Franklin BSP Realty Trust, Inc. 10-K

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. We commenced business in May 2013. 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 an Amended and Restated Advisory Agreement, dated January 19, 2018 (the "Advisory Agreement"). 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 Advisory Agreement and the Transaction did 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 also owns real estate which it acquires through foreclosure and deed in lieu of foreclosure, and which it purchases for investment, typically subject to triple net leases. 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 CDOs. COVID-19 Pandemic Since December 2019, COVID-19 has spread globally, including to every state in the United States. In March 2020, the World Health Organization declared COVID-19 a pandemic, and subsequently, the United States declared a national emergency. The COVID-19 pandemic has had significant repercussions across domestic and global economies and financial markets, including the industries in which our borrowers operate. The global impact of the COVID-19 outbreak evolved rapidly and many governmental authorities, including state and local governments in regions in which our borrowers own properties, have reacted by instituting government restrictions, border closings, quarantines, “shelter-in-place” orders and “social distancing” guidelines which have forced many of our borrowers to suspend or significantly restrict their business activities. The effects of the pandemic have resulted in a dramatic increase in national unemployment and numerous corporate bankruptcies. 23 The COVID-19 pandemic has had and is continuing to have a negative impact on our operations, however during the second half of 2020 the impact was less significant: Impact on Operating Results. With respect to our operating results for the year ended December 31, 2020, the COVID-19 pandemic drove a significant increase in our allowance for credit loss provision on our loan portfolio and an increase in the realized loss on our securities portfolio. Specifically, for the year ended December 31, 2020, we experienced an increase in our provision for expected credit losses on our loan portfolio, primarily driven by the decline in the overall economic outlook as a result of the COVID-19 pandemic. Additionally, we had realized losses of $10.1 million on our real estate securities portfolio, the majority of which occurred during the first half of 2020. This was a result of dislocation in the broader capital markets and uncertainty due to COVID-19 and its expected impact on values of properties underlying our real-estate debt assets. Due primarily to changes in market conditions associated with the COVID-19 pandemic, the weighted average risk rating of our loan portfolio increased from 2.1 as of December 31, 2019 to 2.2 as of December 31, 2020, and the amortized cost basis of our loans past due increased by $37.8 million to $94.9 million over this period. In the second and third quarters of 2020, we made limited modifications to certain loans to assist borrowers during the COVID-19 pandemic, but none of these modifications qualify as troubled debt restructurings ("TDRs"). Impact on Liquidity . During the year ended December 31, 2020, there were significant disruptions in the financial markets that impacted our real estate securities portfolio. This resulted in decreases in market value for these assets due to volatility and lack of liquidity. During the second quarter of 2020, we received margin calls from certain of our lenders due to the decline in pricing, which we satisfied through the contribution of additional cash, thereby reducing our liquidity position and substantially reducing our levered returns on this portfolio of assets. As of December 31, 2020 the Company has significantly reduced its real estate securities portfolio, further reducing mark to market exposure and the associated liquidity risk from counterparty margin calls on real estate securities repurchase agreements compared to prior quarters. In addition, the financial market dislocations created by the COVID-19 pandemic have currently made financing through CDO or CLO securitizations more difficult. The extent to which the COVID-19 pandemic impacts our future operating results and liquidity will depend on future developments which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, including any resurgences, or mutations of the virus, the direct and indirect economic effects of the pandemic and containment measures, and the effectiveness of vaccines and treatment therapies and the distribution thereof. The inability of our borrowers to meet their loan obligations and/or borrowers filing for bankruptcy protection would reduce our cash flows, which would impact our ability to pay dividends to our stockholders. As a result of the adverse effects of the COVID-19 pandemic, starting the second quarter of 2020 our board of directors reduced the amount of our regular common stock dividend. The board may reduce or eliminate the dividend in the future in the event of further economic deterioration or dislocations in the capital markets. Estimated Per Share NAV On November 2, 2020, the board of directors, upon the recommendation of the Audit Committee of the board, unanimously approved and established the estimated net asset value ("NAV") per share of the Company’s common stock proposed by the Advisor of $17.88. 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, 2020 (the “Valuation Date”). This valuation was performed in a manner consistent 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 independent third-party valuation firms to estimate the fair value of our loan portfolio, securities portfolio and real estate owned portfolio. These valuation firms estimated the value of our loan portfolio using customary valuation methods, including a discounted cash flow analysis with respect to our loan portfolio, available market pricing information with respect to our securities portfolio, and real estate appraisals with respect to our real estate owned portfolio. Based on these methodologies these firms determined a range of estimated valuations. To estimate the Company’s NAV, the Advisor added the amounts of cash and other tangible assets reflected on our balance sheet (as computed in accordance with GAAP) and subtracted our liabilities as reflected on our balance sheet (computed in accordance with GAAP). Based on this the Advisor estimated that the Company’s NAV as of September 30, 2020 is $17.88 which is the midpoint of the valuation range of $17.14 to $18.62. The Advisor recommended our board of directors approve the estimated per share NAV of $17.88. As with any methodology used to estimate value, the methodologies employed to estimate the NAV were based upon a number of estimates and assumptions that may not be accurate or complete. If different judgments, assumptions or opinions were used, a different estimate would likely result. 24 We believe that the method used to determine the estimated per share NAV of the Company’s common stock is the methodology most commonly used by public, non-listed REITs to estimate per share NAV. The estimated per share NAV does not represent the per share amount a third party would pay to acquire us, or the price at which our common stock would trade in the event we were listed on a national securities exchange. For example, the estimated per share NAV of the Company’s common stock does not reflect a liquidity discount for the fact that the shares are not currently traded on a national securities exchange and other costs that may be incurred in connection with a liquidity event. Our estimated per share NAV does not reflect the conversion of any of our Series A convertible preferred stock ("Series A Preferred Stock") or Series C convertible preferred stock (“Series C Preferred Stock,” and with the Series A Preferred Stock, the “Preferred Stock”). The estimated per share NAV was determined at a moment in time and as of the Valuation Date and the values of our assets and liabilities will change over time as a result of changes relating to the individual loans in our portfolio as well as changes and developments in the real estate and capital markets generally, including changes in interest rates. For example, material adverse developments in the real estate or credit markets related to the COVID-19 pandemic after September 30, 2020 would have a significant impact on our estimated per share NAV. Therefore, stockholders should not rely on the estimated per share NAV in making a decision to buy or sell shares of our common stock. 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. 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, will be carried at amortized cost less a specific allowance for credit loss. 