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Item 7. Management’s Discussion and Analysis

2023-03-16 compared with 2022-02-25 · 355 added, 339 removed, 514 unchanged (57% of the section changed)

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the notes thereto and other financial information included elsewhere in this Annual Report on Form 10-K.

As used herein, the terms "the Company," "we," "our" and "us" refer to Franklin BSP Realty Trust, Inc., a Maryland corporation and, as required by context, to Benefit Street Partners Realty Operating Partnership, L.P., a Delaware limited partnership, which we refer to as the "OP," and to its subsidiaries.

We are externally managed by Benefit Street Partners L.L.C.

(our "Advisor").

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.”

The Company is a Maryland corporation and has made tax elections to be treated as a REIT for U.S.

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 on Form 10-K entitled “Risk Factors” and “Forward-Looking Statements.”

The Company is a Maryland corporation and has made tax elections to be treated as a real estate investment trust ("REIT") for U.S.

federal income tax purposes since 2013.

The Company, through one or more subsidiaries which are each treated as a TRS, is indirectly subject to U.S.

The Company, through one or more subsidiaries which are each treated as a taxable REIT subsidiary ("TRS"), is indirectly subject to U.S.

federal, state and local income taxes.

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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.

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The Company has no employees.

We are managed by our Advisor pursuant to an Advisory Agreement, as amended on August 18, 2021 (the "Advisory Agreement").

We are managed by our Advisor pursuant to an Advisory Agreement (the "Advisory Agreement").

Our Advisor manages our affairs on a day-to-day basis.

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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, which event did not impact the terms of the Advisory Agreement or result in any changes to the executive officers of the Company.

The Advisor is a wholly-owned subsidiary of Franklin Resources, Inc., which together with its various subsidiaries operates as "Franklin Templeton".

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 originates conduit loans which the Company intends to sell through its TRS into commercial mortgage-backed securities ("CMBS") securitization transactions at a profit.

Historically this business has focused primarily on CMBS, commercial real estate collateralized loan obligation bonds ("CRE CLO bonds"), collateralized debt obligations ("CDOs") and other securities.

As a result of the October 2021 acquisition of Capstead Mortgage Corporation ("Capstead"), the Company acquired a portfolio of residential mortgage-backed securities ("RMBS") in the form of residential adjustable-rate mortgage pass-through securities ("ARM Agency Securities" or "ARMs") issued and guaranteed by government-sponsored enterprises or by an agency of the federal government.

Although the Company continues to hold a small portion of this portfolio it does not intend to do so long-term and intends to reinvest proceeds from the remaining portion of the portfolio in its other businesses.

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, RMBS and CDOs.

The Company also owns real estate acquired by the Company through foreclosure and deed in lieu of foreclosure, and purchased for investment, typically subject to triple net leases.

Impact of the Capstead Acquisition

As further described in Note 18 - Merger with Capstead, on October 19, 2021, the Company completed a merger with Capstead Mortgage Corporation (“Capstead”) pursuant to which Capstead merged into a wholly-owned subsidiary of the Company, and the Company’s common stock commenced trading on the NYSE under the ticker “FBRT”.

The Capstead assets acquired in the merger consist primarily of cash and residential adjustable-rate mortgage pass-through securities issued and guaranteed by government-sponsored enterprises or by an agency of the federal government ("ARM Agency Securities").

The Company intends to reinvest the cash and proceeds from dividends, interest, repayments and sales of the assets acquired in the merger into its own investment strategies.

The Capstead acquisition resulted in the following material impacts on our financial results for the year and quarter ended December 31, 2021:

• Impairment of acquired assets:

Pursuant to Accounting Standards Codification Topic 805, “Business Combinations,” the Company accounted for the transaction as an asset acquisition since substantially all of the fair value of the gross assets acquired was concentrated in a group of similar identifiable assets, a portfolio of agency mortgage-backed securities.

The Company measured the cost of the net identifiable assets acquired on the basis of the fair value of the consideration given, inclusive of transaction costs, which was determined to be more reliably measurable.

As the cost of the acquisition exceeded the fair value of the net identifiable assets acquired, the Company allocated the difference on the basis of relative fair values to certain assets which were not carried at fair value.

The amount of excess consideration, including the Company's transaction costs, was capitalized on the balance sheet as a long-lived asset at the time of acquisition.

In the fourth quarter of 2021, the Company concluded the long-lived asset had no potential value to the generation of future cash flows and fully impaired the asset, recognizing an expense totaling $88.3 million in the consolidated statements of operations .

• Trading losses:

Since the Company does not intend to hold the ARM Agency Securities acquired in the Capstead merger for long-term investment, the assets are treated as “classified as trading” for accounting purposes.

As a result, these assets are recorded at fair value on the balance sheet with trading gains and losses on the paydowns and sales of these securities recorded in the Company's consolidated statements of operations.

For the quarter ended December 31, 2021, the Company recognized a trading loss of $34.8 million related to these assets.

As long as the Company holds a significant amount of the ARM Agency Securities acquired in the Capstead merger, the Company’s future results of operations will continue to be impacted by trading gains and losses related to this portfolio, and such impacts could be adverse and material.

As of December 31, 2021, the value of the Company’s ARM Agency Securities portfolio was $4.6 billion.

As of February 18, 2022, the value of the Company's ARM Agency Securities portfolio was $2.4 billion.

The reduction in the value of the ARM Agency Securities portfolio from January 1, 2022 to February 18, 2022 is due in part to (i) $265 million of principal payments and (ii) $1.8 billion of sales.

From January 1, 2022 to February 18, 2022, the Company experienced losses of $38 million related to the ARM Agency Securities portfolio as a result of net trading losses totaling $59.5 million related to principal paydowns, changes in market price and losses on sales of securities, net of portfolio-related derivative gains of $21.5 million.

During 2022, the Company recognized trading losses on RMBS totaling $119.2 million related to principal paydowns, changes in market price and losses on sales, net of portfolio-related derivative gains of $37.9 million for a total loss of $81.3 million related to the ARM Agency Securities portfolio.

Given that the Capstead portfolio has been almost entirely liquidated and that we do not intend to continue to invest in ARM Agency Securities, we do not believe these 2022 trading losses are indicative of our future results.

Book Value Per Share

The following table calculates our book value per share as of December 31, 2021 ($ in thousands, except per share data):

The following table calculates our book value per share as of December 31, 2022 and 2021 (dollars in thousands, except per share data):

December 31, 2022 December 31, 2021

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Common stock 82,479,743 43,951,382

Restricted stock 14,546 15,555

Total outstanding 43,965,928 44,510,051

Restricted stock and restricted stock units 513,041 14,546

Total outstanding shares 82,992,784 43,965,928

Book value per share $ 15.72 $ 16.75

The following table calculates our fully-converted book value per share as of December 31, 2021 ($ in thousands, except per share data):

The following table calculates our fully-converted book value per share as of December 31, 2022 and 2021 (dollars in thousands, except per share data):

December 31, 2022 December 31, 2021

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Common stock 82,479,743 43,951,382

Restricted stock 14,546 15,555

Series A convertible preferred stock — 12,122,088

Restricted stock and restricted stock units 513,041 14,546

Series H convertible preferred stock 5,370,640 —

Series I convertible preferred stock 299,200 —

Series C convertible preferred stock — 418,880

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Series F convertible preferred stock — 39,733,299

Total outstanding 89,488,747 57,051,019

Total outstanding shares 88,662,624 89,488,747

Fully-converted book value per share (1) (2)

$ 15.78 $ 17.25

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(1) Fully-converted book value per share reflects full conversion of our Series H and Series I convertible preferred stock and vesting of our outstanding equity compensation awards.

(2) Excluding the amounts for accumulated depreciation and amortization of real property of $5.2 million and $1.0 million as of December 31, 2022 and 2021, respectively, would result in a fully-converted book value per share of $15.84 and $17.26 as of December 31, 2022 and 2021, respectively.

Critical Accounting Estimates

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Credit Losses - Estimating 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 provision 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 provision 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 provision 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 provision 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”).

In measuring the provision 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 provision 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 2018 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.

In developing the provision 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 provision 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.

The cost recovery method will no longer apply if collection of all principal and interest is reasonably assured.

A loan may be placed back on accrual status if we determine it is probable that we will collect all payments which are contractually due.

The Company designates loans as non-performing when (i) full payment of principal and coupon interest components become 90-days past due ("non-accrual status");

or (ii) the Company has reasonable doubt as to whether the collection of contractual components can be satisfied ("cost recovery status").

When a loan is designated as non-performing and placed on non-accrual status, interest is only recognized as income when payment has been received.

Loans designated as non-performing and placed on non-accrual status are removed from their non-performing designation when collection of principal and coupon interest components have been satisfied.

When a loan is designated as non-performing and placed on cost recovery status, the cost-recovery method is applied to which receipt of principal or coupon interest is recorded as a reduction to the amortized cost until collection of all contractual components are reasonably assured.

Real Estate Owned - Estimating Fair Value and Holding Period

Real estate owned assets are carried at their estimated fair value at acquisition and presented net of accumulated depreciation and impairment charges.

Real estate owned assets, held for investment 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.

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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 are measured at the lower of its carrying amount or fair value less cost to sell.

Real estate owned assets classified as held for sale are measured at the lower of its carrying value or estimated fair value less cost to sell.

Real estate owned assets are not depreciated or amortized while classified as held for sale.

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Real Estate Securities - Estimating Fair Value

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.

On the acquisition date, all of our real estate securities will be classified as available for sale ("AFS") 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.

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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.

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.

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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 are not evaluated for other-than-temporary impairment as changes in fair value are recorded in our consolidated statement of operations.

Real estate securities for which the fair value option has been elected are not evaluated for other-than-temporary impairment as changes in fair value are recorded in our consolidated statement of operations.

Real Estate Securities - Classified As Trading - Estimating Fair Value

In the merger with Capstead, we acquired a portfolio of ARM Agency Securities classified as trading and recorded at fair value on the balance sheet with trading gains and losses on the paydowns and sales of these securities recorded in the Company's consolidated statements of operations.

In the merger with Capstead, we acquired a portfolio of ARM Agency Securities classified as trading and recorded at fair value on the balance sheet with trading gains and losses due to fair value changes and sales of these securities recorded in the Company's consolidated statements of operations.

Fair values fluctuate with current and projected changes in interest rates, prepayment expectations and other factors such as market liquidity conditions and the perceived credit quality of agency securities.

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• The real estate securities business focuses on investing in and asset managing real estate securities.

Historically this business has focused primarily on CMBS, unsecured REIT debt, CDO notes and other securities.

As a result of the October 2021 acquisition of Capstead, the Company acquired and continues to hold a significant portfolio of Residential Mortgage Backed Securities (“RMBS”) in the form of the ARM Agency Securities.

The Company intends to reinvest the cash and proceeds from dividends, interest, repayments and sales of these assets into its other segments and does not intend to continue to invest in ARM Agency Securities or RMBS in general.

As of December 31, 2021, all of the real estate securities in this segment were ARM Agency Securities acquired in the Capstead acquisition.

• 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.

Historically this business has focused primarily on CMBS, CRE CLO bonds, CDO notes and other securities.

As a result of the October 2021 acquisition of Capstead, the Company acquired a portfolio of ARM Agency Securities.

• The conduit business operated through the Company's TRS, which is focused on generating risk-adjusted returns by originating and subsequently selling fixed-rate commercial real estate loans into the CMBS securitization market at a profit.

