgment and factors specific to the asset or liability. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company evaluates its hierarchy disclosures each quarter and depending on various factors, it is possible that an asset or liability may be classified differently from quarter to quarter.
The Company has implemented valuation control processes to validate the fair value of the Company's financial instruments measured at fair value including those derived from pricing models. These control processes are designed to assure that the values used for financial reporting are based on observable inputs wherever possible. In the event that observable inputs are not available, the control processes are designed to assure that the valuation approach utilized is appropriate and consistently applied and the assumptions are reasonable.
Financial Instruments Measured at Fair Value on a Recurring Basis
CMBS, recorded in real estate securities, held-for-sale, measured at fair value on the consolidated balance sheet as of December 31, 2018, are valued utilizing both observable and unobservable market inputs. These factors include projected future cash flows, ratings, subordination levels, vintage, remaining lives, credit issues, and recent trades of similar real estate securities. Depending upon the significance of the fair value inputs used in determining these fair values, these real estate securities are classified in either Level II or Level III of the fair value hierarchy. As of December 31, 2018 the Company obtained broker quotes for determining the fair value of each CMBS investment. As the broker quotes were both limited and non-binding, the Company has classified the CMBS as Level III. As of December 31, 2017, the Company had no CMBS.
Commercial mortgage loans held-for-sale, measured at fair value in the Company's TRS are initially recorded at transaction proceeds, which are considered to be the best initial estimate of fair value. The Company engaged the services of a third party independent valuation firm to determine fair value of certain investments held by the Company. Fair value is determined using a discounted cash flow model that primarily considers changes in interest rates and credit spreads, weighted average life and current performance of the underlying collateral. The Company classified the commercial mortgage loans held-for-sale, measured at fair value as Level III.
The fair value for Treasury note futures is derived using market prices.  Treasury note futures trade on the Chicago Mercantile Exchange (“CME”). The instruments are a variety of recently issued 10-year U.S. Treasury notes. The future contracts are liquid and are centrally cleared through the CME.  Treasury note futures are generally categorized in Level I of the fair value hierarchy.
The fair value for credit default swaps and interest rate swaps contracts are derived using pricing models that are widely accepted by marketplace participants. Credit default swaps and interest rate swaps are traded in the OTC market. The pricing models take into account multiple inputs including specific contract terms, interest rate yield curves, interest rates, credit curves, recovery rates, and/or current credit spreads obtained from swap counterparties and other market participants. Most inputs into the models are not subjective as they are observable in the marketplace or set per the contract. Valuation is primarily determined by the difference between the contract spread and the current market spread. The contract spread (or rate) is

F-35
BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018

generally fixed and the market spread is determined by the credit risk of the underlying debt or reference entity. If the underlying indices are liquid and the OTC market for the current spread is active, credit default swaps and interest rate swaps are categorized in Level II of the fair value hierarchy. If the underlying indices are illiquid and the OTC market for the current spread is not active, credit default swaps are categorized in Level III of the fair value hierarchy. The credit default swaps and
interest rate swaps are generally categorized in Level II of the fair value hierarchy.
A review of the fair value hierarchy classification is conducted on a quarterly basis. Changes in the type of inputs may result in a reclassification for certain assets. The Company's policy with respect to transfers between levels of the fair value hierarchy is to recognize transfers into and out of each level as of the beginning of the reporting period. There were no transfers between levels within fair value hierarchy during the year ended December 31, 2018.  

The following table presents the Company's financial instruments carried at fair value on a recurring basis in the consolidated balance sheets by its level in the fair value hierarchy as of December 31, 2018 and 2017 (dollars in thousands):
 
Total
 
Level I
 
Level II
 
Level III
December 31, 2018
 
 
 
 
 
 
 
Real estate securities
$
26,412

 
$
—

 
$
—

 
$
26,412

Commercial mortgage loans, held-for-sale, measured at fair value
76,863

 
—

 
—

 
76,863

Credit default swaps
640

 
—

 
640

 
—

Interest rate swaps
206

 
—

 
206

 
—

Total assets, at fair value
$
104,121

 
$
—

 
$
846

 
$
103,275

 
 
 
 
 
 
 
 
Liabilities, at fair value
 
 
 
 
 
 
 
Interest rate swaps
$
256

 
$
—

 
$
256

 
$
—

Treasury note futures
1,063

 
1,063

 


 
—

Total liabilities, at fair value
$
1,319

 
$
1,063

 
$
256

 
$
—

 
 
 
 
 
 
 
 
December 31, 2017

 
 
 
 
 
 
Commercial mortgage loans, held-for-sale, measured at fair value
$
28,531

 
$
—

 
$
—

 
$
28,531

Treasury note futures
132

 
132

 
—

 
—

Total assets, at fair value
$
28,663

 
$
132

 
$
—

 
$
28,531

 
 
 
 
 
 
 
 
Liabilities, at fair value
 
 
 
 
 
 
 
