BrightSpire Capital, Inc. [BRSP] Filings

10-Q 1 brsp-20240630.htm 10-Q brsp-20240630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-38377

BRIGHTSPIRE CAPITAL, INC.

(Exact Name of Registrant as Specified in Its Charter)

Maryland

38-4046290

(State or Other Jurisdiction of
Incorporation or Organization)

(I.R.S. Employer
Identification No.)

590 Madison Avenue, 33rd Floor

New York, NY 10022

(Address of Principal Executive Offices, Including Zip Code)

(212) 547-2631

(Registrant’s Telephone Number, Including Area Code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A common stock, par value $0.01 per share

BRSP

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:

As of July 30, 2024, BrightSpire Capital, Inc. had 130,628,662 shares of Class A common stock, par value $0.01 per share, outstanding.

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BRIGHTSPIRE CAPITAL, INC.

FORM 10-Q

TABLE OF CONTENTS


Index		Page

Part I.		4
Item 1.	Financial Information	4
	Financial Statements	4
	Consolidated Balance Sheets as of June 30, 2024 (unaudited) and December 31, 2023	4
	Consolidated Statements of Operations (unaudited) for the three and six months ended June 30, 2024 and 2023	6
	Consolidated Statements of Comprehensive Loss (unaudited) for the three and six months ended June 30, 2024 and 2023	7
	Consolidated Statements of Equity (unaudited) for the three and six months ended June 30, 2024 and 2023	8
	Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2024 and 2023	10
	Notes to Consolidated Financial Statements (unaudited)	12
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	52
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	79
Item 4.	Controls and Procedures	81
Part II.	Other Information	82
Item 1.	Legal Proceedings	82
Item 1A.	Risk Factors	82
Item 2.	Unregistered Sales of Equity and Use of Proceeds	82
Item 3.	Defaults Upon Senior Securities	82
Item 4.	Mine Safety Disclosures	82
Item 5.	Other Information	82
Item 6.	Exhibits	83
Signatures

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Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q may contain forward-looking statements within the meaning of the federal securities laws. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward-looking statements by the use of forward-looking terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” or “potential” or the negative of these words and phrases or similar words or phrases which are predictions of or indicate future events or trends and which do not relate solely to historical matters. Forward-looking statements involve known and unknown risks, uncertainties, assumptions and contingencies, many of which are beyond our control, and may cause actual results to differ significantly from those expressed in any forward-looking statement.

Among others, the following uncertainties and other factors could cause actual results to differ from those set forth in the forward-looking statements:

•operating costs and business disruption may be greater than expected;

•the impacts of the COVID-19 pandemic, such as changes in consumer behavior and corporate policies that have affected the use of and demand for traditional retail, hotel and office space;

•we depend on borrowers and tenants for a substantial portion of our revenue and, accordingly, our revenue and our ability to make distributions to stockholders will be dependent upon the success and economic viability of such borrowers and tenants;

•high interest rates may adversely impact the value of our variable-rate investments, resulting in higher interest expense, materially impacting our borrowers’ ability to refinance existing loans, and creating disruptions to our borrowers’ and tenants’ ability to finance their activities, on whom we depend for a substantial portion of our revenue;

•lower interest rates may materially impact earnings as a result of generating less income on our loans and our ability to redeploy funds in a timely manner or to supplement earnings loss;

•deterioration in the performance of the properties securing our investments (including depletion of interest and other reserves or payment-in-kind concessions in lieu of current interest payment obligations, population shifts and migration, or reduced demand for office, multifamily, hospitality or retail space) may cause deterioration in the performance of our investments and, potentially, principal losses to us;

•the fair value of our investments may be subject to uncertainties including impacts associated with inflation, high interest rates and, credit spreads and the transition from LIBOR to SOFR, and increased market volatility affecting commercial real estate businesses and public securities;

•our use of leverage and interest rate mismatches between our assets and borrowings could hinder our ability to make distributions and may significantly impact our liquidity position;

•the ability to realize expected returns on equity and/or yields on investments;

•adverse impacts on our corporate revolver, including covenant compliance and borrowing base capacity;

•adverse impacts on our liquidity, including available capacity under and margin calls on master repurchase facilities, debt service or lease payment defaults or deferrals, demands for protective advances and capital expenditures;

•our real estate investments are relatively illiquid and we may not be able to vary our portfolio in response to changes in economic and other conditions, which may result in losses to us;

•our inability to refinance existing mortgage debt on our real estate portfolio;

•the timing of and ability to deploy available capital;

•our lack of an established minimum distribution payment level, and whether we can continue to pay distributions in the future;

•the timing of and ability to complete repurchases of our common stock;

•the risks associated with obtaining mortgage financing on our real estate, which could materially adversely affect our business, financial condition and results of operations and our ability to make distributions to stockholders;

•the impact of legislative, regulatory, tax and competitive changes, regime changes and the actions of governmental authorities, and in particular those affecting the commercial real estate finance and mortgage industry or our business; and

•the ongoing impacts of global geopolitical uncertainty and unforeseen public health crises such as the COVID-19 pandemic on the real estate market.

The foregoing list of factors is not exhaustive, and many of these risks are heightened as a result of the numerous adverse impacts of the COVID-19 pandemic. We urge you to carefully review the disclosures we make concerning risks in the sections entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023, “Risk Factors” in this Form 10-Q for the quarter ended June 30, 2024 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” herein.

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We caution investors not to unduly rely on any forward-looking statements. The forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. The Company is under no duty to update any of these forward-looking statements after the date of this Quarterly Report on Form 10-Q, nor to conform prior statements to actual results or revised expectations, and the Company does not intend to do so.

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

BRIGHTSPIRE CAPITAL, INC.

CONSOLIDATED BALANCE SHEETS

(in Thousands, Except Share and Per Share Data)


	June 30, 2024 (Unaudited)		December 31, 2023
Assets
Cash and cash equivalents	$	203,306	$	257,506
Restricted cash	85,424		104,583
Loans held for investment	2,754,341		2,936,506
Current expected credit loss reserve	(171,330)		(76,028)
Loans held for investment, net	2,583,011		2,860,478

Real estate, net	736,870		807,985
Receivables, net	40,890		41,451
Deferred leasing costs and intangible assets, net	50,479		58,971
Assets held for sale	26,967		19,600
Other assets	50,822		47,680

Total assets	$	3,777,769	$	4,198,254
Liabilities
Securitization bonds payable, net	$	863,764	$	912,545
Mortgage and other notes payable, net	640,057		650,293
Credit facilities	998,699		1,152,723

Accrued and other liabilities	77,068		85,501
Intangible liabilities, net	3,450		4,138

Escrow deposits payable	69,542		88,603
Dividends payable	26,126		25,985

Total liabilities	2,678,706		2,919,788
Commitments and contingencies (Note 14)
Equity
Stockholders’ equity
Preferred stock, $0.01 par value, 50,000,000 shares authorized, no shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively	—		—
Common stock, $0.01 par value per share
Class A, 950,000,000 shares authorized, 130,628,662 and 129,985,107 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively	1,306		1,300
Additional paid-in capital	2,866,030		2,864,883
Accumulated deficit	(1,763,524)		(1,586,292)
Accumulated other comprehensive loss	(5,053)		(2,556)
Total stockholders’ equity	1,098,759		1,277,335
Noncontrolling interests in investment entities	304		1,131
Total equity	1,099,063		1,278,466
Total liabilities and equity	$	3,777,769	$	4,198,254

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

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BRIGHTSPIRE CAPITAL, INC.

CONSOLIDATED BALANCE SHEETS

(in Thousands)

The following table presents assets and liabilities of securitization vehicles and certain real estate properties that have noncontrolling interests as variable interest entities for which the Company is determined to be the primary beneficiary.


