Apollo Commercial Real Estate Finance, Inc. (ARI) FY 2023 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our financial statements and accompanying notes included in

Item 8. "Financial Statements and Supplementary Data" of this annual report on Form 10-K.

Overview

We are a Maryland corporation and have elected to be taxed as a REIT for U.S. federal income tax purposes. We primarily originate, acquire, invest in and manage performing commercial first mortgage loans, subordinate financings, and other commercial real estate-related debt investments. These asset classes are referred to as our target assets.

We are externally managed and advised by the Manager, an indirect subsidiary of Apollo, a global, high-growth alternative asset manager with assets under management of approximately $631.2 billion as of September 30, 2023.

The Manager is led by an experienced team of senior real estate professionals who have significant expertise in underwriting and structuring commercial real estate financing transactions. We benefit from Apollo’s global infrastructure and operating platform, through which we are able to source, evaluate and manage potential investments in our target assets.

Current Market Conditions

Certain external events such as public health issues, including the novel coronavirus ("COVID-19"), natural disasters, political and economic instability abroad, concerns regarding the stability of the sovereign debt of certain European countries, and other geopolitical issues, including the ongoing conflicts between Israel and Hamas, as well as further escalation of tensions between Israel and various countries in the Middle East and North Africa, and among Russia, Belarus and Ukraine, and the severe economic sanctions and export controls imposed by the U.S. and other governments against Russia, Belarus and Russian or Belarusian interests, have adversely impacted the global economy and have contributed to significant volatility in financial markets. Due to various uncertainties caused by such external events and recent macroeconomic trends, including inflation and higher interest rates, further business risks could arise. Some of the factors that impacted us to date and may continue to affect us are outlined in Item 1A. "Risk Factors."

Results of Operations

Net Income Available to Common Stockholders

For the years ended December 31, 2023 and 2022, our net income available to common stockholders was $45.9 million, or $0.29 per diluted share of common stock, and $253.0 million, or $1.68 per diluted share of common stock, respectively.

Operating Results

The following table sets forth information regarding our consolidated results of operations and certain key operating metrics for the years ended December 31, 2023 and 2022 ($ in thousands):

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For a comparison and discussion of our results of operations and other operating and financial data for the fiscal years ended December 31, 2022 and 2021, see Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our annual report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on February 8, 2023.

Net Interest Income

Net interest income increased by $10.6 million during the year ended December 31, 2023 compared to the same period in 2022. This increase was primarily driven by higher average index rates and was partially offset by placing a first mortgage loan and subordinate loan collateralized by the same ultra-luxury residential-for-sale property in Manhattan on non-accrual status as of May 1, 2023.

Operations Related to Real Estate Owned

Net income related to real estate owned increased by $2.4 million during the year ended December 31, 2023 compared to the year ended December 31, 2022. This increase was primarily driven by an increase in net income from hotel operations, prior to depreciation, of $5.2 million and $4.7 million attributable to the D.C. Hotel and the Atlanta Hotel, respectively.

This increase was partially offset by a $7.5 million increase in depreciation expense for the year ended December 31, 2023 compared to the year ended December 31, 2022, which was primarily related to the reclassification of the D.C. Hotel from held for sale to held for investment. Upon reclassification on March 1, 2023, we resumed depreciation and recorded depreciation expense representing the amount that would have been recorded had the asset been consistently classified as held for investment since its initial reclassification to held for sale during the first quarter of 2022.

Refer to "Note 5 - Real Estate Owned" for full discussion of the reclassification and operations related to real estate owned.

Operating Expenses

Management fees to related party and General and administrative expenses remained generally the same for the year

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ended December 31, 2023 compared to the year ended December 31, 2022.

Other income, net

Other income, net increased by $2.1 million during the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily due to an increase in bank interest earned on our cash balances and money market funds as a result of a higher interest rate environment.

Net realized gain (loss) on investments

During the year ended December 31, 2023, we recorded a $86.6 million net realized loss on investments, compared to the year ended December 31, 2022, in which we recorded a $18.7 million net realized gain. The $86.6 million net realized loss recorded during 2023 was primarily comprised of (i) a $4.8 million realized loss related to the acquisition of the Atlanta Hotel through a deed-in-lieu of foreclosure and (ii) a $82.0 million realized loss representing a write-off of previously recorded Specific CECL Allowance on one of our subordinate loans secured by an ultra-luxury residential property in Manhattan, NY. These losses were partially offset by a $0.2 million gain on investments recorded in connection with the sale of our entire interest in three commercial loans secured by properties in Europe and a partial interest in one commercial loan secured by property located in London, United Kingdom.