Credit default swaps
$
357

 
$
—

 
$
357

 
$
—

Total liabilities, at fair value
$
357

 
$
—

 
$
357

 
$
—


Both observable and unobservable inputs may be used to determine the fair value of positions that the Company has classified within the Level III category. As a result, the unrealized gains and losses for assets and liabilities within the Level III category may include changes in fair value that were attributable to both observable and unobservable inputs. The following table summarizes the valuation method and significant unobservable inputs used for the Company’s financial instruments that are categorized within Level III of the fair value hierarchy as of December 31, 2018 and December 31, 2017 (dollars in thousands).
Asset Category
Fair Value
Valuation Methodologies
Unobservable Inputs (1)
Weighted Average (2)
Range
December 31, 2018
 
 
 
 
 
Commercial mortgage loans, held-for-sale, measured at fair value
$76,863
Discounted Cash Flow
Yield
6.3%
4.7% - 11.3%
Real estate securities, available-for-sale, measured at fair value
26,412
Broker Quotes
Yield
5.5%
4.0% - 6.0%
December 31, 2017
 
 
 
 
 
Commercial mortgage loans, held-for-sale, measured at fair value
$28,531
Discounted Cash Flow
Yield
4.93%
4.8% - 5.3%
________________________

F-36
BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018

(1) In determining certain of these inputs, the Company evaluates a variety of factors including economic conditions, industry and market developments, market valuations of comparable companies and company specific developments including exit strategies and realization opportunities. The Company has determined that market participants would take these inputs into account when valuing the investments.
(2) Inputs were weighted based on the fair value of the investments included in the range.

Increases or decreases in any of the above unobservable inputs in isolation would result in a lower or higher fair value measurement for such assets.


F-37
BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018

 

The following table presents additional information about the Company’s financial instruments which are measured at fair value on a recurring basis as of December 31, 2018 and December 31, 2017 for which the Company has used Level III inputs to determine fair value (dollars in thousands):
 
 
December 31, 2018
 
 
Commercial Mortgage Loans, held-for-sale, measured at fair value
 
Real Estate Securities
Beginning balance, January 1, 2018
 
$
28,531

 
$
—

Transfers into Level III
 
—

 
—

Total realized and unrealized gains (losses) included in earnings:
 
 
 
 
Realized gains (losses) on sale of real estate securities
 
—

 
(107
)
Realized gains (losses) on sale of commercial mortgage loans held-for-sale
 
11,288

 
—

Unrealized gains (losses) on commercial mortgage loans held-for-sale
 
(237
)
 
—

Net accretion
 
—

 
(76
)
Unrealized gains (losses) included in OCI (1)
 
—

 
(459
)
Purchases
 
617,916

 
39,510

Sales / paydowns
 
(580,635
)
 
(12,456
)
Cash repayments/receipts
 
—

 
—

Transfers out of Level III
 
—

 
—

December 31, 2018 balance
 
$
76,863

 
$
26,412

 
 
 
 
 
 
 
December 31, 2017
 
 
Commercial Mortgage Loans, held-for-sale, measured at fair value
 
Real Estate Securities
Beginning balance, January 1, 2017
 
$
—

 
$
49,049

Transfers into Level III
 
—

 
—

Total realized and unrealized gains (losses) included in earnings:
 
 
 
 
Realized gains (losses) on sale of real estate securities
 
—

 
172

Realized gain on sale of commercial mortgage loan held-for-sale
 
4,523

 
—

Net accretion
 
—

 
167

Unrealized gains (losses) included in OCI (1)
 
—

 
500

Purchases
 
156,101

 
—

Sales / paydown
 
(132,093
)
 
(34,888
)
Cash repayments/receipts
 
—

 
(15,000
)
Transfers out of Level III
 
—

 
—

December 31, 2017 balance
 
$
28,531

 
$
—

________________________
(1) Unrealized gains included in Other comprehensive income ("OCI") are attributable to assets held at December 31, 2018 and December 31, 2017.

F-38
BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018

The fair value of cash and cash equivalents and restricted cash are measured using observable quoted market prices, or Level I inputs and their carrying value approximates their fair value. The fair value of borrowings under repurchase agreements approximate their carrying value on the consolidated balance sheets due to their short-term nature, and are measured using Level II inputs.

Financial Instruments Not Measured at Fair Value
The fair values of the Company's commercial mortgage loans, held-for-investment and collateralized loan obligations, which are not reported at fair value on the consolidated balance sheets are reported below as of December 31, 2018 and 2017 (dollars in thousands):
 
 
 
Level
 
Carrying Amount
 
Fair Value
December 31, 2018
 
 
 
 
 
 
 
Commercial mortgage loans, held-for-investment (1)
Asset
 
III
 
$
2,211,666

 
$
2,213,650

Collateralized loan obligation
Liability
 
III
 
1,505,279

 
1,518,127

Other financing and loan participation - commercial mortgage loans
Liability
 
III
 
9,902

 
9,902

December 31, 2017
 
 
 
 
 
 