• The real estate owned business represents real estate acquired by the Company through foreclosure, deed in lieu of foreclosure, or purchase.

In addition, as described above in “Impact of the Capstead Acquisition”, the Company's results of operations were materially impacted by the asset impairment related to the Capstead merger and trading losses and decreases in the values of the assets acquired in the transaction from acquisition date to December 31, 2021.

Net Interest Income

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(2) Includes the effect of amortization of premium or accretion of discount and deferred fees.

The RMBS securities acquired in the Capstead merger are classified as trading and use the simple interest method to calculate interest income therefore no premium amortization is recognized on these securities.

(3) Calculated as interest income or expense divided by average carrying value.

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Interest income for the years ended December 31, 2022 and 2021 totaled $357.7 million and $216.9 million, respectively.

As of December 31, 2021, our portfolio consisted of 165 commercial mortgage loans, one commercial mortgage loan, held for sale, measured at fair value, RMBS securities acquired in the merger with Capstead and no investments in CMBS.

The main driver in the increase in interest income was due to the higher average carrying value of interest-earning assets during the year ended December 31, 2021.

This increase was primarily due to an increase of $2.1 billion in the average carrying value of our interest-earning assets and an approximate 160 basis point increase in daily average LIBOR/SOFR rates.

As of December 31, 2022, our portfolio consisted of (i) 161 commercial mortgage loans, held for investment, (ii) two commercial mortgage loans, held for sale, measured at fair value, (iii) seven investments in CRE CLO bonds and (iv) 202 RMBS investments.

Interest Expense

Interest expense for the year ended December 31, 2021 decreased to $60.8 million compared to interest expense for the year ended December 31, 2020 of $66.6 million.

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

Interest expense for the years ended December 31, 2022 and 2021 totaled $165.7 million and $60.8 million, respectively.

This increase was primarily due to an increase of $1.7 billion in the average carrying value of our interest-bearing liabilities and an approximate 160 basis point increase in daily average LIBOR/SOFR rates.

Provision/Benefit for Credit losses - CECL allowance, net

Provision for credit losses for the year ended December 31, 2022 was $36.1 million compared to a benefit of $5.2 million for the year ended December 31, 2021, which represents an increase of $41.3 million.

The increase is primarily due to (i) $16.0 million higher general provision for credit losses in 2022 compared to 2021, due to the increase in the total carrying value of our portfolio and a more pessimistic view of the macroeconomic scenario utilized for the CECL model as well as (ii) a $25.3 million of specific provision for credit losses during 2022 related to a loan secured by a portfolio of twenty-four properties that are net leased, as more fully described in "Part I, Item 3.

Legal Proceedings".

There was no specific provision for credit losses in 2021.

Realized Gain/Loss on Real Estate Owned Assets, Held for Sale

Realized gain on the sale of two real estate owned assets, held for sale, located in Jeffersonville, IN and Kansas City, MO amounted to $9.8 million for the year ended December 31, 2021.

There were no sales of real estate owned assets, held for sale, for the year ended December 31, 2022.

Realized Gain/Loss on Commercial Mortgage Loans, Held for Sale, measured at Fair Value

Realized gain on commercial mortgage loans held for sale, measured at fair value at the TRS for the year ended December 31, 2022 was $2.4 million compared to $24.2 million for the year ended December 31, 2021.

The $8.3 million increase in realized gain was due to higher sales volumes in our conduit business segment with total proceeds of $478.3 million from the sale of fixed-rate commercial real estate loans into the CMBS securitization market during the year ended December 31, 2021 compared to transactions with total proceeds of $328.1 million for the year ended December 31, 2020.

Realized Gain/Loss on Real Estate Securities Available for Sale

For the year ended December 31, 2021 sales of our real estate securities, available for sale, measured at fair value resulted in a net realized loss of $1.4 million included within the consolidated statements of operations.

The loss is attributable to nine CMBS securities sold during the year ended December 31, 2021.

For the year ended December 31, 2020 sales of our real estate securities, available for sale, measured at fair value resulted in a net realized loss of $10.1 million included within the consolidated statements of operations.

The loss was 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.

Unrealized Gain/Loss on Real Estate Securities Available for Sale

For the year ended December 31, 2021 our real estate securities, available for sale, measured at fair value had an unrealized gain of $8.3 million included within the consolidated statements of comprehensive income.

The increase in fair value of real estate securities can be attributed to the reversal of the unrealized losses on the nine CMBS sales during the year ended December 31, 2021.

The $21.8 million decrease in realized gain was primarily due to the difference in proceeds received between the $368.9 million of total sales of five fixed-rate commercial real estate loans into the CMBS securitization market during the year ended December 31, 2022 compared to the $453.6 million total sales of five such loans during the year ended December 31, 2021.

Total proceeds received for the year ended December 31, 2022 were $370.2 million compared to $478.3 million for the year ended December 31, 2021.

Unrealized Gain/Loss on Commercial Mortgage, Loans Held for Sale, measured at Fair Value

Unrealized loss on commercial mortgage loans, held for sale, measured at fair value, at the TRS for the year ended December 31, 2022 was $0.5 million compared to an unrealized gain of $0.5 million for the year ended December 31, 2021.

The $1.0 million increase in loss primarily resulted from the reversal of unrealized gain/loss due to the sale of fixed-rate commercial real estate loans into the CMBS securitization.

Trading Gain/Loss

For the year ended December 31, 2021 we had a realized trading loss of $34.8 million included within the consolidated statements of operations.

The loss is attributable to $20.9 million of losses due to change in market values of the ARM Agency Securities and $14.0 million of losses due to mortgage prepayments, net of $0.1 million in realized gains on sales of securities.

Trading loss for the year ended December 31, 2022 of $119.2 million is attributable to principal paydowns, changes in market values and losses on sales of ARM Agency Securities.

For the year ended December 31, 2021 we had a trading loss of $36.1 million included within the consolidated statements of operations.

The loss was primarily attributable to principal paydowns, changes in market values and losses on sales of ARM Agency Securities coupled with $1.4 million in losses attributable to nine CRE CLO bonds sold during the year ended December 31, 2021.

Net Result from Derivative Transactions

Net result from derivative transactions for our ARMs portfolio for the year ended December 31, 2022 of $44.2 million is composed of a realized gain of $60.0 million partially offset by an unrealized loss of $15.8 million primarily due to termination and settlement of our interest rate swap positions throughout the year.

This is compared to a net result on our derivative portfolio of $7.9 million composed of a realized gain of $0.5 million primarily due to termination and settlement of our interest rate swap positions coupled with an unrealized gain of $7.4 million primarily due to increasing values on our interest rate swap portfolio.

Provision/Benefit for Income Tax

Benefit for income tax for the year ended December 31, 2022 was $0.4 million compared to provision for income tax of $3.6 million for the year ended December 31, 2021.

The difference is due to change in taxable income/(loss) at our TRS.

Net Income/Loss Attributable to Noncontrolling Interest

Net loss attributable to noncontrolling interest in our consolidated joint ventures for the year ended December 31, 2022 amounted to $0.2 million.

Expenses from Operations

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Professional fees 22,566 11,650

Share-based compensation expense 2,519 —

Real estate owned operating expenses — —

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Total expenses from operations $ 77,510 $ 142,956

The increase in our expenses from operations was primarily related to impairment of acquired assets and higher asset management and subordinated performance fees.

The increase in impairment of acquired assets and asset management and subordinated performance fees were all due to the merger with Capstead during the year ended December 31, 2021.

Refer to “Impact of the Capstead Acquisition” above for a discussion of the impairment of acquired assets.

The decrease in administrative services expenses was primarily driven by a greater amount of originations during the year and therefore higher acquisition fees paid to our Advisor, which reduced the administrative services expenses for the year ended December 31, 2021, compared to the year ended December 31, 2020.

The decrease of $3.7 million in real estate owned operating expenses was due to the sale of an owned office property during the year ended December 31, 2020 and the fact our remaining owned property, an industrial property, is leased on a triple-net basis.

The decrease in our expenses from operations was primarily related to impairment of acquired assets, all due to the merger with Capstead during the year ended December 31, 2021.

This decrease is partially offset by professional fees, which increased due to legal costs incurred associated with the ongoing recovery efforts related to a hotel loan and the retail loan placed on non-performing status.

Additionally, there were higher administrative services expenses due to an increase in operational activity for The Company.

There was also an increase in depreciation and amortization expense which was primarily due to a full year of expenses related to one real estate owned asset during the year December 31, 2022, compared to only one quarter of expenses from the same real estate owned asset during the year December 31, 2021 as this asset was acquired during September 2021.

Lastly, the increase in our other operating expenses is primarily due to an increase in our equity base size of our investment vehicles.

Comparison of the Three Months Ended December 31, 2022 to the Three Months Ended September 30, 2022

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Real estate conduit 46,858 2,363 20.2 % 103,641 1,386 5.4 %

Real estate securities 3,482,245 24,279 2.8 % — — N/A

Real estate securities 407,699 4,779 4.7 % 266,388 1,648 2.5 %

Total $ 5,715,761 $ 118,103 8.3 % $ 5,564,806 $ 94,131 6.8 %

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(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.

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Interest income for the three months ended December 31, 2022 and September 30, 2022 totaled $118.1 million and $94.1 million, respectively.

The main driver in the increase in interest income was due to the higher average carrying value of interest-earning assets during the three months ended December 31, 2021, directly related to the merger with Capstead.

This increase was primarily due to an increase of $151.0 million in the average carrying value of our interest-earning assets and an approximate 140 basis point increase in daily average LIBOR/SOFR rates.

Interest Expense

Interest expense for the three months ended December 31, 2021 increased to $24.8 million compared to interest expense for the three months ended September 30, 2021 of $12.0 million.

The increase in interest expense was due to the increase of $627.9 million in repurchase agreements on commercial mortgage loans and an increase of $3,187.1 million in repurchase agreements on real estate securities during the three months ended December 31, 2021, compared to the three months ended September 30, 2021.

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 three months ended December 31, 2021 was $2.0 million compared to $9.1 million for the three months ended September 30, 2021.

The $7.1 million decrease in realized gain was due to the fact that there had been one sale of fixed-rate commercial real estate loans into the CMBS securitization market during the three months ended December 31, 2021 compared to two sales during the three months ended September 30, 2021.

Proceeds from sale were $67.1 million for the three months ended December 31, 2021 compared to $154.0 million for the three months ended September 30, 2021.

Interest expense for the three months ended December 31, 2022 and September 30, 2022 totaled $64.3 million and $46.2 million, respectively.

This increase was primarily due to an increase of $98.4 million in the average carrying value of our interest-bearing liabilities and an approximate 140 basis point increase in daily average LIBOR/SOFR rates.

Provision/Benefit for Credit losses - CECL allowance, net

Provision for credit losses for the three months ended December 31, 2022 was $5.1 million compared to a benefit of $0.6 million for the three months ended September 30, 2022, an increase of $5.7 million.

The increase is primarily due to (i) $7.2 million higher general provision for credit losses in the fourth quarter compared to third quarter of 2022, due to the increase in the total carrying value of our portfolio and a more pessimistic view of the macroeconomic scenario utilized for the CECL model, partially offset by (ii) $1.5 million reversal of the specific provision for credit losses in the fourth quarter compared to third quarter of 2022 due to cost recovery proceeds related to the Walgreens properties.

