Franklin BSP Realty Trust, Inc. 10-K

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read in conjunction with the accompanying financial statements of Franklin BSP Realty Trust, Inc. 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 on Form 10-K entitled “Risk Factors” and “Forward-Looking Statements.” Overview 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 taxable REIT subsidiary ("TRS"), is indirectly subject to U.S. federal, state and local income taxes. We commenced business in May 2013. We primarily originate, acquire and manage a diversified portfolio of commercial real estate debt investments secured by properties located within and outside of the United States. Substantially all of our business is conducted through the OP, a Delaware limited partnership. We are the sole general partner and directly or indirectly hold all of the units of limited partner interests in the OP. The Company has no employees. 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. The Advisor receives compensation and fees for services related to the investment and management of our assets and our operations. The Advisor, an SEC-registered investment adviser, is a credit-focused alternative asset management firm. The Advisor manages funds for institutions and high-net-worth investors across various credit funds and complementary strategies including high yield, levered loans, private / opportunistic debt, liquid credit, structured credit and commercial real estate debt. These strategies complement each other as they all leverage the sourcing, analytical, compliance, and operational capabilities that encompass the Advisor’s robust platform. 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 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. Impact of the Capstead Acquisition 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. 24 Book Value Per Share 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 Stockholders' equity applicable to common stock $ 1,304,238 $ 736,464 Shares: Common stock 82,479,743 43,951,382 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, 2022 and 2021 (dollars in thousands, except per share data): December 31, 2022 December 31, 2021 Stockholders' equity applicable to convertible common stock $ 1,398,986 $ 1,543,550 Shares: Common stock 82,479,743 43,951,382 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 Series D convertible preferred stock — 5,370,640 Series F convertible preferred stock — 39,733,299 Total outstanding shares 88,662,624 89,488,747 Fully-converted book value per share (1) (2) $ 15.78 $ 17.25 ________________________ (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 Our financial statements are prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"), which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Critical accounting estimates are those that require the application of management’s most difficult, subjective or complex judgments on matters that are inherently uncertain and that may change in subsequent periods. In preparing the financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. In preparing the financial statements, management has utilized available information, including our past history, industry standards and the current economic environment, among other factors, in forming its estimates and judgments, giving due consideration to materiality. Actual results may differ from these estimates. In addition, other companies may utilize different estimates, which may impact the comparability of our results of operations to those of companies in similar businesses. Set forth below is a summary of the critical accounting estimates and critical accounting policies that management believes are important to the preparation of our financial statements. The Company’s significant accounting policies, including recently issued accounting pronouncements, are more fully described in Note 2 – Summary of Critical Accounting Policies to the accompanying consolidated financial statements included in this Annual Report on Form 10-K. 25 Table of Contents Credit Losses - Estimating Credit Losses 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 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 provision 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. 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, 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. Real estate owned assets are depreciated using the straight-line method over estimated useful lives of up to 40 years for buildings and improvements and up to 15 years for furniture, fixtures and equipment. Renovations and/or replacements that improve or extend the life of the real estate owned assets are capitalized and depreciated over their estimated useful lives. Real estate owned revenue is recognized when the Company satisfies a performance obligation by transferring a promised good or service to a customer. The Company is considered to have satisfied all performance obligation at a point in time. Real estate owned assets that are probable to be sold within one year are reported as held for sale. Real estate owned assets classified as held for sale 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. Interest and other expenses attributable to the liabilities of a disposal group classified as held for sale continue to be accrued. Upon the disposition of a real estate owned asset, the Company calculates realized gains and losses as net proceeds received less the carrying value of the real estate owned asset. Net proceeds received are net of direct selling costs associated with the disposition of the real estate owned asset. 