Commercial mortgage loans, held-for-investment (1)
Asset
 
III
 
$
1,403,512

 
$
1,396,406

Collateralized loan obligation
Liability
 
II
 
826,150

 
842,812

________________________
(1) The carrying value is gross of $4.8 million and $1.5 million of allowance for loan losses as of December 31, 2018 and December 31, 2017, respectively.
The fair value of the commercial mortgage loans, held-for-investment is estimated using a discounted cash flow analysis, based on the Advisor's experience with similar types of investments. The Company estimates the fair value of the collateralized loan obligations using external broker quotes. The fair value of the other financing and loan participation-commercial mortgage loans is generally estimated using a discounted cash flow analysis. At December 31, 2018, the loan participation was initially recorded at transaction proceeds, which are considered to be the best initial estimate of fair value.

F-39
BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018

Note 12 - Derivative Instruments
The Company uses derivative instruments primarily to manage the fair value variability of fixed rate assets caused by interest rate fluctuations and overall portfolio market risk.

As of December 31, 2018, the net premiums received on derivative instrument assets were $0.8 million.

The following derivative instruments were outstanding as of December 31, 2018 and December 31, 2017(dollars in thousands):
 
 
 
 
Fair Value
Contract type
 
Notional
 
Assets 
 
Liabilities
As of December 31, 2018
 
 
 
 
 
 
Credit default swaps
 
$
45,000

 
$
640

 
$
—

Interest rate swaps
 
37,965

 
206

 
256

Treasury note futures
 
49,000

 
—

 
1,063

Total
 
$
131,965

 
$
846

 
$
1,319

 
 
 
 
 
 
 
As of December 31, 2017
 
 
 
 
 
 
Credit default swaps
 
$
30,000

 
$
32

 
$
357

Treasury note futures
 
43,906

 
100

 
—

Total
 
$
73,906

 
$
132

 
$
357


The following table indicates the net realized and unrealized losses on derivatives, by primary underlying risk exposure, as included in loss on derivative instruments in the consolidated statements of operations for year ended December 31, 2018 and December 31, 2017:
 
 
Year Ended December 31, 2018
 
Year Ended December 31, 2017
Contract type
 
Unrealized
(Gain)/Loss
 
Realized
(Gain)/Loss
 
Unrealized
(Gain)/Loss
 
Realized
(Gain)/Loss
Credit default swaps
 
$
(139
)
 
$
(229
)
 
$
117

 
$
373

Interest rate swaps
 
351

 
136

 
—

 
—

Treasury note futures
 
1,162

 
(1,734
)
 
(100
)
 
(928
)
Total
 
$
1,374

 
$
(1,827
)
 
$
17

 
$
(555
)


F-40
BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018

Note 13 - Offsetting Assets and Liabilities
The Company's consolidated balance sheets used a gross presentation of repurchase agreements and collateral pledged. The table below provides a gross presentation, the effects of offsetting and a net presentation of the Company's derivative instruments and repurchase agreements within the scope of ASC 210-20, Balance Sheet—Offsetting, as of December 31, 2018 and 2017 (dollars in thousands):

 
 
 
 
 
 
 
Gross Amounts Not Offset on the Balance Sheet
 
Assets
 
Gross Amounts of Recognized Assets
 
Gross Amounts Offset on the Balance Sheet
 
Net Amount of Assets Presented on the Balance Sheet
 
Financial Instruments
 
Cash Collateral Pledged
 
Net Amount
December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
Derivative instruments, at fair value
 
$
846

 
$
—

 
$
846

 
$
—

 
$
—

 
$
846

December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
Derivative instruments, at fair value
 
$
132

 
$
—

 
$
132

 
$
—

 
$
—

 
$
132


 
 
 
 
 
 
 
 
Gross Amounts Not Offset on the Balance Sheet
 
 
Liabilities
 
Gross Amounts of Recognized Liabilities
 
Gross Amounts Offset on the Balance Sheet
 
Net Amount of Liabilities Presented on the Balance Sheet
 
Financial Instruments
 
Cash Collateral Pledged (2)
 
Net Amount
December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
Repurchase agreements, commercial mortgage loans
 
$
149,440

 
$
—

 
$
149,440

 
$
203,846

 
$
5,010

 
$
—

Repurchase agreements, real estate securities
 
$
44,539

 
$
—

 
$
44,539

 
$
54,973

 
$
305

 
$
—

Derivative instruments, at fair value
 
$
1,319

 
$
—

 
$
1,319

 
$
—

 
$
7,232

 
$
—

December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
Repurchase agreements, commercial mortgage loans
 
$
65,690

 
$
—

 
$
65,690

 
$
163,235

 
$
5,005

 
$
—

Repurchase agreements, real estate securities (1)
 
$
39,035

 
$
—

 
$
39,035

 
$
56,044

 
$
—

 
$
—

Derivative instruments, at fair value
 
$
357

 
$
—

 
$
357

 
$
—

 
$
2,961

 
$
—

________________________
(1) Includes $56.0 million of Tranche C of Company issued CLO held by the Company, which eliminates within the real estate securities, at fair value line of the consolidated balance sheets as of December 31, 2017.
(2) These cash collateral amounts are recorded within the Restricted cash balance on the consolidated balance sheets.