	June 30, 2024 (Unaudited)		December 31, 2023
Assets
Cash and cash equivalents	$	7,741	$	5,380
Restricted cash	9,635		7,023
Loans held for investment, net	1,097,335		1,170,034
Real estate, net	155,965		166,616
Receivables, net	11,981		11,731
Deferred leasing costs and intangible assets, net	8,042		7,753

Other assets	20,058		20,250

Total assets	$	1,310,757	$	1,388,787
Liabilities
Securitization bonds payable, net	$	863,764	$	912,545
Mortgage and other notes payable, net	168,687		170,412

Accrued and other liabilities	8,746		5,239
Intangible liabilities, net	2,813		3,460

Escrow deposits payable	2,260		927

Total liabilities	$	1,046,270	$	1,092,583

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

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BRIGHTSPIRE CAPITAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in Thousands, Except Per Share Data)

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Net interest income
Interest income	$	63,318	$	74,339	$	130,881	$	149,955
Interest expense	(38,066)		(44,095)		(78,200)		(86,757)


Net interest income	25,252		30,244		52,681		63,198

Property and other income
Property operating income	25,178		21,727		50,283		44,278
Other income	2,921		3,248		6,020		6,304
Total property and other income	28,099		24,975		56,303		50,582

Expenses

Property operating expense	7,903		5,443		16,548		11,295
Transaction, investment and servicing expense	391		820		1,013		1,655
Interest expense on real estate	6,748		6,773		13,531		12,282
Depreciation and amortization	8,953		7,941		19,343		15,937
Increase of current expected credit loss reserve	39,901		28,966		114,312		68,579
Impairment of operating real estate	45,216		—		45,216		—
Compensation and benefits (including $3,150, $3,102, $5,320 and $5,398 of equity-based compensation expense, respectively)	9,578		9,368		18,349		18,173
Operating expense	3,008		3,273		6,207		6,746

Total expenses	121,698		62,584		234,519		134,667

Other income


Other gain (loss), net	(142)		177		189		832
Loss before equity in earnings of unconsolidated ventures and income taxes	(68,489)		(7,188)		(125,346)		(20,055)
Equity in earnings (loss) of unconsolidated ventures	—		—		—		9,055
Income tax expense	(194)		(310)		(446)		(700)
Net loss	(68,683)		(7,498)		(125,792)		(11,700)
Net loss attributable to noncontrolling interests:
Investment entities	823		12		827		87

Net loss attributable to BrightSpire Capital, Inc. common stockholders	$	(67,860)	$	(7,486)	$	(124,965)	$	(11,613)

Net loss per common share - basic (Note 16)	$	(0.53)	$	(0.06)	$	(0.99)	$	(0.09)
Net loss per common share - diluted (Note 16)	$	(0.53)	$	(0.06)	$	(0.99)	$	(0.09)

Weighted average shares of common stock outstanding - basic (Note 16)	127,986		127,173		127,656		126,920
Weighted average shares of common stock outstanding - diluted (Note 16)	127,986		127,173		127,656		126,920

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

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BRIGHTSPIRE CAPITAL, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in Thousands)

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Net loss	$	(68,683)	$	(7,498)	$	(125,792)	$	(11,700)
Other comprehensive gain (loss)


Foreign currency translation gain (loss)	1,097		(1,606)		(2,497)		(5,069)
Total other comprehensive gain (loss)	1,097		(1,606)		(2,497)		(5,069)
Comprehensive loss	(67,586)		(9,104)		(128,289)		(16,769)
Comprehensive loss attributable to noncontrolling interests:
Investment entities	823		12		827		87

Comprehensive loss attributable to common stockholders	$	(66,763)	$	(9,092)	$	(127,462)	$	(16,682)

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

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BRIGHTSPIRE CAPITAL, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(in Thousands)

(Unaudited)


	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity		Noncontrolling Interests in Investment Entities		Total Equity
	Class A
	Shares	Amount
Balance as of December 31, 2022	128,872	$	1,289	$	2,853,723	$	(1,466,568)	$	(676)	$	1,387,768	$	1,256	$	1,389,024
Distributions	—	—		—		—		—		—		(28)		(28)
Issuance and amortization of equity-based compensation	1,527	15		2,280		—		—		2,295		—		2,295
Other comprehensive loss	—	—		—		—		(3,463)		(3,463)		—		(3,463)
Dividends and distributions declared ($0.20 per share)	—	—		—		(26,170)		—		(26,170)		—		(26,170)
Shares canceled for tax withholding on vested stock awards	(453)	(5)		(2,880)		—		—		(2,885)		—		(2,885)
Net loss	—	—		—		(4,127)		—		(4,127)		(75)		(4,202)
Balance as of March 31, 2023	129,946	$	1,299	$	2,853,123	$	(1,496,865)	$	(4,139)	$	1,353,418	$	1,153	$	1,354,571

Distributions	—	$	—	$	—	$	—	$	—	$	—	$	(28)	$	(28)
Issuance and amortization of equity-based compensation	93	1		3,102		—		—		3,103		—		3,103
Other comprehensive loss	—	—		—		—		(1,606)		(1,606)		—		(1,606)
Dividends and distributions declared ($0.20 per share)	—	—		—		(26,000)		—		(26,000)		—		(26,000)

Net loss	—	—		—		(7,486)		—		(7,486)		(12)		(7,498)
Balance as of June 30, 2023	130,039	$	1,300	$	2,856,225	$	(1,530,351)	$	(5,745)	$	1,321,429	$	1,113	$	1,322,542

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

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BRIGHTSPIRE CAPITAL, INC.

CONSOLIDATED STATEMENTS OF EQUITY (Continued)

(in Thousands)

(Unaudited)


	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity		Noncontrolling Interests in Investment Entities		Total Equity
	Class A
	Shares	Amount
Balance as of December 31, 2023	129,985	$	1,300	$	2,864,883	$	(1,586,292)	$	(2,556)	$	1,277,335	$	1,131	$	1,278,466

Issuance and amortization of equity-based compensation	1,243	12		2,158		—		—		2,170		—		2,170
Other comprehensive loss	—	—		—		—		(3,594)		(3,594)		—		(3,594)
Dividends and distributions declared ($0.20 per share)	—	—		—		(26,036)		—		(26,036)		—		(26,036)
Shares canceled for tax withholding on vested stock awards	(592)	(6)		(3,969)		—		—		(3,975)		—		(3,975)
Net loss	—	—		—		(57,103)		—		(57,103)		(4)		(57,107)
Balance as of March 31, 2024	130,636	$	1,306	$	2,863,072	$	(1,669,431)	$	(6,150)	$	1,188,797	$	1,127	$	1,189,924

Issuance and amortization of equity-based compensation	80	1		3,149		—		—		3,150		—		3,150
Share forfeitures	(52)	—		—		—		—		—		—		—
Other comprehensive income	—	—		—		—		1,097		1,097		—		1,097
Dividends and distributions declared ($0.20 per share)	—	—		—		(26,233)		—		(26,233)		—		(26,233)
Shares canceled for tax withholding on vested stock awards	(35)	(1)		(191)		—		—		(192)		—		(192)
Net loss	—	—		—		(67,860)		—		(67,860)		(823)		(68,683)
Balance as of June 30, 2024	130,629	$	1,306	$	2,866,030	$	(1,763,524)	$	(5,053)	$	1,098,759	$	304	$	1,099,063

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

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BRIGHTSPIRE CAPITAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in Thousands)

(Unaudited)


	Six Months Ended June 30,
	2024		2023
Cash flows from operating activities:
Net loss	$	(125,792)	$	(11,700)
Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation and amortization	19,343		15,937
Straight-line rental income	(1,618)		(834)
Amortization of above (below) market lease values, net	256		(340)
Amortization of premium/accretion of discount and fees on investments and borrowings, net	(3,774)		(5,755)
Amortization of deferred financing costs	4,455		5,979
Amortization of right-of-use lease assets and operating lease liabilities	108		66
Paid-in-kind interest added to loan principal, net of interest received	(943)		(3,346)








Increase of current expected credit loss reserve	114,312		68,579
Impairment of operating real estate	44,800		—

Amortization of equity-based compensation	5,320		5,398
Mortgage notes (above) below market value amortization	4		(1,381)

Deferred income tax (benefit) expense	(288)		36
Other gain, net	—		(753)
Changes in assets and liabilities:
Receivables, net	2,572		2,125
Deferred costs and other assets	(1,533)		(1,090)