26 Table of Contents Real Estate Securities - Estimating Fair Value 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. Related discounts, premiums, and acquisition expenses on investments are amortized over the life of the investment using the effective interest method. Amortization is reflected as an adjustment to interest income in the consolidated statements of operations. Credit Impairment Analysis of Real Estate Securities Real estate securities for which the fair value option has not been elected will be periodically evaluated for credit impairment. AFS real estate securities which have experienced a decline in the fair value below their amortized cost basis (i.e., impairment) are evaluated each reporting period to determine whether the decline in fair value is due to credit-related factors. Any impairment that is not credit-related is recognized in other comprehensive income, while credit-related impairment is recognized as an allowance on the consolidated balance sheets with a corresponding adjustment on the consolidated statements of operations. If the Company intends to sell an impaired real estate security or more likely than not will be required to sell such a security before recovering its amortized cost basis, the entire impairment amount is recognized in the consolidated statements of operations with a corresponding adjustment to the security’s amortized cost basis. The Company analyzes the AFS security portfolio on a periodic basis for credit losses at the individual security level using the same criteria described above for those amortized cost financial assets subject to an allowance for credit losses including but not limited to; performance of the underlying assets in the security, borrower financial resources and investment in collateral, collateral type, credit ratings, project economics and geographic location as well as national and regional economic factors. The non-credit loss component of the unrealized loss within the Company’s AFS portfolio is recognized as an adjustment to the individual security’s asset balance with an offsetting entry to other comprehensive income in the consolidated balance sheets. 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 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. Judgment is required to interpret market data and develop estimated fair values, particularly in circumstances of deteriorating credit quality and market liquidity. Results of Operations Comparison of the Year Ended December 31, 2022 to the Year Ended December 31, 2021 The Company conducts its business through the following segments: • The real estate debt business focuses on originating, acquiring and asset managing commercial real estate debt investments, including first mortgages, subordinate mortgages, mezzanine loans and participations in such loans. • The real estate securities business focuses on investing in and asset managing real estate securities. 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. Net Interest Income Net interest income is generated on our interest-earning assets less related interest-bearing liabilities and is recorded as part of our real estate debt, real estate securities and TRS segments. 27 Table of Contents The following table presents the average balance of interest-earning assets less related interest-bearing liabilities, associated interest income and expense and corresponding yield earned and incurred for the years ended December 31, 2022 and 2021 (dollars in thousands): Year Ended December 31, 2022 2021 Average Carrying Value (1) Interest Income / Expense (2) WA Yield / Financing Cost (3) Average Carrying Value (1) Interest Income / Expense (2) WA Yield / Financing Cost (3) Interest-earning assets: Real estate debt $ 4,917,287 $ 320,546 6.5 % $ 3,156,492 $ 189,090 6.0 % Real estate conduit 97,556 6,956 7.1 % 75,633 3,060 4.0 % Real estate securities 1,203,242 30,203 2.5 % 899,033 24,740 2.8 % Total $ 6,218,085 $ 357,705 5.8 % $ 4,131,158 $ 216,890 5.3 % Interest-bearing liabilities: Repurchase agreements - commercial mortgage loans $ 771,223 $ 40,162 5.2 % $ 477,138 $ 17,299 3.6 % Other financing and loan participation- commercial mortgage loans 47,216 1,487 3.1 % 36,045 1,874 5.2 % Repurchase agreements - real estate securities 1,097,874 8,850 0.8 % 871,466 3,639 0.4 % Collateralized loan obligations 2,909,513 108,926 3.7 % 1,821,993 35,920 2.0 % Unsecured debt 