F-41
BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018

Note 14 - Segment Reporting
The Company conducts its business through the following reporting segments:
•
The real estate debt business focuses on originating, acquiring and asset managing commercial real estate debt investments, including first mortgage loans, subordinate mortgages, mezzanine loans and participations in such loans.
•
The real estate securities business focuses on investing in and asset managing commercial real estate securities primarily consisting of CMBS and may include unsecured REIT debt, CDO notes and other securities.
•
The commercial real estate Conduit business operated through the Company's TRS, which is focused on generating risk-adjusted returns by originating and subsequently selling fixed-rate commercial real estate loans into the CMBS securitization market at a profit.
The following table represents the Company's operations by segment for the years ended December 31, 2018, 2017 and 2016 (dollars in thousands):
December 31, 2018
 
Total
 
Real Estate Debt
 
Real Estate Securities
 
TRS
Interest income
 
$
152,288

 
$
144,967

 
$
717

 
$
6,604

Interest expense
 
70,000

 
65,521

 
770

 
3,709

Net income
 
52,825

 
50,041

 
(160
)
 
2,944

Total assets
 
2,606,078

 
2,492,440

 
26,474

 
87,164

December 31, 2017
 
 
 
 
 
 
 
 
Interest income
 
89,564

 
87,014

 
1,351

 
1,199

Interest expense
 
32,359

 
30,407

 
1,254

 
698

Net income
 
33,779

 
33,184

 
269

 
326

Total assets
 
1,583,661

 
1,517,021

 
389

 
66,251

December 31, 2016
 
 
 
 
 
 
 
 
Interest income
 
79,404

 
73,884

 
5,520

 
—

Interest expense
 
23,169

 
20,719

 
2,450

 
—

Net income
 
29,990

 
29,797

 
193

 
—

Total assets
 
1,248,125

 
1,198,806

 
49,319

 
—

For the purposes of the table above, any expenses not associated with a specific segment have been allocated to the business segments using a percentage derived by using the sum of commercial mortgage loans originated during the year as the denominator and commercial mortgage loans, net and commercial mortgage loans, held-for-sale, measured at fair value as numerator.
Note 15 - Income Taxes
The Company has conducted its operations to qualify as a REIT for U.S. federal income tax purposes beginning with its taxable year ended December 31, 2013. As a REIT, if the Company meets certain organizational and operational requirements and distributes at least 90% of its "REIT taxable income" (determined before the deduction of dividends paid and excluding net capital gains) to its stockholders in a year, it will not be subject to U.S. federal income tax to the extent of the income that it distributes. However, even if the Company qualifies for taxation as a REIT, it may be subject to certain state and local taxes on income in addition to U.S. federal income and excise taxes on its undistributed income. The Company, through its TRS, is indirectly subject to U.S. federal, state and local income taxes. The Company’s TRS is not consolidated for U.S. federal income tax purposes, but is instead taxed as a C corporation. For financial reporting purposes, the TRS is consolidated and a provision for current and deferred taxes is established for the portion of earnings recognized by the Company with respect to its interest in its TRS. Total income tax expense for the year ended December 31, 2018 and December 31, 2017 were $0.1 million and $0.2 million, respectively. There was no income tax provision for the year ended December 31, 2016.
The Company uses a more-likely-than-not threshold for recognition and derecognition of tax positions taken or to be taken in a tax return. The Company has assessed its tax positions for all open tax years beginning with December 31, 2015 and concluded that there were no uncertainties to be recognized. The Company’s accounting policy with respect to interest and penalties related to tax uncertainties is to classify these amounts as provision for income taxes.
Components of the provision for income taxes consist of the following (dollars in thousands):

F-42
BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018

 
Years Ended December 31,
 
2018
 
2017
 
2016
Current expense (benefit)
 
 
 
 
 
U.S. Federal
$
68

 
$
140

 
$
—

State and local
12

 
61

 
—

Total current expense (benefit)
80

 
201

 
—

Deferred expense (benefit)
 
 
 
 
 
U.S. Federal
$
(1
)
 
$
18

 
$
—

State and local
—

 
6

 
—

Total deferred expense (benefit)
(1
)
 