The net realized gain of $18.7 million during the year ended December 31, 2022 was primarily driven by a $43.6 million realized gain recorded in connection with the title acquisition for one of our first mortgage loans secured by a multifamily development in Brooklyn, NY. Refer to "Note 5 - Real Estate Owned" for more information. This realized gain was partially offset by a (i) $17.9 million realized loss, representing a write-off of a previously recorded Specific CECL Allowance on a first mortgage loan secured by an urban predevelopment property due to the sale of the underlying property, and (ii) a $7.0 million realized loss, representing a write-off of a previously recorded Specific CECL Allowance related to a first mortgage secured by the Atlanta Hotel, which went into maturity default during 2022. Refer to "Note 4 - Commercial Mortgage Loans Subordinate Loans and Other Lending Assets, Net" for more information.

Decrease (increase) in Specific CECL Allowance, net

During the year ended December 31, 2023, we recorded a net increase to our Specific CECL Allowance of $59.5 million compared to a net decrease of $11.5 million recorded during the year ended December 31, 2022.

During the year ended December 31, 2023, we recorded a $141.5 million increase to our Specific CECL Allowance, related to two mezzanine loans secured by the same ultra-luxury residential property in Manhattan, NY. As of June 30, 2023, $82.0 million related to the most junior mezzanine loan was deemed unrecoverable. Accordingly, $82.0 million of previously recorded Specific CECL was written-off and recorded as a realized loss within net realized loss on investments during 2023.

The $11.5 million decrease of our Specific CECL Allowance during the year ended December 31, 2022 was comprised of (i) a $53.0 million reversal and $15.0 million write-off of a previously recorded Specific CECL Allowance on an urban predevelopment first mortgage loan in Miami, FL and (ii) a $10.0 million reversal of a previously recorded Specific CECL Allowance on a loan related to a multifamily development in Brooklyn, NY. These write-offs and reversals recorded during the year ended December 31, 2022 were offset by the Specific CECL Allowance of $66.5 million recorded in relation to mezzanine loan secured by our interest in an ultra-luxury residential property in Manhattan, NY.

Refer to "Note 2 - Summary of Significant Accounting Policies" and "Note 4 - Commercial Mortgage Loans, Subordinate Loans and Other Lending Assets, Net" for additional information related to our Specific CECL Allowance.

Decrease in General CECL Allowance, net

Our General CECL Allowance decreased by $0.1 million during the year ended December 31, 2023 compared to a decrease of $6.1 million for the same period in 2022. The decrease recorded during 2023 was primarily related to portfolio seasoning and loan repayments outpacing originations. The decrease was partially offset by the increase in our view of remaining expected term of certain of our loans. The decrease in General CECL Allowance recorded during the year ended December 31, 2022, was primarily due to portfolio seasoning and changes in expected loan repayment dates, which were partially offset by a more adverse macroeconomic outlook.

Refer to "Note 2 - Summary of Significant Accounting Policies" and "Note 4 - Commercial Mortgage Loans, Subordinate Loans and Other Lending Assets, Net" for additional information related to our General CECL Allowance.

Gain on Extinguishment of Debt

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During the year ended December 31, 2023, we repurchased $53.9 million aggregate principal of the 5.375% Convertible Senior Notes due 2023 (the "2023 Notes") and realized a $0.5 million gain on extinguishment of debt. There was no repurchase activity for the year ended December 31, 2022.

Refer to "Note 10 - Convertible Senior Notes, Net" for further discussion.

Foreign currency translation loss and gain on derivative instruments

Foreign currency gains and losses on derivative instruments are evaluated on a combined basis and the net impact for the years ended December 31, 2023 and 2022 was a net gain of $3.8 million and $30.6 million, respectively. We use forward currency contracts to economically hedge interest and principal payments due under our loans denominated in currencies other than USD.

During the year ended December 31, 2023, both the GBP and the EUR rates rose in relation to USD while both rates fell considerably during the year ended December 31, 2022. The rise in rates resulted in a loss on our foreign currency forward contracts and a gain related to foreign currency translation. The change in net gain for the year ended December 31, 2023 compared to the year ended December 31, 2022 is predominantly due to lower forward point estimates and a decrease in value on forward currency contracts related to our net interest hedges for the year ended December 31, 2023 compared to the year ended December 31, 2022.

Gain (loss) on interest rate hedging instruments

During the year ended December 31, 2023, we recorded a net loss of $0.4 million on our interest rate caps, which included realized gains of $9.7 million. This realized gain was primarily due to LIBOR exceeding the strike rate on our 2026 Term Loan interest rate cap prior to maturing in the second quarter of 2023. The realized gain was offset by unrealized losses which increased as the interest rate cap neared maturity. During the year ended December 31, 2022, our interest rate cap generated a gain of $13.4 million due to rising LIBOR rates, including a realized gain of $5.7 million due to LIBOR exceeding the strike rate on our 2026 Term Loan interest rate cap.

Income tax provision

During the year ended December 31, 2023, we recorded an income tax provision of $0.4 million. The income tax provision reflects the aggregate income tax of one of our TRS entities for the taxable year ended December 31, 2023. We recorded no income tax provision during the year ended December 31, 2022.

Subsequent Events

Refer to "Note 21 - Subsequent Events" to the accompanying consolidated financial statements for disclosure regarding significant transactions that occurred subsequent to December 31, 2023.