101,659 6,283 6.2 % 35,268 2,103 6.0 % Total $ 4,927,485 $ 165,708 3.4 % $ 3,241,910 $ 60,835 1.9 % Net interest income/spread $ 191,997 2.4 % $ 156,055 3.4 % Average leverage % (4) 79.2 % 78.5 % Weighted average levered yield (5) 14.9 % 17.5 % __ ______________________ (1) Based on amortized cost for real estate debt and real estate securities and principal amount for interest-bearing liabilities. Amounts are calculated based on daily averages for the years ended December 31, 2022 and 2021, respectively. (2) Includes the effect of amortization of premium or accretion of discount and deferred fees. (3) Calculated as interest income or expense divided by average carrying value. (4) Calculated by dividing total average interest-bearing liabilities by total average interest-earning assets. (5) Calculated by dividing net interest income/spread by the average interest-earning assets less average interest-bearing liabilities. Interest Income Interest income for the years ended December 31, 2022 and 2021 totaled $357.7 million and $216.9 million, respectively. 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 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. 28 Table of Contents 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 $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 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. 29 Table of Contents Expenses from Operations Expenses from operations for the years ended December 31, 2022 and 2021 were made up of the following (dollars in thousands): Year Ended December 31, 2022 2021 Asset management and subordinated performance fee $ 26,157 $ 28,110 Acquisition expenses 1,360 1,203 Administrative services expenses 12,928 7,658 Impairment of acquired assets — 88,282 Professional fees 22,566 11,650 Share-based compensation expense 2,519 — Real estate owned operating expenses — — Depreciation and amortization 5,408 2,107 Other expenses 6,572 3,946 Total expenses from operations $ 77,510 $ 142,956 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. 30 Table of Contents Comparison of the Three Months Ended December 31, 2022 to the Three Months Ended September 30, 2022 Net Interest Income Net interest income is generated on our interest-earning assets less related interest-bearing liabilities and is recorded as part of our real estate debt, real estate securities and TRS segments. The following table presents the average balance of interest-earning assets less related interest-bearing liabilities, associated interest income and expense and corresponding yield earned and incurred for the three months ended December 31, 2022 and September 30, 2022 (dollars in thousands): Three Months Ended December 31, 2022 September 30, 2022 Average Carrying Value (1) Interest Income / Expense (2) WA Yield / Financing Cost (3)(4) Average Carrying Value (1) Interest Income / Expense (2) WA Yield / Financing Cost (3)(4) Interest-earning assets: Real estate debt $ 5,261,204 $ 110,961 8.4 % $ 5,194,777 $ 91,097 7.0 % Real estate conduit 46,858 2,363 20.2 % 103,641 1,386 5.4 % 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 % Interest-bearing liabilities: Repurchase agreements - commercial mortgage loans $ 729,330 $ 14,120 7.7 % $ 709,679 $ 9,763 5.5 % Other financing and loan participation- commercial mortgage loans 59,508 310 2.1 % 47,774 590 4.9 % Repurchase agreements - real estate securities 394,491 4,350 4.4 % 283,699 1,779 2.5 % Collateralized loan obligations 3,180,163 43,485 5.5 % 3,223,925 32,432 4.0 % Unsecured debt 98,683 1,999 8.1 % 98,657 1,593 6.5 % Total $ 4,462,175 $ 64,264 5.8 % $ 4,363,734 $ 46,157 4.2 % Net interest income/spread $ 53,839 2.5 % $ 47,974 2.6 % Average leverage % (5) 78.1 % 78.4 % Weighted average levered yield (6) 17.2 % 16.0 % __ ______________________ (1) Based on amortized cost for real estate debt and real estate securities and principal amount for interest-bearing liabilities. Amounts are calculated based on daily averages for the three months ended December 31, 2022 and September 30, 2022, respectively. (2) Includes the effect of amortization of premium or accretion of discount and deferred fees. (3) Calculated as interest income or expense divided by average carrying value. (4) Annualized. (5) Calculated by dividing total average interest-bearing liabilities by total average interest-earning assets. (6) Calculated by dividing net interest income/spread by the average interest-earning assets less average interest-bearing liabilities. Interest Income Interest income for the three months ended December 31, 2022 and September 30, 2022 totaled $118.1 million and $94.1 million, respectively. 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. 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 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. 31 Table of Contents 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 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. 