Other liabilities	(9,795)		(10,168)
Net cash provided by operating activities	47,427		62,753
Cash flows from investing activities:
Acquisition, origination and funding of loans held for investment, net	(33,413)		(35,936)
Repayment on loans held for investment	200,974		249,482




Acquisition of and additions to real estate and related intangibles	(2,237)		(5,486)


Distributions in excess of cumulative earnings from unconsolidated ventures	—		245







Cash received related to foreclosure of loans held for investment	—		1,308
Change in escrow deposits payable	(19,061)		(11,737)
Net cash provided by investing activities	146,263		197,876
Cash flows from financing activities:
Distributions paid on common stock	(52,031)		(51,951)

Shares canceled for tax withholding on vested stock awards	(4,167)		(2,885)


Borrowings from mortgage notes	—		34,466
Repayment of mortgage notes	(2,847)		(30,907)
Borrowings from credit facilities	11,840		110,324
Repayment of credit facilities	(166,054)		(233,141)

Repayment of securitization bonds	(50,163)		(177,529)

Payment of deferred financing costs	(3,787)		(4,731)

Distributions to noncontrolling interests	—		(56)

Issuance of common stock	13		16
Net cash used in financing activities	(267,196)		(356,394)
Effect of exchange rates on cash, cash equivalents and restricted cash	147		(306)
Net decrease in cash, cash equivalents and restricted cash	(73,359)		(96,071)
Cash, cash equivalents and restricted cash - beginning of period	362,089		398,828
Cash, cash equivalents and restricted cash - end of period	$	288,730	$	302,757

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

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BRIGHTSPIRE CAPITAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(in Thousands)

(Unaudited)


	Six Months Ended June 30,
	2024		2023
Reconciliation of cash, cash equivalents, and restricted cash to consolidated balance sheets
Beginning of the period
Cash and cash equivalents	$	257,506	$	306,320
Restricted cash	104,583		92,508
Total cash, cash equivalents and restricted cash, beginning of period	$	362,089	$	398,828

End of the period
Cash and cash equivalents	$	203,306	$	218,170
Restricted cash	85,424		84,587
Total cash, cash equivalents and restricted cash, end of period	$	288,730	$	302,757


	Six Months Ended June 30,
	2024		2023



Supplemental disclosure of non-cash investing and financing activities:








Accrual of distribution payable	$	26,126	$	(26,000)

Assumption of accounts payable, accrued expenses and other liabilities related to real estate owned	—		(1,861)
Assumption of real estate	—		73,652

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

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BRIGHTSPIRE CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Business and Organization

BrightSpire Capital, Inc. (the “Company”) is a commercial real estate (“CRE”) credit real estate investment trust (“REIT”) focused on originating, acquiring, financing and managing a diversified portfolio consisting primarily of CRE debt investments and net leased properties predominantly in the United States. CRE debt investments primarily consist of first mortgage loans, which the Company expects to be its primary investment strategy. Additionally, the Company may selectively originate mezzanine loans and make preferred equity investments, which may include profit participations. The mezzanine loans and preferred equity investments may be in conjunction with the Company’s origination of corresponding first mortgages on the same properties. Net leased properties consist of CRE properties with long-term leases to tenants on a net-lease basis, where such tenants generally will be responsible for property operating expenses such as insurance, utilities, maintenance capital expenditures and real estate taxes. The Company will continue to target net leased equity investments on a selective basis.

The Company was organized in the state of Maryland on August 23, 2017 and maintains key offices in New York, New York and Los Angeles, California. The Company elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, beginning with the taxable year ended December 31, 2018. The Company conducts all activities and holds substantially all assets and liabilities through the Company’s operating subsidiary, BrightSpire Capital Operating Company, LLC (the “OP”).

Trends Affecting the Business

Although global markets showed signs of stabilization and inflationary pressure may be moderating due to increased interest rates through the fourth quarter of 2023, CRE value uncertainties, aftershock of COVID-19 and geopolitical unrest continue to contribute to market volatility. Generationally high interest rates have continued to negatively impact transaction activity in the real estate market and correspondingly the loan financing and refinancing opportunities. While the Federal Reserve is expected to begin lowering interest rates in the second half of 2024, it is uncertain as to when and how many interest rate cuts will occur. To the extent certain of the Company’s borrowers are experiencing significant financial dislocation as a result of economic conditions, the Company has and may continue to use interest and other reserves and/or replenishment obligations of the borrower and/or guarantors to meet current interest payment obligations for a limited period. The market for office properties was particularly negatively impacted by COVID-19 and continues to experience headwinds driven by the normalization of work from home and hybrid work arrangements and elevated costs to operate or reconfigure office properties. These factors have largely resulted in lower demand for office space and driven rising vacancy rates. Given the uncertainty in the office market, there is risk of future valuation impairment or investment loss on the Company’s loans secured by office properties. Similarly, these trends may impact the Company’s ability to manage debt covenant tests, maturity dates and/or seek suitable refinancing opportunities on certain of the Company’s office property equity investments, which may adversely impact valuation assessments and cash flow generated by such investments.

While macroeconomic conditions continue to be challenged, the Company cannot predict whether they will in fact improve or even intensify. Due to the inherent uncertainty of these conditions, their impact on the Company’s business is difficult to predict and quantify.

2. Summary of Significant Accounting Policies

The significant accounting policies of the Company are described below. The accounting policies of the Company’s unconsolidated ventures are substantially similar to those of the Company.

Basis of Presentation

The accompanying unaudited interim financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and footnotes required by generally accepted accounting principles in the United States of America (“GAAP”) for complete financial statements. These statements reflect all normal and recurring adjustments which, in the opinion of management, are necessary to present fairly the financial position, results of operations and cash flows of the Company for the interim periods presented. However, the results of operations for the interim period presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2024, or any other future period. These interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in, or presented as exhibits to, the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, as certain disclosures that would substantially duplicate those contained in the audited consolidated financial statements have not been included in this interim report.

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Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates and assumptions.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its controlled subsidiaries. All significant intercompany accounts and transactions have been eliminated. The portions of equity, net income and other comprehensive income of consolidated subsidiaries that are not attributable to the parent are presented separately as amounts attributable to noncontrolling interests in the consolidated financial statements.

The Company consolidates entities in which it has a controlling financial interest by first considering if an entity meets the definition of a variable interest entity (“VIE”) for which the Company is deemed to be the primary beneficiary, or if the Company has the power to control an entity through a majority of voting interest or through other arrangements.

Variable Interest Entities

Variable Interest Entities—A VIE is an entity that either (i) lacks sufficient equity to finance its activities without additional subordinated financial support from other parties; (ii) whose equity holders lack the characteristics of a controlling financial interest; or (iii) is established with non-substantive voting rights. A VIE is consolidated by its primary beneficiary, which is defined as the party who has a controlling financial interest in the VIE through (a) power to direct the activities of the VIE that most significantly affect the VIE’s economic performance, and (b) obligation to absorb losses or right to receive benefits of the VIE that could be significant to the VIE.

During the first quarter of 2024, the Company modified an Arlington, Texas multifamily loan agreement which resulted in a reconsideration event under ASC 810, Consolidation. As part of the terms of the modified loan agreement, the borrower was required to deposit into a Company controlled reserve account by June 2024, an amount sufficient to purchase an interest rate cap, reimburse the Company for any advances made under the loan and cover property level expenses and shortfalls up to $5.4 million. If the borrower did not fund such deposit by June 2024, the Company had discretion to fund such amounts on behalf of the borrower through a preferred equity investment in the parent of the borrower, in the amounts up to $6.0 million. If the Company elected to fund any amount, it may also elect to trigger control rights over the underlying collateral. The Company concluded that as a result of the loan modification, its investment in the Arlington, Texas multifamily loan is a VIE. In June 2024, the borrower did not fund the deposit into the controlled reserve account and through June 30, 2024, the Company has not funded any amount to the preferred equity investment. As of June 30, 2024, the Company is not the primary beneficiary of this VIE, as the Company does not have the ability to control the most significant activities of the Arlington, Texas multifamily loan’s economic performance nor the obligation to absorb losses or right to receive benefits of the VIE that could be significant to the VIE.