Realized Gain/Loss on Commercial Mortgage Loans, Held for Sale, measured at Fair Value

Realized loss on commercial mortgage loans held for sale, measured at fair value at the TRS for the three months ended December 31, 2022 was $2.5 million compared to a realized gain of $4.8 million for the three months ended September 30, 2022.

The $7.3 million decrease is primarily due to the difference in proceeds received between the one $52.5 million sale of fixed-rate commercial real estate loans into the CMBS securitization market during the three months ended December 31, 2022 compared to the one $78.5 million sale during the three months ended September 30, 2022.

Total proceeds received for the three months ended December 31, 2022 were $50.0 million compared to $82.3 million for the three months ended September 30, 2022.

Unrealized Gain/Loss on Commercial Mortgage Loans, Held for Sale, measured at Fair Value

Unrealized gain on commercial mortgage loans, held for sale, measured at fair value, at the TRS for the three months ended December 31, 2022 was $3.2 million compared to $0.1 million for the three months ended September 30, 2022.

The $3.1 million increase is primarily resulting from the reversal of unrealized gain/loss on sale due to the fixed-rate commercial real estate loans into the CMBS securitization.

Trading Gain/Loss

For the three months ended December 31, 2021 we had a realized trading loss of $34.8 million included within the consolidated statements of operations.

Trading loss for the three months ended December 31, 2022 was $5.5 million compared to $2.7 million for the three months ended September 30, 2022.

The increase of $2.8 million is primarily attributable to losses due to changes in market values of the ARM Agency Securities.

Net Result from Derivative Transactions

Net result from derivative transactions for three months ended December 31, 2022 of a $0.6 million loss is composed of a realized gain of $2.4 million offset by an unrealized loss of $3.0 million primarily due to termination and settlement of our interest rate swap positions throughout the quarter.

This is compared to a realized loss of $1.6 million offset by an unrealized gain of $1.6 million for the three months ended September 30, 2022 primarily due to termination and settlement of our interest rate swap positions despite increasing values on our interest rate swap portfolio.

Provision/Benefit for Income Tax

Benefit for income tax for the three months ended December 31, 2022 was $0.7 million compared to provision for income tax of $0.4 million for the three months ended September 30, 2022.

The difference is due to change in taxable income/(loss) at our TRS.

Net Income/Loss Attributable to Noncontrolling Interest

Net loss attributable to noncontrolling interest in our consolidated joint ventures for the three months ended December 31, 2022 amounted to $0.2 million.

Expenses from Operations

5 unchanged sentences

Administrative services expenses 3,526 3,001

Impairment of acquired assets 88,282 —

Professional fees 4,278 4,743

Share-based compensation expense 669 —

Depreciation and amortization 1,522 1,295

1 unchanged sentence

Total expenses from operations $ 18,463 $ 17,255

The increase in our expenses from operations was primarily related to impairment of acquired assets and higher asset management and subordinated performance fees.

The increase in impairment of acquired assets and asset management and subordinated performance fees were all due to the merger with Capstead during the three months ended December 31, 2021.

Refer to “Impact of the Capstead Acquisition” above for a discussion of the impairment of acquired assets.

The decrease in administrative services expenses was primarily driven by the year-end adjustment to such expenses during the three months ended December 31, 2021, compared to the three months ended September 30, 2021.

The increase in depreciation and amortization expense was due to $1.3 million of expenses incurred on one real estate owned assets during the three months ended December 31, 2021, compared to no such expenses incurred during the three months ended September 30, 2021.

The overall increase in our expenses from operations is primarily related to an increase in administrative services expenses due to higher Advisor personnel costs during the fourth quarter of 2022, an increase in depreciation and amortization expense due to the ten retail properties related to the Walgreens loan that were acquired through foreclosures during the three months ended December 31, 2022 and higher share-based compensation expense due to RSUs granted to management during the year.

Comparison of the Year Ended December 31, 2021 to the Year Ended December 31, 2020

See Part II, Item 7.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the Securities and Exchange Commission on March 11, 2021, for a discussion of the comparison of the year ended December 31, 2020 to the year ended December 31, 2019.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission on February 25, 2022, for a discussion of the comparison of the year ended December 31, 2021 to the year ended December 31, 2020.

As of December 31, 2022 and 2021, our portfolio consisted of 161 and 165 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, 2022 and December 31, 2021 had a total carrying value, net of allowance for credit losses, of $5,228.9 million and $4,211.1 million, respectively.

As of December 31, 2021 and 2020 the Company's total commercial mortgage loans, held for sale, measured at fair value comprised of one loan with total fair value of $34.7 million and three loans with total fair value of $67.6 million, respectively.

As of December 31, 2021, we had no real estate securities, available for sale, compared to real estate securities, available for sale, at fair value comprised of nine CMBS investments with total fair value of $171.1 million, as of December 31, 2020.

As of December 31, 2021 and December 31, 2020, our other real estate investments, measured at fair value, were comprised one investment with a total fair value of $2.1 million and $2.5 million, respectively.

As of December 31, 2021 and December 31, 2020, our real estate owned portfolio comprised one industrial property and one office property, respectively with carrying values of $90.0 million and $26.5 million, respectively.

As of December 31, 2021, we had two loans with unpaid contractual principal balance for a total carrying value of $114.0 million, one with interest past due for greater than 90 days and the other which is current.

We did not take any asset specific reserves for these loans.

As of December 31, 2020, 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, 2021 and 2020, our commercial mortgage loans, excluding commercial mortgage loans accounted for under the fair value option, had a weighted average coupon of 4.3% and 5.5%, and a weighted average remaining life of 2.1 years and 1.7 years, respectively.

As of December 31, 2020, our CMBS investments had a weighted average coupon of 2.2%, and a weighted average remaining life of 12.8 years.

As of December 31, 2022 and 2021 our total commercial mortgage loans, held for sale, measured at fair value, composed of two loans with total fair value of $15.6 million and one loan with total fair value of $34.7 million, respectively.

As of December 31, 2022 and 2021 we had real estate securities, trading, measured at fair values of $235.7 million and $4.6 billion, respectively, due to the Company's progress in selling down the ARM Agency Securities portfolio acquired from Capstead.

As of December 31, 2022, we had $221.0 million of real estate securities, available for sale, measured at fair value.

As of December 31, 2021, our other real estate investments, measured at fair value, was composed of one investment with a total fair value of $2.1 million.

As of December 31, 2022 and 2021, our real estate owned, held for investment composed of eleven and one investments, respectively with carrying values of $127.8 million and $90.0 million, respectively.

As of December 31, 2022, we had two properties classified as real estate owned, held for sale with a combined fair value of $36.5 million.

As of December 31, 2022, we had two loans with a total amortized cost basis of $117.4 million designated as non-performing status.

One loan is for a hotel property located in New York, NY, which was placed on non-accrual status in 2019 and had an amortized cost basis of $57.1 million as of December 31, 2022.

No specific provision for credit losses has been recorded on the loan.

The Company did not recognize any interest income on the non-accrual loan during the twelve months ended December 31, 2022.

The second loan relates to a commercial mortgage loan with a fully funded outstanding principal balance of $63.6 million collateralized by a portfolio of Walgreens retail properties in various locations throughout the United States.

The loan was evaluated in accordance with ASC 310 - Receivables and was determined to be a TDR.

As of December 31, 2022, the Company has recorded a specific provision for credit losses of $14.2 million on this loan.

Further, the Company designated the loan as non-performing and placed the loan on cost recovery status by ceasing the recognition of interest income.

As of December 31, 2022, the Company has received $8.0 million in cost recovery, which reduced the amortized cost of the loan.

During the year ended December 31, 2022, the net change in specific reserve was due to cost recovery proceeds received during the year, offset by a wider cap rate on the assumed value of the assets.

As of December 31, 2022, the amortized cost of the loan was $46.1 million, net of the specific allowance for credit losses.

See "Part I, Item 3.

Legal Proceedings" of this Annual Report on Form 10-K for more information about this loan and related litigation.

Future developments related to these non-performing loans could have a material impact on our future results.

As of December 31, 2022 and 2021, our commercial mortgage loans, held for investment excluding commercial mortgage loans on non-performing status, had a weighted average coupon of 8.3% and 4.3%, and a weighted average remaining life of 1.4 years and 2.1 years, respectively.

As of December 31, 2022, the value of the Company’s residential ARM Agency Securities portfolio was $235.7 million, compared to $4.6 billion as of December 31, 2021.

The reduction in the value of this portfolio during the twelve months ended December 31, 2022, is due in part to (i) $480.2 million of principal paydowns, (ii) $3.8 billion of sales and (iii) $119.2 million of trading losses related to principal paydowns, changes in market values, and sales of these securities.

The following charts summarize our commercial mortgage loans, held for investment, by coupon rate type, collateral type and geographical region as of December 31, 2022 and 2021:

(1) Regions included:

New England, Plains, Rocky Mountain

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

6 unchanged sentences

Senior Debt 2 Hospitality 57,075 1 month LIBOR + 5.19% 9.58% 51.8%

Senior Debt 3 Multifamily 26,568 1 month LIBOR + 4.50% 5.50% 22.4%

Senior Debt 4 Hospitality 22,150 1 month LIBOR + 6.00% 6.50% 48.1%

Senior Debt 5 Office 6,901 1 month LIBOR + 5.15% 6.60% 56.4%

Senior Debt 6 Multifamily 36,822 1 month LIBOR + 3.00% 3.80% 63.7%

Senior Debt 7 Multifamily 37,025 1 month LIBOR + 3.00% 4.50% 83.6%

Senior Debt 8 Hospitality 22,355 1 month LIBOR + 3.50% 4.80% 68.8%

Senior Debt 9 Office 20,685 1 month LIBOR + 3.75% 5.80% 70.0%

Senior Debt 10 Office 15,722 1 month LIBOR + 3.40% 5.30% 67.5%

Senior Debt 11 Retail 29,500 6.50% 6.50% 68.5%

Senior Debt 3 Multifamily 34,668 1 month SOFR + 3.03% 7.39% 63.7%

Senior Debt 4 Multifamily 34,731 1 month LIBOR + 3.00% 7.39% 83.6%

Senior Debt 5 Hospitality 22,116 1 month LIBOR + 3.50% 7.89% 68.8%

Senior Debt 14 Office 7,125 1 month LIBOR + 3.90% 5.95% 67.6%

Senior Debt 15 Hospitality 13,972 1 month LIBOR + 4.47% 6.72% 44.8%

Senior Debt 16 Retail 11,924 1 month LIBOR + 3.95% 6.45% 61.2%

Senior Debt 17 Office 42,631 1 month LIBOR + 3.50% 5.75% 71.0%

Senior Debt 18 Retail 8,203 1 month LIBOR + 8.00% 8.10% 51.6%

Senior Debt 19 Hospitality 10,580 1 month LIBOR + 4.50% 6.75% 68.7%

Senior Debt 20 Hospitality 19,900 1 month LIBOR + 4.15% 6.50% 61.8%

Senior Debt 21 Office 39,650 1 month LIBOR + 4.01% 6.26% 68.2%

Senior Debt 22 Hospitality 20,930 1 month LIBOR + 3.75% 6.10% 62.6%

Senior Debt 23 Hospitality 13,000 1 month LIBOR + 2.94% 5.44% 56.4%

Senior Debt 24 Hospitality 4,987 1 month LIBOR + 4.25% 6.50% 47.7%

Senior Debt 25 Hospitality 12,750 1 month LIBOR + 4.45% 6.85% 62.9%

Senior Debt 26 Hospitality 10,845 1 month LIBOR + 4.50% 6.85% 64.0%

Senior Debt 27 Retail 9,400 1 month LIBOR + 4.20% 6.30% 77.1%

Senior Debt 28 Hospitality 34,053 1 month LIBOR + 3.99% 5.74% 31.0%

Senior Debt 29 Industrial 56,933 1 month LIBOR + 3.75% 5.50% 59.7%

Senior Debt 6 Office 18,683 1 month SOFR + 4.75% 9.11% 70.0%

Senior Debt 7 Office 7,035 1 month LIBOR + 3.90% 8.29% 67.6%

Senior Debt 8 Office 43,886 1 month SOFR + 3.56% 7.92% 71.0%

Senior Debt 9 Hospitality 9,531 1 month SOFR + 5.57% 9.93% 68.7%

Senior Debt 10 Hospitality 19,352 1 month SOFR + 3.84% 8.20% 62.6%

Senior Debt 11 Hospitality 12,980 1 month SOFR + 3.02% 7.38% 56.4%

Senior Debt 12 Hospitality 4,988 1 month LIBOR + 4.25% 8.64% 47.7%

Senior Debt 32 Multifamily 15,342 1 month LIBOR + 2.75% 4.25% 71.7%

Senior Debt 33 Multifamily 27,650 1 month LIBOR + 3.15% 4.95% 71.6%

Senior Debt 34 Multifamily 27,094 1 month LIBOR + 2.70% 2.80% 76.0%

Senior Debt 35 Multifamily 9,016 1 month LIBOR + 3.95% 5.00% 75.3%

Senior Debt 36 Multifamily 25,000 1 month LIBOR + 3.30% 4.75% 75.5%

Senior Debt 13 Hospitality 31,597 1 month SOFR + 5.25% 9.61% 31.0%

Senior Debt 14 Office 15,188 1 month SOFR + 4.00% 8.36% 70.9%

Senior Debt 15 Office 25,802 1 month LIBOR + 4.35% 8.74% 64.9%

Senior Debt 38 Multifamily 15,150 1 month LIBOR + 3.10% 4.50% 63.7%

Senior Debt 16 Office 63,811 1 month LIBOR + 3.70% 8.09% 65.7%

Senior Debt 40 Multifamily 11,739 1 month LIBOR + 3.15% 4.75% 72.4%

Senior Debt 17 Multifamily 10,807 1 month SOFR + 4.25% 8.61% 72.4%

Senior Debt 18 Office 36,362 1 month LIBOR + 2.70% 7.09% 71.4%

Senior Debt 19 Manufactured Housing 1,331 5.50% 5.50% 62.8%

Senior Debt 43 Multifamily 7,060 1 month LIBOR + 4.75% 5.75% 62.6%

Senior Debt 44 Industrial 17,038 1 month LIBOR + 6.25% 7.00% 61.0%

Senior Debt 45 Multifamily 4,300 1 month LIBOR + 5.50% 6.50% 87.4%

Senior Debt 20 Manufactured Housing 7,680 1 month LIBOR + 4.50% 8.89% 66.7%

Loan Type Property Type Par Value Interest Rate (1)

Effective Yield (5)

Loan to Value (2)

Senior Debt 47 Mixed Use 30,465 1 month LIBOR + 5.15% 6.15% 67.0%

Senior Debt 48 Hospitality 27,000 1 month LIBOR + 6.50% 6.85% 62.7%

Senior Debt 49 Multifamily 50,000 1 month LIBOR + 6.69% 7.44% 80.0%

Senior Debt 21 Self Storage 29,895 1 month LIBOR + 5.00% 9.39% 58.8%

Senior Debt 51 Multifamily 14,183 1 month LIBOR + 4.75% 5.25% 70.0%

Senior Debt 52 Manufactured Housing 3,400 1 month LIBOR + 5.00% 5.25% 58.6%

Senior Debt 53 Multifamily 27,550 1 month LIBOR + 5.75% 6.00% 69.8%

Senior Debt 22 Multifamily 14,550 1 month SOFR + 4.83% 9.19% 70.0%

Senior Debt 23 Manufactured Housing 5,020 1 month LIBOR + 5.25% 9.64% 65.9%

2 unchanged sentences

Senior Debt 26 Office 35,000 1 month LIBOR + 5.21% 9.60% 66.0%

Senior Debt 58 Self Storage 11,600 1 month LIBOR + 4.76% 5.01% 66.6%

Senior Debt 59 Manufactured Housing 5,000 1 month LIBOR + 5.90% 6.50% 58.8%

Senior Debt 27 Office 12,750 1 month LIBOR + 5.00% 9.39% 67.8%

Senior Debt 28 Multifamily 38,927 1 month LIBOR + 4.45% 8.84% 66.5%

Senior Debt 62 Multifamily 37,674 1 month LIBOR + 4.45% 4.70% 66.5%

Senior Debt 63 Multifamily 8,763 1 month LIBOR + 5.50% 5.75% 73.7%

Senior Debt 64 Retail 11,963 1 month LIBOR + 4.87% 5.12% 75.0%

Senior Debt 65 Multifamily 5,730 1 month LIBOR + 5.00% 5.25% 73.5%

Senior Debt 66 Multifamily 18,800 1 month LIBOR + 4.00% 4.10% 79.7%

Senior Debt 29 Industrial 14,985 1 month LIBOR + 4.50% 8.89% 66.3%

Senior Debt 68 Office 11,981 1 month LIBOR + 5.50% 5.75% 68.8%

Senior Debt 30 Multifamily 12,280 1 month LIBOR + 4.55% 8.94% 73.0%

1 unchanged sentence

Senior Debt 32 Office 12,971 1 month LIBOR + 5.00% 9.39% 63.9%

Senior Debt 72 Multifamily 54,500 1 month LIBOR + 3.80% 4.05% 77.0%

Senior Debt 73 Multifamily 11,672 1 month LIBOR + 3.50% 3.65% 60.1%

Senior Debt 74 Multifamily 21,000 1 month LIBOR + 4.95% 5.05% 84.2%

Senior Debt 33 Office 43,751 1 month LIBOR + 3.94% 8.34% 53.9%

13 unchanged sentences

Senior Debt 46 Multifamily 43,096 1 month LIBOR + 2.95% 7.34% 71.6%

Senior Debt 89 Multifamily 18,277 1 month LIBOR + 5.25% 5.50% 67.0%

Senior Debt 90 Multifamily 17,985 1 month LIBOR + 3.60% 3.75% 70.8%

Senior Debt 91 Multifamily 41,823 1 month LIBOR + 2.95% 3.10% 71.6%

Senior Debt 92 Hospitality 25,785 1 month LIBOR + 5.60% 5.85% 61.0%

Senior Debt 93 Mixed Use 32,500 1 month LIBOR + 3.70% 4.20% 69.7%

Senior Debt 94 Multifamily 12,688 1 month LIBOR + 3.75% 3.90% 63.2%

Loan Type Property Type Par Value Interest Rate (1)

1 unchanged sentence

Loan to Value (2)

Senior Debt 47 Hospitality 25,785 1 month LIBOR + 5.60% 9.99% 61.0%

Senior Debt 48 Mixed Use 32,500 1 month LIBOR + 3.70% 8.09% 69.7%

Senior Debt 49 Multifamily 75,591 1 month LIBOR + 2.95% 7.34% 72.6%

7 unchanged sentences

Senior Debt 57 Office 6,742 1 month LIBOR + 5.25% 9.64% 67.3%

Senior Debt 104 Multifamily 12,792 1 month LIBOR + 6.50% 7.00% —%

Senior Debt 58 (2)

Multifamily 111,226 1 month LIBOR + 6.50% 10.89% —%

Senior Debt 59 Multifamily 11,069 1 month LIBOR + 3.15% 7.54% 75.6%

1 unchanged sentence

Senior Debt 61 Hospitality 33,000 1 month LIBOR + 6.25% 10.64% 59.2%

Senior Debt 108 Multifamily 31,900 1 month LIBOR + 3.15% 3.25% 73.0%

Senior Debt 109 Multifamily 37,260 1 month LIBOR + 3.40% 3.55% 75.6%

Senior Debt 62 (2)

10 unchanged sentences

Senior Debt 72 Multifamily 10,268 1 month LIBOR + 3.75% 8.14% 70.0%

Senior Debt 121 Multifamily 66,650 1 month LIBOR + 3.25% 3.35% 77.1%

Senior Debt 122 Multifamily 18,750 1 month LIBOR + 2.95% 3.05% 72.1%

Senior Debt 123 Multifamily 9,099 1 month LIBOR + 3.75% 3.95% 70.0%

Senior Debt 73 Hospitality 32,527 1 month SOFR + 6.73% 11.09% 55.8%

Senior Debt 74 Multifamily 26,698 1 month LIBOR + 3.20% 7.59% 77.3%

12 unchanged sentences

Senior Debt 87 Multifamily 46,221 1 month LIBOR + 2.75% 7.14% 68.1%

Senior Debt 138 Multifamily 46,080 1 month LIBOR + 2.75% 2.85% 68.1%

Senior Debt 88 Multifamily 86,000 1 month SOFR + 3.24% 7.59% 60.0%

Senior Debt 89 Multifamily 29,821 1 month LIBOR + 2.90% 7.29% 74.2%

2 unchanged sentences

Senior Debt 92 Multifamily 26,966 1 month LIBOR + 2.90% 7.29% 72.1%

Senior Debt 93 Multifamily 13,535 1 month LIBOR + 3.20% 7.59% 62.4%

Senior Debt 94 Multifamily 37,133 1 month LIBOR + 3.00% 7.39% 73.3%

Loan Type Property Type Par Value Interest Rate (1)

5 unchanged sentences

Senior Debt 98 Multifamily 63,722 1 month LIBOR + 2.88% 7.27% 75.5%

Senior Debt 147 Multifamily 64,281 1 month LIBOR + 2.88% 2.98% 74.8%

Senior Debt 148 Multifamily 62,003 1 month LIBOR + 2.88% 2.98% 75.5%

Senior Debt 99 Multifamily 16,909 1 month SOFR + 3.50% 7.86% 71.7%

5 unchanged sentences

Senior Debt 105 Multifamily 78,050 1 month SOFR + 3.45% 7.81% 78.8%

Senior Debt 156 Multifamily 77,870 1 month LIBOR + 3.21% 3.31% 76.1%

Senior Debt 106 Multifamily 80,714 1 month SOFR + 3.21% 7.57% 76.1%

Senior Debt 107 Multifamily 24,000 1 month SOFR + 3.10% 7.46% 72.7%

Senior Debt 108 Retail 31,000 1 month SOFR + 3.29% 7.65% 42.5%

1 unchanged sentence

Senior Debt 110 Multifamily 22,965 1 month SOFR + 2.95% 7.31% 65.6%

Senior Debt 111 Multifamily 10,669 1 month SOFR + 3.30% 7.66% 75.7%

Senior Debt 112 Multifamily 47,444 1 month SOFR + 2.86% 7.22% 68.2%

Senior Debt 113 Multifamily 36,824 1 month SOFR + 2.86% 7.22% 69.7%

Senior Debt 114 Hospitality 10,493 1 month SOFR + 5.30% 9.66% 68.2%

Senior Debt 115 Retail 22,377 1 month SOFR + 4.95% 9.31% 63.3%

Senior Debt 116 Multifamily 82,000 1 month SOFR + 3.20% 7.56% 74.5%

Senior Debt 117 Industrial 55,000 1 month SOFR + 3.50% 7.86% 70.1%

Senior Debt 118 Multifamily 39,004 1 month SOFR + 3.10% 7.46% 74.1%

Senior Debt 119 Multifamily 34,823 1 month SOFR + 2.95% 7.31% 63.1%

Senior Debt 120 Mixed Use 19,000 1 month SOFR + 3.42% 7.78% 65.1%

Senior Debt 121 Multifamily 85,500 1 month SOFR + 3.15% 7.51% 69.6%

Senior Debt 122 Multifamily 31,282 1 month SOFR + 3.30% 7.66% 76.9%

Senior Debt 123 (2)(4)