24

 
—

Provision for income tax expense (benefit)
$
79

 
$
225

 
$
—

The tax characteristic of $1.44 distributions per common share declared during 2018 was $1.43 ordinary income and $0.01 return of capital. Of the $1.43 of ordinary income, $0.02 represents qualified dividend and $1.41 represents the amount of the ordinary dividend that may be eligible for the 20% deduction applicable to qualified REIT dividends under Internal Revenue Code Section 199A. The tax characteristics of $216.03 per preferred share declared during 2018 was all ordinary income. Of the $216.03 of ordinary income, $2.28 represents qualified dividend and $213.75 represents the amount of the ordinary dividend that may be eligible for the 20% deduction applicable to qualified REIT dividends under Section 199A. The tax characteristics of the $1.80 distributions per common share declared during 2017 was $1.07 ordinary income and $0.73 return of capital.
The Company utilizes the TRS to reduce the impact of the prohibited transaction tax and to avoid penalty for the holding of assets not qualifying as real estate assets for purposes of the REIT asset tests. Any income associated with a TRS is fully taxable because the TRS is subject to federal and state income taxes as a domestic C corporation based upon its net income.
Enacted on December 22, 2017, the recently passed Tax Cuts and Jobs Act ("TCJA") made many significant changes to the U.S. federal income tax laws applicable to businesses and their owners, including REITs and their stockholders, and may lessen the relative competitive advantage of operating as a REIT rather than as a C corporation. Pursuant to this legislation, as of January 1, 2018, (1) the federal income tax rate applicable to corporations is reduced to 21%, (2) the highest marginal individual income tax rate is reduced to 37% (through taxable years ending in 2025), (3) the corporate alternative minimum tax is repealed, and (4) the backup withholding rate for U.S. stockholders is reduced to 24%. Generally, under the new interest expense limitation rules, the Company’s business interest expense deduction cannot exceed the sum of business interest income, 30% of adjusted taxable income (cannot be less than zero), and any floor plan financing interest expense for the taxable year. The Company completed its assessment of the income tax provisions of the sections of the TCJA that were effective for the year ended December 31, 2018, and there were no material amounts recorded.
Note 16 - Summary of Quarterly Results of Operations (Unaudited)

The following is a summary of the unaudited quarterly results of operations for the years ended December 31, 2018, 2017 and 2016 (dollars in thousands, except per share data):

F-43
BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018

 
March 31
 
June 30
 
September 30
 
December 31
2018
 
 
 
 
 
 
 
Net interest income
$
10,734

 
$
19,738

 
$
25,823

 
$
25,993

Net income applicable to common stock
$
5,296

 
$
12,086

 
$
17,745

 
$
14,054

Net income
$
5,296

 
$
12,102

 
$
19,000

 
$
16,427

Basic net income per share
$
0.17

 
$
0.38

 
$
0.49

 
$
0.37

Diluted net income per share
$
0.17

 
$
0.38

 
$
0.49

 
$
0.37

Basic weighted average shares outstanding
31,670,518

 
31,762,199

 
35,468,648

 
38,088,364

Diluted weighted average shares outstanding
31,684,832

 
31,820,527

 
38,942,428

 
44,504,418

2017
 
 
 
 
 
 
 
Net interest income
$
13,451

 
$
13,126

 
$
13,350

 
$
17,278

Net income applicable to common stock
$
6,049

 
$
6,281

 
$
6,975

 
$
14,474

Net income
$
6,049

 
$
6,281

 
$
6,975

 
$
14,474

Basic net income per share
$
0.19

 
$
0.20

 
$
0.22

 
$
0.46

Diluted net income per share
$
0.19

 
$
0.20

 
$
0.22

 
$
0.46

Basic weighted average shares outstanding
31,740,256

 
31,850,897

 
31,741,679

 
34,754,734

Diluted weighted average shares outstanding
31,750,045

 
31,860,444

 
31,756,503

 
31,769,048

2016
 
 
 
 
 
 
 
Net interest income
$
15,523

 
$
14,829

 
$
12,933

 
$
12,950

Net income applicable to common stock
$
9,420

 
$
8,860

 
$
5,373

 
$
6,337

Net income
9,420

 
8,860

 
5,373

 
6,337

Basic net income per share
$
0.30

 
$
0.28

 
$
0.17

 
$
0.20

Diluted net income per share
$
0.30

 
$
0.28

 
$
0.17

 
$
0.20

Basic weighted average shares outstanding
31,548,897

 
31,802,261

 
31,516,876

 
31,659,274

Diluted weighted average shares outstanding
31,555,011

 
31,807,927

 
31,523,911

 
31,666,504

Basic and diluted earnings per share are computed independently based on the weighted-average shares of common stock and restricted shares outstanding for each period. Accordingly, the sum of the quarterly earnings per share amounts may not agree to the total for the year.
Note 17 - Subsequent Events
The Company has evaluated subsequent events through the filing of this Annual Report on Form 10-K.
Private Placements
Subsequent to December 31, 2018, the Company sold an additional $19.4 million of common stock at $16.71 per share and $15.0 million of Series A Preferred Stock at $5,000.00 per share plus accrued dividends to accredited investors.
Advisor Transaction
On February 1, 2019, the Advisor was acquired (the “Transaction”) by Franklin Resources, Inc. and Templeton International, Inc. (collectively, “Franklin Templeton”). The Transaction did not impact the terms of the Advisory Agreement and the Transaction will not result in any changes to the executive officers of the Company or the key personnel of the Advisor providing services to the Company.