Non-GAAP Financial Measures

Distributable Earnings

Distributable Earnings, a non-GAAP financial measure, is defined as net income available to common stockholders, computed in accordance with GAAP, adjusted for (i) equity-based compensation expense (a portion of which may become cash-based upon final vesting and settlement of awards should the holder elect net share settlement to satisfy income tax withholding), (ii) any unrealized gains or losses or other non-cash items (including depreciation and amortization related to real estate owned) included in net income available to common stockholders, (iii) unrealized income from unconsolidated joint ventures, (iv) foreign currency gains (losses), other than (a) realized gains/(losses) related to interest income, and (b) forward point gains/(losses) realized on our foreign currency hedges, and (v) provision for loan losses. Distributable Earnings may also be adjusted to exclude certain other non-cash items, as determined by the Manager and approved by a majority of our independent directors.

For the year ended December 31, 2023, our Distributable Earnings were $157.5 million, or $1.09 per share, as compared to $239.3 million, or $1.67 per share, for the prior year.

The weighted-average diluted shares outstanding used for Distributable Earnings per weighted-average diluted share has been adjusted from weighted-average diluted shares under GAAP to exclude shares issued from a potential conversion of the Convertible Notes. Consistent with the treatment of other unrealized adjustments to Distributable Earnings, these potentially issuable shares are excluded until a conversion occurs, which we believe is a useful presentation for investors. We believe that excluding shares issued in connection with a potential conversion of the Convertible Notes from our computation of

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Distributable Earnings per weighted average diluted share is useful to investors for various reasons, including the following: (i) conversion of Convertible Notes to shares requires both the holder of a note to elect to convert the Convertible Note and for us to elect to settle the conversion in the form of shares (ii) future conversion decisions by note holders will be based on our stock price in the future, which is presently not determinable; (iii) the exclusion of shares issued in connection with a potential conversion of the Convertible Notes from the computation of Distributable Earnings per weighted-average diluted share is consistent with how we treat other unrealized items in our computation of Distributable Earnings per weighted-average diluted share; and (iv) we believe that when evaluating our operating performance, investors and potential investors consider our Distributable Earnings relative to our actual distributions, which are based on shares outstanding and not shares that might be issued in the future.

The table below summarizes the reconciliation from weighted-average diluted shares under GAAP to the weighted-average diluted shares used for Distributable Earnings:

As a REIT, U.S. federal income tax law generally requires us to distribute annually at least 90% of our REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains, and that we pay tax at regular corporate rates to the extent that we annually distribute less than 100% of our net taxable income. Given these requirements and our belief that dividends are generally one of the principal reasons stockholders invest in a REIT, we generally intend over time to pay dividends to our stockholders in an amount equal to our net taxable income, if and to the extent authorized by our board of directors. Distributable Earnings is a key factor considered by the board of directors in setting the dividend and as such we believe Distributable Earnings is useful to investors.

During the year ended December 31, 2023, we recorded $86.6 million net realized loss on investments consisting of (i) a $82.0 million realized loss representing a write-off of previously recorded Specific CECL Allowance on one of our subordinate loans secured by an ultra-luxury residential property in Manhattan, NY, (ii) a $4.8 million realized loss related to the acquisition of a hotel property through a deed-in-lieu of foreclosure and (iii) a $0.2 million gain on loan sales. Refer to Note 4 - Commercial Mortgage Loans, Subordinate Loans and Other Lending Assets, Net" and "Note 5 – Real Estate Owned" for additional information.

During the year ended December 31, 2023, we recorded $0.5 million gain on extinguishment of debt related to a partial repurchase of our 2023 Notes. See "Note 10 - Convertible Senior Notes, Net" for full discussion of this transaction.

During the year ended December 31, 2022, we recorded a $18.7 million net realized gain on investments consisting of (i) a $43.6 million realized gain on investments reflecting the difference between the fair value of a multifamily development property located in Brooklyn, NY acquired through a deed-in-lieu of foreclosure and the amortized cost of the loan at the time of foreclosure, (ii) a $17.9 million realized loss representing a write-off of a previously recorded Specific CECL Allowance on an urban predevelopment first mortgage loan and (iii) a $7.0 million realized loss on a first mortgage secured by a hotel property, representing a write-off of a previously recorded Specific CECL Allowance related to a first mortgage loan in maturity default. Refer to "Note 4 - Commercial Mortgage Loans, Subordinate Loans and Other Lending Assets, Net" and Note 5 – Real Estate Owned" for additional information.

We believe it is useful to our investors to present Distributable Earnings prior to net realized gains (losses) on investments and gain on extinguishment of debt to reflect our operating results because (i) our operating results are primarily comprised of earning interest income on our investments net of borrowing and administrative costs, which comprise our ongoing operations and (ii) it has been a useful factor related to our dividend per share because it is one of the considerations when a dividend is determined. We believe that our investors use Distributable Earnings and Distributable Earnings prior to net realized gains (losses) on investments and gain on extinguishment of debt, or a comparable supplemental performance measure, to evaluate and compare the performance of our company and our peers.