Hospitality — 1 month SOFR + 7.05% 11.41% —%

Senior Debt 124 (2)(4)

Multifamily — 1 month SOFR + 6.75% 11.11% —%

Senior Debt 125 Hospitality 43,344 1 month SOFR + 4.90% 9.26% 61.1%

Senior Debt 126 Hospitality 11,250 1 month SOFR + 5.22% 9.58% 57.7%

Senior Debt 127 Multifamily 5,132 1 month SOFR + 7.02% 11.38% 15.9%

Senior Debt 128 Multifamily 27,722 1 month SOFR + 6.05% 10.41% 62.4%

Senior Debt 129 Multifamily 56,616 1 month SOFR + 3.95% 8.31% 73.2%

Senior Debt 130 Multifamily 28,650 1 month SOFR + 4.00% 8.36% 70.9%

Senior Debt 131 Multifamily 50,137 1 month SOFR + 6.70% 11.06% 46.5%

Senior Debt 132 Multifamily 12,242 1 month SOFR + 3.55% 7.91% 67.7%

Senior Debt 133 (3)

Retail 63,640 1 month SOFR + 4.50% 8.86% N/A

Senior Debt 134 Industrial 23,050 1 month SOFR + 4.90% 9.26% 64.6%

Senior Debt 135 Multifamily 19,441 1 month SOFR + 3.50% 7.86% 64.5%

Senior Debt 136 Multifamily 17,600 1 month SOFR + 4.55% 8.91% 67.2%

Senior Debt 137 Multifamily 28,640 1 month SOFR + 3.65% 8.01% 71.0%

Senior Debt 138 Multifamily 16,843 1 month SOFR + 3.65% 8.01% 73.9%

Senior Debt 139 Multifamily 70,750 1 month SOFR + 3.80% 8.16% 77.9%

Senior Debt 140 Multifamily 81,271 1 month SOFR + 3.95% 8.31% 71.8%

Senior Debt 141 Multifamily 43,651 1 month SOFR + 3.95% 8.31% 75.9%

Senior Debt 142 Multifamily 56,547 1 month SOFR + 3.95% 8.31% 73.7%

Loan Type Property Type Par Value Interest Rate (1)

Effective Yield (5)

Loan to Value (2)

Senior Debt 143 Multifamily 20,325 1 month SOFR + 3.95% 8.31% 75.1%

Senior Debt 144 Multifamily 128,324 1 month SOFR + 3.95% 8.31% 67.8%

Senior Debt 145 Multifamily 56,000 1 month SOFR + 3.80% 8.16% 73.8%

Senior Debt 146 Multifamily 11,675 1 month SOFR + 4.45% 8.81% 74.8%

Senior Debt 147 Multifamily 69,200 1 month SOFR + 3.45% 7.81% 71.6%

Senior Debt 148 Multifamily 173,389 1 month SOFR + 6.52% 10.88% 50.1%

Senior Debt 149 Hospitality 29,644 1 month SOFR + 6.94% 11.30% 71.2%

Senior Debt 150 Hospitality 13,410 1 month SOFR + 5.75% 10.11% 62.1%

Senior Debt 151 Manufactured Housing 10,550 1 month SOFR + 4.75% 9.11% 53.8%

Senior Debt 152 Multifamily 47,293 1 month SOFR + 4.20% 8.56% 70.1%

Senior Debt 153 Multifamily 51,000 1 month SOFR + 3.75% 8.11% 64.6%

Senior Debt 154 Multifamily 15,150 1 month SOFR + 4.25% 8.61% 68.1%

Senior Debt 155 Hospitality 28,300 1 month SOFR + 5.25% 9.61% 54.9%

Senior Debt 156 Hospitality 16,970 5.99% 5.99% 52.9%

Mezzanine Loan 1 Multifamily 6,500 1 month LIBOR + 10.25% 11.00% 90.4%

Mezzanine Loan 2 Multifamily 3,000 1 month LIBOR + 9.20% 10.00% 62.2%

Mezzanine Loan 1 Multifamily 3,000 1 month SOFR + 9.23% 13.59% 62.2%

Mezzanine Loan 2 Multifamily 10,000 1 month SOFR + 16.29% 20.65% 86.2%

Mezzanine Loan 3 Retail 3,000 1 month SOFR + 12.00% 16.36% 46.6%

Mezzanine Loan 4 Mixed Use 1,000 1 month SOFR + 11.00% 15.36% 68.5%

Mezzanine Loan 5 Hospitality 1,350 1 month SOFR + 9.25% 13.61% 64.6%

$5,288,974 8.34% 66.4%

5 unchanged sentences

(2) Loan to value percentage is from metrics at origination.

(3) The total commitment of this loan is $31.5 million, however none was funded as of December 31, 2021.

(4) The total commitment of this loan is $38.0 million, however none was funded as of December 31, 2021.

Predevelopment construction loans at origination will not have an LTV and therefore is nil.

(3) Loan was designated as non-performing and placed on cost recovery status.

In this instance, the assumed collateral value was less than the value of the loan, therefore the LTV at origination is not relevant.

(4) Commitment on the loan was unfunded as of December 31, 2022.

(5) Effective yield is calculated as the spread of the loan plus the higher of any applicable index or index floor.

1 unchanged sentence

Loan Type Property Type Par Value Interest Rate Effective Yield Loan to Value (1)

TRS Senior Debt 1 Retail $12,000 7.05% 7.05% 43.5%

TRS Senior Debt 2 Office 3,625 6.35% 6.35% 51.42%

2 unchanged sentences

(1) Loan to value percentage is from metrics at origination.

We had no real estate securities, available for sale, measured at fair value as of December 31, 2021.

The following table shows selected data from our other real estate investments, measured at fair value as of December 31, 2021 (dollars in thousands):

Type Property Type Par Value Preferred Return

Preferred Equity 1 Retail $2,074 12.5%

The following table shows selected data from our real estate owned assets in our portfolio as of December 31, 2021 (dollars in thousands):

The following table shows selected data from our real estate owned, held for investment assets in our portfolio as of December 31, 2022 (dollars in thousands):

Type Property Type Carrying Value

Real Estate Owned 1 Industrial $ 87,746

Real Estate Owned 2 Retail 40,026

The following table shows selected data from our real estate owned, held for sale assets in our portfolio as of December 31, 2022 (dollars in thousands):

Type Property Type Carrying Value

Real Estate Owned, held for sale Various $ 36,497

The following is a summary of the Company's RMBS, all of which were ARM Agency Securities, classified by collateral type and interest rate characteristics as of December 31, 2022 (dollars in thousands):

Type Carrying

Amount Average

Type Carrying Amount Average

Agency Securities:

Fannie Mae/Freddie Mac ARMs $ 235,728 2.42%

Ginnie Mae ARMs 320,068 0.03%

________________________

(1) Average yield is presented for the year then ended, and is based on the cash component of interest income expressed as a percentage on average cost basis (the “cash yield”).

During 2021, the Company sold trading securities using the specific identification method for proceeds totaling $1.9 billion recognizing $0.1 million in net realized gains.

Subsequent to year end, until February 18, 2022, the Company sold trading securities using the same method for proceeds totaling $1.8 billion recognizing $12 million in net realized losses.

The Company did not own any trading securities during 2020.

As of February 18, 2022, the current market value of the Company's RMBS portfolio was $2.4 billion.

The following table shows selected data from our real estate securities, CRE CLO bonds, measured at fair value as of December 31, 2022 (dollars in thousands):

Type Par Value Interest Rate Effective Yield

CRE CLO bond 1 $ 40,000 1 month SOFR + 2.78% 7.1%

CRE CLO bond 2 25,000 1 month SOFR + 3.23% 7.6%

CRE CLO bond 3 10,000 1 month SOFR + 4.03% 8.4%

CRE CLO bond 4 36,700 1 month SOFR + 3.07% 7.4%

CRE CLO bond 5 35,000 1 month SOFR + 3.62% 8.0%

CRE CLO bond 6 14,300 1 month SOFR + 4.27% 8.6%

CRE CLO bond 7 60,000 1 month SOFR + 2.90% 7.3%

Liquidity and Capital Resources

Our expected material cash requirements for the twelve months ended December 31, 2022 and thereafter are comprised of (i) contractually obligated expenditures, including payments of principal and interest and contractually-obligated fundings on our loans;

Our expected material cash requirements over the next twelve months and thereafter are composed of (i) contractually obligated expenditures, including payments of principal and interest and contractually-obligated fundings on our loans;

(ii) other essential expenditures, including operating and administrative expenses and dividends paid in accordance with REIT distribution requirements;

and (iii) opportunistic expenditures, including new loans.

Our contractually obligated expenditures primarily consist of payment obligations under the debt financing arrangements which are set forth in the table below under “Contractual Obligations and Commitments” and which are each described in more detail below under “Repurchase Agreements, Commercial Mortgage Loans”, “Other financing and loan participation - Commercial Mortgage Loans”, “Mortgage Note Payable”, “Unsecured Debt”, “Repurchase Agreements - Real Estate Securities”, and “Repurchase Agreements - Real Estate Securities Classified As Trading.”

We expect to use operating cash flow, new or refinanced debt (including collateral loan and debt obligation securitizations) and equity financing as a source of capital.

Since we intend to continue to qualify as a REIT for federal income tax purposes, we will be required to annually distribute to our stockholders at least 90% of our REIT taxable income and we intend to distribute 100% of REIT taxable income.

This will reduce the amount of operating cash flow available to fund our operations and growth initiatives after the payment of these distributions.

The board of directors currently intends to operate at a leverage level of between one to three times book value of equity.

We have used and may in the future use various forms of incurring indebtedness, including through repurchase agreements, credit facilities, securitizations, public and private, secured and unsecured debt issuances by us or our subsidiaries.

We have generally relied on repurchase agreements to provide short-term debt financing for our commercial mortgage loans and utilized collateral loan and debt obligation securitizations for long-term match-funded financing.

With respect to equity, we may in the future issue common stock and/or preferred stock, including through an at-the-market offering program.

We may also sell certain assets in our portfolio and reinvest the proceeds in assets with more attractive risk-adjusted returns.

For example, we intend to reinvest the cash and proceeds from dividends, interest, repayments and sales of the assets acquired in the Capstead merger into our primary investment strategies.

As discussed in detail in Note 9 – Stock Transactions to the accompanying consolidated financial statements included in this Annual Report on Form 10-K , in October 2021 we closed our merger with Capstead.

We intend to transition the equity invested in the assets we acquired from Capstead into our traditional investment strategies, including the origination of commercial real estate mortgages.

Specifically, we intend to reinvest any dividend, interest and principal paid on such assets, and proceeds from the sale of such assets, into our current investment strategies.

Until we fully transition this equity into our business, we expect that proceeds received from the sale of Capstead assets will be a significant source of capital.