F-44

BENEFIT STREET PARTNERS REALTY TRUST, INC.

SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
December 31, 2018
(Dollars in thousands)

 
 
 
Face
 
Carrying
 
Interest
 
Payment
 
Maturity
Description
Property Type
 
Amount
 
Amount
 
Rate
 
Terms
 
Date
Senior 1
Office
 
$
31,250

 
$
31,250

 
1 month LIBOR + 4.50%
 
Interest Only
 
9/9/2019
Senior 2
Retail
 
9,450

 
9,450

 
1 month LIBOR + 4.90%
 
Interest Only
 
9/9/2019
Senior 3
Office
 
38,385

 
38,354

 
1 month LIBOR + 5.25%
 
Interest Only
 
10/9/2019
Senior 4
Retail
 
11,684

 
11,682

 
1 month LIBOR + 4.50%
 
Interest Only
 
2/9/2019
Senior 5
Hospitality
 
16,800

 
15,825

 
1 month LIBOR + 4.90%
 
Interest Only
 
10/8/2018(1)
Senior 6
Retail
 
14,600

 
14,600

 
1 month LIBOR + 4.25%
 
Interest Only
 
5/9/2019
Senior 7
Office
 
10,700

 
10,700

 
1 month LIBOR + 4.65%
 
Interest Only
 
6/9/2019
Senior 8
Industrial
 
20,216

 
20,216

 
1 month LIBOR + 4.25%
 
Interest Only
 
7/9/2019
Senior 9
Retail
 
7,500

 
7,500

 
1 month LIBOR + 5.00%
 
Interest Only
 
1/9/2019
Senior 10
Industrial
 
33,655

 
33,655

 
1 month LIBOR + 4.00%
 
Interest Only
 
11/9/2019
Senior 11
Retail
 
13,700

 
13,698

 
1 month LIBOR + 4.75%
 
Interest Only
 
3/9/2019
Senior 12
Retail
 
28,900

 
28,895

 
1 month LIBOR + 4.73%
 
Interest Only
 
4/9/2019
Senior 13
Retail
 
12,953

 
12,950

 
1 month LIBOR + 5.00%
 
Interest Only
 
4/9/2019
Senior 14
Retail
 
15,750

 
15,744

 
1 month LIBOR + 5.25%
 
Interest Only
 
6/9/2019
Senior 15
Multifamily
 
17,657

 
17,659

 
1 month LIBOR + 7.10%
 
Interest Only
 
5/9/2019
Senior 16
Hospitality
 
12,600

 
12,593

 
1 month LIBOR + 5.50%
 
Interest Only
 
6/9/2019
Senior 17
Hospitality
 
14,300

 
14,275

 
1 month LIBOR + 5.50%
 
Interest Only
 
5/9/2020
Senior 18
Retail
 
23,650

 
23,614

 
1 month LIBOR + 5.00%
 
Interest Only
 
7/9/2020
Senior 19
Hospitality
 
14,900

 
14,890

 
1 month LIBOR + 6.25%
 
Interest Only
 
9/9/2019
Senior 20
Office
 
12,830

 
12,796

 
1 month LIBOR + 4.45%
 
Interest Only
 
9/9/2020
Senior 21
Office
 
10,400

 
10,387

 
1 month LIBOR + 5.50%
 
Interest Only
 
10/9/2019
Senior 22
Multifamily
 
39,629

 
39,604

 
1 month LIBOR + 5.50%
 
Interest Only
 
10/9/2019
Senior 23
Retail
 
7,500

 
7,497

 
1 month LIBOR + 5.25%
 
Interest Only
 
6/9/2019
Senior 24
Multifamily
 
47,416

 
47,326

 
1 month LIBOR + 4.50%
 
Interest Only
 
7/9/2020
Senior 25
Hospitality
 
8,875

 
8,826

 
1 month LIBOR + 6.20%
 
Interest Only
 
10/9/2019
Senior 26
Office
 
26,420

 
26,338

 
1 month LIBOR + 4.15%
 
Interest Only
 
10/9/2019
Senior 27
Multifamily
 
34,875

 
34,798

 
1 month LIBOR + 3.75%
 
Interest Only
 
11/9/2019
Senior 28
Office
 
12,400

 
12,394

 
1 month LIBOR + 4.00%
 
Interest Only
 
1/9/2020
Senior 29
Hospitality
 
10,600

 
10,531

 
1 month LIBOR + 5.00%
 
Interest Only
 
11/9/2020
Senior 30
Office
 
20,851

 
20,772

 
1 month LIBOR + 4.25%
 
Interest Only
 
12/9/2020
Senior 31
Hospitality
 
7,700

 
7,681

 
1 month LIBOR + 5.75%
 
Interest Only
 
12/9/2019
Senior 32
Multifamily
 
18,230

 
18,160

 
1 month LIBOR + 3.62%
 
Interest Only
 
1/9/2020
Senior 33