32 Table of Contents Expenses from Operations Expenses from operations for the three months ended December 31, 2022 and September 30, 2022 were made up of the following (dollars in thousands): Three Months Ended December 31, 2022 September 31, 2022 Asset management and subordinated performance fee $ 6,381 $ 6,430 Acquisition expenses 364 362 Administrative services expenses 3,526 3,001 Professional fees 4,278 4,743 Share-based compensation expense 669 — Depreciation and amortization 1,522 1,295 Other expenses 1,723 1,424 Total expenses from operations $ 18,463 $ 17,255 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. 33 Table of Contents 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, 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. Portfolio 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, 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. 34 Table of Contents The following charts summarize our commercial mortgage loans, held for investment, by coupon rate type, collateral type and geographical region as of December 31, 2022 and 2021: 35 Table of Contents 36 Table of Contents (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. 37 Table of Contents The following charts show the par value by contractual maturity year for the investments in our portfolio as of December 31, 2022 and 2021: 38 Table of Contents The following table shows selected data from our commercial mortgage loans, held for investment in our portfolio as of December 31, 2022 (dollars in thousands): Loan Type Property Type Par Value Interest Rate (1) Effective Yield (5) Loan to Value (2) Senior Debt 1 Hospitality $4,822 1 month LIBOR + 4.00% 8.39% 77.0% Senior Debt 2 Hospitality 57,075 1 month LIBOR + 5.19% 9.58% 51.8% 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 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 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 16 Office 63,811 1 month LIBOR + 3.70% 8.09% 65.7% 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 20 Manufactured Housing 7,680 1 month LIBOR + 4.50% 8.89% 66.7% Senior Debt 21 Self Storage 29,895 1 month LIBOR + 5.00% 9.39% 58.8% 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% Senior Debt 24 Office 18,203 1 month LIBOR + 4.50% 8.89% 47.9% Senior Debt 25 Office 65,519 5.15% 5.15% 52.5% Senior Debt 26 Office 35,000 1 month LIBOR + 5.21% 9.60% 66.0% 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 29 Industrial 14,985 1 month LIBOR + 4.50% 8.89% 66.3% Senior Debt 30 Multifamily 12,280 1 month LIBOR + 4.55% 8.94% 73.0% Senior Debt 31 Multifamily 21,000 1 month LIBOR + 4.60% 8.99% 66.7% Senior Debt 32 Office 12,971 1 month LIBOR + 5.00% 9.39% 63.9% Senior Debt 33 Office 43,751 1 month LIBOR + 3.94% 8.34% 53.9% Senior Debt 34 (2) Multifamily 12,892 1 month LIBOR + 7.25% 11.64% —% Senior Debt 35 Multifamily 5,400 1 month LIBOR + 5.25% 9.64% 83.1% Senior Debt 36 Hospitality 23,000 1 month LIBOR + 5.79% 10.18% 57.2% Senior Debt 37 Multifamily 34,750 1 month LIBOR + 6.75% 11.14% 78.2% Senior Debt 38 Multifamily 12,325 1 month LIBOR + 4.50% 8.89% 83.3% Senior Debt 39 Multifamily 5,575 1 month LIBOR + 4.50% 8.89% 83.6% Senior Debt 40 Multifamily 55,000 1 month LIBOR + 3.00% 7.39% 71.6% Senior Debt 41 Multifamily 14,465 1 month LIBOR + 3.39% 7.78% 70.6% Senior Debt 42 Multifamily 8,676 1 month LIBOR + 3.80% 8.19% 69.9% Senior Debt 43 Multifamily 13,582 1 month LIBOR + 4.50% 8.89% 76.7% Senior Debt 44 Multifamily 18,653 1 month LIBOR + 6.25% 10.64% 67.0% Senior Debt 45 Multifamily 19,536 1 month LIBOR + 3.60% 7.99% 70.8% Senior Debt 46 Multifamily 43,096 1 month LIBOR + 2.95% 7.34% 71.6% 39 Table of Contents Loan Type Property Type Par Value Interest Rate (1) Effective Yield (5) 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% Senior Debt 50 Multifamily 20,960 1 month LIBOR + 3.35% 7.74% 67.7% Senior Debt 51 Multifamily 30,231 1 month LIBOR + 2.95% 7.34% 70.4% Senior Debt 52 Multifamily 35,466 1 month LIBOR + 2.95% 7.34% 71.7% Senior Debt 53 Multifamily 33,588 1 month LIBOR + 2.95% 7.34% 72.2% Senior Debt 54 Hospitality 25,771 1 month LIBOR + 9.00% 13.39% 74.2% Senior Debt 55 Self Storage 15,000 1 month LIBOR + 4.26% 8.65% 74.6% Senior Debt 56 Multifamily 25,198 1 month LIBOR + 3.25% 7.64% 70.8% Senior Debt 57 Office 6,742 1 month LIBOR + 5.25% 9.64% 67.3% 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% Senior Debt 60 Hospitality 19,640 1 month LIBOR + 5.35% 9.74% 56.8% Senior Debt 61 Hospitality 33,000 1 month LIBOR + 6.25% 10.64% 59.2% Senior Debt 62 (2) Multifamily 27,202 1 month LIBOR + 8.00% 12.39% —% Senior Debt 63 Multifamily 15,874 1 month LIBOR + 3.75% 8.14% 76.9% Senior Debt 64 Multifamily 30,420 1 month LIBOR + 3.00% 7.39% 73.5% Senior Debt 65 Multifamily 40,046 1 month LIBOR + 3.15% 7.54% 71.0% Senior Debt 66 Multifamily 42,850 1 month LIBOR + 3.40% 7.79% 79.9% Senior Debt 67 Multifamily 36,760 1 month LIBOR + 3.64% 8.03% 66.0% Senior Debt 68 Multifamily 8,500 1 month LIBOR + 3.75% 8.14% 79.4% Senior Debt 69 Multifamily 14,200 1 month LIBOR + 3.15% 7.54% 79.8% Senior Debt 70 Multifamily 13,667 1 month LIBOR + 3.75% 8.14% 64.2% Senior Debt 71 