Voting Interest Entities—Unlike VIEs, voting interest entities have sufficient equity to finance their activities and equity investors exhibit the characteristics of a controlling financial interest through their voting rights. The Company consolidates such entities when it has the power to control these entities through ownership of a majority of the entities’ voting interests or through other arrangements.

At each reporting period, the Company reassesses whether changes in facts and circumstances cause a change in the status of an entity as a VIE or voting interest entity, and/or a change in the Company’s consolidation assessment.

As of June 30, 2024 and December 31, 2023, the Company has identified certain consolidated VIEs. Assets of each of the VIEs, other than the OP, may only be used to settle obligations of the respective VIE. Creditors of each of the VIEs have no recourse to the general credit of the Company.

Consolidated VIEs

Consolidated VIEs include the Investing VIEs (as defined and discussed below) and certain operating real estate properties that have noncontrolling interests. At June 30, 2024 and December 31, 2023, the noncontrolling interests in the operating real estate properties represent third party joint venture partners with ownership ranging from 5.0% to 11.0%. These noncontrolling interests do not have substantive kick-out nor participating rights.

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Investing VIEs

The Company’s previous investments in securitization financing entities (“Investing VIEs”) included subordinate first-loss tranches of securitization trusts, which represented interests in such VIEs. As of June 30, 2024 and December 31, 2023, the Company did not hold any tranches of any securitization trusts, with the exception of its securitization bonds payable, net. Refer to Note 7, “Debt” for further discussion.

Unconsolidated VIEs

As of June 30, 2024, the Company held an interest in an unconsolidated VIE relating to an Arlington, Texas multifamily loan agreement. The maximum exposure to loss is the unpaid principal balance of the senior loan, which was $47.0 million at June 30, 2024. As of December 31, 2023, the Company did not hold, and had no remaining obligations to, any unconsolidated VIEs.

Noncontrolling Interests

Noncontrolling Interests in Investment Entities—This represents interests in consolidated investment entities held by third party joint venture partners.

Allocation of net income or loss is generally based upon relative ownership interests held by equity owners in each investment entity, or based upon contractual arrangements that may provide for disproportionate allocation of economic returns among equity interests, including using a hypothetical liquidation at book value (“HLBV”) basis, where applicable and substantive. HLBV uses a balance sheet approach, which measures each party’s capital account at the end of a period assuming that the subsidiary was liquidated or sold at book value. Each party’s share of the subsidiary’s earnings or loss is calculated by measuring the change in the party’s capital account from the beginning of the period in question to the end of period, adjusting for effects of distributions and new investments.

Comprehensive Income (Loss)

The Company reports consolidated comprehensive income (loss) in separate statements following the consolidated statements of operations. Comprehensive income (loss) is defined as the change in equity resulting from net income (loss) and other comprehensive income (“OCI”). The components of OCI include gain (loss) on derivative instruments used in the Company’s risk management activities used for economic hedging purposes (“designated hedges”) and gain (loss) on foreign currency translation.

Fair Value Measurement

Fair value is based on an exit price, defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Where appropriate, the Company makes adjustments to estimated fair values to appropriately reflect counterparty credit risk as well as the Company’s own creditworthiness.

The estimated fair value of financial assets and financial liabilities are categorized into a three-tier hierarchy, prioritized based on the level of transparency in inputs used in the valuation techniques, as follows:

Level 1—Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2—Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in non-active markets, or valuation techniques utilizing inputs that are derived principally from or corroborated by observable data directly or indirectly for substantially the full term of the financial instrument.

Level 3—At least one assumption or input is unobservable and it is significant to the fair value measurement, requiring significant management judgment or estimate.

Where the inputs used to measure the fair value of a financial instrument fall into different levels of the fair value hierarchy, the financial instrument is categorized within the hierarchy based on the lowest level of input that is significant to its fair value measurement.

Fair Value Option

The fair value option provides an option to elect fair value as an alternative measurement for selected financial instruments. Gains and losses on items for which the fair value option has been elected are reported in earnings. The fair value option may be elected only upon the occurrence of certain specified events, including when the Company enters into an eligible firm

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commitment, at initial recognition of the financial instrument, as well as upon a business combination or consolidation of a subsidiary. The election is irrevocable unless a new election event occurs.

Business Combinations

Definition of a Business—The Company evaluates each purchase transaction to determine whether the acquired assets meet the definition of a business. If substantially all of the fair value of gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, then the set of transferred assets and activities is not a business. If not, for an acquisition to be considered a business, it would have to include an input and a substantive process that together significantly contribute to the ability to create outputs (i.e., there is a continuation of revenue before and after the transaction). A substantive process is not ancillary or minor, cannot be replaced without significant costs, effort or delay or is otherwise considered unique or scarce. To qualify as a business without outputs, the acquired assets would require an organized workforce with the necessary skills, knowledge and experience that performs a substantive process.

Asset Acquisitions—For acquisitions that are not deemed to be businesses, the assets acquired are recognized based on their cost to the Company as the acquirer and no gain or loss is recognized. The cost of assets acquired in a group is allocated to individual assets within the group based on their relative fair values and does not give rise to goodwill. Transaction costs related to the acquisition of assets are included in the cost basis of the assets acquired. Such valuations require management to make significant estimates and assumptions.

Business Combinations—The Company accounts for acquisitions that qualify as business combinations by applying the acquisition method. Transaction costs related to the acquisition of a business are expensed as incurred and excluded from the fair value of consideration transferred. The identifiable assets acquired, liabilities assumed and noncontrolling interests in an acquired entity are recognized and measured at their estimated fair values. The excess of the fair value of consideration transferred over the fair values of identifiable assets acquired, liabilities assumed and noncontrolling interests in an acquired entity, net of fair value of any previously held interest in the acquired entity, is recorded as goodwill. Such valuations require management to make significant estimates and assumptions.

Cash and Cash Equivalents

Short-term, highly liquid investments with original maturities of three months or less are considered to be cash equivalents. The Company’s cash is held with major financial institutions. Certain cash account balances exceed Federal Deposit Insurance Corporation insurance limits of $250,000 per account and as a result, there is a concentration of credit risk related to amounts in excess of the insurance limits. The Company monitors the financial stability of these financial institutions and believes it is not exposed to any significant credit risk in cash and cash equivalents.

Restricted Cash

Restricted cash consists primarily of borrower escrow deposits, tenant escrow deposits and real estate capital expenditure reserves.

Loans Held for Investment

The Company originates and purchases loans held for investment. The accounting framework for loans held for investment depends on the Company’s strategy whether to hold or sell the loan or whether the loan was credit-impaired at the time of acquisition.

Loans Held for Investment

Loans that the Company has the intent and ability to hold for the foreseeable future are classified as held for investment. Originated loans are recorded at amortized cost, or outstanding unpaid principal balance plus exit fees less net deferred loan fees. Net deferred loan fees include unamortized origination and other fees charged to the borrower less direct incremental loan origination costs incurred by the Company. Purchased loans are recorded at amortized cost, or unpaid principal balance plus purchase premium or less unamortized discount. Costs to purchase loans are expensed as incurred.

Interest Income—Interest income is recognized based upon contractual interest rate and unpaid principal balance of the loans. Net deferred loan fees on originated loans are deferred and amortized as adjustments to interest income over the expected life of the loans using the effective yield method. Premium or discount on purchased loans are amortized as adjustments to interest income over the expected life of the loans using the effective yield method. When a loan is prepaid, prepayment fees and any excess of proceeds over the carrying amount of the loan is recognized as additional interest income.

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The Company has debt investments in its portfolio that contain a payment-in-kind (“PIK”) provision. Contractual PIK interest, which represents contractually deferred interest added to the loan balance that is due at the end of the loan term, is generally recorded on an accrual basis to the extent such amounts are expected to be collected. The Company will generally cease accruing PIK interest if there is insufficient value to support the accrual or management does not expect the borrower to be able to pay all principal and interest due.