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. 25 Table of Contents Real Estate Owned Real estate owned assets are carried at their estimated fair value at acquisition and presented net of accumulated depreciation and impairment charges. The Company allocates the purchase price of acquired real estate assets based on the fair value of the acquired land, building, furniture, fixtures and equipment. Real estate owned assets are depreciated using the straight-line method over estimated useful lives of up to 40 years for buildings and improvements and up to 15 years for furniture, fixtures and equipment. Renovations and/or replacements that improve or extend the life of the real estate owned assets are capitalized and depreciated over their estimated useful lives. Real estate owned revenue is recognized when the Company satisfies a performance obligation by transferring a promised good or service to a customer. The Company is considered to have satisfied all performance obligation at a point in time. Real estate owned assets that are probable to be sold within one year are reported as held-for-sale. Real estate owned assets classified as held-for-sale shall be measured at the lower of its carrying amount or fair value less cost to sell. Real estate owned assets shall not be depreciated or amortized while it is classified as held-for-sale. Interest and other expenses attributable to the liabilities of a disposal group classified as held-for-sale shall continue to be accrued. Upon the disposition of a real estate owned asset, the Company calculates realized gains and losses as net proceeds received less the carrying value of the real estate owned asset. Net proceeds received are net of direct selling costs associated with the disposition of the real estate owned asset. Credit Losses The allowance for credit losses for the Company’s financial instruments carried at amortized cost and off-balance sheet credit exposures, such as loans held for investment and unfunded loan commitments represents a lifetime estimate of expected credit losses. Factors considered by the Company when determining the allowance for credit losses reserve include loan-specific characteristics such as loan-to-value (“LTV”) ratio, vintage year, loan term, property type, occupancy and geographic location, financial performance of the borrower, expected payments of principal and interest, as well as internal or external information relating to past events, current conditions and reasonable and supportable forecasts. The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist for multiple financial instruments. If similar risk characteristics do not exist, the Company measures the allowance for credit losses on an individual instrument basis. The determination of whether a particular financial instrument should be included in a pool can change over time. If a financial asset’s risk characteristics change, the Company evaluates whether it is appropriate to continue to keep the financial instrument in its existing pool or evaluate it individually. In measuring the allowance for credit losses for financial instruments including our unfunded loan commitments that share similar risk characteristics, the Company primarily applies a probability of default (“PD”)/loss given default (“LGD”) model for instruments that are collectively assessed, whereby the allowance for credit losses is calculated as the product of PD, LGD and exposure at default (“EAD”). The Company’s model principally utilizes historical loss rates derived from a commercial mortgage backed securities database with historical losses from 1998 to 2020 provided by a reputable third party, forecasting the loss parameters using a scenario-based statistical approach over a reasonable and supportable forecast period of twelve months, followed by an immediate reversion to average historical losses. For financial instruments assessed on an individual basis, including when it is probable that the Company will be unable to collect the full payment of principal and interest on the instrument, the Company applies a discounted cash flow (“DCF”) methodology. For financial instruments where the borrower is experiencing financial difficulty based on the Company’s assessment at the reporting date and the repayment is expected to be provided substantially through the operation or sale of the collateral, the Company may elect to use as a practical expedient the fair value of the collateral at the reporting date when determining the allowance for credit losses. In developing the allowance for credit losses for its loans held for investment, 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, using similar factors as those in developing the allowance for credit losses. 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 with the ratings updated quarterly. Loans are placed on nonaccrual status and considered non-performing when full payment of principal and interest is unpaid for 90 days or more or where reasonable doubt exists as to timely collection, unless the loan is both well secured and in the process of collection. Interest received on nonaccrual status loans are accounted for under the cost-recovery method, until qualifying for return to accrual. Upon restructuring the nonaccrual loan, the Company may return a loan to accrual status when repayment of principal and interest is reasonably assured. 26 Table of Contents 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 to transfer these assets to trading 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 statements 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. Credit 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 credit impairment. AFS real estate securities which have experienced a decline in the fair value below their amortized cost basis (i.e., impairment) are evaluated each reporting period to determine whether the decline in fair value is due to credit-related factors. Any impairment that is not credit-related is recognized in other comprehensive income, while credit-related impairment is recognized as an allowance on the consolidated balance sheets with a corresponding adjustment on the consolidated statements of operations. If the Company intends to sell an impaired real estate security or more likely than not will be required to sell such a security before recovering its amortized cost basis, the entire impairment amount is recognized in the consolidated statements of operations with a corresponding adjustment to the security’s amortized cost basis. The Company analyzes the AFS security portfolio on a periodic basis for credit losses at the individual security level using the same criteria described above for those amortized cost financial assets subject to an allowance for credit losses including but not limited to; performance of the underlying assets in the security, borrower financial resources and investment in collateral, collateral type, credit ratings, project economics and geographic location as well as national and regional economic factors. The non-credit loss component of the unrealized loss within the Company’s AFS portfolio is recognized as an adjustment to the individual security’s asset balance with an offsetting entry to other comprehensive income in the consolidated balance sheets. 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 Series of Preferred Stock are considered to be participating securities. 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 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. 27 Table of Contents Results of Operations Comparison of the Year Ended December 31, 2020 to the Year Ended December 31, 2019 The Company conducts its business through the following segments: • The real estate debt business focuses on originating, acquiring and asset managing commercial real estate debt investments, including first mortgages, 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. • The real estate owned business represents real estate acquired by the Company through foreclosure, deed in lieu of foreclosure, or purchase. 