Multifamily 67,138 1 month LIBOR + 3.25% 7.64% 77.1% Senior Debt 72 Multifamily 10,268 1 month LIBOR + 3.75% 8.14% 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% Senior Debt 75 Hospitality 17,122 1 month LIBOR + 5.25% 9.64% 61.0% Senior Debt 76 Hospitality 16,500 1 month LIBOR + 7.10% 11.49% 73.0% Senior Debt 77 Multifamily 88,500 1 month LIBOR + 2.75% 7.14% 50.3% Senior Debt 78 Multifamily 56,150 1 month LIBOR + 3.10% 7.49% 78.9% Senior Debt 79 Multifamily 37,882 1 month LIBOR + 2.90% 7.29% 72.2% Senior Debt 80 Multifamily 54,151 1 month LIBOR + 3.10% 7.49% 67.2% Senior Debt 81 Multifamily 37,886 1 month LIBOR + 2.90% 7.29% 72.0% Senior Debt 82 Multifamily 65,741 1 month LIBOR + 2.85% 7.24% 70.6% Senior Debt 83 Multifamily 30,600 1 month LIBOR + 2.65% 7.04% 59.1% Senior Debt 84 Multifamily 31,662 1 month LIBOR + 3.25% 7.64% 80.0% Senior Debt 85 Multifamily 62,850 1 month LIBOR + 3.35% 7.74% 78.0% Senior Debt 86 Multifamily 43,745 1 month LIBOR + 3.00% 7.39% 74.8% Senior Debt 87 Multifamily 46,221 1 month LIBOR + 2.75% 7.14% 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% Senior Debt 90 Manufactured Housing 6,700 1 month LIBOR + 4.50% 8.89% 77.9% Senior Debt 91 Multifamily 58,680 1 month LIBOR + 3.45% 7.84% 74.8% 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% 40 Table of Contents Loan Type Property Type Par Value Interest Rate (1) Effective Yield (5) Loan to Value (2) Senior Debt 95 Multifamily 33,581 1 month LIBOR + 3.20% 7.59% 74.5% Senior Debt 96 Multifamily 40,231 1 month LIBOR + 2.90% 7.29% 71.7% Senior Debt 97 Multifamily 66,202 1 month LIBOR + 2.88% 7.27% 74.8% Senior Debt 98 Multifamily 63,722 1 month LIBOR + 2.88% 7.27% 75.5% Senior Debt 99 Multifamily 16,909 1 month SOFR + 3.50% 7.86% 71.7% Senior Debt 100 Multifamily 57,660 1 month LIBOR + 2.75% 7.14% 73.9% Senior Debt 101 Multifamily 65,953 1 month SOFR + 6.03% 10.39% 74.7% Senior Debt 102 Multifamily 22,240 1 month SOFR + 2.96% 7.32% 79.4% Senior Debt 103 Multifamily 25,746 1 month SOFR + 2.96% 7.32% 72.9% Senior Debt 104 Multifamily 31,678 1 month SOFR + 3.20% 7.56% 74.2% Senior Debt 105 Multifamily 78,050 1 month SOFR + 3.45% 7.81% 78.8% 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% Senior Debt 109 Multifamily 37,793 1 month SOFR + 3.55% 7.91% 66.2% 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% 41 Table of Contents 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 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% _______________________ (1) Our floating rate loan agreements contain the contractual obligation for the borrower to maintain an interest rate cap to protect against rising interest rates. In a simple interest rate cap, the borrower pays a premium for a notional principal amount based on a capped interest rate (the “cap rate”). When the floating rate exceeds the cap rate, the borrower receives a payment from the cap counterparty equal to the difference between the floating rate and the cap rate on the same notional principal amount for a specified period of time. When interest rates rise, the value of an interest rate cap will increase, thereby reducing the borrower's exposure to rising interest rates. (2) Loan to value percentage is from metrics at origination. 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. The following table shows selected data from our commercial mortgage loans, held for sale, measured at fair value as of December 31, 2022 (dollars in thousands): 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% $15,625 6.89% 45.32% ________________________ (1) Loan to value percentage is from metrics at origination. 42 Table of Contents 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 $ 127,772 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 Yield (1) Agency Securities: Fannie Mae/Freddie Mac ARMs $ 235,728 2.42% ________________________ (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”). 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% $ 221,000 Liquidity and Capital Resources Overview 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 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. 43 Table of Contents 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 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. 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, 2022 and 2021 are as follows (dollars in thousands): As of December 31, 2022 Repurchase Facility Committed Financing Amount Outstanding Interest Expense (1) Ending Weighted Average Interest Rate Term Maturity JPM Repo Facility (2) $ 500,000 $ 275,423 $ 11,773 7.42 % 10/6/2024 CS Repo Facility (3) 600,000 168,046 8,676 7.12 % 10/31/2023 WF Repo Facility (4) 500,000 79,807 7,492 7.11 % 11/21/2023 Barclays Revolver Facility (5) 250,000 — 1,267 N/A 9/20/2023 Barclays Repo Facility (6) 500,000 157,583 8,997 6.75 % 3/14/2025 Total $ 2,350,000 $ 680,859 $ 38,205 __________________________ (1) For the year ended December 31, 2022. Includes amortization of deferred financing costs. (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. (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. (6) There are two one-year extension options available at the Company's discretion. 