Nonaccrual—Accrual of interest income is suspended on nonaccrual loans. Loans that are past due 90 days or more as to principal or interest, or where reasonable doubt exists as to timely collection, are generally considered nonperforming and placed on nonaccrual status. Interest receivable is reversed against interest income when loans are placed on nonaccrual status. Interest collected is recognized on a cash basis by crediting income when received; or if ultimate collectability of loan principal is uncertain, interest collected is recognized using a cost recovery method by applying interest collected as a reduction to loan carrying value. Loans may be restored to accrual status when all principal and interest are current and full repayment of the remaining contractual principal and interest are reasonably assured.

Loans Held for Sale

Loans that the Company intends to sell or liquidate in the foreseeable future are classified as held for sale. Loans held for sale are carried at the lower of amortized cost or fair value less disposal cost, with valuation changes recognized as impairment loss. Loans held for sale are not subject to Current Expected Credit Losses (“CECL”) reserves. Net deferred loan origination fees and loan purchase premiums or discounts are deferred and capitalized as part of the carrying value of the held for sale loan until the loan is sold, therefore included in the periodic valuation adjustments based on lower of cost or fair value less disposal cost.

At June 30, 2024 and December 31, 2023, the Company had no loans classified as held for sale.

Operating Real Estate

Real Estate Acquisitions—Real estate acquired in acquisitions that are deemed to be business combinations is recorded at the fair values of the acquired components at the time of acquisition, allocated among land, buildings, improvements, equipment and lease-related tangible and identifiable intangible assets and liabilities, including forgone leasing costs, in-place lease values and above- or below-market lease values and assumed debt, if any. Real estate acquired in acquisitions that are deemed to be asset acquisitions is recorded at the total value of consideration transferred, including transaction costs, and allocated to the acquired components based upon relative fair value. The estimated fair value of acquired land is derived from recent comparable sales of land and listings within the same local region based on available market data. The estimated fair value of acquired buildings and building improvements is derived from comparable sales, discounted cash flow analysis using market-based assumptions, or replacement cost, as appropriate. The fair value of site and tenant improvements is estimated based upon current market replacement costs and other relevant market rate information.

Real Estate Held for Investment

Real estate held for investment is carried at cost less accumulated depreciation.

Costs Capitalized or Expensed—Expenditures for ordinary repairs and maintenance are expensed as incurred, while expenditures for significant renovations that improve or extend the useful life of the asset are capitalized and depreciated over their estimated useful lives.

Depreciation—Real estate held for investment, other than land, is depreciated on a straight-line basis over the estimated useful lives of the assets, as follows:


Real Estate Assets						Term
Building (fee interest)						30 to 47 years
Building leasehold interests						Lesser of remaining term of the lease or remaining life of the building
Building improvements						Lesser of the useful life or remaining life of the building
Land improvements						1 to 15 years
Tenant improvements						Lesser of the useful life or remaining term of the lease
Furniture, fixtures and equipment						2 to 9 years

Impairment—The Company evaluates its real estate held for investment for impairment periodically or whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. The Company evaluates real estate for impairment generally on an individual property basis. If an impairment indicator exists, the Company evaluates the

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undiscounted future net cash flows that are expected to be generated by the property, including any estimated proceeds from the eventual disposition of the property. If multiple outcomes are under consideration, the Company may apply a probability-weighted approach to the impairment analysis. Another key consideration in this assessment is the Company’s assumptions about the highest and best use of its real estate investments and its intent and ability to hold them for a reasonable period that would allow for the recovery of their carrying values. If such assumptions change and the Company shortens its expected hold period, this may result in the recognition of impairment losses. Based upon the analysis, if the carrying value of a property exceeds its undiscounted future net cash flows, an impairment loss is recognized for the excess of the carrying value of the property over the estimated fair value of the property. In evaluating and/or measuring impairment, the Company considers, among other things, current and estimated future cash flows associated with each property, market information for each sub-market, including, where applicable, competition levels, foreclosure levels, leasing trends, occupancy trends, lease or room rates, and the market prices of similar properties recently sold or currently being offered for sale, and other quantitative and qualitative factors. See Note 4, “Real Estate, net and Real Estate Held for Sale” and Note 12, “Fair Value” for further detail.

Real Estate Held for Sale

Real estate is classified as held for sale in the period when (i) management approves a plan to sell the asset, (ii) the asset is available for immediate sale in its present condition, subject only to usual and customary terms, (iii) a program is initiated to locate a buyer and actively market the asset for sale at a reasonable price, and (iv) completion of the sale is probable within one year. Real estate held for sale is stated at the lower of its carrying amount or estimated fair value less disposal cost, with any write-down to fair value less disposal cost recorded as an impairment loss. For any increase in fair value less disposal cost subsequent to classification as held for sale, the impairment loss may be reversed, but only up to the amount of cumulative loss previously recognized. Depreciation is not recorded on assets classified as held for sale. At the time a sale is consummated, the excess, if any, of sale price less selling costs over carrying value of the real estate is recognized as a gain.

If circumstances arise that were previously considered unlikely and, as a result, the Company decides not to sell the real estate asset previously classified as held for sale, the real estate asset is reclassified as held for investment. Upon reclassification, the real estate asset is measured at the lower of (i) its carrying amount prior to classification as held for sale, adjusted for depreciation expense that would have been recognized had the real estate been continuously classified as held for investment, and (ii) its estimated fair value at the time the Company decides not to sell.

At June 30, 2024, the Company classified two properties as held for sale. At December 31, 2023, the Company classified one property as held for sale. Refer to Note 4, “Real Estate, net and Real Estate Held for Sale” and Note 12, “Fair Value” for further detail.

Foreclosed Properties

The Company receives foreclosed properties in full or partial settlement of loans held for investment by taking legal title or physical possession of the properties. Foreclosed properties are generally recognized at the time the real estate is received at foreclosure sale or upon execution of a deed in lieu of foreclosure. Foreclosed properties are initially measured at fair value. If the fair value of the property is lower than the carrying value of the loan, the difference is recognized as current expected credit loss reserves and the cumulative reserve on the loan is charged off. Fair value of foreclosed properties is generally based on a discounted cash flow, third party appraisals, broker price opinions, comparable sales or a combination thereof.

Investments in Unconsolidated Ventures

A noncontrolling, unconsolidated ownership interest in an entity may be accounted for using one of (i) equity method where applicable; (ii) fair value option if elected; (iii) fair value through earnings if fair value is readily determinable, including election of net asset value (“NAV”) practical expedient where applicable; or (iv) for equity investments without readily determinable fair values, the measurement alternative to measure at cost adjusted for any impairment and observable price changes, as applicable.

Fair value changes of equity method investments under the fair value option are recorded in earnings from investments in unconsolidated ventures. Fair value changes of other equity investments, including adjustments for observable price changes under the measurement alternative, are recorded in other gain (loss), net on the Company’s consolidated statements of operations.

Equity Method Investments

The Company accounts for investments under the equity method of accounting if it has the ability to exercise significant influence over the operating and financial policies of an entity, but does not have a controlling financial interest. The equity

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method investment is initially recorded at cost and adjusted each period for capital contributions, distributions and the Company’s share of the entity’s net income or loss as well as other comprehensive income or loss. The Company’s share of net income or loss may differ from the stated ownership percentage interest in an entity if the governing documents prescribe a substantive non-proportionate earnings allocation formula or a preferred return to certain investors. For certain equity method investments, the Company records its proportionate share of income on a one to three month lag. Distributions of operating profits from equity method investments are reported as operating activities, while distributions in excess of operating profits are reported as investing activities in the statement of cash flows under the cumulative earnings approach.

Impairment

Evaluation of impairment applies to equity method investments and equity investments under the measurement alternative. If indicators of impairment exist, the Company will first estimate the fair value of its investment. In assessing fair value, the Company generally considers, among others, the estimated fair value of the investee, which is based on significant assumptions including the estimated timing and probabilities of the future cash flows of the unconsolidated joint venture, utilizing discount rates and capitalization rates.

For investments under the measurement alternative, if carrying value of the investment exceeds its fair value, an impairment is deemed to have occurred.

For equity method investments, further consideration is made if a decrease in value of the investment is other-than-temporary to determine if impairment loss should be recognized. Assessment of Other Than Temporary Impairment involves management judgment, including, but not limited to, consideration of the investee’s financial condition, operating results, business prospects and creditworthiness, the Company’s ability and intent to hold the investment until recovery of its carrying value. If management is unable to reasonably assert that an impairment is temporary or believes that the Company may not fully recover the carrying value of its investment, then the impairment is considered to be other-than-temporary.