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, real estate securities and TRS 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, 2020 and 2019 (dollars in thousands): Year Ended December 31, 2020 2019 Average Carrying Value (1) Interest Income / Expense (2) WA Yield / Financing Cost (3) Average Carrying Value (1) Interest Income / Expense (2) WA Yield / Financing Cost (3) Interest-earning assets: Real estate debt $ 2,606,081 $ 165,907 6.4 % $ 2,482,946 $ 181,434 7.3 % Real estate conduit 83,618 3,111 3.7 % 132,042 7,716 5.8 % Real estate securities 351,859 10,854 3.1 % 153,484 6,149 4.0 % Total $ 3,041,558 $ 179,872 5.9 % $ 2,768,472 $ 195,299 7.1 % Interest-bearing Liabilities: Repurchase agreements - commercial mortgage loans $ 249,289 $ 10,908 4.4 % $ 259,945 $ 16,816 6.5 % Other financing and loan participation- commercial mortgage loans 16,704 916 5.5 % 2,686 225 8.4 % Repurchase agreements - real estate securities 313,227 13,637 4.4 % 161,460 5,117 3.2 % Collateralized loan obligations 1,706,207 41,095 2.4 % 1,641,740 67,927 4.1 % Derivative instruments — — N/A — 334 N/A Total $ 2,285,427 $ 66,556 2.9 % $ 2,065,831 $ 90,419 4.4 % Net interest income/spread $ 113,316 3.0 % $ 104,880 2.7 % Average leverage % (4) 75.1 % 74.6 % Weighted average levered yield (5) 15.0 % 14.9 % __ ______________________ (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 years ended December 31, 2020 and 2019, 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) Calculated by dividing total average interest-bearing liabilities by total average interest-earning assets. (5) Calculated by dividing net interest income/spread by the average interest-earning assets less average interest-bearing liabilities. 28 Table of Contents Interest income Interest income for the years ended December 31, 2020 and 2019 totaled $179.9 million and $195.3 million, respectively. As of December 31, 2020, our portfolio consisted of 130 commercial mortgage loans, three commercial mortgage loans, held-for-sale, measured at fair value and nine investments in CMBS. The main driver in the decrease in interest income was due to a decrease in the one-month LIBOR, the benchmark index for our loans. The decrease in the one-month LIBOR was partially offset by the index floors we have on our loans and a higher average carrying value of interest-earning assets in the year ended December 31, 2020. Interest expense Interest expense for the year ended December 31, 2020 decreased to $66.6 million compared to interest expense for the year ended December 31, 2019 of $90.4 million. Similar to our interest income, the decrease in interest expense was due to a decrease in the one-month LIBOR, the benchmark index for our financing lines. Realized Gain/Loss on Commercial Mortgage Loans Held-for-Sale Realized gain on commercial mortgage loans held-for-sale, measured at fair value at the TRS for the year ended December 31, 2020 was $15.9 million compared to $37.8 million for the year ended December 31, 2019. The $21.9 million decrease in realized gain was due to lower sales volumes with total proceeds of $328.1 million from the sale of fixed-rate commercial real estate loans into the CMBS securitization market during the year ended December 31, 2020 versus transactions of total proceeds of $1,013.1 million for the year ended December 31, 2019. Realized Gain/Loss on Real Estate Securities Available for Sale For the year ended December 31, 2020 our real estate securities, available for sale, measured at fair value had a realized loss of $10.1 million included within the consolidated statements of operations. The loss is attributable to 20 CMBS securities sold during the year ended December 31, 2020 in response to the dislocations in the capital markets due to COVID-19. There had been no sales of CMBS securities during the year ended December 31, 2019. Unrealized Gain/Loss on Real Estate Securities Available for Sale For the year ended December 31, 2020 our real estate securities, available for sale, measured at fair value had an unrecognized unrealized loss of $7.3 million included within the consolidated statements of comprehensive income. The deterioration in fair value of real estate securities for the year ended December 31, 2020 can be attributed to the significant market volatility and credit uncertainties related to the outbreak of COVID-19 followed by some recovery in CMBS markets in the second half of 2020. Expenses from operations Expenses from operations for the years ended December 31, 2020 and 2019 were made up of the following (dollars in thousands): Year Ended December 31, 2020 2019 Asset management and subordinated performance fee $ 15,178 $ 16,226 Acquisition expenses 696 900 Administrative services expenses 13,120 16,363 Professional fees 10,964 11,631 Real estate owned operating expenses 3,653 2,802 Depreciation and amortization 2,233 507 Other expenses 3,312 3,771 Total expenses from operations $ 49,156 $ 52,200 The decrease in our expenses from operations was primarily related to lower administrative services expenses. The decrease in administrative services expenses was due to fewer conduit activities during the twelve months ended December 31, 2020, compared to the twelve months ended December 31, 2019. The decrease in asset management and subordinated performance fee was primarily driven by the lower stockholders’ equity and preferred stock for the year ended December 31, 2020, compared to the year ended December 31, 2019. The increase in depreciation and amortization expense was due to $2.2 million of expenses incurred on a total of two real estate owned assets during the twelve months ended December 31, 2020, compared to $0.5 million incurred on two real estate owned assets during the twelve months ended December 31, 2019. 29 Table of Contents Comparison of the Year Ended December 31, 2019 to the Year Ended December 31, 2018 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, 2019 and December 31, 2018 (dollars in thousands): Year Ended December 31, 2019 2018 Average Carrying Value (1) Interest Income / Expense (2) WA Yield / Financing Cost (3) Average Carrying Value (1) Interest Income / Expense (2) WA Yield / Financing Cost (3) Interest-earning assets: Real estate debt $ 2,482,946 $ 181,434 7.3 % $ 1,877,159 $ 144,967 7.7 % Real estate conduit 132,042 7,716 5.8 % 106,703 6,604 6.2 % Real estate securities 153,484 6,149 4.0 % 15,166 717 4.7 % Total $ 2,768,472 $ 195,299 7.1 % $ 1,999,028 $ 152,288 7.6 % Interest-bearing Liabilities: Repurchase agreements - commercial mortgage loans $ 259,945 $ 16,816 6.5 % $ 285,257 $ 17,023 6.0 % Other financing and loan participation- commercial mortgage loans 2,686 225 8.4 % 9,446 1,244 13.2 % Repurchase agreements - real estate securities 161,460 5,117 3.2 % 21,986 770 3.5 % Collateralized loan obligations 1,641,740 67,927 4.1 % 1,124,424 50,679 4.5 % Derivative instruments — 334 N/A — 284 N/A Total $ 2,065,831 $ 90,419 4.4 % $ 1,441,113 $ 70,000 4.9 % Net interest income/spread $ 104,880 2.7 % $ 82,288 2.7 % Average leverage % (4) 74.6 % 72.1 % Weighted average levered yield (5) 14.9 % 14.7 % ________________________ (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, 2019 and 2018. (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) Calculated by dividing total average interest-bearing liabilities by total average interest-earning assets. (5) 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, 2019 and December 31, 2018 totaled $195.3 million and $152.3 million, respectively. As of December 31, 2019, our portfolio consisted of 122 commercial mortgage loans, 7 commercial mortgage loans, held-for-sale, measured at fair value and 21 investments in CMBS. The main driver in the increase in interest income was an increase of $769.4 million in the average carrying value of our interest-earning assets. Interest expense Interest expense for the year ended December 31, 2019 increased to $90.4 million compared to interest expense for the year ended December 31, 2018 of $70.0 million. The increase in interest expense was due to an increase of $624.7 million in the average carrying value of our interest-bearing liabilities. Realized Gain/Loss on Commercial Mortgage Loans Held-for-Sale Realized gain on commercial mortgage loans held-for-sale, measured at fair value at the TRS for the year ended December 31, 2019 was $37.8 million compared to $11.3 million for the year ended December 31, 2018. The $26.5 million increase in realized gain was due to total proceeds of $1,013.1 million from the sale of fixed-rate commercial real estate loans into the CMBS securitization market during the year ended December 31, 2019 versus transactions of total proceeds of $567.4 million for the year ended December 31, 2018. 