44 Table of Contents As of December 31, 2021 Repurchase Facility Committed Financing Amount Outstanding Interest Expense (1) Ending Weighted Average Interest Rate Term Maturity JPM Repo Facility $ 400,000 $ 136,470 $ 5,178 2.13 % 10/6/2022 CS Repo Facility 300,000 137,364 3,446 2.43 % 9/30/2022 WF Repo Facility 450,000 186,734 2,090 1.64 % 11/21/2023 Barclays Revolver Facility 250,000 166,700 1,976 6.12 % 9/20/2023 Barclays Facility 500,000 392,332 4,057 1.76 % 3/14/2025 Total $ 1,900,000 $ 1,019,600 $ 16,747 _______________________ (1) For the year ended December 31, 2021. Includes amortization of deferred financing costs. 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 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 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 our consolidated financial statements (see Note 5 - Real Estate Owned). 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 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. 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 prior to termination) were as follows (dollars in thousands): December 31, 2022 December 31, 2021 Borrowings Outstanding Weighted Average Borrowings Outstanding Weighted Average Junior subordinated notes maturing in: October 2035 ($35,000 face amount) $ 34,508 8.25 % $ 34,470 7.86 % December 2035 ($40,000 face amount) 39,513 8.39 % 39,474 7.63 % September 2036 ($25,000 face amount) 24,674 8.39 % 24,650 7.67 % $ 98,695 8.34 % $ 98,594 7.72 % 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 $5.7 million and $0.6 million for the twelve months ended December 31, 2022 and 2021, respectively. 45 Table of Contents 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. Repurchase Agreements - Real Estate Securities The Company has entered into various Master Repurchase Agreements (the "MRAs") that allow the Company to sell real estate securities while providing a fixed repurchase price for the same real estate securities in the future. The repurchase contracts on each security under an MRA generally mature in 30-90 days and terms are adjusted for current market rates as necessary. Below is a summary of the Company's MRAs as of December 31, 2022 and 2021 (dollars in thousands): Weighted Average Counterparty Amount Outstanding Accrued Interest Collateral Pledged (1) Interest Rate Days to Maturity As of December 31, 2022 JP Morgan Securities LLC $ 103,513 $ 1,281 $ 120,751 5.34 % 22 Barclays Capital Inc. 119,351 1,646 144,778 5.18 % 50 Total/Weighted Average $ 222,864 $ 2,927 $ 265,529 5.25 % 37 As of December 31, 2021 JP Morgan Securities LLC $ 19,025 $ 261 $ 24,087 1.14 % 10 Goldman Sachs International — 37 — N/A N/A Barclays Capital Inc. 15,286 526 19,131 1.21 % 14 Citigroup Global Markets, Inc. — 81 — N/A N/A Total/Weighted Average $ 34,311 $ 905 $ 43,218 1.71 % 33 ________________________ (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 The Company pledges its real estate securities classified as trading as collateral for repurchase agreements with commercial banks and other financial institutions. Repurchase arrangements entered into by the Company involve the sale and a simultaneous agreement to repurchase the transferred assets at a future date and are accounted for as financings. The Company maintains the beneficial interest in the specific securities pledged during the term of each repurchase arrangement and receives the related principal and interest payments. The terms and conditions of repurchase agreements are negotiated on a transaction-by-transaction basis when each such agreement is initiated or renewed. The amount borrowed is generally equal to the fair value of the securities pledged, as determined by the lending counterparty, less an agreed-upon discount, referred to as a “haircut.” Interest rates are generally fixed based on prevailing rates corresponding to the terms of the borrowings. Interest may be paid monthly or at the termination of an agreement at which time the Company may enter into a new agreement at prevailing haircuts and rates with the same lending counterparty or repay that counterparty and negotiate financing with a different lending counterparty. None of the Company’s lending counterparties are obligated to renew or otherwise enter into new agreements at the conclusion of existing agreements. In response to declines in fair value of pledged securities due to changes in market conditions or the publishing of monthly security pay-down factors, lending counterparties typically require the Company to post additional securities as collateral, pay down borrowings or fund cash margin accounts with the counterparties in order to re-establish the agreed-upon collateral requirements. These actions are referred to as margin calls. 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. 