A significant limitation associated with Distributable Earnings as a measure of our financial performance over any period is that it excludes unrealized gains (losses) from investments. In addition, our presentation of Distributable Earnings may not be comparable to similarly-titled measures of other companies, that use different calculations. As a result, Distributable Earnings should not be considered as a substitute for our GAAP net income as a measure of our financial performance or any measure of

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our liquidity under GAAP. Distributable Earnings are reduced for realized losses on loans which include losses that management believes are near certain to be realized.

The table below summarizes the reconciliation from net income available to common stockholders to Distributable Earnings and Distributable Earnings prior to net realized gains (losses) on investments and gain on extinguishment of debt ($ in thousands):

Book Value Per Share

The table below calculates our book value per share ($ in thousands, except per share data):

The table below shows the changes in our book value per share:

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———————

(1)Includes net unrealized gain on forward currency contracts and interest hedges, and realized gain on forward currency contracts related to principal outside impact of forward points

We believe that presenting book value per share with sub-totals prior to the CECL Allowances and depreciation and amortization is useful for investors for various reasons, including, among other things, analyzing our compliance with financial covenants related to tangible net worth and debt-to-equity under our secured debt arrangements and Term Loans, which permit us to add the General CECL Allowance to our GAAP stockholders' equity. Given that our lenders consider book value per share prior to the General CECL Allowance as an important metric related to our debt covenants, we believe disclosing book value per share prior to the General CECL Allowance is important to investors such that they have the same visibility. We further believe that presenting book value before depreciation and amortization is useful to investors since it is a non-cash expense included in net income and is not representative of our core business and ongoing operations.

Investment Guidelines

Our current investment guidelines, approved by our board of directors, are comprised of the following:

•no investment will be made that would cause us to fail to qualify as a REIT for U.S. federal income tax purposes;

•no investment will be made that would cause us to register as an investment company under the 1940 Act;

•investments will be predominantly in our target assets;

•no more than 20% of our net equity (on a consolidated basis) will be invested in any single investment at the time of the investment; in determining compliance with the investment guidelines, the amount of the investment is the net equity in the investment (gross investment less amount of third-party financing) plus the amount of any recourse on the financing secured by the investment; and

•until appropriate investments can be identified, the Manager may invest the proceeds of any offering in interest bearing, short-term investments, including money market accounts and/or funds, that are consistent with our intention to qualify as a REIT.

The board of directors must approve any change in or waiver to these investment guidelines.

Investment Activity

During the year ended December 31, 2023, we committed $734.1 million of capital to loans ($456.2 million was funded at closing). In addition, during the year ended December 31, 2023, we received $1.2 billion in repayments and sales and funded $472.9 million for commitments closed prior to 2023.

Loan Portfolio Overview

Loan Portfolio Details

The following table sets forth certain information regarding our loan portfolio as of December 31, 2023 ($ in thousands):

———————

(1)    Based on the applicable benchmark rates as of December 31, 2023 on the floating rate loans and includes zero percent coupon and yield for loans on

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non-accrual.

(2)     Includes the amortization of deferred origination fees, loan origination costs and accrual of both extension and exit fees. Excludes the benefit of forward points on currency hedges relating to loans denominated in currencies other than USD.

(3)    Gross of deferred financing costs of $13.3 million.

(4)    Includes weighted average spread and applicable benchmark rates as of December 31, 2023 on secured debt arrangements.

(5)    Represents loan portfolio at amortized cost less secured debt outstanding.

The following table provides loan-by-loan details of our commercial mortgage loan portfolio and subordinate loan and other lending assets portfolio as of December 31, 2023 ($ in millions):

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———————

(1)Amortized cost for these loans is net of the recorded Specific CECL Allowance.

(2)Loans are secured by the same property.

(3)Includes portfolio of office, industrial, and retail property types.

(4)Total may not foot due to rounding.

Our average asset and related debt balances for the year ended December 31, 2023 were ($ in thousands):

Portfolio Management

Our portfolio benefits from our core investment strategy whereby we target assets that are secured by institutional quality real estate throughout the United States and Europe. As discussed in Item 1. “Business—Investment Strategy” of this annual report on Form 10-K, the Manager has implemented underwriting standards which place a particular emphasis on due diligence of prospective investments’ sponsors and borrowers, as well as assessment of the risk/return profile and appropriate structure of each investment opportunity. As of December 31, 2023, our portfolio’s weighted-average origination loan to value (“LTV”) ratio was 57%, excluding risk-rated 5 loans. This reflects significant equity value which we believe our loan sponsors

would be committed to protect during periods of volatility and market disruption.