Multifamily
 
12,827

 
12,825

 
1 month LIBOR + 5.75%
 
Interest Only
 
7/9/2019
Senior 34
Hospitality
 
57,075

 
56,990

 
1 month LIBOR + 5.19%
 
Interest Only
 
6/9/2019
Senior 35
Multifamily
 
13,481

 
13,455

 
1 month LIBOR + 5.50%
 
Interest Only
 
7/9/2019
Senior 36
Multifamily
 
35,409

 
34,722

 
1 month LIBOR + 4.50%
 
Interest Only
 
12/31/2021
Senior 37
Hospitality
 
10,250

 
10,197

 
1 month LIBOR + 5.25%
 
Interest Only
 
2/9/2021
Senior 38
Hospitality
 
15,280

 
15,069

 
1 month LIBOR + 4.41%
 
Interest Only
 
1/9/2021
Senior 39
Multifamily
 
19,040

 
18,972

 
1 month LIBOR + 3.60%
 
Interest Only
 
2/9/2020

F-45

Senior 40
Multifamily
 
11,841

 
11,798

 
1 month LIBOR + 3.30%
 
Interest Only
 
2/9/2020
Senior 41
Multifamily
 
27,300

 
27,207

 
1 month LIBOR + 3.50%
 
Interest Only
 
2/9/2020
Senior 42
Office
 
24,350

 
24,380

 
1 month LIBOR + 4.65%
 
Interest Only
 
2/9/2020
Senior 43
Hospitality
 
21,000

 
20,909

 
1 month LIBOR + 4.00%
 
Interest Only
 
2/9/2021
Senior 44
Office
 
19,450

 
19,364

 
1 month LIBOR + 3.70%
 
Interest Only
 
3/9/2020
Senior 45
Multifamily
 
20,102

 
19,976

 
1 month LIBOR + 4.25%
 
Interest Only
 
3/9/2021
Senior 46
Multifamily
 
15,429

 
15,370

 
1 month LIBOR + 3.65%
 
Interest Only
 
3/9/2020
Senior 47
Multifamily
 
42,000

 
41,833

 
1 month LIBOR + 3.70%
 
Interest Only
 
3/9/2021
Senior 48
Hospitality
 
13,500

 
13,441

 
1 month LIBOR + 4.75%
 
Interest Only
 
3/9/2021
Senior 49
Hospitality
 
15,000

 
14,922

 
1 month LIBOR + 4.95%
 
Interest Only
 
4/9/2020
Senior 50
Hospitality
 
25,484

 
25,344

 
1 month LIBOR + 4.00%
 
Interest Only
 
4/9/2021
Senior 51
Hospitality
 
20,646

 
20,547

 
1 month LIBOR + 4.40%
 
Interest Only
 
4/9/2021
Senior 52
Multifamily
 
31,750

 
31,604

 
1 month LIBOR + 3.60%
 
Interest Only
 
5/9/2020
Senior 53
Self-Storage
 
4,120

 
4,103

 
1 month LIBOR + 4.05%
 
Interest Only
 
5/9/2021
Senior 54
Self-Storage
 
6,496

 
6,469

 
1 month LIBOR + 5.05%
 
Interest Only
 
5/9/2021
Senior 55
Retail
 
50,732

 
50,668

 
1 month LIBOR + 4.25%
 
Interest Only
 
5/9/2019
Senior 56
Multifamily
 
7,612

 
7,581

 
1 month LIBOR + 4.25%
 
Interest Only
 
5/9/2020
Senior 57
Office
 
23,000

 
22,909

 
1 month LIBOR + 3.65%
 
Interest Only
 
5/9/2020
Senior 58
Self-Storage
 
7,306

 
7,271

 
1 month LIBOR + 5.05%
 
Interest Only
 
5/9/2021
Senior 59
Multifamily
 
80,071

 
79,506

 
1 month LIBOR + 3.50%
 
Interest Only
 
6/9/2020
Senior 60
Multifamily
 
40,000

 
39,873

 
1 month LIBOR + 3.75%
 
Interest Only
 
12/9/2019
Senior 61
Self-Storage
 
2,400

 
2,388

 
1 month LIBOR + 4.05%
 
Interest Only
 
6/9/2021
Senior 62
Multifamily
 
10,500

 
10,465

 
1 month LIBOR + 5.54%
 
Interest Only
 
6/9/2019
Senior 63
Self-Storage
 
6,310

 
6,281

 
1 month LIBOR + 5.05%
 
Interest Only
 
6/9/2021
Senior 64
Multifamily
 
20,909

 
20,782

 
1 month LIBOR + 3.15%
 
Interest Only
 
6/9/2021
Senior 65
Multifamily
 
11,590

 
11,538

 
1 month LIBOR + 3.75%
 
Interest Only
 
7/9/2020
Senior 66
Multifamily
 
66,000

 
65,627

 
1 month LIBOR + 3.75%
 
Interest Only
 
7/9/2021
Senior 67
Multifamily
 