46 Table of Contents 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): Amount Outstanding Accrued Interest Collateral Pledged Weighted Average Interest Rates 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 % December 31, 2021 Repurchase arrangements secured by Agency securities with maturities of 30 days or less $ 4,144,473 $ 8,908 $ 4,327,020 0.13 % 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 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. Future agreements are dependent upon the willingness of lenders to participate in the financing of mortgage investments, lender collateral requirements and the lenders’ determination of the fair value of the investments pledged as collateral, which fluctuates with changes in interest rates and liquidity conditions within the commercial banking and mortgage finance industries. None of our repurchase agreement counterparties are obligated to renew or otherwise enter into new agreements at the conclusion of existing borrowings. 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. 47 Table of Contents Repurchase Agreements 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 Amount Outstanding Average Outstanding Balance Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Repurchase Agreements, Commercial Mortgage Loans $ 522,890 $ 832,034 $ 699,408 $ 680,859 $ 813,144 $ 834,337 $ 709,679 $ 729,329 Repurchase Agreements, Real Estate Securities $ 54,610 $ 53,288 $ 112,613 $ 222,864 $ 44,744 $ 54,033 $ 53,688 $ 174,389 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 Amount Outstanding Average Outstanding Balance Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Repurchase Agreements, Commercial Mortgage Loans $ 152,925 $ 287,462 $ 550,156 $ 1,019,600 $ 340,485 $ 282,891 $ 331,871 $ 959,729 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 Amount Outstanding Average Outstanding Balance Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Repurchase Agreements, Commercial Mortgage Loans $ 234,524 $ 226,224 $ 183,033 $ 276,340 $ 282,282 $ 238,280 $ 197,632 $ 279,187 Repurchase Agreements, Real Estate Securities $ 496,880 $ 335,256 $ 177,541 $ 186,828 $ 412,809 $ 351,202 $ 316,229 $ 183,632 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. 48 Table of Contents Cash Flows 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 $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 $1,258.4 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 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 $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 $1,225.6 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. Net cash used in financing activities for the year ended December 31, 2021 was $1,139.2 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. Election as a REIT We elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code commencing with the taxable year ended December 31, 2013. As a REIT, if we meet certain organizational and operational requirements and distribute at least 90% of our "REIT taxable income" (determined before the deduction of dividends paid and excluding net capital gains) to our stockholders in a year, we will not be subject to U.S. federal income tax to the extent of the income that we distribute. Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income and property, and U.S. federal income and excise taxes on our undistributed income. 49 Table of Contents Contractual Obligations and Commitments Our contractual obligations, excluding interest obligations (as amounts are not fixed or determinable), as of December 31, 2022 are summarized as follows (dollars in thousands): Less than 1 year 1 to 3 years 3 to 5 years More than 5 years Total Unfunded loan commitments (1) $ — $ 385,930 $ 80,058 $ — $ 465,988 Repurchase agreements - commercial mortgage loans 247,853 433,006 — — 680,859 Repurchase agreements - real estate securities 440,008 — — — 440,008 CLOs (2) — — — 3,147,728 3,147,728 Mortgage Note Payable — — — 23,998 23,998 Unsecured debt — — — 98,695 98,695 Other financing and loan participation - commercial mortgage loans 59,247 17,054 — — 76,301 Total $ 747,108 $ 835,990 $ 80,058 $ 3,270,421 $ 4,933,577 ________________________ (1) The allocation of our unfunded loan commitments is based on the earlier of the commitment expiration date or the loan maturity date. (2) Excludes $453.4 million of CLO notes, held by the Company, which are eliminated within the collateralized loan obligation line of the consolidated balance sheets as of December 31, 2022. In addition to its cash requirements, the Company pays a quarterly dividend and has an existing share repurchase authorization. 