We maintain a strong relationship with our borrowers and actively manage the assets in our portfolio on an ongoing basis. A dedicated team of asset management professionals performs surveillance of all loans in our portfolio, on an individual basis, from closing through final repayment. This robust monitoring process includes continuous assessment of asset level performance against underwritten criteria, changes in borrowers’ financial position, as well as the impact of macroeconomic trends and microeconomic developments on loan assets and respective underlying collateral performance.

In addition to ongoing asset management, as further described in “Note 4—Commercial Mortgage Loans, Subordinate Loans and Other Lending Assets, Net” to our consolidated financial statements, we perform a quarterly review of our portfolio whereby each loan is assigned a risk rating of “1” through “5,” from less risk to greater risk, respectively. This analysis includes assessment of loans based on a variety of factors, including, without limitation, LTV ratio, debt yield, property type, geographic and local market dynamics, physical condition, cash flow volatility, leasing and tenant profile, loan structure and exit plan, and project sponsorship. In performing the analysis with respect to each loan, these various factors are assessed holistically, with a focus on their interplay, whereby no single factor on its own (whether quantitative or qualitative) is given more weight in the

assessment or is prescriptive as to which specific risk rating is assigned to a specific loan. We apply these various factors on a case-by-case basis depending on the facts and circumstances for each loan, and the different factors may be given different weightings in different situations. As of both December 31, 2023 and 2022, the weighted-average risk rating of the loan portfolio was 3.0, respectively.

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The following table presents the carrying value of our loans by internal risk rating as of December 31, 2023 ($ in thousands):

———————

(1)$4.0 million of the General CECL Allowance for 2023 is excluded from this table because it relates to unfunded commitments and has been recorded as a liability under accounts payable, accrued expenses and other liabilities in our consolidated balance sheets.

Leverage Policies

We use leverage for the sole purpose of financing our portfolio and not for the purpose of speculating on changes in interest rates. In addition to our secured debt arrangements and Term Loans, we access additional sources of borrowings. Our charter and bylaws do not limit the amount of indebtedness we can incur; however, we are subject to and carefully monitor the limits placed on us by our credit providers and those that assign ratings on our company.

At December 31, 2023, our debt-to-equity ratio was 3.0 and our portfolio was comprised of $7.9 billion of commercial mortgage loans and $432.7 million of subordinate loans and other lending assets. In order to achieve our return on equity, we generally finance our mortgage loans with 2.0 to 3.0 turns of leverage and generally do not finance our subordinate loans and other lending assets given built-in inherent structural leverage.

Debt-to-Equity Ratio

The following table presents our debt-to-equity ratio:

———————

(1)Represents total debt less cash and loan proceeds held by servicer (recorded with Other Assets, refer to "Note 6 - Other Assets" for more information) to total stockholders' equity.

Contractual Obligations, Liquidity, and Capital Resources

Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to fund and maintain our assets and operations, repay borrowings, make distributions to our stockholders and other general business needs. We utilize various sources in order to meet our liquidity needs in the next twelve months, which is considered the short-term, and in the longer term.

Our current debt obligations, at face value, consist of $1.3 billion of corporate debt, $5.6 billion of asset financings, and a $164.8 million construction financing related to our real estate owned held for investment. Our corporate debt includes: (i) $769.3 million of term loan borrowings, and (ii) $500.0 million of senior secured notes. Our asset specific financings are generally tied to the underlying loans and we anticipate repayments of $864.2 million of secured debt arrangements in the short term. Specifics about our secured debt arrangements and corporate debt maturities and obligations are discussed below.

In addition to our debt obligations, as of December 31, 2023, we had $0.9 billion of unfunded loan commitments. We expect that approximately $609.4 million will be funded to existing borrowers in the short term.

As of December 31, 2023, we had $225.4 million of cash on hand and held approximately $521.5 million of unencumbered assets, consisting of $245.6 million of senior mortgages, $200.5 million of mezzanine loans, and $75.4 million of real estate owned.

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We maintain policies relating to our use of leverage. Refer to "Leverage Policies" below. In the future, we may seek to raise further equity or debt capital or engage in other forms of borrowings in order to fund future investments or to refinance expiring indebtedness.

We generally intend to hold our assets for investment, although we may sell certain of our investments in order to manage our interest rate risk and liquidity needs, meet other operating objectives and adapt to market conditions.

To maintain our qualification as a REIT under the Internal Revenue Code, we must distribute annually at least 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gain. These distribution requirements limit our ability to retain earnings and replenish or increase capital for operations.

As of December 31, 2023, we have one interest in an unconsolidated joint venture deemed to be a variable interest entity ("VIE"), of which we are not the primary beneficiary. Therefore, the VIE is not consolidated in our consolidated financial statements as of December 31, 2023. The joint venture owns an underlying property that secures one of our first mortgage loans, and is accounted for as an off-balance-sheet arrangement. Our maximum exposure to loss from this commercial mortgage loan is limited to its carrying value, which as of December 31, 2023 was $99.9 million.

Refer to "Note 2 - Summary of Significant Accounting Policies" to our consolidated financial statements for more information.