30 Table of Contents Expenses from operations Expenses from operations for the years ended December 31, 2019 and 2018 were made up of the following (dollars in thousands): Year Ended December 31, 2019 2018 Asset management and subordinated performance fee $ 16,226 $ 10,299 Acquisition expenses 900 452 Administrative services expenses 16,363 13,446 Professional fees 11,631 8,318 Real estate owned operating expenses 2,802 — Depreciation and amortization 507 — Other expenses 3,771 4,887 Total expenses from operations $ 52,200 $ 37,402 The increase in our expenses from operations was primarily related to asset management and subordinated performance fees, administrative services expenses and professional fees. The increase in asset management and subordinated performance fee was primarily driven by the larger stockholders’ equity and preferred stock for the year ended December 31, 2019, compared to the year ended December 31, 2018. In addition to a higher equity base, we accrued approximately $2.0 million of subordinated performance fee during the year ended December 31, 2019 compared to $0.0 million during the year ended December 31, 2018. The increase in administrative services expenses and professional fees was primarily driven by the increase in outstanding equity during 2019 and a larger portfolio. In addition, the increase in real estate owned operating expense was driven by the two new real estate owned assets on our balance sheet for the year ended December 31, 2019, compared to none for the year ended December 31, 2018. Portfolio As of December 31, 2020 and 2019, our portfolio consisted of 130 and 122 commercial mortgage loans, respectively, excluding commercial mortgage loans accounted for under the fair value option. The commercial mortgage loans held for investment as of December 31, 2020 and December 31, 2019 had a total carrying value, net of allowance for credit losses, of $2,693.8 million and $2,762.0 million, respectively. As of December 31, 2020 and 2019 the Company's total commercial mortgage loans, held-for-sale, measured at fair value comprised of three loans with total fair value of $67.6 million and seven loans with total fair value of $112.6 million, respectively. As of December 31, 2020 and 2019, our real estate securities, available for sale, at fair value comprised of nine CMBS investments with total fair value of $171.1 million and 21 CMBS investments with total fair value of $386.3 million. As of December 31, 2020 and December 31, 2019, our other real estate investments, measured at fair value, comprised one investment with a total fair value of $2.5 million and $2.6 million, respectively. As of December 31, 2020 and December 31, 2019, our real estate owned portfolio comprised one investment with a carrying value of $26.5 million and two investments with a carrying value of $35.3 million, respectively. As of December 31, 2020, we had two loans with unpaid contractual principal balance for a total carrying value of $94.9 million, one with interest past due for greater than 90 days and the other with interest past due greater than 30 days. We did not take any asset specific reserves for these loans. As of December 31, 2019, we had one loan with unpaid contractual principal balance and carrying value of $57.1 million that had interest past due for greater than 90 days. As of December 31, 2020 and 2019, our commercial mortgage loans, excluding commercial mortgage loans accounted for under the fair value option, had a weighted average coupon of 5.5% and 5.6%, and a weighted average remaining life of 1.7 years and 1.8 years, respectively. As of December 31, 2020 and 2019, our CMBS investments had a weighted average coupon of 2.2% and 3.7%, and a weighted average remaining life of 12.8 years and 15.8 years, respectively. 31 Table of Contents The following charts summarize our commercial mortgage loans, held for investment, by coupon rate type, collateral type and geographical region as of December 31, 2020 and 2019: 32 Table of Contents 33 Table of Contents An investments region classification is defined according to the below map based on the location of investments secured property. 34 Table of Contents The following charts show the par value by contractual maturity year for the investments in our portfolio as of December 31, 2020 and 2019: 35 Table of Contents The following table shows selected data from our commercial mortgage loans, held for investment in our portfolio as of December 31, 2020 (dollars in thousands): Loan Type Property Type Par Value Interest Rate (1) Effective Yield Loan to Value (2) Senior Debt 1 Industrial $33,655 1 month LIBOR + 4.00% 4.20% 65.0% Senior Debt 2 Mixed Use 12,839 1 month LIBOR + 5.00% 5.75% 73.3% Senior Debt 3 Office 14,034 1 month LIBOR + 4.45% 5.45% 64.2% Senior Debt 4 Office 8,391 1 month LIBOR + 6.00% 7.00% 74.0% Senior Debt 5 Multifamily 37,812 1 month LIBOR + 3.35% 5.60% 76.0% Senior Debt 6 Office 26,811 1 month LIBOR + 4.15% 5.40% 69.5% Senior Debt 7 Hospitality 10,400 1 month LIBOR + 6.25% 6.50% 61.6% Senior Debt 8 Hospitality 5,894 1 month LIBOR + 3.50% 4.50% 77.0% Senior Debt 9 Hospitality 57,075 1 month LIBOR + 5.19% 6.19% 51.8% Senior Debt 10 Multifamily 77,945 1 month LIBOR + 4.50% 5.50% 22.4% Senior Debt 11 Hospitality 10,250 1 month LIBOR + 5.25% 6.25% 60.7% Senior Debt 12 Hospitality 23,000 1 month LIBOR + 6.00% 6.50% 48.1% Senior Debt 13 Office 23,726 1 month LIBOR + 5.15% 6.60% 56.4% Senior Debt 14 Multifamily 41,826 1 month LIBOR + 3.70% 4.50% 63.7% Senior Debt 15 Hospitality 28,272 1 month LIBOR + 4.00% 5.25% 68.0% Senior Debt 16 Hospitality 22,700 1 month LIBOR + 4.40% 5.00% 72.7% Senior Debt 17 Multifamily 35,886 1 month LIBOR + 3.00% 4.50% 83.6% Senior Debt 18 Self Storage 3,851 1 month LIBOR + 4.05% 5.00% 45.5% Senior Debt 19 Self Storage 6,496 1 month LIBOR + 4.05% 5.05% 55.8% Senior Debt 20 Self Storage 7,606 1 month LIBOR + 4.05% 5.05% 57.6% Senior Debt 21 Self Storage 2,400 1 month LIBOR + 4.05% 5.00% 37.6% Senior Debt 22 Self Storage 6,310 1 month LIBOR + 5.05% 5.19% 59.1% Senior Debt 23 Hospitality 22,355 1 month LIBOR + 3.50% 4.80% 68.8% Senior Debt 24 Mixed Use 59,451 1 month LIBOR + 4.87% 5.27% 49.0% Senior Debt 25 Office 21,100 1 month LIBOR + 3.75% 5.80% 70.0% Senior Debt 26 Self Storage 6,299 1 month LIBOR + 6.00% 7.75% 58.9% Senior Debt 27 Office 16,342 1 month LIBOR + 3.40% 5.30% 67.5% Senior Debt 28 Retail 29,500 6.25% 6.25% 68.5% Senior Debt 29 Self Storage 11,966 1 month LIBOR + 5.50% 7.25% 68.1% Senior Debt 30 Multifamily 16,172 1 month LIBOR + 3.15% 4.95% 80.3% Senior Debt 31 Multifamily 22,417 1 month LIBOR + 3.40% 4.95% 80.5% Senior Debt 32 Multifamily 29,868 1 month LIBOR + 3.35% 5.25% 73.0% Senior Debt 33 Land 16,400 1 month LIBOR + 6.00% 8.25% 45.7% Senior Debt 34 Hospitality 8,523 1 month LIBOR + 4.80% 6.75% 62.5% Senior Debt 35 Industrial 14,160 1 month LIBOR + 3.95% 5.95% 66.4% Senior Debt 36 Multifamily 48,500 1 month LIBOR + 3.75% 6.15% 69.5% Senior Debt 37 Multifamily 23,295 1 month LIBOR + 5.70% 7.50% 70.7% Senior Debt 38 Office 7,200 1 month LIBOR + 3.90% 5.95% 67.6% Senior Debt 39 Manufactured Housing 8,893 1 month LIBOR + 4.40% 6.50% 60.3% Senior Debt 40 Hospitality 14,000 1 month LIBOR + 4.47% 6.72% 44.8% Senior Debt 41 Retail 14,250 1 month LIBOR + 3.95% 6.45% 61.2% Senior Debt 42 Hospitality 21,000 1 month LIBOR + 4.14% 6.64% 56.0% Senior Debt 43 Multifamily 24,711 1 month LIBOR + 3.10% 5.40% 73.1% Senior Debt 44 Multifamily 37,643 1 month LIBOR + 3.10% 5.40% 73.4% Senior Debt 45 Office 42,631 1 month LIBOR + 3.50% 5.75% 71.0% Senior Debt 46 Retail 8,500 1 month LIBOR + 7.50% 7.64% 51.6% 36 Table of Contents Loan Type Property Type Par Value Interest Rate (1) Effective Yield Loan to Value (2) Senior Debt 47 Hospitality 10,580 1 month LIBOR + 4.50% 6.75% 68.7% Senior Debt 48 Multifamily 18,100 1 month LIBOR + 3.40% 5.35% 76.4% Senior Debt 49 Hospitality 19,900 1 month LIBOR + 4.15% 6.50% 61.8% Senior Debt 50 Multifamily 18,656 1 month LIBOR + 3.10% 5.50% 67.4% Senior Debt 51 Office 34,400 1 month LIBOR + 3.90% 6.15% 68.2% Senior Debt 52 Hospitality 20,930 1 month LIBOR + 3.75% 6.10% 62.6% Senior Debt 53 Hospitality 15,500 1 month LIBOR + 4.00% 6.50% 56.4% Senior Debt 54 Hospitality 5,250 1 month LIBOR + 4.25% 6.50% 47.7% Senior Debt 55 Hospitality 12,750 1 month LIBOR + 4.45% 6.85% 62.9% Senior Debt 56 Hospitality 9,545 1 month LIBOR + 4.50% 6.85% 64.0% Senior Debt 57 Retail 9,400 1 month LIBOR + 4.20% 6.30% 77.1% Senior Debt 58 Manufactured Housing 12,200 1 month LIBOR + 3.65% 5.90% 48.4% Senior Debt 59 Manufactured Housing 24,100 1 month LIBOR + 3.65% 5.90% 53.8% Senior Debt 60 Multifamily 23,149 1 month LIBOR + 2.65% 4.75% 75.8% Senior Debt 61 Office 29,750 1 month LIBOR + 3.35% 5.42% 54.3% Senior Debt 62 Hospitality 34,484 1 month LIBOR + 3.99% 5.74% 31.0% Senior Debt 63 Multifamily 12,839 1 month LIBOR + 2.65% 4.50% 71.6% Senior Debt 64 Multifamily 37,021 1 month LIBOR + 2.75% 4.50% 79.3% Senior Debt 65 Industrial 53,500 1 month LIBOR + 3.75% 5.50% 59.7% Senior Debt 66 Office 21,825 1 month LIBOR + 3.50% 5.40% 70.9% Senior Debt 67 Hospitality 7,100 1 month LIBOR + 4.00% 5.75% 70.3% Senior Debt 68 Industrial 22,230 1 month LIBOR + 3.55% 5.25% 69.7% Senior Debt 69 Multifamily 21,083 1 month LIBOR + 2.75% 4.25% 71.7% Senior Debt 70 Multifamily 27,087 1 month LIBOR + 3.15% 4.95% 71.6% Senior Debt 71 Multifamily 26,130 1 month LIBOR + 2.70% 2.84% 76.0% Senior Debt 72 Multifamily 7,150 1 month LIBOR + 4.75% 5.80% 75.3% Senior Debt 73 Multifamily 25,000 1 month LIBOR + 3.00% 4.50% 75.5% Senior Debt 74 Office 25,500 1 month LIBOR + 4.35% 6.05% 64.9% Senior Debt 75 Multifamily 14,181 1 month LIBOR + 3.10% 4.50% 63.7% Senior Debt 76 Office 48,276 1 month LIBOR + 3.70% 5.00% 65.7% Senior Debt 77 Industrial 