Investments that are other-than-temporarily impaired are written down to their estimated fair value. Impairment loss is recorded in earnings from investments in unconsolidated ventures for equity method investments and in other gain (loss), net for investments under the measurement alternative.

Identifiable Intangibles

In a business combination or asset acquisition, the Company may recognize identifiable intangibles that meet either or both the contractual-legal criterion or the separability criterion. Finite-lived intangibles are amortized over their useful life in a manner that reflects the pattern in which the intangible is being consumed if readily determinable, such as based upon expected cash flows; otherwise, they are amortized on a straight-line basis. The useful life of all identified intangibles will be periodically reassessed and if useful life changes, the carrying amount of the intangible will be amortized prospectively over the revised useful life.

Lease Intangibles—Identifiable intangibles recognized in acquisitions of operating real estate properties generally include in-place leases, above- or below-market leases and deferred leasing costs, all of which have finite lives. In-place leases generate value over and above the tangible real estate because a property that is occupied with leased space is typically worth more than a vacant building without an operating lease contract in place. The estimated fair value of acquired in-place leases is derived based on management’s assessment of costs avoided from having tenants in place, including lost rental income, rent concessions and tenant allowances or reimbursements, that hypothetically would be incurred to lease a vacant building to its actual existing occupancy level on the valuation date. The net amount recorded for acquired in-place leases is included in intangible assets and amortized on a straight-line basis as an increase to depreciation and amortization expense over the remaining term of the applicable leases. If an in-place lease is terminated, the unamortized portion is charged to depreciation and amortization expense.

The estimated fair value of the above- or below-market component of acquired leases represents the present value of the difference between contractual rents of acquired leases and market rents at the time of the acquisition for the remaining lease term, discounted for tenant credit risks. Above- or below-market operating lease values are amortized on a straight-line basis as a decrease or increase to rental income, respectively, over the applicable lease terms. This includes fixed rate renewal options in acquired leases that are below-market, which are amortized to decrease rental income over the renewal period. Above- or below-market ground lease obligations are amortized on a straight-line basis as a decrease or increase to rent expense, respectively, over the applicable lease terms. If the above- or below-market operating lease values or above- or below-market ground lease obligations are terminated, the unamortized portion of the lease intangibles are recorded in rental income or rent expense, respectively.

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Deferred leasing costs represent management’s estimate of the avoided leasing commissions and legal fees associated with an existing in-place lease. The net amount is included in intangible assets and amortized on a straight-line basis as an increase to depreciation and amortization expense over the remaining term of the applicable lease.

Transfers of Financial Assets

Sale accounting for transfers of financial assets requires the transfer of an entire financial asset, a group of financial assets in its entirety or if a component of the financial asset is transferred, that the component meets the definition of a participating interest with characteristics that mirror the original financial asset.

Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. If the Company has any continuing involvement, rights or obligations with the transferred financial asset (outside of standard representations and warranties), sale accounting requires that the transfer meets the following sale conditions: (1) the transferred asset has been legally isolated; (2) the transferee has the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred asset; and (3) the Company does not maintain effective control over the transferred asset through an agreement that provides for (a) both an entitlement and an obligation by the Company to repurchase or redeem the asset before its maturity, (b) the unilateral ability by the Company to reclaim the asset and a more than trivial benefit attributable to that ability, or (c) the transferee requiring the Company to repurchase the asset at a price so favorable to the transferee that it is probable the repurchase will occur.

If sale accounting is met, the transferred financial asset is removed from the balance sheet and a net gain or loss is recognized upon sale, taking into account any retained interests. Transfers of financial assets that do not meet the criteria for sale are accounted for as financing transactions, or secured borrowing, including the Company’s master repurchase facilities.

Derivative Instruments and Hedging Activities

The Company uses derivative instruments to manage its foreign currency risk and interest rate risk. The Company does not use derivative instruments for speculative or trading purposes. All derivative instruments are recorded at fair value and included in other assets or accrued and other liabilities on a gross basis on the Company’s consolidated balance sheet. The accounting for changes in fair value of derivatives depends upon whether or not the Company has elected to designate the derivative in a hedging relationship and the derivative qualifies for hedge accounting. Prior to June 30, 2024, the Company had economic hedges that were not designated for hedge accounting.

Changes in fair value of derivatives not designated as accounting hedges are recorded in the consolidated statements of operations in other gain (loss), net.

For designated accounting hedges, the relationships between hedging instruments and hedged items, risk management objectives and strategies for undertaking the accounting hedges as well as the methods to assess the effectiveness of the derivative prospectively and retrospectively, are formally documented at inception. Hedge effectiveness relates to the amount by which the gain or loss on the designated derivative instrument exactly offsets the change in the hedged item attributable to the hedged risk. If it is determined that a derivative is not expected to be or has ceased to be highly effective at hedging the designated exposure, hedge accounting is discontinued.

Cash Flow Hedges—The Company uses interest rate caps and swaps to hedge its exposure to interest rate fluctuations in forecasted interest payments on floating rate debt. The effective portion of the change in fair value of the derivative is recorded in accumulated other comprehensive income, while hedge ineffectiveness is recorded in earnings. If the derivative in a cash flow hedge is terminated or the hedge designation is removed, related amounts in accumulated other comprehensive income (loss) are reclassified into earnings.

Net Investment Hedges—The Company uses foreign currency hedges to protect the value of its net investments in foreign subsidiaries or equity method investees whose functional currencies are not U.S. dollars. Changes in the fair value of derivatives used as hedges of net investment in foreign operations, to the extent effective, are recorded in the cumulative translation adjustment account within accumulated other comprehensive income (loss).

At the end of each quarter, the Company reassesses the effectiveness of its net investment hedges and as appropriate, designates the portion of the derivative notional amount that is in excess of the beginning balance of its net investments as undesignated hedges.

Release of accumulated other comprehensive income related to net investment hedges occurs upon losing a controlling financial interest in an investment or obtaining control over an equity method investment. Upon sale, complete or substantially complete

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liquidation of an investment in a foreign subsidiary, or partial sale of an equity method investment, the gain or loss on the related net investment hedge is reclassified from accumulated other comprehensive income to earnings. Refer to Note 13, “Derivatives” for further discussion on the Company’s derivative and hedging activity.

Financing Costs

Financing costs primarily include debt discounts and premiums as well as deferred financing costs. Deferred financing costs represent commitment fees, legal and other third-party costs associated with obtaining financing. Costs related to revolving credit facilities are recorded in other assets and are amortized to interest expense using the straight-line basis over the term of the facility. Costs related to other borrowings are recorded net against the carrying value of such borrowings and are amortized to interest expense using the effective interest method. Unamortized deferred financing costs are expensed to other gain (loss), net when the associated facility is repaid before maturity. Costs incurred in seeking financing transactions, which do not close, are expensed in the period in which it is determined that the financing will not occur.

Revenue Recognition

Property Operating Income

Property operating income includes the following:

Rental Income—Rental income is recognized on a straight-line basis over the non-cancellable term of the related lease which includes the effects of minimum rent increases and rent abatements under the lease. Rents received in advance are deferred.

When it is determined that the Company is the owner of tenant improvements, the cost to construct the tenant improvements, including costs paid for or reimbursed by the tenants, is capitalized. For tenant improvements owned by the Company, the amount funded by or reimbursed by the tenants are recorded as deferred revenue, which is amortized on a straight-line basis as additional rental income over the term of the related lease. Rental income recognition commences when the leased space is substantially ready for its intended use and the tenant takes possession of the leased space.

When it is determined that the tenant is the owner of tenant improvements, the Company’s contribution towards those improvements is recorded as a lease incentive, included in deferred leasing costs and intangible assets on the balance sheet, and amortized as a reduction to rental income on a straight-line basis over the term of the lease. Rental income recognition commences when the tenant takes possession of the lease space.