Borrowings Under Various Financing Arrangements

The table below summarizes the outstanding balances and maturities for our various financing arrangements:

———————

(1)Borrowings Outstanding represent principal balances as of the respective reporting periods.

(2)Maturity dates represent weighted average maturities based on borrowings outstanding and assumes extensions at our option are exercised with consent of financing providers, where applicable.

Secured Credit Facilities

As of December 31, 2023, we had nine counterparties across our secured credit facilities through wholly-owned subsidiaries. During the year ended December 31, 2023, we entered into secured credit facilities with Banco Santander, S.A., New York Branch and Churchill MRA Funding I LLC, which provided a combined $430.0 million of additional capacity. Additionally, during the year ended December 31, 2023 we increased our borrowing capacity on the Atlas Facility, as defined below, by $100.1 million.

On February 8, 2023, in connection with the acquisition by certain subsidiaries of Atlas Securitized Products Holdings

(“Atlas”), which is a wholly-owned investment of a fund managed by an affiliate of the Manager, of certain warehouse assets

and liabilities of the Credit Suisse AG Securitized Products Group ("Credit Suisse AG")("Credit Suisse Facility")(the “Transaction”), the Credit Suisse Facility was acquired by Atlas ("Atlas Facility"). In order to effect the assignment of the Credit Suisse Facility and related agreements, we and one of our subsidiaries, similar to the other sellers and guarantors party to the subject agreements in the Transaction, entered into an Omnibus Assignment, Assumption and Amendment Agreement as well as certain related agreements with Credit Suisse AG and Atlas. Refer to "Note 7 - Secured Debt Arrangements, Net" and "Note 15 - Related Party Transactions" of our Condensed Consolidated Financial Statements for further discussion regarding the transaction.

Barclays Private Securitization

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We are party to a private securitization with Barclays Bank plc (the "Barclays Private Securitization"). Commercial mortgage loans currently financed under the Barclays Securitization are denominated in GBP, EUR and SEK. As of December 31, 2023, we had £969.9 million, €655.8 million, and kr2.0 billion ($2.2 billion assuming conversion into USD) of borrowings outstanding under the Barclays Private Securitization secured by certain of our commercial mortgage loans. During the year ended December 31, 2023 we upsized our capacity by $494.1 million.

Refer to "Note 7 - Secured Debt Arrangements, Net" of our Consolidated Financial Statements for additional disclosure regarding our Barclays Private Securitization.

Revolving Credit Facility

During 2023, we entered into the $170.0 million Revolving Credit Facility administered by Bank of America, N.A. that matures in March 2026. As of December 31, 2023 we had $147.0 million borrowings outstanding under our Revolving Credit Facility.

Refer to "Note 7 - Secured Debt Arrangements, Net" of our Condensed Consolidated Financial Statements for additional disclosure regarding our secured credit facilities.

Term Loans

In May 2019, we entered into the $500.0 million senior secured term loan (the "2026 Term Loan") and in March 2021, we entered into an additional $300.0 million senior secured term loan, with substantially the same terms as the 2026 Term Loan, (the "2028 Term Loan" and, together with the 2026 Term Loan, the "Term Loans"). The outstanding Term Loans principal balance as of December 31, 2023 and December 31, 2022 was $769.3 million and $777.3 million, respectively.

Refer to “Note 8 – Senior Secured Term Loans, Net” of our Consolidated Financial Statements for additional disclosure regarding our 2026 Term Loan and 2028 Term Loan.

Senior Secured Notes

In June 2021, we issued $500.0 million of 4.625% Senior Secured Notes due 2029 (the "2029 Notes"), for which we received net proceeds of $495.0 million, after deducting initial purchasers' discounts and commissions. The 2029 Notes had a carrying value of $495.6 million and $494.8 million, net of deferred financing costs of $4.4 million and $5.2 million, as of December 31, 2023 and December 31, 2022, respectively.

Refer to “Note 9 – Senior Secured Notes, Net” of our Consolidated Financial Statements for additional disclosure regarding our 2029 Notes.

Convertible Senior Notes

In two separate offerings during 2017, we issued an aggregate principal amount of $345.0 million of 4.75% Convertible Senior Notes due 2022 (the "2022 Notes"), for which we received $337.5 million, after deducting the underwriting discount and offering expenses. During the third quarter of 2022, we repaid the $345.0 million aggregate principal amount of the 2022 Notes.

During the fourth quarter of 2018, we issued $230.0 million of the 5.375% Convertible Senior Notes due 2023 (the "2023

Notes" and, together with the 2022 Notes, the "Convertible Notes"), for which we received $223.7 million after deducting the underwriting discount and offering expenses.

During the year ended December 31, 2023, we repurchased $53.9 million aggregate principal amount of the 2023 Notes at a weighted average price of 99.1%. As a result of these transactions, during the year ended December 31, 2023, we recorded a gain of $0.5 million in our condensed consolidated statement of operations. During the fourth quarter of 2023, we repaid the $176.1 million remaining principal of the 2023 Notes in cash at par.