25,350 1 month LIBOR + 3.50% 5.20% 58.1% Senior Debt 78 Multifamily 11,800 1 month LIBOR + 3.15% 4.75% 72.4% Senior Debt 79 Office 27,598 1 month LIBOR + 2.70% 2.84% 71.4% Senior Debt 80 Multifamily 75,100 1 month LIBOR + 4.35% 6.00% 64.7% Senior Debt 81 Manufactured Housing 1,385 5.50% 5.50% 62.8% Senior Debt 82 Industrial 14,650 1 month LIBOR + 6.00% 6.75% 59.9% Senior Debt 83 Multifamily 7,149 1 month LIBOR + 4.75% 5.75% 62.6% Senior Debt 84 Multifamily 6,764 1 month LIBOR + 4.90% 5.65% 53.2% Senior Debt 85 Multifamily 46,000 1 month LIBOR + 4.75% 5.75% 69.4% Senior Debt 86 Multifamily 5,550 1 month LIBOR + 6.87% 7.87% 75.0% Senior Debt 87 Industrial 16,400 1 month LIBOR + 6.25% 7.00% 61.0% Senior Debt 88 Multifamily 14,505 1 month LIBOR + 4.75% 5.50% 65.3% Senior Debt 89 Multifamily 23,438 1 month LIBOR + 4.65% 5.40% 52.7% Senior Debt 90 Multifamily 4,300 1 month LIBOR + 5.50% 6.50% 87.4% Senior Debt 91 Manufactured Housing 7,680 1 month LIBOR + 4.50% 5.00% 66.7% Senior Debt 92 Mixed Use 30,465 1 month LIBOR + 5.15% 6.15% 67.0% Senior Debt 93 Multifamily 3,140 1 month LIBOR + 6.25% 6.75% 73.5% Senior Debt 94 Industrial 24,657 1 month LIBOR + 4.60% 5.10% 20.7% 37 Table of Contents Loan Type Property Type Par Value Interest Rate (1) Effective Yield Loan to Value (2) Senior Debt 95 (3) Multifamily — 1 month LIBOR + 5.25% 5.39% —% Senior Debt 96 Hospitality 27,000 1 month LIBOR + 6.50% 6.85% 62.7% Senior Debt 97 Multifamily 2,465 1 month LIBOR + 5.75% 6.50% 66.6% Senior Debt 98 Multifamily 50,000 1 month LIBOR + 6.69% 7.44% 80.0% Senior Debt 99 Self Storage 29,895 1 month LIBOR + 5.00% 5.25% 58.8% Senior Debt 100 Multifamily 11,622 1 month LIBOR + 4.75% 5.25% 70.0% Senior Debt 101 Manufactured Housing 3,400 1 month LIBOR + 5.00% 5.25% 58.6% Senior Debt 102 Multifamily 27,550 1 month LIBOR + 5.75% 6.00% 69.8% Senior Debt 103 Multifamily 76,000 1 month LIBOR + 4.10% 4.35% 67.9% Senior Debt 104 Multifamily 58,000 1 month LIBOR + 5.25% 5.39% 74.7% Senior Debt 105 Manufactured Housing 5,020 1 month LIBOR + 5.25% 5.39% 65.9% Senior Debt 106 Office 19,003 1 month LIBOR + 4.50% 5.25% 47.9% Senior Debt 107 Office 69,675 5.15% 5.15% 52.5% Senior Debt 108 Office 30,900 1 month LIBOR + 5.20% 5.45% 66.0% Senior Debt 109 Multifamily 10,945 1 month LIBOR + 7.04% 7.29% 63.3% Senior Debt 110 Self Storage 11,600 1 month LIBOR + 4.76% 5.01% 66.6% Senior Debt 111 Industrial 24,552 1 month LIBOR + 4.35% 4.60% 69.8% Senior Debt 112 Manufactured Housing 5,000 1 month LIBOR + 5.90% 6.50% 58.8% Senior Debt 113 Office 12,750 1 month LIBOR + 5.00% 5.25% 67.8% Senior Debt 114 Multifamily 40,937 1 month LIBOR + 4.35% 4.60% 73.2% Senior Debt 115 Multifamily 36,200 1 month LIBOR + 4.45% 4.70% 66.5% Senior Debt 116 Multifamily 8,250 1 month LIBOR + 5.50% 5.75% 73.7% Senior Debt 117 Retail 11,963 1 month LIBOR + 4.87% 5.12% 75.0% Senior Debt 118 Manufactured Housing 3,585 1 month LIBOR + 5.40% 5.90% 76.3% Senior Debt 119 Multifamily 5,730 1 month LIBOR + 5.00% 5.25% 73.5% Senior Debt 120 Multifamily 18,800 1 month LIBOR + 4.00% 4.14% 79.7% Senior Debt 121 Industrial 14,250 1 month LIBOR + 4.50% 4.75% 66.3% Senior Debt 122 Office 11,550 1 month LIBOR + 5.50% 5.75% 68.8% Senior Debt 123 Multifamily 21,000 1 month LIBOR + 4.60% 4.75% 66.7% Senior Debt 124 Office 26,000 1 month LIBOR + 5.00% 5.25% 63.9% Senior Debt 125 Hospitality 17,401 5.75% 5.75% 52.9% Mezzanine Loan 1 Multifamily 3,480 9.50% 9.50% 84.3% Mezzanine Loan 2 Retail 3,500 10.00% 10.00% 59.7% Mezzanine Loan 3 Multifamily 6,500 1 month LIBOR + 10.25% 11.00% 90.4% Mezzanine Loan 4 Retail 1,438 1 month LIBOR + 10.75% 11.00% 84.0% Mezzanine Loan 5 Multifamily 1,000 11.00% 11.00% 68.9% $2,722,863 5.50% 64.0% ________________________ (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. (3) The total commitment of this loan is $40.5 million, however none was funded as of December 31, 2020. 38 Table of Contents The following table shows selected data from our commercial mortgage loans, held-for-sale, measured at fair value as of December 31, 2020 (dollars in thousands): Loan Type Property Type Par Value Interest Rate Effective Yield Loan to Value (1) TRS Senior Debt 1 Industrial $58,500 3.33% 3.33% 58.0% TRS Senior Debt 2 Industrial 9,050 4.30% 4.30% 58.4% TRS Mezzanine Loan 3 Multifamily 100 1 month LIBOR + 14.00% 15.00% 76.4% $67,650 3.48% 58.1% ________________________ (1) Loan to value percentage is from metrics at origination. The following table shows selected data from our real estate securities, available for sale, measured at fair value as of December 31, 2020 (dollars in thousands): Type Par Value Interest Rate Effective Yield CMBS 1 $13,250 1 month LIBOR + 2.95% 3.1% CMBS 2 10,800 1 month LIBOR + 2.10% 2.2% CMBS 3 40,000 1 month LIBOR + 2.35% 2.5% CMBS 4 8,000 1 month LIBOR + 1.85% 2.0% CMBS 5 24,000 1 month LIBOR + 2.00% 2.1% CMBS 6 12,000 1 month LIBOR + 2.15% 2.3% CMBS 7 20,000 1 month LIBOR + 1.33% 1.5% CMBS 8 25,000 1 month LIBOR + 1.63% 1.8% CMBS 9 25,665 1 month LIBOR + 2.15% 2.3% $178,715 2.2% The following table shows selected data from our other real estate investments, measured at fair value as of December 31, 2020 (dollars in thousands): Type Property Type Par Value Preferred Return Preferred Equity 1 Retail $2,500 12.5% $2,500 The following table shows selected data from our real estate owned assets in our portfolio as of December 31, 2020 (dollars in thousands): Type Property Type Carrying Value Real Estate Owned 1 Office $26,510 $26,510 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. The Company expects to use additional debt and equity financing as a source of capital. The 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 2020 the Company raised $10.9 million through sales of common and preferred equity to institutional and individual investors. The Company anticipates 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, the Company 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. Refer to “COVID-19 Pandemic” above for information on the impact of the COVID-19 pandemic on our liquidity. 39 Table of Contents Collateralized Loan Obligations On January 15, 2020, the Company called all of the outstanding notes issued by BSPRT 2017-FL2 Issuer, Ltd., a wholly owned indirect subsidiary of the Company. The outstanding principal of the notes on the date of the call was $21.0 million. The Company recognized all the remaining unamortized deferred financing costs of $4.5 million recorded within the Interest expense line of the consolidated statements of operations, which was a non-cash charge. As of December 31, 2020 and December 31, 2019 the notes issued by BSPRT 2018-FL3 Issuer, Ltd. and BSPRT 2018-FL3 Co-Issuer, LLC, wholly owned indirect subsidiaries of the Company, are collateralized by interests in a pool of 27 and 41 mortgage assets having a principal balance of $417.9 million and $523.2 million, respectively (the "2018-FL3 Mortgage Assets"). The sale of the 2018-FL3 Mortgage Assets to BSPRT 2018-FL3 Issuer, Ltd. is governed by a Mortgage Asset Purchase Agreement dated as of April 5, 2018, between the Company and BSPRT 2018-FL3 Issuer, Ltd. As of December 31, 2020 and December 31, 2019 the notes issued by BSPRT 2018-FL4 Issuer, Ltd. and BSPRT 2018-FL4 Co-Issuer, LLC, wholly owned indirect subsidiaries of the Company, are collateralized by interests in a pool of 59 and 49 mortgage assets having a principal balance of $852.1 million and $867.9 million, respectively (the "2018-FL4 Mortgage Assets"). The sale of the 2018-FL4 Mortgage Assets to BSPRT 2018-FL4 Issuer, Ltd. is governed by a Mortgage Asset Purchase Agreement dated as of October 12, 2018, between the Company and BSPRT 2018-FL4 Issuer, Ltd. As of December 31, 2020 and December 31, 2019, the notes issued by BSPRT 2019-FL5 Issuer, Ltd. and BSPRT 2019-FL5 Co-Issuer, LLC, each wholly owned indirect subsidiaries of the Company, are collateralized by interests in a pool of 54 and 48 mortgage assets having a principal balance of $799.8 million and $809.4 million respectively (the "2019-FL5 Mortgage Assets"). The sale of the 2019-FL5 Mortgage Assets to BSPRT 2019-FL5 Issuer, Ltd. is governed by a Mortgage Asset Purchase Agreement dated as of May 30, 2019, between the Company and BSPRT 2019-FL5 Issuer, Ltd. Repurchase Agreements, Commercial Mortgage Loans As of December 31, 2020, the Company has 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 Revolver Facility" and the "Barclays Repo 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 Revolver Facility, and Barclays Repo 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 Company expects 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. 