Tenant Reimbursements—In net lease arrangements, the tenant is generally responsible for operating expenses related to the property, including real estate taxes, property insurance, maintenance, repairs and improvements. Costs reimbursable from tenants and other recoverable costs are recognized as revenue in the period the recoverable costs are incurred. When the Company is the primary obligor with respect to purchasing goods and services for property operations and has discretion in selecting the supplier and retains credit risk, tenant reimbursement revenue and property operating expenses are presented on a gross basis in the statements of operations. For certain triple net leases where the lessee self-manages the property, hires its own service providers and retains credit risk for routine maintenance contracts, no reimbursement revenue and expense are recognized.

Foreign Currency

Assets and liabilities denominated in a foreign currency for which the functional currency is a foreign currency are translated using the exchange rate in effect at the balance sheet date and the corresponding results of operations for such entities are translated using the average exchange rate in effect during the period. The resulting foreign currency translation adjustments are recorded as a component of accumulated other comprehensive income or loss in stockholders’ equity. Upon sale, complete or substantially complete liquidation of a foreign subsidiary, or upon partial sale of a foreign equity method investment, the translation adjustment associated with the investment, or a proportionate share related to the portion of equity method investment sold, is reclassified from accumulated other comprehensive income or loss into earnings.

Assets and liabilities denominated in a foreign currency for which the functional currency is the U.S. dollar are remeasured using the exchange rate in effect at the balance sheet date and the corresponding results of operations for such entities are remeasured using the average exchange rate in effect during the period. The resulting foreign currency remeasurement adjustments are recorded in other gain (loss), net on the consolidated statements of operations.

Disclosures of non-U.S. dollar amounts to be recorded in the future are translated using exchange rates in effect at the date of the most recent balance sheet presented.

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(Unaudited)

Equity-Based Compensation

Equity-classified stock awards granted to executive officers and non-employee directors are based on the closing price of the Class A common stock on the grant date and recognized on a straight-line basis over the requisite service period of the awards for restricted stock awards. For performance stock units (“PSUs”) the fair value is based on a Monte Carlo simulation as of the grant date and the expense is generally recognized on a straight-line basis over the measurement period, except when certain performance metrics are achieved. See Note 9, “Equity-Based Compensation” for further discussion.

The compensation expense is adjusted for actual forfeitures upon occurrence. Equity-based compensation is classified within compensation and benefits in the consolidated statement of operations.

Earnings Per Share

The Company presents both basic and diluted earnings per share (“EPS”) using the two-class method. Basic EPS is calculated by dividing earnings allocated to common shareholders, as adjusted for unallocated earnings attributable to certain participating securities, if any, by the weighted-average number of common shares outstanding during the period. Diluted EPS is based on the weighted-average number of common shares and the effect of potentially dilutive common share equivalents outstanding during the period. The two-class method is an allocation formula that determines earnings per share for each share of common stock and participating securities according to dividends declared and participation rights in undistributed earnings. Under this method, all earnings (distributed and undistributed) are allocated to common shares and participating securities based on their respective rights to receive dividends. The Company has certain share-based payment awards that contain nonforfeitable rights to dividends, which are considered participating securities for the purposes of computing EPS pursuant to the two-class method.

Income Taxes

For U.S. federal income tax purposes, the Company elected to be taxed as a REIT beginning with its taxable year ended December 31, 2018. To qualify as a REIT, the Company must continually satisfy tests concerning, among other things, the real estate qualification of sources of its income, the real estate composition and values of its assets, the amounts it distributes to stockholders and the diversity of ownership of its stock.

To the extent that the Company qualifies as a REIT, it generally will not be subject to U.S. federal income tax to the extent of its distributions to stockholders. The Company believes that all of the criteria to maintain the Company’s REIT qualification have been met for the applicable periods, but there can be no assurance that these criteria will continue to be met in subsequent periods. If the Company were to fail to meet these requirements, it would be subject to U.S. federal income tax and potential interest and penalties, which could have a material adverse impact on its results of operations and amounts available for distributions to its stockholders. The Company’s accounting policy with respect to interest and penalties is to classify these amounts as a component of income tax expense, where applicable.

The Company may also be subject to certain state, local and franchise taxes. Under certain circumstances, U.S. federal income and excise taxes may be due on its undistributed taxable income. The Company also holds an investment in Europe which is subject to tax in its local jurisdiction.

The Company made joint elections to treat certain subsidiaries as taxable REIT subsidiaries (“TRSs”) which may be subject to taxation by U.S. federal, state and local authorities. In general, a TRS of the Company may perform non-customary services for tenants, hold assets that the Company cannot hold directly and engage in most real estate or non-real estate-related business.

Certain subsidiaries of the Company are subject to taxation by U.S. federal, state and local authorities for the periods presented. Income taxes are accounted for by the asset/liability approach in accordance with GAAP. Deferred taxes, if any, represent the expected future tax consequences when the reported amounts of assets and liabilities are recovered or paid. Such amounts arise from differences between the financial reporting and tax bases of assets and liabilities and are adjusted for changes in tax laws and tax rates in the period during which such changes are enacted. A provision for income tax represents the total of income taxes paid or payable for the current period, plus the change in deferred taxes. Current and deferred taxes are recorded on the portion of earnings (losses) recognized by the Company with respect to its interest in TRSs. Deferred income tax assets and liabilities are calculated based on temporary differences between the Company’s GAAP consolidated financial statements and the U.S. federal, state and local tax basis of assets and liabilities as of the consolidated balance sheet date. The Company evaluates the realizability of its deferred tax assets (e.g., net operating loss and capital loss carryforwards) and recognizes a valuation allowance if, based on the available evidence, it is more likely than not that some portion or all of its deferred tax assets will not be realized. When evaluating the realizability of its deferred tax assets, the Company considers estimates of expected future taxable income, existing and projected book/tax differences, tax planning strategies available and the general and industry-specific economic outlook. This realizability analysis is inherently subjective, as it requires the Company to

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(Unaudited)

forecast its business and general economic environment in future periods. Changes in estimate of deferred tax asset realizability, if any, are included in income tax expense in the consolidated statements of operations.

For the three months ended June 30, 2024 and 2023, the Company recorded income tax expense of $0.2 million and $0.3 million, respectively. For the six months ended June 30, 2024 and 2023, the Company recorded income tax expense of $0.4 million and $0.7 million, respectively.

Current Expected Credit Loss (“CECL”) reserve

The CECL reserve for the Company’s financial instruments carried at amortized cost and off-balance sheet credit exposures, such as loans, loan commitments and trade receivables, represents a lifetime estimate of expected credit losses. Factors considered by the Company when determining the CECL 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 general CECL reserve 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 specific CECL reserve 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 general CECL reserve for financial instruments 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 CECL reserve is calculated as the product of PD, LGD and exposure at default. The Company’s model principally utilizes historical loss rates derived from a commercial mortgage-backed securities database with historical losses from 1998 through June 2024 provided by a third party, Trepp LLC, forecasting the loss parameters using a scenario-based statistical approach over a reasonable and supportable forecast period of twelve months, followed by a straight-line reversion period of twelve-months back to average historical losses.

For determining a specific CECL reserve, financial instruments are assessed outside of the PD/LGD model on an individual basis. This occurs when it is probable that the Company will be unable to collect the full payment of principal and interest on the instrument. The Company records a reserve to reduce the carrying value of the instrument to the present value of the expected future cash flows discounted at the instrument’s effective rate or to the fair value of the collateral. The Company applies a discounted cash flow (“DCF”) methodology to determine the fair value of the collateral where it is probable that the Company will foreclose or 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. Determining fair value of the collateral, including utilization of a practical expedient, may take into account a number of assumptions including, but not limited to, rents and cash flow projections, capitalization rates and discount rates. Such assumptions are generally based on current market conditions and are subject to economic and market uncertainties.