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, 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. Related Party Arrangements Benefit Street Partners L.L.C. Amended Advisory Agreement Refer to “Note 11 - Related Party Transactions and Arrangements” for a summary of the Company’s Advisory Agreement with the Advisor and amounts paid to the Advisor pursuant to the Advisory Agreement for the years ended December 31, 2022 and December 31, 2021. The Nominating and Corporate Governance Committee (the “Committee”) of the Company's board of directors, which consists solely of the Company’s independent directors, negotiated, approved and recommended that the board of directors approve, the amended Advisory Agreement. The Committee engaged independent legal counsel to assist the Committee in negotiating the amended Advisory Agreement. Pursuant to the amended Advisory Agreement, the Advisor provides the daily management for the Company and the Operating Partnership, including an investment program consistent with the investment objectives and policies of the Company as determined and adopted from time to time by the board of directors. The initial term of the amended Advisory Agreement was three-years and was automatically renewed for an additional one-year period on January 19, 2023 and will continue to automatically renew for additional one-year periods unless either party elects not to renew. The Company may terminate the amended Advisory Agreement for a Cause Event (as defined in the amended Advisory Agreement) without payment of a termination fee. Following the expiration of a term, and upon 180 days’ prior written notice, the Company may, without cause, elect not to renew the amended Advisory Agreement upon the determination by two-thirds of the Company’s independent directors that (i) there has been unsatisfactory performance by the Advisor or (ii) that the asset management fee and annual subordinated performance fee payable to the Advisor are not fair, subject to certain conditions. In such case, the Company shall be obligated to pay a termination fee. During the term of the amended Advisory Agreement, the Advisor shall not, directly or indirectly, manage or advise another REIT that is engaged in the business of the Company in any geographical region in which the Company has a significant investment, or provide any services related to fixed-rate conduit lending to any other person, subject to certain conditions. 50 Table of Contents Advisory Agreement Fees and Reimbursements Pursuant to the Advisory Agreement, the Company is or was required to make the following payments and reimbursements to the Advisor: • The Company reimburses the Advisor’s costs of providing services pursuant to the Advisory Agreement, except the salaries and benefits paid by the Advisor to the Company's executive officers. • The Company pays the Advisor, or its affiliates, a monthly asset management fee equal to one-twelfth of 1.5% of stockholders' equity as calculated pursuant to the Advisory Agreement. • The Company will pay the Advisor an annual subordinated performance fee calculated on the basis of total return to stockholders, payable monthly in arrears, such that for any year in which total return on stockholders’ capital (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. Lending Agreement with Stockholder 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. 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 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. 51 Table of Contents The table below shows the costs incurred due to arrangements with our Advisor and its affiliates during the years ended December 31, 2022, 2021 and 2020 and the associated amounts payable as of December 31, 2022 and 2021 (dollars in thousands). See Note 11 - Related Party Transactions and Arrangements for further detail. Year Ended December 31, Payable as of December 31, 2022 2021 2020 2022 2021 Acquisition expenses (1) $ 1,360 $ 1,203 $ 696 $ — $ — Administrative services expenses 12,928 7,658 13,120 3,526 — Asset management and subordinated performance fee 26,157 28,110 15,178 8,843 15,595 Other related party expenses (2)(3) 875 355 703 3,060 1,943 Total related party fees and reimbursements $ 41,320 $ 37,326 $ 29,697 $ 15,429 $ 17,538 ______________________ (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) 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. Off Balance Sheet Arrangements We currently have no off balance sheet arrangements as of December 31, 2022 and through the date of the filing of this Form 10-K. Non-GAAP Financial Measures 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. 52 Table of Contents 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): Year Ended December 31, 2022 2021 2020 GAAP Net Income $ 14,215 $ 25,702 $ 54,746 Adjustments: Depreciation and amortization 5,408 2,107 2,234 Impairment of Acquired Assets — 88,282 — CLO amortization acceleration (1) (438) 250 264 Unrealized (gain)/loss on financial instruments (2) 17,010 (7,853) 1,102 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) 5,104 — — 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 7.5% Cumulative Redeemable Preferred Stock, Series E Dividend $ (19,367) $ (4,842) $ — 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/(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 ________________________ (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) 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. 53 Table of Contents