40 Table of Contents The details of our Repo Facilities at December 31, 2020 and December 31, 2019 are as follows (dollars in thousands): As of December 31, 2020 Repurchase Facility Committed Financing Amount Outstanding Interest Expense (1) Ending Weighted Average Interest Rate Initial Term Maturity JPM Repo Facility (2) $ 300,000 $ 113,884 $ 5,020 2.54 % 10/6/2022 USB Repo Facility (3) 100,000 5,775 599 2.40 % 6/15/2021 CS Repo Facility (4) 200,000 106,971 3,539 2.84 % 8/19/2021 WF Repo Facility (5) 175,000 27,150 1,041 2.50 % 11/21/2021 Barclays Revolver Facility (6) 100,000 — 387 N/A 9/20/2021 Barclays Repo Facility (7) 300,000 22,560 1,046 2.51 % 3/15/2022 Total $ 1,175,000 $ 276,340 $ 11,632 __________________________ (1) For the year ended December 31, 2020. Includes amortization of deferred financing costs. (2) On October 6, 2020 the maturity date was amended to October 6, 2022. (3) On June 9, 2020, the Company exercised the extension option upon the satisfaction of certain conditions, and extended the term maturity to June 15, 2021. (4) On August 28, 2020, the Company exercised the extension option upon the satisfaction of certain conditions, and extended the term maturity to August 19, 2021. Additionally, in 2020 the committed financing amount was downsized from $300 million to $200 million. (5) On November 17, 2020, the Company exercised the extension option upon the satisfaction of certain conditions, and extended the term maturity to November 21, 2021. There are two more one-year extension options available at the Company's discretion. (6) There is one one-year extension option available at the Company's discretion. (7) Includes two one-year extensions at the Company's option. As of December 31, 2019 Repurchase Facility Committed Financing Amount Outstanding Interest Expense (1) Ending Weighted Average Interest Rate Initial Term Maturity JPM Repo Facility (2) $ 300,000 $ 107,526 $ 6,862 4.51 % 1/30/2021 USB Repo Facility (3) 100,000 — 622 N/A 6/15/2020 CS Repo Facility (4) 300,000 87,375 5,563 4.84 % 3/27/2020 WF Repo Facility (5) 175,000 24,942 1,333 3.65 % 11/21/2020 Barclays Revolver Facility (6) 100,000 — 976 N/A 9/20/2021 Barclays Facility (7) 300,000 32,700 1,260 3.80 % 3/15/2022 Total $ 1,275,000 $ 252,543 $ 16,616 _______________________ (1) For the year ended December 31, 2019. Includes amortization of deferred financing costs. (2) On September 3, 2019, the committed financing amount was downsized from $520 million to $300 million and the maturity date was amended to January 30, 2021. (3) 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. (4) On March 26, 2019, the Company exercised the extension option upon the satisfaction of certain conditions, and extended the term maturity to March 27, 2020. (5) Includes three one-year extensions at the Company’s option, which may be exercised upon the satisfaction of certain conditions. (6) On September 13, 2019, the Company exercised the extension option, and extended the term maturity to September 20, 2021. There is one more one-year extension option available at the Company's discretion. (7) Includes two one-year extensions at the Company's option. Other financing and loan participation - Commercial Mortgage Loans On March 23, 2020, the Company transferred $15.2 million of its interest in a term loan to Sterling National Bank ("SNB") via a participation agreement. During 2020, the Company's outstanding loan increased resultant of future fundings, leading to an increase in amount outstanding via the participation agreement. The Company incurred $0.5 million of interest expense on SNB for the year ended December 31, 2020. As of December 31, 2020 there was an outstanding balance of $31.4 million. The loan matures on February 9, 2023. 41 Table of Contents Mortgage Note Payable On October 15, 2019, the Company obtained a commercial mortgage loan for $29.2 million related to the real estate owned portfolio. As of December 31, 2020 the loan accrued interest at an annual rate of 3.85% and matures on November 6, 2034. The Company incurred $1.1 million of interest expense for the twelve months ended December 31, 2020. Additionally, on January 6, 2020, the Company obtained a commercial mortgage loan for $11.0 million related to the real estate owned portfolio (see Note 5 - Real Estate Owned) . As of December 31, 2020 the loan and related real estate owned assets were no longer held by the Company. The Company incurred $0.8 million of interest expense for the twelve months ended December 31, 2020. Unsecured Debt Pursuant to a lending and security agreement with Security Benefit Life Insurance Company ("SBL"), which was entered into in February 2020 and amended in March and August 2020, the Company may borrow up to $100.0 million at a rate of one-month LIBOR + 4.5%. The facility has a maturity of February 10, 2023 and is secured by a pledge of equity interests in certain of the Company’s subsidiaries. The Company incurred $0.2 million of interest expense on the lending agreement with SBL for the twelve months ended December 31, 2020. As of December 31, 2020, there was no outstanding balance under the lending agreement. 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. Below is a summary of the Company's MRAs as of December 31, 2020 and 2019 (dollars in thousands): Weighted Average Counterparty Amount Outstanding Accrued Interest Collateral Pledged (1) Interest Rate Days to Maturity As of December 31, 2020 JP Morgan Securities LLC $ 33,791 $ 1,668 $ 43,612 1.75 % 31 Wells Fargo Securities, LLC — 1,057 — N/A N/A Goldman Sachs International 22,440 455 30,794 1.68 % 16 Barclays Capital Inc. 76,809 2,102 97,244 1.71 % 33 Credit Suisse AG — 905 — N/A N/A Citigroup Global Markets, Inc. 53,788 2,532 71,723 1.70 % 29 Total/Weighted Average $ 186,828 $ 8,719 $ 243,373 1.71 % 33 As of December 31, 2019 JP Morgan Securities LLC $ 83,353 $ 124 $ 93,500 2.53 % 20 Wells Fargo Securities, LLC 178,304 1,199 209,873 2.94 % 11 Barclays Capital Inc. 40,720 221 47,475 2.81 % 23 Citigroup Global Markets, Inc. 91,982 413 103,453 2.69 % 19 Total/Weighted Average $ 394,359 $ 1,957 $ 454,301 2.79 % 16 ________________________ (1) Includes $72.2 million and $68.5 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, 2020 and December 31, 2019, respectively. 42 Table of Contents The following tables summarize our Repurchase Agreements, Commercial Mortgage Loans and our MRAs for the years ended December 31, 2020, December 31, 2019 and December 31, 2018 respectively: As of December 31, 2020 Amount Outstanding Average Outstanding Balance Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Repurchase Agreements, Commercial Mortgage Loans $ 234,524 $ 226,224 $ 183,033 $ 276,340 $ 282,282 $ 238,280 $ 197,632 $ 279,187 Repurchase Agreements, Real Estate Securities $ 496,880 $ 335,256 $ 177,541 $ 186,828 $ 412,809 $ 351,202 $ 316,229 $ 183,632 As of December 31, 2019 Amount Outstanding Average Outstanding Balance Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Repurchase Agreements, Commercial Mortgage Loans $ 370,889 $ 132,870 $ 111,937 $ 252,543 $ 357,850 $ 337,970 $ 132,126 $ 214,812 Repurchase Agreements, Real Estate Securities $ 22,078 $ 85,022 $ 244,308 $ 394,359 $ 52,711 $ 84,179 $ 181,198 $ 324,545 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 $ 44,539 $ 19,542 $ 3,029 $ 23,056 $ 42,079 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. During the twelve months ended December 31, 2020 the maximum average outstanding balance was $721.0 million, of which $268.2 million was related to repurchase agreements on our commercial mortgage loans and $452.8 million for repurchase agreements on our real estate securities. During the twelve months ended December 31, 2019, the maximum average outstanding balance was $612.0 million, at the end of November 30, 2019, of which $266.6 million was related to repurchase agreements on our commercial mortgage loans and $345.4 million for repurchase agreements on our real estate securities. During the twelve months ended December 31, 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. 43 Table of Contents Private Placements Since February 2018, we have been conducting offerings of our common stock, Series A Preferred Stock, and Series C Preferred Stock in offerings exempt from the registration requirements of the Securities Act. The following table summarizes the issuance of common stock in these offerings (dollars in thousands, except share amounts): Total Shares Issued Proceeds Balance, December 31, 2019 12,136,262 $ 201,225 January 2020 284,983 4,762 February 2020 365,051 6,100 March 2020 — — April 2020 — — May 2020 — — June 2020 — — July 2020 — — August 2020 — — September 2020 — — October 2020 — — November 2020 — — December 2020 — — Balance, December 31, 2020 12,786,296 $ 212,087 As of December 31, 2020, we had no outstanding binding purchase commitments for common stock. The following table summarizes the issuance of Series A Preferred Stock in these offerings (dollars in thousands, except share amounts): Total Shares Issued Proceeds Balance, December 31, 2019 40,496 $ 202,549 January 2020 — — February 2020 14 70 March 2020 — — April 2020 — — May 2020 — — June 2020 — — July 2020 — — August 2020 — — September 2020 — — October 2020 — — November 2020 — — December 2020 — — Balance, December 31, 2020 40,510 $ 202,619 As of December 31, 2020, we had no outstanding binding purchase commitments for Series A Preferred Stock. There were no issuances of Series C Preferred Stock during the year ended December 31, 2020. As of December 31, 2020, we had no outstanding binding purchase commitments for Series C Preferred Stock. 