Refer to “Note 10 – Convertible Senior Notes, Net” of our Consolidated Financial Statements for additional disclosure regarding our Convertible Notes

Dividends

We intend to continue to make regular quarterly distributions to holders of our common stock. U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of our REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains, and that we pay tax at regular corporate rates to the extent that we annually distribute less than 100% of our net taxable income. We generally intend over time to pay dividends to our stockholders in an amount equal to our net taxable income, if and to the extent authorized by our board of directors. Any distributions we make are at the discretion of our board of directors and depend upon, among other things, our actual results of operations. These results

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and our ability to pay distributions are affected by various factors, including the net interest and other income from our portfolio, our operating expenses and any other expenditures. If our cash available for distribution is less than our net taxable income, we could be required to sell assets or borrow funds to make cash distributions or we may make a portion of the required distribution in the form of a taxable stock distribution or distribution of debt securities.

As of December 31, 2023 and December 31, 2022, we had 6,770,393 shares of our 7.25% Series B-1 Cumulative Redeemable Perpetual Preferred Stock, par value $0.01 per share ("Series B-1 Preferred Stock") outstanding. The Series B-1 Preferred Stock pay cumulative cash dividends, which are payable quarterly in equal amounts in arrears on the 15th day of each January, April, July and October: at a rate of 7.25% per annum of the $25.00 per share liquidation preference. Except under certain limited circumstances, the Series B-1 Preferred Stock is generally not convertible into or exchangeable for any other property or any other of our securities at the election of the holders. On and after July 15, 2026, we may, at our option, redeem the shares at a redemption price of $25.00, plus any accrued unpaid dividends to, but not including, the date of the redemption.

The following table details our dividend activity:

Critical Accounting Policies and Use of Estimates

Our financial statements are prepared in accordance with GAAP, which requires the use of estimates and assumptions that involve the exercise of judgment and use of assumptions as to future uncertainties. The most critical accounting policies involve decisions and assessments that affect our reported assets and liabilities, as well as reported revenues and expenses. We believe that all of the decisions and assessments upon which these financial statements are based are reasonable based upon information currently available to us. The accounting policies and estimates that we consider to be most critical to an investor’s understanding of our financial results and condition and require complex management judgment are discussed below.

Assets and Liabilities Related to Real Estate Owned (and Related Debt)

In order to maximize recovery against a defaulted loan, we may assume legal title or physical possession of the underlying collateral through foreclosure or deed-in-lieu of foreclosure. Foreclosed properties are classified as real estate owned and recognized at fair value on our consolidated balance sheets in accordance with the acquisition method under Accounting Standards Codification (“ASC”) Topic 805, “Business Combinations.” Real estate assets acquired may include land, building, furniture, fixtures and equipment ("FF&E"), and intangible assets, and liabilities assumed may include intangible liabilities. In accordance ASC 820, "Fair Value Measurements and Disclosures," we may utilize the income, market or cost approach (or combination thereof) to determine fair value.

When determining the fair value of a real estate asset under the income approach, we make certain assumptions including, but not limited to, consideration of projected operating cash flows, comparable selling prices and projected cash flows from the eventual disposition of the real estate asset based upon our estimate of a capitalization rate and discount rate.

When determining the fair value of real estate assets under the market or sales comparison approach, we compare the property to similar properties in the marketplace. Although we exercise significant judgment to identify similar properties, and may also consult independent third-party valuation experts to assist, our assessment of fair value is subject to uncertainty and sensitive to our selection of comparable properties.

When determining the fair value of real estate assets under the cost approach, we measure fair value as the replacement cost of these assets. This approach also requires significant judgment, and our estimate of replacement cost could vary from actual replacements costs.

At times we may classify real estate assets as held for sale in the period in which they meet the criteria under ASC Topic 360, "Property, Plant, and Equipment" as discussed in "Note 2 – Summary of Significant Accounting Policies" to our consolidated financial statements. Once a real estate asset is classified as held for sale, depreciation is no longer recorded, and the asset is reported at the lower of its carrying value or fair value less cost to sell. The fair value of real estate assets classified as held for sale is determined using the appropriate methodologies noted in the preceding paragraph and the real estate asset's fair value is subject to uncertainty, as the actual sales price of the real estate asset could differ from those assumed in our valuations.

Once real estate assets have been recorded at fair value upon acquisition, they are subsequently evaluated for impairment

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on a quarterly basis. A real estate asset is considered impaired when the sum of estimated future undiscounted cash flows to be generated by the real estate asset over the estimated remaining holding period is less than the carrying value of such real estate asset. An impairment charge is recorded equal to the excess of the carrying value of the real estate asset over the fair value. When determining the fair value of a real estate asset for the purpose of assessing impairment, we make certain assumptions including, but not limited to: consideration of projected operating cash flows, intended holding period of the real estate, comparable selling prices and projected cash flows from the eventual disposition of the real estate based upon our estimate of a capitalization rate and discount rate. While we exercise significant judgment in generating our assumptions, the asset’s fair value is subject to uncertainty, as actual operating cash flows and disposition proceeds could differ from those assumed in our valuations. Additionally, the output is sensitive to the assumptions used in calculating any potential impairment.