In connection with developing the CECL reserve for its loans held for investment, the Company determines the risk ranking of each loan as a key credit quality indicator. The risk rankings are based on a variety of factors, including, without limitation, underlying real estate performance and asset value, values of comparable properties, durability and quality of property cash flows, sponsor experience and financial wherewithal, and the existence of a risk-mitigating loan structure. Additional key considerations include loan-to-value ratios, debt service coverage ratios, loan structure, real estate and credit market dynamics, and risk of default or principal loss. Based on a five-point scale, the Company’s loans held for investment are rated “1” through “5,” from less risk to greater risk, and the ratings are updated quarterly. At the time of origination or purchase, loans held for investment are ranked as a “3” and will move accordingly going forward based on the ratings which are defined as follows:

1.Very Low Risk

2.Low Risk

3.Medium Risk

4.High Risk/Potential for Loss—A loan that has a high risk of realizing a principal loss.

5.Impaired/Loss Likely—A loan that has a very high risk of realizing a principal loss or has otherwise incurred a principal loss.

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The Company also considers qualitative factors, including, but not limited to, economic and business conditions, nature and volume of the loan portfolio, lending terms, volume and severity of past due loans, concentration of credit and changes in the level of such concentrations in its determination of the CECL reserve.

The Company has elected to not measure a CECL reserve for accrued interest receivable as it is reversed against interest income when a loan is placed on nonaccrual status. Loans are charged off when all or a portion of the principal amount is determined to be uncollectible.

Changes in the CECL reserve for the Company’s financial instruments are recorded in increase/decrease in current expected credit loss reserve on the consolidated statement of operations with a corresponding offset to the loans held for investment or as a component of other liabilities for future loan fundings recorded on the Company’s consolidated balance sheets. See Note 3, “Loans Held for Investment, net” for further detail.

Future Application of Accounting Standards

Segment Reporting—In November 2023, the FASB issued ASU No. 2023-07, Improvements to Reportable Segment Disclosures. The ASU provides updates to reportable segment disclosures, including enhanced disclosures about significant segment expenses and information used to assess segment performance. This ASU is effective beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is evaluating the impact of this standard.

Income Tax Accounting—In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The ASU requires public business entities to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. The ASU is effective for periods beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of this new standard.

3. Loans Held for Investment, net

The following table provides a summary of the Company’s loans held for investment, net (dollars in thousands):


	June 30, 2024							December 31, 2023
	Unpaid Principal Balance		Carrying Value		Weighted Average Coupon(1)		Weighted Average Maturity in Years(2)	Unpaid Principal Balance		Carrying Value		Weighted Average Coupon(1)		Weighted Average Maturity in Years(2)





Variable rate
Senior loans	$	1,505,058	$	1,507,006	8.2	%	2.3	$	1,646,722	$	1,645,780	9.0	%	2.7
Securitized loans(3)	1,159,437		1,159,951		8.7	%	1.4	1,210,000		1,209,994		8.9	%	1.9
Mezzanine loans	12,330		12,450		16.3	%	0.3	12,330		12,450		16.4	%	0.3

	2,676,825		2,679,407					2,869,052		2,868,224
Fixed rate
Mezzanine loans	74,963		74,934		5.2	%	1.8	68,334		68,282		10.9	%	2.4

	74,963		74,934					68,334		68,282
Loans held for investment	2,751,788		2,754,341					2,937,386		2,936,506

CECL reserve	—		(171,330)					—		(76,028)
Loans held for investment, net	$	2,751,788	$	2,583,011	8.4	%	1.9	$	2,937,386	$	2,860,478	9.0	%	2.4

_________________________________________

(1)Calculated based on contractual interest rate. As of June 30, 2024, all variable rate loans utilize Term Secured Overnight Financing Rate (“Term SOFR”).

(2)Calculated using extended maturity date.

(3)Represents loans transferred into securitization trusts that are consolidated by the Company.

The Company had $14.4 million and $15.9 million of interest receivable related to its loans held for investment, net as of June 30, 2024 and December 31, 2023, respectively. This is included in receivables, net on the Company’s consolidated balance sheets.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Activity relating to the Company’s loans held for investment, net was as follows (dollars in thousands):


	Carrying Value
	Six Months Ended June 30,
	2024		2023
Balance at January 1	$	2,860,478	$	3,468,742
Acquisitions/originations/additional funding	33,413		35,936
Loan maturities/principal repayments	(201,374)		(263,563)
Increase of CECL reserve(1)	(114,223)		(68,244)
Discount accretion/premium amortization	3,774		5,755
Capitalized interest, net of repayments	943		3,346
Charge-off of CECL reserve(2),(3)	18,919		67,763

Charge-off of loan held for investment(2)	(18,919)		—
Transfer to Real Estate, net and Real Estate Held for Sale(3)	—		(136,762)

Balance at June 30	$	2,583,011	$	3,112,973

_________________________________________

(1)Provision for loan losses excludes $0.1 million for the six months ended June 30, 2024 and $0.3 million for the six months ended June 30, 2023 as determined by the Company’s PD/LGD model for unfunded commitments reported on the consolidated statement of operations, with a corresponding offset to accrued and other liabilities recorded on the Company’s consolidated balance sheets.

(2)During the second quarter of 2024, the Company charged off uncollectible amounts relating to one office senior loan for $12.8 million and $6.1 million relating to one multifamily senior loan.

(3)During the second quarter of 2023, the Company acquired legal title of two office properties through a deed-in-lieu of foreclosure. The CECL reserves related to these properties were charged off and the net amount is reflected as an addition to real estate, net. Refer to Note 4, “Real Estate, net and Real Estate Held for Sale” for further discussion.

Loan Modifications

The Company may amend or modify a loan depending on the loan’s specific facts and circumstances. These loan modifications typically include additional time for the borrower to refinance or sell the collateral property, adjustment or waiver of performance tests that are prerequisite to the extension of a loan’s maturity, and/or deferral of scheduled principal payments. In exchange for a modification, the Company may receive a partial repayment of principal, a short-term accrual of capitalized interest for a portion of interest due, a cash infusion to replenish interest or capital improvement reserves, termination of all or a portion of the remaining unfunded loan commitment, additional call protection, and/or increase the loan coupon.

During the second quarter of 2023, the Company amended and restructured a development mezzanine loan related to a multifamily property located in Milpitas, California (the “Development Mezzanine Loan”), bifurcating it into a $30.2 million Mezzanine A note (the “Mezzanine A Note”) and a $14.5 million Mezzanine B note (the “Mezzanine B Note”) to facilitate a new equity contribution from the borrower behind the Mezzanine A Note and ahead of the Mezzanine B Note. As part of the restructuring, the Company extended the terms of both the Mezzanine A Note and the Mezzanine B Note to be conterminous with the senior loan, which was extended to March 2025, with an additional one-year extension option to March 2026. Prior to the amendment, the Development Mezzanine Loan had a fixed interest rate of 13%. After the amendment, the Mezzanine A Note has a fixed interest rate of 10% and the Mezzanine B Note has a fixed interest rate of 12%. In connection with the amendment and restructuring of the Development Mezzanine Loan, the Company placed the Mezzanine B Note on nonaccrual status in April 2023 and recorded a $14.5 million specific CECL reserve during the first quarter of 2023. As of December, 2023, the amortized cost basis of the Mezzanine A Note was $32.6 million. During the third quarter of 2023, the Mezzanine B Note was charged off as the Company deemed this amount uncollectible. The Development Mezzanine Loan was placed on nonaccrual status in January 2024.

During the fourth quarter of 2023, the Company amended a senior office loan with an outstanding principal balance of $39.4 million. The modification reduces the loan spread from 3.96% to 1.5%, and includes an exit fee upon repayment of the loan of 2.5% of the principal balance. The modification allows the sponsor to utilize tenant improvements and leasing commission funds for capital improvements such as rezoning the collateral for additional commercial uses, and exploring rezoning certain parcels for multifamily use. Additionally, the sponsor funded $0.3 million into a reserve to fund operating shortfalls.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Nonaccrual and Past Due Loans

Loans that are 90 days or more past due as to principal or interest, or where reasonable doubt exists as to timely collection, are generally considered nonperforming and placed on nonaccrual status.

The following table provides an aging summary of loans held for investment at carrying values before CECL reserve (dollars in thousands):


	Current or Less Than 30 Days Past Due(1) (2)		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due (3)		Total Loans
June 30, 2024	$	2,712,746	$	—	$	—	$	41,595	$	2,754,341
December 31, 2023