44 Table of Contents The following tables present the activity in the Company's Series A Preferred Stock for the periods ended December 31, 2020 and December 31, 2019, respectively (dollars in thousands, except share amounts): Series A Preferred Stock Shares Amount Beginning Balance, December 31, 2019 40,500 $ 202,144 Issuance of Preferred Stock 14 70 Dividends paid in Preferred Stock 1 7 Offering costs — (23) Amortization of offering costs — 94 Ending Balance, December 31, 2020 40,515 $ 202,292 Series A Preferred Stock Shares Amount Beginning Balance, December 31, 2018 29,249 $ 145,786 Issuance of Preferred Stock 11,247 56,233 Dividends paid in Preferred Stock 4 24 Offering costs — — Amortization of offering costs — 101 Ending Balance, December 31, 2019 40,500 $ 202,144 The following table presents the activity in the Company's Series C Preferred Stock for the period ended December 31, 2020 and December 31, 2019, (dollars in thousands, except share amounts): Preferred C Stock Shares Amount Beginning Balance, December 31, 2019 1,400 $ 6,966 Issuance of Preferred Stock — — Dividends paid in Preferred Stock — — Offering costs (11) Amortization of offering costs — 7 Ending Balance, December 31, 2020 1,400 $ 6,962 Series C Preferred Stock Shares Amount Beginning Balance, December 31, 2018 — $ — Issuance of Preferred Stock 1,400 6,998 Dividends paid in Preferred Stock — — Offering costs — (33) Amortization of offering costs — 1 Ending Balance, December 31, 2019 1,400 $ 6,966 45 Table of Contents 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. Distributions on our common stock are payable when authorized and declared by our board of directors. Distribution payments are dependent on the availability of funds. Our board of directors may reduce the amount of distributions paid or suspend distribution payments at any time, and therefore, distributions payments are not assured. Dividends payable on each share of Series A and Series C Preferred Stock are generally equal to the quarterly dividend that would have been paid had such share of Preferred Stock been converted to a share of common stock, except to the extent common stock dividends have been reduced below certain specified levels. To the extent dividends on Preferred Shares are not authorized and declared by our board of directors and paid by the Company monthly, the dividend amounts will accrue. In April 2020, the Company’s board of directors unanimously approved a transition in the timing of the dividend payments to holders of the Company’s common stock from a monthly payment with daily accruals to a quarterly accrual and payment basis. Similarly, the Company began paying accrued and unpaid dividends on Preferred Stock on a quarterly basis. In November 2020, the Company’s board of directors declared the following fourth quarter 2020 dividends: (i) a quarterly cash dividend of $0.275 per common share (equivalent to $1.10 per annum) which was paid in January 2021 to holders of record on December 31, 2020, and (ii) a quarterly cash dividend per share of Preferred Stock equivalent to the amount of distributions that would have been paid upon a conversion of such share of Preferred Stock into common stock, which was paid in January 2021 to holders of record on December 31, 2020. The below table shows the distributions paid on shares outstanding of common stock, as well as the amount of shares of common stock issued upon reinvestment of distributions by stockholders under our DRIP during the years ended December 31, 2020 and 2019 (dollars in thousands): Year Ended December 31, 2020 Payment Date Amount Paid in Cash Amount Issued under DRIP January 2, 2020 $ 4,154 $ 1,211 February 5, 2020 4,177 1,210 March 2, 2020 3,919 1,130 April 1, 2020 5,413 — May 1, 2020 — — June 1, 2020 — — July 1, 2020 9,463 2,679 August 1, 2020 — — September 1, 2020 — — October 1, 2020 9,540 2,653 November 1, 2020 — — December 23, 2020 (1) 132 — Total $ 36,798 $ 8,883 _____________________ (1) Payment relates to second quarter dividend distributions which were recalculated as a result of the transition from a monthly payment with daily accruals to a quarterly payment and accrual basis. 46 Table of Contents Year Ended December 31, 2019 Payment Date Amount Paid in Cash Amount Issued under DRIP January 4, 2019 $ 3,576 $ 1,171 February 1, 2019 3,657 1,168 March 1, 2019 3,333 1,053 April 1, 2019 3,749 1,167 May 1, 2019 3,678 1,143 June 3, 2019 3,870 1,182 July 1, 2019 3,796 1,141 August 2, 2019 4,033 1,181 September 3, 2019 4,051 1,182 October 1, 2019 3,951 1,138 November 1, 2019 4,093 1,194 December 2, 2019 3,976 1,181 Total $ 45,763 $ 13,901 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, 2020 2019 Distributions: Cash distributions paid $ 36,798 $ 45,763 Distributions reinvested 8,883 13,901 Total Distributions $ 45,681 $ 59,664 Source of Distribution Coverage: Net Income $ 36,798 80.6 % $ 45,763 76.7 % Common stock issued under DRIP 8,883 19.4 % 13,901 23.3 % Total Sources of Distributions $ 45,681 100.0 % $ 59,664 100.0 % Net Income applicable to common stock (GAAP) $ 39,826 $ 66,914 Cash Flows Cash Flows for the Year Ended December 31, 2020 Net cash provided by operating activities for the year ended December 31, 2020 was $115.3 million. Cash inflows were primarily driven by net income of $54.7 million and net proceeds of $44.7 million related to originations of and proceeds from sales of commercial mortgage loans, measured at fair value. Net cash provided by investing activities for the year ended December 31, 2020 was $240.7 million. Cash inflows were primarily driven by proceeds from principal repayments of $1,228.2 million received on commercial mortgage loans, held for investment, proceeds received from the sale/repayment of real estate securities of $346.2 million, $77.2 million of proceeds received from the sale of commercial mortgage loans, held-for-sale and $22.5 million of proceeds received from sale of real estate owned assets. Inflows were partially offset by the origination and acquisition of $1,281.2 million of commercial mortgage loans and the purchase of real estate securities of $148.6 million. Net cash used in financing activities for the year ended December 31, 2020 was $373.0 million. Cash outflows were primarily driven by repayments on CLOs of $182.7 million, net payment on CMBS repurchase agreements of $207.5 million, $49.8 million in cash distributions to stockholders and $10.3 million of stock repurchases. Outflows were offset by $31.4 million of proceeds received from borrowing on other financing and loan participation for commercial mortgage loans, $11.7 million from borrowing on mortgage note payable and net proceeds of $23.8 million received from repurchase agreements on commercial mortgage loans. Cash Flows for the Year Ended December 31, 2019 Net cash provided by operating activities for the year ended December 31, 2019 was $45.4 million. Cash inflows were primarily driven by an increase in net income to $83.9 million, offset by net cash outflows of $45.5 million related to originations of and proceeds from sales of commercial mortgage loans, measured at fair value. 