Please refer to "Note 2 – Summary of Significant Accounting Policies," "Note 3 – Fair Value Disclosure," and "Note 5 – Real Estate Owned" for more information regarding real estate owned and our valuation methodology.

Current Expected Credit Losses

We measure and record potential expected credit losses related to our loan portfolio in accordance with the CECL Standard. The CECL Standard requires an entity to consider historical loss experience, current conditions, and a reasonable and supportable forecast of the macroeconomic environment. We have adopted the Weighted Average Remaining Maturity ("WARM") method to determine a General CECL Allowance for the majority of loans in our portfolio, applied on a collective basis by assets with similar risk characteristics. If we determine that a borrower or sponsor is experiencing financial difficulty, we will record loan-specific allowances (our Specific CECL Allowance) in accordance with a practical expedient prescribed by the CECL Standard.

General CECL Allowance

There are a number of significant assumptions required to estimate our General CECL Allowance which include deriving and applying an annual historical loss rate, estimating the impacts of current and future macroeconomic conditions and forecasting the timing of expected repayments, satisfactions and future fundings.

We derive an annual historical loss rate based on a CMBS database with historical losses from 1998 through the fourth quarter of 2023 provided by a third party, Trepp LLC. We apply various filters to arrive at a CMBS dataset most analogous to our current portfolio from which we determine an appropriate historical loss rate. This historical loss rate, and ultimately the General CECL Allowance we derive, is sensitive to the CMBS dataset we select.

We adjust our determined annual historical loss rate based on our outlook of the macroeconomic environment for a reasonable and supportable forecast period. Selection of a forecast period is a matter of judgement and our General CECL Allowance is sensitive to this input.

We develop our expectations for the future macroeconomic environment and its potential impact on the performance of loans in our portfolio by analyzing various market factors, such as unemployment rate, market liquidity and price indexes relevant to commercial real estate sector. This assessment requires the use of significant judgment in selecting relevant market factors and analyzing their correlation with historical loss rates. The future macroeconomic environment is subject to uncertainty as the actual future macroeconomic environment could vary from our expectations.

Additionally, there are assumptions provided to us by the Manager that represent their best estimate as to loan expected term, future fundings, and timing of loan repayments. These assumptions, although made with the most available information at the time of the estimate, are subjective and actual activity may not follow the estimated schedule. These assumptions impact the future balances that the loss rate will be applied to and as such impact our General CECL Allowance. As we acquire new loans and the Manager monitors loan and sponsor performance, these estimates may change each period. Refer to “Note 2 – Summary of Significant Accounting Policies” and “Note 4 Commercial Mortgage Loans, Subordinate Loans and Other Lending Assets, Net” for further discussion regarding our General CECL Allowance.

Specific CECL Allowance

When we determine that a borrower or sponsor is experiencing financial difficulty, we evaluate the related loan for loan-specific allowances under the practical expedient prescribed by the CECL Standard. Determining that a borrower or sponsor is experiencing financial difficulty requires the use of significant judgment and can be based on several factors subject to uncertainty. These factors can include, but are not limited to, whether cash from the borrower's operations are sufficient to cover current and future debt service requirements, the borrower’s ability to potentially refinance the loan, and other circumstances that can affect the borrower’s ability to satisfy their obligations in accordance the terms of the loan. When utilizing the practical expedient for collateral dependent loans, the current expected credit losses is determined as the difference between the fair value of the underlying collateral, adjusted for estimated costs to sell when applicable, and the carrying value of the loan (prior to the current expected credit losses). Collateral-dependent loans evaluated for a Specific CECL Allowance

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are removed from the General CECL pool.

The fair value of the underlying collateral is determined by using method(s) such as discounted cash flow, the market approach, or direct capitalization approach. These methods require the use of key unobservable inputs, which are inherently uncertain and subjective. Our estimate of fair value is sensitive to both the valuation methodology selected and inputs used. Determining a suitable valuation method and selecting the appropriate key unobservable inputs and assumptions requires significant judgment and consideration of factors specific to the underlying collateral being assessed. Additionally, the key unobservable inputs and assumptions used may vary depending on the information available to us and market conditions as of the valuation date. As such, the fair value that we derive and use in calculating our Specific CECL Allowance, is subject to uncertainty and any actual losses, if incurred, could differ materially from our current expected credit losses. Refer to “Note 2 – Summary of Significant Accounting Policies” and “Note 4 Commercial Mortgage Loans, Subordinate Loans and Other Lending Assets, Net” for further discussion regarding our Specific CECL Allowance.

Refer to "Note 2 - Summary of Significant Accounting Policies" to our consolidated financial statements for the complete listing and description of our significant accounting policies.

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