17,250

 
17,171

 
1 month LIBOR + 3.95%
 
Interest Only
 
7/9/2020
Senior 68
Retail
 
22,203

 
22,076

 
1 month LIBOR + 4.95%
 
Interest Only
 
1/9/2020
Senior 69
Hospitality
 
22,355

 
22,252

 
1 month LIBOR + 4.00%
 
Interest Only
 
7/9/2021
Senior 70
Hospitality
 
34,000

 
33,864

 
1 month LIBOR + 4.50%
 
Interest Only
 
8/9/2020
Senior 71
Mixed-Use
 
101,290

 
100,994

 
1 month LIBOR + 4.00%
 
Interest Only
 
8/9/2019
Senior 72
Mixed-Use
 
19,357

 
19,408

 
1 month LIBOR + 4.75%
 
Interest Only
 
7/9/2020
Senior 73
Multifamily
 
11,120

 
11,088

 
1 month LIBOR + 3.50%
 
Interest Only
 
8/9/2020
Senior 74
Multifamily
 
16,607

 
16,524

 
1 month LIBOR + 3.30%
 
Interest Only
 
9/9/2020
Senior 75
Office
 
18,700

 
18,593

 
1 month LIBOR + 3.75%
 
Interest Only
 
9/9/2020
Senior 76
Office
 
50,000

 
49,900

 
1 month LIBOR + 4.23%
 
Interest Only
 
3/9/2020
Senior 77
Self-Storage
 
3,300

 
3,281

 
1 month LIBOR + 6.00%
 
Interest Only
 
9/9/2020
Senior 78
Multifamily
 
7,250

 
7,218

 
1 month LIBOR + 4.00%
 
Interest Only
 
9/9/2020
Senior 79
Multifamily
 
99,305

 
98,687

 
1 month LIBOR + 3.10%
 
Interest Only
 
9/9/2020
Senior 80
Office
 
12,973

 
12,897

 
1 month LIBOR + 3.40%
 
Interest Only
 
9/9/2020
Senior 81
Multifamily
 
25,500

 
25,523

 
1 month LIBOR + 3.50%
 
Interest Only
 
4/9/2020
Senior 82
Multifamily
 
13,600

 
13,534

 
1 month LIBOR + 3.53%
 
Interest Only
 
10/9/2020
Senior 83
Self-Storage
 
6,125

 
6,044

 
1 month LIBOR + 5.50%
 
Interest Only
 
10/9/2020
Senior 84
Office
 
35,610

 
35,341

 
1 month LIBOR + 3.76%
 
Interest Only
 
10/9/2020
Senior 85
Office
 
500

 
497

 
1 month LIBOR + 12.71%
 
Interest Only
 
10/9/2020

F-46

Senior 86
Multifamily
 
14,446

 
14,385

 
1 month LIBOR + 3.15%
 
Interest Only
 
11/9/2020
Senior 87
Multifamily
 
20,284

 
20,180

 
1 month LIBOR + 3.40%
 
Interest Only
 
11/9/2020
Senior 88
Multifamily
 
29,900

 
29,762

 
1 month LIBOR + 3.35%
 
Interest Only
 
11/9/2020
Senior 89
Multifamily
 
35,490

 
35,275

 
1 month LIBOR + 3.10%
 
Interest Only
 
12/9/2020
Senior 90
Industrial
 
12,000

 
11,934

 
1 month LIBOR + 4.50%
 
Interest Only
 
11/9/2020
Senior 91
Self-Storage
 
13,900

 
13,812

 
1 month LIBOR + 4.00%
 
Interest Only
 
11/9/2020
Senior 92
Multifamily
 
10,020

 
9,970

 
1 month LIBOR + 3.45%
 
Interest Only
 
12/9/2021
Senior 93
Multifamily
 
73,620

 
73,181

 
1 month LIBOR + 3.45%
 
Interest Only
 
12/9/2021
Senior 94
Land
 
16,400

 
16,319

 
1 month LIBOR + 6.00%
 
Interest Only
 
12/11/2020
Senior 95
Hospitality
 
8,750

 
8,705

 
1 month LIBOR + 4.80%
 
Interest Only
 
1/9/2022
Senior 96
Retail
 
14,500

 
14,374

 
1 month LIBOR + 4.75%
 
Interest Only
 
1/9/2021
Senior 97
Hospitality
 
17,965

 
17,346

 
5.8%
 
Interest Only
 
10/6/2021
Senior 98
Retail
 
29,500

 
29,374

 
6.3%
 
Interest Only
 
9/9/2023
Mezzanine 1
Multifamily
 
3,480

 
3,492

 
9.5%
 
Interest Only
 
7/1/2024
Mezzanine 2
Office
 
10,000

 
9,619

 
10.0%
 
Interest Only
 
9/6/2024
 
 
 
$
2,221,936

 
$
2,211,666

 
 
 
 
 
 
________________________
(1) The loan is currently past due on principal repayment.


F-47