47 Table of Contents Net cash used in investing activities for the year ended December 31, 2019 was $969.2 million. Cash outflows were primarily driven by the origination and acquisition of $1,321.6 million of commercial mortgage loans and $369.9 million of CMBS. Outflows were offset by proceeds from principal repayments of $756.1 million received on commercial mortgage loans, held for investment and proceeds from sale of commercial mortgage loans, held-for-sale of $0.0 million. Net cash provided by financing activities for the year ended December 31, 2019 was $828.6 million. Cash inflows were primarily driven by: proceeds of $639.9 million from issuance of one CLO, BSPRT 2019-FL5; proceeds from net borrowing on the Repo Facilities of $103.1 million; proceeds from net borrowing on our CMBS MRAs of $349.8 million. Inflows were partially offset by the payment of $60.6 million in cash distributions to stockholders, $13.8 million of stock repurchases and repayments on CLOs of $343.2 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. Contractual Obligations and Commitments Our contractual obligations, excluding interest obligations (as amounts are not fixed or determinable), as of December 31, 2020 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) $ 59,692 $ 161,300 $ 7,700 $ — $ 228,692 Repurchase agreements - commercial mortgage loans 139,896 136,444 — — 276,340 Repurchase agreements - real estate securities 186,828 — — — 186,828 CLOs (2) — — — 1,639,227 1,639,227 Mortgage Note Payable — — — 29,167 29,167 Total $ 386,416 $ 297,744 $ 7,700 $ 1,668,394 $ 2,360,254 ________________________ (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 $267.1 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, 2020. Related Party Arrangements Benefit Street Partners L.L.C. Amended Advisory Agreement On January 19, 2018, the Company 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 the Company's board of directors, which consists solely of the Company’s independent directors, negotiated, approved and recommended that the board of directors approve, the amended Advisory Agreement. The Committee engaged independent legal counsel to assist the Committee in negotiating the amended Advisory Agreement. Pursuant to the amended Advisory Agreement, the Advisor provides 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 of directors. The initial term of the amended Advisory Agreement was three-years and was automatically renewed for an additional one-year period on January 19, 2021 and will continue to automatically renew for additional one-year periods unless either party elects not to renew. 48 Table of Contents 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. 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. Advisory Agreement Fees and Reimbursements Pursuant to the Advisory Agreement, the Company is 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 stockholders' 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, the 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 the Advisor exceed 10.0% of the aggregate total return for such year. • 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. Investment in Common and Preferred Stock Refer to Note 9 - 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”), as well as members of the Company's board of directors, have acquired common stock and Series A and Series C Convertible 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. 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 On February 22, 2018, the Company purchased commercial mortgage loans from an entity that is an affiliate of the Company's 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 independent directors of 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, recorded as held for investment, were fully paid down during the year ended December 31, 2020. Lending Agreement with Stockholder Pursuant to a lending and security agreement with Security Benefit Life Insurance Company ("SBL"), which was entered into in February 2020 and amended in March and August 2020, the Company may borrow up to $100.0 million at a rate of one-month LIBOR + 4.5%. The facility has a maturity of February 10, 2023 and is secured by a pledge of equity interests in certain of the Company’s subsidiaries. SBL also holds 14,950 of the Company’s outstanding shares of Series A Preferred Stock. The Company incurred $0.2 million interest expense on the lending agreement with SBL for the year ended December 31, 2020. As of December 31, 2020 there was no outstanding balance under the lending agreement. 49 Table of Contents The table below shows the costs incurred due to arrangements with our Advisor and its affiliates during the years ended December 31, 2020, 2019 and 2018 and the associated amounts payable as of December 31, 2020 and 2019 (dollars in thousands). See Note 11 - Related Party Transactions and Arrangements for further detail. Year Ended December 31, Payable as of December 31, 2020 2019 2018 2020 2019 Acquisition expenses (1) 696 900 452 — 225 Administrative services expenses 13,120 16,363 13,446 2,940 1,238 Asset management and subordinated performance fee 15,178 16,226 10,299 4,773 3,326 Other related party expenses (2)(3) 703 1,610 1,259 1,812 — Total related party fees and reimbursements $ 29,697 $ 35,099 $ 25,456 $ 9,525 $ 4,789 ______________________ (1) Total acquisition fees and expenses paid during the years ended December 31, 2020, 2019 and 2018 were $7.1 million, $8.4 million and $8.1 million respectively, of which $6.4 million, $7.5 million and $7.6 million were capitalized within the commercial mortgage loans, held for investment line of the consolidated balance sheets for the years ended December 31, 2020, 2019 and 2018. (2) These are related to reimbursable costs incurred for the increase in loan origination activities and are included in Other expenses in the Company's consolidated statements of operations. (3) The related party payable includes $1.8 million of payments made by the Advisor to third party vendors on behalf of the Company. The amounts payable as of December 31, 2020 and 2019 in the table above are included in Due to affiliates on the Company's consolidated balance sheets. Off Balance Sheet Arrangements We currently have no off balance sheet arrangements as of December 31, 2020 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 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. In addition, we believe MFFO is a useful financial metric for shareholders as historically, over time, MFFO has been a strong indicator of our distributions per share and is a metric we consider in declaring our distributions. As a REIT, we generally must distribute annually at least 90% of our net taxable income, and distributions are one of the principal reasons shareholders invest in our common stock. 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 F ebruary 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 certain real estate assets, gains or losses from change in control and impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity, depreciation and amortization related to real estate and after adjustments for unconsolidated partnerships and joint ventures on the same basis. Our business plan is to operate as a mortgage REIT with our portfolio consisting of com mercial mortgage loan investments, investments in real estate securities and real estate owned assets. 50 Table of Contents 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. 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 credit 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 credit losses inherent in our portfolio at the reporting date and, where appropriate, a specific allowance for credit 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 securities which have experienced a decline in fair value below their amortized cost basis (i.e., impairment) are evaluated each reporting period to determine whether the decline in fair value is due to credit-related factors. Credit-related impairment is recognized as an allowance on the consolidated balance sheets with a corresponding adjustment on the consolidated statements of operations. 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 credit 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 credit losses or impairment of real estate securities recorded may be difficult to recover. 51 Table of Contents 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, 2020, December 31, 2019 and December 31, 2018 (dollars in thousands): Year Ended December 31, 2020 2019 2018 Funds From Operations: Net income $ 54,746 $ 83,924 $ 52,825 Impairment losses on real estate owned assets 398 — — Depreciation and amortization 2,233 — — Funds from operations $ 57,377 $ 83,924 $ 52,825 Modified Funds From Operations: Funds from operations $ 57,377 $ 83,924 $ 52,825 Amortization of premiums, discounts and fees on investments, net (5,999) (6,144) (4,572) Acquisition fees and acquisition expenses 696 900 452 Unrealized (gain)/loss on financial instruments 1,102 (2,081) 1,611 Provision/(benefit) for credit losses 13,296 3,007 3,370 Modified funds from operations (1) $ 66,472 $ 79,606 $ 53,686 ____________________________ (1) Modified funds from operations for the year ended December 31, 2020 includes a non-cash charge of $4.5 million related to the call of BSPRT 2017 - FL2 CLO on January 15, 2020. Excluding the non-cash charge modified funds from operations would be $71.0 million for the year ended December 31, 2020. Modified funds from operations for year ended December 31, 2019 includes a non-cash charge of $4.5 million related to the call of BSPRT 2017 - FL1 CLO on April 15, 2019. Excluding this non-cash charge, modified funds from operations would have been $84.1 million. Modified funds from operations for year ended December 31, 2018 includes a non-cash charge of $6.4 million related to the call of RFT 2015-FL1 CLO on February 15, 2018. Excluding this non-cash charge, modified funds from operations would have been $60.1 million.