We believe that our anticipated available operating cash flows, proceeds from sales of assets and debt and equity financing sources will be adequate to fund our short and long-term anticipated uses of capital.

Our contractually obligated expenditures primarily consist of payment obligations under the debt financing arrangements which are set forth below, including in the table under “Contractual Obligations and Commitments.”

We expect to use additional debt and equity financing as a source of capital.

Our board of directors currently intends to operate at a leverage level of between one to three times book value of equity.

However, our board of directors may change this target without shareholder approval.

We anticipate that our debt and equity financing sources and our anticipated cash generated from operations will be adequate to fund our anticipated uses of capital.

In addition to our current mix of financing sources, we may also access additional forms of financings, including credit facilities, securitizations, public and private, secured and unsecured debt issuances by us or our subsidiaries, or through capital recycling initiatives whereby we sell certain assets in our portfolio and reinvest the proceeds in assets with more attractive risk-adjusted returns.

Collateralized Loan Obligations

During 2021, the Company raised $1.3 billion of capital through the issuance of BSPRT 2021-FL6 Issuer, Ltd.

and BSPRT 2021-FL7 Issuer, Ltd.

Additionally, as of December 31, 2021, the Company had $46 million reinvestment capital available across all outstanding collateralized loan obligations.

During the twelve months ended December 31, 2022, the Company raised $960.0 million of capital through the issuance of BSPRT 2022-FL8 Issuer, Ltd.

and $670.6 million of capital through the issuance of BSPRT 2022-FL9 Issuer, LLC.

Additionally, as of December 31, 2022, the Company had $16.0 million of reinvestment capital available across all outstanding collateralized loan obligations.

Repurchase Agreements, Commercial Mortgage Loans

As of December 31, 2021, the Company has repurchase facilities with JPMorgan Chase Bank, National Association (the "JPM 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 Company has entered into repurchase facilities with JPMorgan Chase Bank, National Association (the "JPM 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, WF Repo Facility, Barclays Revolver Facility, and Barclays Repo Facility, collectively, 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 75% 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.

We expect to use the advances from these Repo Facilities to finance the acquisition or origination of eligible loans, including first mortgage loans, subordinated mortgage loans, mezzanine loans and participation interests therein.

The Repo Facilities generally provide that in the event of a decrease in the value of our collateral, the lenders can demand additional collateral.

Should the value of our collateral decrease as a result of deteriorating credit quality, resulting margin calls may cause an adverse change in our liquidity position.

The details of our Repo Facilities at December 31, 2021 and December 31, 2020 are as follows (dollars in thousands):

The details of our Repo Facilities at December 31, 2022 and 2021 are as follows (dollars in thousands):

As of December 31, 2022

2 unchanged sentences

JPM Repo Facility (2)

$ 500,000 $ 275,423 $ 11,773 7.42 % 10/6/2024

CS Repo Facility (3)

3 unchanged sentences

Barclays Revolver Facility (5)

250,000 166,700 1,976 6.12 % 9/20/2023

250,000 — 1,267 N/A 9/20/2023

Barclays Repo Facility (6)

4 unchanged sentences

Includes amortization of deferred financing costs.

(2) On August 12, 2021, the Company exercised the extension option upon the satisfaction of certain conditions, and extended the term maturity to September 30, 2022.

Additionally, on November 3, 2021 the committed financing amount was amended from $200 million to $300 million with the option to increase to $400 million at the Company's discretion.

(3) On October 15, 2021 the committed financing amount was increased from $175 million to $275 million.

(2) With one-year extension option available at the Company's discretion.

On July 7, 2022, the committed financing was increased from $400 million to $500 million.

Additionally, on December 12, 2022, the Company extended the maturity date to October 6, 2024.

(3) On July 12, 2022, the committed financing was increased from $300 million to $600 million.

Additionally, on November 1, 2022 the maturity date was extended to October 31, 2023.

(4) On May 12, 2022, the committed financing amount was increased from $450 million to $500 million.

There are three more one-year extension options available at the Company's discretion.

(4) On September 8, 2021, the Company amended the maturity date to September 20, 2023.

On December 1, 2021 the committed financing amount was increased from $100 million to $250 million.

(5) The Company may increase the total commitment amount by an amount between $100 million and $150 million for three month intervals, on an unlimited basis prior to maturity.

(5) On December 3, 2021 the Company amended the maturity date to March 14, 2025 and the committed financing amount was increased from $300 million to $500 million.

(6) There are two one-year extension options available at the Company's discretion.

3 unchanged sentences

JPM Repo Facility $ 400,000 $ 136,470 $ 5,178 2.13 % 10/6/2022

$ 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 300,000 137,364 3,446 2.43 % 9/30/2022

200,000 106,971 3,539 2.84 % 8/19/2021

WF Repo Facility 450,000 186,734 2,090 1.64 % 11/21/2023

175,000 27,150 1,041 2.50 % 11/21/2021

Barclays Revolver Facility 250,000 166,700 1,976 6.12 % 9/20/2023

100,000 — 387 N/A 9/20/2021

Barclays Facility 500,000 392,332 4,057 1.76 % 3/14/2025

300,000 22,560 1,046 2.51 % 3/15/2022

Total $ 1,900,000 $ 1,019,600 $ 16,747

2 unchanged sentences

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.

The Repo Facilities generally provide that in the event of a decrease in the value of the Company's collateral, the lenders can demand additional collateral.

As of December 31, 2022 and 2021, the Company is in compliance with all debt covenants.

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 $0.9 million of interest expense on SNB for the year ended December 31, 2021.

As of December 31, 2021 and December 31, 2020 the outstanding participation balance was $37.9 million and $31.4 million, respectively.

The loan matures on February 9, 2023.

On March 23, 2020, the Company transferred $15.2 million of its interest in a term loan to a regional bank via a participation agreement.

Since inception, the Company's outstanding loan increased resultant of future fundings, leading to an increase in amount outstanding via the participation agreement.

The Company incurred $1.7 million and $0.9 million of interest expense on the regional bank term loan for the year ended December 31, 2022 and 2021, respectively.

As of December 31, 2022 and 2021 the outstanding participation balance was $59.2 million and $37.9 million, respectively.

The loan accrued interest at an annual rate of one-month LIBOR +2.20% and matures on June 9, 2023.

On February 10, 2022, the Company transferred $38.0 million of its interest in a term loan to a regional bank via a participation agreement.

Since inception, the Company's outstanding loan could increase as a result of future fundings, which could lead to an increase in amount outstanding via the participation agreement.

The Company incurred $0.5 million of interest expense on the regional bank term loan for the year ended December 31, 2022.

As of December 31, 2022, the outstanding participation balance was $17.1 million.

The loan accrued interest at an annual rate of one-month SOFR + 4.01% and matures on May 1, 2025.

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.

The Company incurred $0.9 million of interest expense for the twelve months ended December 31, 2021.

As of December 31, 2021 the loan has been assumed by the purchaser of the underlying asset and is no longer held by the Company (see Note 5 - Real Estate Owned).

On September 17, 2021, the Company, in connection with the consolidating joint venture (as discussed in Note 5 - Real Estate Owned), originated a $112.7 million mortgage note payable, of which $88.7 million is eliminated in consolidation (see Note 5 - Real Estate Owned).

As of December 31, 2021 the Company incurred $0.2 million of interest expense, of which $0.2 million is eliminated in consolidation, for the twelve months ended December 31, 2021.

The remaining mortgage note payable of $24 million is included in the consolidated balance sheets under the caption Mortgage note payable.

As of December 31, 2021 , the loan accrued interest at an annual rate of 3.1% and matures on October 9, 2024.

As of December 31, 2022 and 2021, t he remaining outstanding mortgage note payable of $24.0 million is included in the consolidated balance sheet.

As of December 31, 2022 , the loan accrued interest at an annual rate of Libor + 3.0%, of which the interest accrued on the $88.7 million is eliminated in our consolidated financial statements, and matures on October 9, 2024.

Unsecured Debt

In the merger with Capstead we acquired 30-year junior subordinated notes issued in 2005 and 2006 and maturing in 2035 and 2036, with a total face amount of $100.0 million.

Note balances net of deferred issuance costs, and related weighted average interest rates as of the indicated dates (calculated including issuance cost amortization and adjusted for the effects of related derivatives held as cash flow hedges) were as follows (dollars in thousands):

As of December 31, 2022, the Company had outstanding 30-year junior subordinated notes issued in 2005 and 2006 and maturing in 2035 and 2036, respectively, with a total face amount of $100.0 million.

December 31, 2022 December 31, 2021

Outstanding Average

Rate Borrowings

Outstanding Average

Outstanding Weighted Average Borrowings

Outstanding Weighted Average

Junior subordinated notes maturing in:

4 unchanged sentences

The notes are currently redeemable, in whole or in part, without penalty, at the Company’s option.

Interest paid on unsecured debt, including related derivative cash flows, totaled $0.6 million for the twelve months ended December 31, 2021.

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 $2.0 million of interest expense on the lending agreement with SBL for the twelve months ended December 31, 2021.

Interest paid on unsecured debt, including related derivative cash flows, totaled $5.7 million and $0.6 million for the twelve months ended December 31, 2022 and 2021, respectively.

The Company entered into a $100.0 million lending and security agreement with Security Benefit Life Insurance Company ("SBL") in February 2020, which was amended in March and August 2020.

The Company incurred $1.0 million and $2.0 million of interest expense on the lending agreement with SBL for the twelve months ended December 31, 2022 and 2021 respectively.

In November 2022, the lending and security agreement with SBL was terminated by the Company.

As of December 31, 2021 the outstanding balance was $50.0 million.

8 unchanged sentences

JP Morgan Securities LLC $ 103,513 $ 1,281 $ 120,751 5.34 % 22

Wells Fargo Securities, LLC — — — N/A N/A

Goldman Sachs International — 37 — N/A N/A

Barclays Capital Inc.

119,351 1,646 144,778 5.18 % 50

Credit Suisse AG — — — N/A N/A

Citigroup Global Markets, Inc.

— 81 — N/A N/A

Total/Weighted Average $ 222,864 $ 2,927 $ 265,529 5.25 % 37

1 unchanged sentence

JP Morgan Securities LLC $ 19,025 $ 261 $ 24,087 1.14 % 10

Wells Fargo Securities, LLC — 1,057 — N/A N/A

Goldman Sachs International 22,440 455 30,794 1.68 % 16

Goldman Sachs International — 37 — N/A N/A

Barclays Capital Inc.

15,286 526 19,131 1.21 % 14

Credit Suisse AG — 905 — N/A N/A

Citigroup Global Markets, Inc.

53,788 2,532 71,723 — 29

— 81 — N/A N/A

Total/Weighted Average $ 34,311 $ 905 $ 43,218 1.71 % 33

________________________

(1) Includes $43.2 million and $72.2 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, 2021 and December 31, 2020, respectively.

(1) Includes $67.1 million and $43.2 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, 2022 and 2021, respectively.

Repurchase Agreements - Real Estate Securities Classified As Trading

As a result of the Capstead merger which closed on October 19, 2021, the Company acquired a significant portfolio of residential adjustable-rate mortgage pass-through securities issued and guaranteed by government-sponsored enterprises or by an agency of the federal government which the Company accounts for as real estate securities classified as trading.

The Company pledges its real estate securities classified as trading as collateral for repurchase agreements with commercial banks and other financial institutions.

8 unchanged sentences

Conversely, in response to increases in fair value of pledged securities, the Company routinely margin calls its lending counterparties in order to have previously pledged collateral returned.

Repurchase agreements (and related pledged collateral, including accrued interest receivable), classified by collateral type and remaining maturities, and related weighted average borrowing rates as of the indicated dates were as follows (dollars in thousands):

Collateral Type Collateral

Amount Accrued

Receivable Borrowings

Outstanding Average

Repurchase agreements (and related pledged collateral, including accrued interest receivable), classified by remaining maturities, and related weighted average borrowing rates as of the indicated dates were as follows (dollars in thousands):

Outstanding Accrued

Interest Collateral

Pledged Weighted Average

December 31, 2022

Repurchase arrangements secured by Agency securities with maturities of 30 days or less $ 172,144 $ 544 $ 180,400 4.25 %

Repurchase arrangements secured by Agency securities with maturities of 31 to 90 days 45,000 114 47,210 4.51 %

$ 217,144 $ 658 $ 227,610 4.30 %

1 unchanged sentence

Repurchase arrangements secured by Agency securities with maturities of 30 days or less $ 4,144,473 $ 8,908 $ 4,327,020 0.13 %

$ — $ — $ — — %

As of December 31, 2021, the Company’s repurchase agreements collateralized by RMBS totaled $4.14 billion with 13 counterparties at average rates of 0.13%, before the effects of currently-paying interest rate swap agreements.

Average repurchase agreements outstanding were $3.97 billion in 2021.

Average repurchase agreements outstanding were $1.0 billion and $4.0 billion during the year ended December 31, 2022 and 2021, respectively.

Average repurchase agreements outstanding differed from respective year-end balances during the indicated periods primarily due to changes in portfolio levels and differences in the timing of portfolio acquisitions relative to portfolio runoff and asset sales.

Interest paid on repurchase agreements, including related Derivative cash flows, totaled $1.24 million during the twelve months ended December 31, 2021.

Interest paid on repurchase agreements, including related derivative payments, totaled $8.5 million and $1.24 million during the twelve months ended December 31, 2022 and 2021, respectively.

The Company finances its residential mortgage investments primarily by borrowing under repurchase arrangements, the terms and conditions of which are negotiated on a transaction-by-transaction basis, when each such agreement is initiated or renewed.

1 unchanged sentence

None of our repurchase agreement counterparties are obligated to renew or otherwise enter into new agreements at the conclusion of existing borrowings.

Repurchase agreements averaged $3.97 billion during 2021 and ended the year at $4.14 billion, all maturing within 90 days.

Average repurchase agreements can differ from period-end balances for a number of reasons including portfolio growth or contraction, as well as differences in the timing of portfolio acquisitions relative to portfolio runoff.

To help mitigate exposure to rising short-term interest rates, we economically hedge the portfolio of repurchase agreements using derivatives supplemented with longer-maturity repurchase agreements when available at attractive rates and terms.

At year-end, we held $3.6 billion notional amount of portfolio financing-related interest rate swap agreements with contract expirations occurring at various dates through the Second quarter 2024 and a weighted average expiration of 18 months.

At December 31, 2021, we expect to have no net cash obligations related to repurchase agreement-related interest rate swap agreements after considering the variable-rate payments owed to us under the agreements’ terms based on market interest rate expectations as of year-end.

To help mitigate exposure to rising short-term interest rates, the Company may economically hedge the portfolio of repurchase agreements using derivatives supplemented with longer-maturity repurchase agreements when available at attractive rates and terms.

As of December 31, 2022, the Company does not hold any derivative positions related to the trading securities.

Repurchase Agreements

The following tables summarize our Repurchase Agreements, Commercial Mortgage Loans, Trading Securities and our MRAs for the years ended December 31, 2021, December 31, 2020 and December 31, 2019 respectively:

The following tables summarize our Repurchase Agreements, Commercial Mortgage Loans, Trading Securities and our MRAs for the years ended December 31, 2022, 2021 and 2020 respectively:

As of December 31, 2022

4 unchanged sentences

Repurchase Agreements, Real Estate Securities Classified As Trading $ 1,659,931 $ 240,000 $ 225,000 $ 217,144 $ 3,055,413 $ 1,818,495 $ 230,010 $ 220,102

Total $ 2,237,431 $ 1,125,322 $ 1,037,021 $ 1,120,867

As of December 31, 2021

3 unchanged sentences

Repurchase Agreements, Real Estate Securities $ 88,272 $ 46,510 $ 46,531 $ 34,311 $ 123,322 $ 57,301 $ 46,527 $ 37,735

Repurchase Agreements, Real Estate Securities Classified As Trading $ — $ — $ — $ 4,144,473 $ — $ — $ — $ 4,266,556

Total $ 241,197 $ 333,972 $ 596,687 $ 5,198,384

As of December 31, 2020

3 unchanged sentences

Repurchase Agreements, Real Estate Securities $ 496,880 $ 335,256 $ 177,541 $ 186,828 $ 412,809 $ 351,202 $ 316,229 $ 183,632

Total $ 731,404 $ 561,480 $ 360,574 $ 463,168

The use of our repurchase facilities 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, 2022, the maximum monthly average outstanding balance was $5.3 billion, of which $1.1 billion was related to repurchase agreements on our commercial mortgage loans and $4.2 billion for repurchase agreements on our real estate securities.

During the twelve months ended December 31, 2021, the maximum monthly average outstanding balance was $5.84 billion , of which $0.68 billion was related to repurchase agreements on our commercial mortgage loans and $0.04 billion for repurchase agreements on our real estate securities and $5.12 billion for repurchase agreements on our real estate securities held for trading.

During the twelve months ended December 31, 2020, the maximum monthly 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 monthly 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.

Cash Flows for the Year Ended December 31, 2022

Net cash provided by operating activities for the year ended December 31, 2022 was $152.5 million.

Cash inflows were primarily driven by net income of $25.7 million, net proceeds of $33.4 million related to originations and sales of commercial mortgage loans, measured at fair value and a non-cash adjustment of $34.8 million related to trading losses on real estate securities.

Cash inflows were primarily driven by net income of $14.2 million, net proceeds of $18.1 million related to originations and sales of commercial mortgage loans, measured at fair value and $119.2 million related to trading losses on real estate securities.

Net cash provided by investing activities for the year ended December 31, 2022 was $3,097.3 million.

Cash inflows were primarily driven by proceeds from principal repayments of $1,225.6 million received on commercial mortgage loans, held for investment, proceeds received from the sale/repayment of real estate securities of $2,059.4 million, $541.3 million received from principal collateral on mortgage investments and cash acquired of $174.1 million related to the merger with Capstead.

Inflows were partially offset by the origination and acquisition of $2,881.9 million of commercial mortgage loans.

Cash inflows were primarily driven by proceeds from principal repayments of $1,258.4 million received on commercial mortgage loans, held for investment, proceeds received from the sale of real estate securities of $3,731.7 million, $545.4 million received from principal collateral on mortgage investments and proceeds from sale of commercial mortgage loans, held for sale, of $9.3 million.

Inflows were partially offset by the origination and acquisition of $2,227.7 million of commercial mortgage loans, held for investment, and the purchase of real estate securities for $220.6 million.

Net cash used in financing activities for the year ended December 31, 2022 was $3,227.5 million.

Cash outflows were primarily driven by net payment on CMBS repurchase agreements of $2,429.3 million, $68.0 million in cash distributions to stockholders and $11.4 million of stock repurchases.

Outflows were offset by $6.5 million of proceeds received from borrowing on other financing and loan participation for commercial mortgage loans, $23.9 million from borrowing on mortgage note payable and net proceeds of $743.3 million and $540.3 million received from repurchase agreements on commercial mortgage loans and CLOs, respectively.

Cash outflows were primarily driven by net repayments on repurchase agreements for real estate securities and commercial mortgage loans of $3,738.8 million and $338.7 million, respectively, $139.4 million in cash distributions to stockholders and $16.6 million of common stock repurchases.

Outflows were partially offset by $38.5 million of proceeds received from borrowings on other financing and loan participation for commercial mortgage loans and net proceeds of $968.2 million received from repurchase agreements on CLOs.

Cash Flows for the Year Ended December 31, 2021

Net cash provided by operating activities for the year ended December 31, 2021 was $146.5 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.

Cash inflows were primarily driven by net income of $25.7 million, net proceeds of $33.4 million related to originations and sales of commercial mortgage loans, measured at fair value and $36.1 million related to trading losses on real estate securities.

Net cash provided by investing activities for the year ended December 31, 2021 was $1,068.7 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.

Inflows were partially offset by the origination and acquisition of $2,881.9 million of commercial mortgage loans.

Net cash used in financing activities for the year ended December 31, 2021 was $1,139.2 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 outflows were primarily driven by net payment on CMBS repurchase agreements of $2,429.3 million, $68.0 million in cash distributions to stockholders and $11.4 million of stock repurchases.

Election as a REIT

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In addition to its cash requirements, the Company pays a quarterly dividend and has an existing share repurchase authorization.

As of December 31, 2021, the Company’s quarterly cash dividend was $0.355 per share of common stock (which was paid on an as-converted basis on the Company’s shares of Series C convertible preferred stock ("Series C Preferred Stock"), Series D convertible preferred stock ("Series D Preferred Stock") and Series F convertible preferred stock ("Series F Preferred Stock")), and $0.46875 per share on the Company’s shares of 7.50% Series E Cumulative Redeemable Preferred Stock ("Series E Preferred Stock").

As of December 31, 2022, the Company’s quarterly cash dividend was $0.355 per share of common stock (which was paid on an as-converted basis on the Company’s shares of Series H convertible preferred stock ("Series H Preferred Stock") and Series I convertible preferred stock ("Series I Preferred Stock"), and $0.46875 per share on the Company’s shares of 7.50% Series E Cumulative Redeemable Preferred Stock ("Series E Preferred Stock").

The payment of future dividends is subject to declaration by the Board of Directors.

The Company’s Board of Directors also has authorized a $65.0 million share repurchase program, that will be operative following the conclusion of the $35.0 million open market share purchase program the Advisor agreed to implement in connection with the Company’s merger with Capstead.

The Company’s Board of Directors also has authorized a $65.0 million share repurchase program, of which $48.4 million remained available as of December 31, 2022.

The authorization does not obligate the Company to acquire any specific number of shares.

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• 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;

• 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 (as defined in the Advisory Agreement) 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 Convertible Preferred Stock (“Series A Preferred Stock”) in these private placements on substantially the same terms applying to purchases by third party accredited investors unaffiliated with the Company or the Advisor.

On October 19, 2021, each share of Series A Preferred Stock converted into 299.2 shares of common stock, pursuant to the terms of the Articles Supplementary for the Series A Preferred Stock, and no shares of Series A Preferred Stock were outstanding as of December 31, 2021.

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 the listing of the Company’s common stock on the NYSE.

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.

Lending Agreement with Stockholder

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 entered into a $100.0 million lending and security agreement with Security Benefit Life Insurance Company ("SBL") in February 2020, which was amended in March and August 2020.

The Company incurred $1.0 million and $2.0 million of interest expense on the lending agreement with SBL for the years ended December 31, 2022 and 2021, respectively.

As of December 31, 2021 there was a $50.0 million outstanding balance under the lending agreement.

SBL also holds 17,950 of the Company’s outstanding shares of Series D Preferred Stock.

SBL acquired these shares in March 2021:

14,950 shares were acquired in exchange for an equivalent number of shares of Series A Preferred Stock and 3,000 shares of Series D Preferred Stock were purchased at the liquidation preference of $15.0 million (net of accrued and unpaid dividends on the exchanged Series A Preferred Stock) in the same transaction.

In August 2021 the Company and an investment fund managed by the Advisor entered into a joint venture agreement and formed a joint venture entity, Jeffersonville Member, LLC (the "Jeffersonville JV") to acquire a $139.5 million triple net lease property in Jeffersonville, GA.

In November 2022, the lending and security agreement with SBL was terminated by the Company.

As of December 31, 2021 the outstanding balance was $50.0 million.

As of the beginning of 2022, SBL held 17,950 shares of the Company's outstanding shares of Series D Preferred Stock.

On June 24, 2022, all 17,950 outstanding shares of Series D Preferred Stock were exchanged for an equal amount of shares of Series H Preferred Stock for no consideration (see Note 2 - Summary of Significant Accounting Policies).

On January 19, 2023, the Series H Preferred Stock was amended such that the mandatory conversion date was extended by one year, to January 19, 2024.

Other Transactions

In August 2021 the Company and an affiliate of the Company entered into a joint venture agreement and formed a joint venture entity, Jeffersonville Member, LLC (the "Jeffersonville JV") to acquire a $139.5 million triple net lease property in Jeffersonville, GA.

The Company has a 79% interest in the Jeffersonville JV, while the affiliated fund has a 21% interest.

The Company invested a total of $109.8 million, made up of $88.7 million in debt and $21.1 million in equity, representing 79% of the ownership interest in the Jeffersonville JV.

The affiliated fund made up the remaining $29.8 million composed of a $24.0 million mortgage note payable and $5.7 million in equity.

The affiliate made up the remaining $29.8 million composed of a $24.0 million mortgage note payable and $5.7 million in equity.

The Company has control of Jeffersonville JV with 79% ownership and, therefore, consolidates Jeffersonville JV on its consolidated balance sheet.

The Company's $88.7 million mortgage note payable to Jeffersonville JV is eliminated in consolidation (see Note 7 - Debt).

As discussed below, in the first quarter of 2022, pursuant to the Franklin BSP Realty Trust, Inc.

2021 Equity Incentive Plan, the Company issued awards of restricted stock units to its officers and certain other personnel of the Advisor who provide services to the Company under the Advisory Agreement (see Note 12 - Share-Based Compensation).

As of December 31, 2022, our commercial mortgage loans, held for investment, includes an aggregate of $122.9 million carrying value of loans to affiliates of our Advisor.

The Company recognized $5.5 million interest income from these loans for the year ended December 31, 2022, in the Company’s consolidated statements of operations.

The table below shows the costs incurred due to arrangements with our Advisor and its affiliates during the years ended December 31, 2022, 2021 and 2020 and the associated amounts payable as of December 31, 2022 and 2021 (dollars in thousands).

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(1) Total acquisition fees and expenses paid during the years ended December 31, 2021, 2020 and 2019 were $15 million, $7.1 million and $8.4 million respectively, of which $13.8 million, $6.4 million and $7.5 million were capitalized within the commercial mortgage loans, held for investment line of the consolidated balance sheets for the years ended December 31, 2021, 2020 and 2019.

(1) Total acquisition fees and expenses paid during the years ended December 31, 2022, 2021 and 2020 were $11.7 million, $15 million and $7.1 million respectively, of which $10.3 million, $13.8 million and $6.4 million were capitalized within the commercial mortgage loans, held for investment and real estate securities, available for sale, measured at fair value lines of the consolidated balance sheets for the years ended December 31, 2022, 2021 and 2020.

(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 $1.9 million and $1.8 million, respectively, of payments made by the Advisor to third party vendors on behalf of the Company.

(3) As of December 31, 2022 and December 31, 2021, the related party payable includes $2.9 million and $1.9 million, respectively, of payments made by the Advisor to third party vendors on behalf of the Company.

The amounts payable as of December 31, 2022 and 2021 in the table above are included in Due to affiliates on the Company's consolidated balance sheets.

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Non-GAAP Financial Measures

Distributable Earnings

Beginning in the third quarter of 2021 to more appropriately reflect the principal purpose of the measure, "modified funds from operations ("MFFO")" or "funds from operations ("FFO")" was relabeled "Distributable Earnings", a non-GAAP financial measure.

Distributable Earnings is a non-GAAP measure, which we define as GAAP net income (loss), adjusted for (i) non-cash CLO amortization acceleration and amortization over our expected useful life of our CLOs, (ii) unrealized gains and losses on loans, derivatives and ARMs, including CECL reserves and impairments, (iii) non-cash equity compensation expense, (iv) depreciation and amortization, (v) non-cash incentive fee accruals, (vi) certain other non-cash items, and (vii) impairments of acquisition assets related to the Capstead merger.

We believe that Distributable Earnings provides meaningful information to consider in addition to our GAAP results.

We believe Distributable Earnings is a useful financial metric for existing and potential future holders of our common stock as historically, overtime, Distributable Earnings has been an indicator of our dividends per share.

As a REIT, we generally must distribute annually at least 90% of our net taxable income, subject to certain adjustments, and therefore we believe our dividends are one of the principal reasons stockholders may invest in our common stock.

Further, Distributable Earnings helps us to evaluate our performance excluding the effects of certain transactions and GAAP adjustments that we believe are not necessarily indicative of our current loan portfolio and operations and is one of the performance metrics we consider when declaring our dividends.

Distributable Earnings does not represent net income (loss) and should not be considered as an alternative to GAAP net income (loss).

Our methodology for calculating Distributable Earnings may differ from the methodologies employed by other companies and thus may not be comparable to the Distributable Earnings reported by other companies.

Distributable Earnings and Run-Rate Distributable Earnings

Distributable Earnings is a non-GAAP measure, which the Company defines as GAAP net income (loss), adjusted for (i) non-cash CLO amortization acceleration and amortization over the expected useful life of the Company's CLOs, (ii) unrealized gains and losses on loans, derivatives and ARMs, including CECL reserves and impairments, (iii) non-cash equity compensation expense, (iv) depreciation and amortization, (v) non-cash subordinated performance fee accruals, (vi) loan workout charges, (vii) certain other non-cash items, and (viii) impairments of acquisition assets related to the Capstead merger.

Further, Run-Rate Distributable Earnings, a non-GAAP measure, presents Distributable Earnings before trading and derivative gain/loss on ARMs.

The Company believes that Distributable Earnings and Run-Rate Distributable Earnings provide meaningful information to consider in addition to the disclosed GAAP results.

The Company believes Distributable Earnings is a useful financial metric for existing and potential future holders of its common stock as historically, over time, Distributable Earnings has been an indicator of dividends per share.

As a REIT, the Company generally must distribute annually at least 90% of its taxable income, subject to certain adjustments, and therefore believes dividends are one of the principal reasons stockholders may invest in its common stock.

Further, Distributable Earnings helps investors evaluate performance excluding the effects of certain transactions and GAAP adjustments that the Company does not believe are necessarily indicative of current loan portfolio performance and the Company's operations and is one of the performance metrics the Company's board of directors considers when dividends are declared.

The Company believes Run-Rate Distributable Earnings is a useful financial metric because it presents the Distributable Earnings of its core businesses, net of the impacts of the realized trading and derivative gain/loss on the residential adjustable-rate mortgage securities acquired from Capstead, which the Company is actively in the process of liquidating from its portfolio.

Distributable Earnings and Run-Rate Distributable Earnings do not represent net income (loss) and should not be considered as an alternative to GAAP net income (loss).

The methodology for calculating Distributable Earnings and Run-Rate Distributable Earnings may differ from the methodologies employed by other companies and thus may not be comparable to the Distributable Earnings reported by other companies.

The following table provides a reconciliation of GAAP net income to Distributable Earnings for the years ended December 31, 2022, December 31, 2021 and December 31, 2020 (dollars in thousands):

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GAAP Net Income $ 14,215 $ 25,702 $ 54,746

$ 25,702 $ 54,746 $ 83,924

Depreciation and amortization 5,408 2,107 2,234

Impairment of Acquired Assets — 88,282 —

CLO amortization acceleration (1)

2 unchanged sentences

17,010 (7,853) 1,102

Unrealized gain/(loss) reversal - ARMs 13,867 — 1,989

Impairment of acquired assets 88,282 — —

Incentive fees 9,846 — —

Depreciation and amortization 2,107 2,234 507

Unrealized (gain)/loss - ARMs 43,557 20,670 —

Subordinated performance fee (8,380) 9,846 —

Non-Cash Compensation Expense 3,485 — —

Increase/(decrease) in provision for credit losses 36,115 (5,192) 13,296

Loan Workout Charges (3)

Impairment losses on real estate owned assets — — 398

Realized trading and derivatives (gain)/loss on ARMs 21,726 13,600 —

Run Rate Distributable Earnings (4)

$ 137,802 $ 147,412 $ 72,040

Realized trading and derivatives gain/(loss) on ARMs (21,726) (13,600) —

Distributable Earnings $ 116,076 $ 133,812 $ 72,040

Average Equity $ 1,146,009 $ 974,184 $ 946,801

7.5% Cumulative Redeemable Preferred Stock, Series E Dividend $ (19,367) $ (4,842) $ —

$ 4,842 $ — $ —

GAAP Common ROE 1.8 % 5.6 % 8.9 %

Noncontrolling interests in joint ventures net (income)/loss 216 — —

Depreciation and amortization attributed to noncontrolling interests of joint ventures (1,415) — —

Distributable Earnings attributable to stockholders and noncontrolling interests 95,510 128,970 72,040

Average Common Stock and Common Stock Equivalents 1,456,871 1,146,009 974,184

GAAP Net Income/(Loss) ROE (0.3) % 1.8 % 5.6 %

Run-Rate Distributable Earnings ROE 8.0 % 12.4 % 7.4 %

Distributable Earnings ROE 6.6 % 11.3 % 7.4 %

GAAP Net Income Per Share, Fully Converted $ 0.33 $ 0.96 $ 1.59

GAAP Net Income/(Loss) Per Share, Diluted $ (0.38) $ (0.18) $ 0.90

GAAP Net Income/(Loss) Per Share, Fully Converted (5)

$ (0.06) $ 0.33 $ 0.96

Run-Rate Distributable Earnings Per Share, Fully Converted (5)

$ 1.31 $ 2.23 $ 1.27

Distributable Earnings Per Share, Fully Converted (5)

$ 1.07 $ 2.02 $ 1.27

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(1) Adjusted for non-cash CLO amortization acceleration to effectively amortize issuance costs of our CLOs over the expected lifetime of the CLOs.

We assume our CLOs will be outstanding for four years and amortized the financing costs over four years in our distributable earnings as compared to effective yield methodology in our GAAP earnings.

(2) Adjusted for unrealized gains and losses on loans and derivatives.

(2) Represents unrealized gains and losses on (i) commercial mortgage loans, held for sale, measured at fair value, (ii) other real estate investments, measured at fair value and (iii) derivatives.

(3) Represents loan workout expenses the Company incurred, which the Company deems likely to be recovered.

(4) Distributable Earnings before realized trading and derivative gain/loss on residential adjustable-rate mortgage securities (“Run-Rate Distributable Earnings”) (a non-GAAP financial measure).

(5) Fully Converted assumes conversion of our Series H and Series I Preferred Stock, which by their terms automatically convert to common stock in the future, and the vesting of the Company's outstanding equity compensation awards.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis