References in this quarterly report to "we," "us" or the "Company" refer toACRES Commercial Realty Corp. The following discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with the consolidated financial statements and accompanying notes appearing elsewhere in this report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Special Note Regarding Forward-Looking Statements
This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as "may," "will," "continue," "expect," "intend," "anticipate," "estimate," "believe," "look forward" or other similar words or terms. Because such statements include risks, uncertainties and contingencies, actual results may differ materially from the expectations, intentions, beliefs, plans or predictions of the future expressed or implied by such forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, including, without limitation, factors impacting whether we will be able to maintain our sources of liquidity and whether we will be able to identify sufficient suitable investments to increase our originations, please refer to the Risk Factors section of the Company's Annual Report on Form 10-K for the year endedDecember 31, 2022 filed with theU.S. Securities and Exchange Commission (the "SEC"). Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
Overview
We are aMaryland corporation and an externally managed real estate investment trust ("REIT") that is primarily focused on originating, holding and managing commercial real estate ("CRE") mortgage loans and equity investments in commercial real estate properties through direct ownership and joint ventures. Our manager isACRES Capital, LLC (our "Manager"), a subsidiary ofACRES Capital Corp. (collectively, "ACRES"), a private commercial real estate lender exclusively dedicated to nationwide middle market CRE lending with a focus on multifamily, student housing, hospitality, office and industrial property in topUnited States ("U.S.") markets. Our Manager draws upon the management team of ACRES and its collective investment experience to provide its services. Our objective is to provide our stockholders with total returns over time, including quarterly distributions and capital appreciation, while seeking to manage the risks associated with our investment strategies as well as to maximize long-term stockholder value by maintaining stability through our available liquidity and diversified CRE loan portfolio. InDecember 2019 , a novel strain of coronavirus ("COVID-19") was identified. The resulting spread of COVID-19 throughout the globe led theWorld Health Organization to designate COVID-19 as a pandemic and numerous countries, including theU.S , to declare national emergencies. Many countries responded to the initial and ensuing outbreaks of COVID-19 by instituting quarantines and restrictions on travel and limiting operations of non-essential offices and retail centers, which resulted in the closure or remote operation of non-essential businesses, increased rates of unemployment and market disruption in connection with the economic uncertainty. The aforementioned quarantines and travel restrictions contributed significantly to economic disruptions across the country that directly impacted our borrowers and their ability to pay and to stay current with their debt obligations in 2020 and 2021, causing significant increases in our provisions for credit losses. During the height of the pandemic, we used a variety of legal and structural options to manage credit risk effectively, including through forbearance and extension provisions or other agreements. Due in large part to the development and distribution of vaccines and other treatments, theU.S. and other countries around the world have eased or removed restrictions entirely, financial markets are more liquid, collateral performance has improved and unemployment rates have stabilized to some degree; as such, atMarch 31, 2023 , we have substantially reversed provisions for credit losses related to macroeconomic factors impacted by COVID-19. For additional discussion with respect to the potential impact of COVID-19 on our liquidity and capital resources, see "Liquidity and Capital Resources." Currently, domestic and global markets are grappling with managing rising inflation rates, supply chain disruptions and energy market dislocations. These additional market pressures are manifesting themselves in higher consumer prices and have led domestic and global monetary policy makers to raise historically low short-term interest rates at rates much faster than originally anticipated by domestic and global financial markets in hopes of containing inflation and staving off or tempering an economic recession. TheU.S. Federal Reserve has raised the Federal Funds rate by 5.00% in ten rate hikes betweenMarch 2022 andMay 2023 to combat inflation, and more rate hikes may be expected to occur in the near future. These increases in the cost of capital and goods are expected to cause (Back to Index) 40
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short-term dislocations in various investment and financing markets in which we participate as we and other market participants adjust to the new financing environment.
We continuously monitor the effects of domestic and global events, including but not limited to the current and expected impacts of inflation, labor shortages, supply chain matters and rising interest rates, on our operations and financial position to ensure that we remain responsive and adaptable to the dynamic changes in our operating environment. However, it is inherently difficult to accurately assess the continuing impact of domestic or global macroeconomic events on our revenues, profitability and financial position. In response, we continue to actively and responsibly manage corporate liquidity and operations in light of changing macroeconomic circumstances, and our Manager continuously monitors for new capital opportunities and executes on agreements that are expected to enhance our returns. We target originating transitional floating-rate CRE loans between$10.0 million and$100.0 million . InMarch 2020 , due to the market disruptions caused by the COVID-19 pandemic, we halted loan originations to manage our liquidity. In conjunction with the capital commitments secured through the ACRES acquisition, we resumed originating floating-rate CRE loans inNovember 2020 . During the year endedDecember 31, 2022 , we originated 19 floating-rate CRE whole loans with total commitments of$610.8 million . Loan payoffs during the year endedDecember 31, 2022 were$399.6 million and net unfunded commitments were$21.2 million , producing a net increase to the portfolio of$190.0 million . During the three months endedMarch 31, 2023 , we originated one floating-rate CRE whole loan, with a total commitment of$16.0 million . Loan payoffs during the three months endedMarch 31, 2023 were$94.1 million and net funded commitments were$13.7 million , producing a net decrease to the portfolio of$64.4 million .
Our CRE loan portfolio, which had
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First mortgage loans, which we refer to as whole loans. These loans are typically secured by first liens on CRE property, including the following property types: multifamily, office, hotel, self-storage, retail, student housing, manufactured housing, industrial, healthcare and mixed-use. At bothMarch 31, 2023 andDecember 31, 2022 , our whole loans had a carrying value of$2.0 billion or 100.0% of the CRE loan portfolio. All but three of our CRE whole loans were current on contractual payments atMarch 31, 2023 , one of which was made current with respect to debt service inApril 2023 .
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Mezzanine debt is senior to the borrower's equity but is subordinated to other third-party debt. These loans are subordinated CRE loans, usually secured by a pledge of the borrower's equity ownership in the entity that owns the property or by a second lien mortgage on the property. At bothMarch 31, 2023 andDecember 31, 2022 , our mezzanine loans had no carrying value. We generate our income primarily from the spread between the revenues we receive from our assets and the cost to finance our ownership of those assets, including corporate debt. While the CRE whole loans included in the CRE loan portfolio are substantially composed of floating-rate loans benchmarked to the Secured Overnight Financing Rate ("SOFR"), asset yields are protected through the use of benchmark floors and minimum interest periods that typically range from 12 to 18 months at the time of a loan's origination. Our benchmark floors provide asset yield protection when the benchmark rate falls below an in-place benchmark floor. Our net investment returns are enhanced by a decline in the cost of our floating-rate liabilities that do not have benchmark floors. Our net investment returns will be negatively impacted by the rising cost of our floating-rate liabilities that do not have floors until the benchmark rate is above the benchmark floor, at which point our floating-rate loans and floating-rate liabilities will be match funded, effectively locking in our net interest margin until the benchmark floor rate is activated again or the floating-rate loan is paid off or refinanced. In a business environment where benchmark interest rates are increasing significantly, cash flows of the CRE assets underlying our loans may not be sufficient to pay debt service on our loans, which could result in non-performance or default. We partially mitigate this risk by generally requiring our borrowers to purchase interest rate cap agreements with non-affiliated, well-capitalized third parties and by selectively requiring our borrowers to have and maintain debt service reserves. These interest rate caps generally mature prior to the maturity date of the loan and the borrowers are required to pay to extend them. In most cases the sponsors will need to fund additional equity into the properties to cover these costs as the property may not generate sufficient cash flow to pay these costs. AtMarch 31, 2023 , 93.5% of the par value of our CRE loan portfolio had interest rate caps in place with a weighted-average maturity of 0.9 years. (Back to
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AtMarch 31, 2023 , our$2.0 billion floating-rate CRE loan portfolio, at par, which includes one whole loan without a benchmark floor, had a weighted average benchmark floor of 0.66%. AtDecember 31, 2022 , our par-value$2.1 billion floating-rate CRE loan portfolio, which included one loan without a benchmark floor, had a weighted average benchmark floor of 0.68%. With the trend of rising benchmark interest rates in 2022 and 2023, we have seen the coupons on all of our floating-rate assets and debt rise accordingly. Because we have equity invested in each floating-rate loan, and because in all instances the benchmark interest rates are above our loan floors, the rise in interest rates expected by the market will result in an increase in our net interest income. See "Interest Rate Risk" in "Item 3: Quantitative and Qualitative Disclosures About Market Risk." (Back to Index) 42
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Our portfolio comprises loans with a diverse array of collateral types. We
increased our multifamily portfolio allocation to 76.2% at
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From time to time, we may acquire real estate property through direct equity investments or as a result of our lending activities. AtMarch 31, 2023 , the total carrying value of our net real estate-related assets and liabilities was$97.2 million on four properties owned. The existence of net capital loss carryforwards available untilDecember 31, 2025 , allows for potential future capital gains on these investments to be shielded from income taxes. Additionally, atMarch 31, 2023 , our investments in real estate comprise one hotel property with a carrying value of$37.4 million , classified as property held for sale of$40.4 million offset by liabilities held for sale of$3.0 million . We use leverage to enhance our returns. The cost of borrowings to finance our investments is a significant part of our expenses. Our net interest income depends on our ability to control these expenses relative to our revenue. Our CRE loans may initially be financed with term facilities, such as CRE loan warehouse financing facilities, in anticipation of their ultimate securitization. We ultimately seek to finance our CRE loans through the use of non-recourse long-term, match-funded CRE debt securitizations. Our asset-specific borrowings comprised CRE debt securitizations, term warehouse financing facilities, senior secured financing facility, mortgage payable and construction loans. InMay 2021 , we closedACRES Commercial Realty 2021-FL1 Issuer, Ltd. (Back to Index) 43
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("ACR 2021-FL1"), a new CRE debt securitization financing$802.6 million of CRE loans with$675.2 million of non-recourse, floating-rate notes at a weighted average cost of one-month LIBOR plus 1.49%. Simultaneously, we executed the optional redemption onExantas Capital Corp. 2019-RSO7, Ltd. ("XAN 2019-RSO7") and paid off the remaining notes. InDecember 2021 , we closedACRES Commercial Realty 2021-FL2 Issuer, Ltd. ("ACR 2021-FL2"), a new CRE debt securitization financing$700.0 million of CRE loans with$567.0 million of non-recourse, floating-rate notes at a weighted average cost of one-month LIBOR plus 1.80%. Each of these 2021 CLOs provides for a two-year reinvestment period that allows us to reinvest CRE loan payoffs and principal paydown proceeds into the securitizations, pending certain eligibility criteria are met and rating agency approval is obtained. The reinvestment feature of the securitizations will allow us to extend the securitizations' financing lives at favorable interest rates through the reinvestment of loan payoff proceeds into new loans.
In
AtMarch 31, 2023 andDecember 31, 2022 , we had an outstanding balance of$1.2 billion on CRE debt securitizations, or 68.2% and 66.1%, respectively, of total outstanding borrowings. AtMarch 31, 2023 andDecember 31, 2022 , we had outstanding balances on our term warehouse financing facilities of$311.3 million and$328.3 million , respectively, or 17.2% and 17.6%, respectively, of total outstanding borrowings. AtMarch 31, 2023 andDecember 31, 2022 , we had outstanding borrowings on our senior secured financing facility of$49.9 million and$87.9 million , respectively, or 2.8% and 4.7%, respectively, of total outstanding borrowings. AtMarch 31, 2023 andDecember 31, 2022 , we had$18.3 million and$18.2 million , respectively, of outstanding borrowings on our mortgage payable, or 1.0% and 1.0%, respectively, of total outstanding borrowings. AtMarch 31, 2023 , we had two construction loans that have not been drawn upon. InFebruary 2022 , we repurchased$39.8 million par value of our 4.50% convertible senior notes due 2022 ("4.50% Convertible Senior Notes"). In conjunction with the repurchase, we accelerated$460,000 of the convertible note discount, which was recorded as an extinguishment of debt cost, and$114,000 of deferred debt issuance costs, which were recorded in interest expense. InAugust 2022 , the remaining$48.2 million of outstanding notes were paid off upon maturity at par. InJanuary 2020 , we adopted updated accounting guidance that replaced the incurred loss approach with the CECL model for the determination of our allowance for loan losses. We reevaluate our CECL allowance quarterly, incorporating our current expectations of macroeconomic factors considered in the determination of our CECL reserves. AtMarch 31, 2023 , the CECL allowance on our CRE loan portfolio was$23.9 million , or 1.2% of our$2.0 billion loan portfolio. AtDecember 31, 2022 , the CECL allowance on our CRE loan portfolio was$18.8 million , or 0.9% of our$2.1 billion loan portfolio. During the three months endedMarch 31, 2023 , we recorded a provision for credit losses primarily attributable to modeled increases in expected general portfolio credit risk and, to a lesser extent, to a general decline in macroeconomic conditions. For the year endedDecember 31, 2022 , we recorded a net provision for credit losses, which at the time, reflected changes in macroeconomic conditions and a specific, full reserve on one mezzanine loan with a par value of$4.7 million , which was delinquent with respect to debt service. Additionally, the steady decline in our CECL reserves from our highest reserve balance inJune 30, 2020 of$61.1 million , or 3.4% of the par balance of our CRE loan portfolio, to our current reserve balance atMarch 31, 2023 of$23.9 million , or 1.2% of the par balance of our CRE loan portfolio, has been due to the following: the successful resolution of our individually evaluated loans with specific reserves, the overall newer vintage of our CRE loan portfolio (with 11.6% of the portfolio, atMarch 31, 2023 , being originated prior to the fourth quarter of 2020) as well as the increasing percentage allocation of our CRE loan portfolio to multifamily loans over time. Multifamily loans have historically had the lowest credit losses of any asset class for us and as a sample population in the third-party model that we use to support our CECL reserves. Our percentage allocation of our CRE loan portfolio to multifamily has grown from 58.4% atJune 30, 2020 to 76.2% atMarch 31, 2023 .
During the three months ended
We historically used derivative financial instruments, including interest rate swaps, to hedge a portion of the interest rate risk associated with our borrowings. InApril 2020 , we terminated all interest rate hedges in conjunction with the disposition of our financed commercial mortgage-backed securities ("CMBS") portfolio. AtMarch 31, 2023 andDecember 31, 2022 , we had unrealized losses in connection with the terminated hedges of$6.2 million and$6.6 million , respectively, which will be amortized into interest expense over the remaining life of the debt. During the three months endedMarch 31, 2023 , we recognized amortization expense on these terminated contracts of$416,000 . (Back to
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Common stock book value was$24.51 per share atMarch 31, 2023 , a$0.03 per share decrease fromDecember 31, 2022 , primarily resulting from the accretive benefit of our board of directors, or our Board-approved common stock repurchase program, offset by net losses from operations incurred during the quarter.
Impact of Reference Rate Reform
As discussed in the "Overview" section above, atMarch 31, 2023 , all of our CRE whole loans are benchmarked to one-month Term SOFR and our asset-specific borrowings are primarily benchmarked to one-month LIBOR and one-month Term SOFR. InMarch 2021 , theUnited Kingdom's Financial Conduct Authority announced that it would cease publication of the one-week and two-month USD LIBOR immediately afterDecember 31, 2021 and cease publication of the remaining tenors immediately afterJune 30, 2023 . InJuly 2021 , theU.S. Federal Reserve , in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of largeU.S. financial institutions, has identified SOFR as its preferred alternative rate for LIBOR. All variable rate loans originated by us beginningJanuary 1, 2022 have been benchmarked to SOFR. Additionally, all of our floating-rate whole loans contain provisions that provide for the transition of the contractual benchmark interest rate to an alternative rate. AtMarch 31, 2023 , our loan portfolio had a carrying value of$2.0 billion of floating rate loans, all of which have interest rates tied to SOFR. InSeptember 2021 andJanuary 2022 , the term warehouse financing facilities withJPMorgan Chase Bank, N.A . ("JPMorgan Chase") andMorgan Stanley Mortgage Capital Holdings LLC ("Morgan Stanley"), respectively, were amended to allow for the transition to alternative rates, including rates tied to SOFR, subject to benchmark transition events. Additionally, during the year endedDecember 31, 2022 , we entered into a loan agreement to finance the acquisition of a student housing complex, which uses SOFR as its benchmark interest rate. AtMarch 31, 2023 , we had$1.7 billion of floating rate borrowings, 78.0% or$1.3 billion of which have interest rates tied to LIBOR and 22.0% or$366.1 million of which have interest rates tied to SOFR.
We expect to complete the process of converting our LIBOR-based borrowings to an applicable benchmark interest rate during 2023.
The transition from LIBOR to SOFR or to another alternative rate may result in financial market disruptions and significant increases in benchmark interest rates, resulting in increased financing costs to us, any of which could have an adverse effect on our business, results of operations, financial condition, and the market price of our common stock. Further discussion of the risk related to ongoing reference rate reform is provided in the section entitled "Risk Factors" in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2022 .
Results of Operations
Our net loss allocable to common shares for the three months endedMarch 31, 2023 was$2.4 million or$0.28 per share-basic ($0.28 per share-diluted), as compared to net loss allocable to common shares for the three months endedMarch 31, 2022 of$2.8 million , or$0.30 per share-basic ($0.30 per share-diluted). (Back to Index) 45
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(Back to Index) Net Interest Income The following tables analyze the change in interest income and interest expense for the comparative three months endedMarch 31, 2023 and 2022 by changes in volume and changes in rates. The changes attributable to the combined changes in volume and rate have been allocated proportionately, based on absolute values, to the changes due to volume and changes due to rates (dollars in thousands, except amounts in footnotes): Three Months Ended March
31, 2023 Compared to Three Months Ended March
31, 2022 Due to Changes in Percent Net Change Change (1) Volume Rate Increase (decrease) in interest income: CRE whole loans (2)$ 21,946 97 %$ 2,075 $ 19,871 Legacy CRE loan (29 ) (100 )% (29 ) - CRE mezzanine loan (104 ) (89 )% - (104 ) Other 840 4,421 % (5 ) 845 Total increase in interest income 22,653 100 % 2,041 20,612 Increase (decrease) in interest expense: Securitized borrowings: (3) XAN 2020-RSO8 Senior Notes (1,208 ) (100 )% (1,208 ) - XAN 2020-RSO9 Senior Notes (956 ) (100 )% (956 ) - ACR 2021-FL1 Senior Notes 7,352 231 % - 7,352 ACR 2021-FL2 Senior Notes 6,174 194 % - 6,174 Senior secured financing facility (3) 1,043 203 % 1,021 22 CRE - term warehouse financing facilities (3) 5,074 490 % 2,990 2,084 4.50% Convertible Senior Notes (3) (1,356 ) (100 )% (1,356 ) - 5.75% Senior Unsecured Notes (3) 10 0 % 10 - 12.00% Senior Unsecured Notes (3) (178 ) (100 )% (178 ) - Unsecured junior subordinated debentures 576 107 % - 576 Hedging (63 ) (14 )% (63 ) - Total increase in interest expense 16,468 110 % 260 16,208 Net increase in net interest income$ 6,185 $ 1,781 $ 4,404 (1) Percent change is calculated as the net change divided by the respective interest income or interest expense for the three months endedMarch 31, 2022 . (1) Includes an increase in fee income of$11,000 recognized on our CRE whole loans that was due to changes in volume. (2) Includes decreases in amortization expense of$1.1 million ,$106,000 ,$595,000 and$178,000 on our securitized borrowings, CRE - term warehouse financing facilities, 4.50% Convertible Senior Notes and 12.00% senior unsecured notes, respectively, and increases in amortization expense of$30,000 and$10,000 on our senior secured financing facility and 5.75% Senior Unsecured Notes, respectively, that were due to changes in volume.
Net Change in Interest Income for the Comparative three months ended
Aggregate interest income increased by
CRE whole loans. The increase of$21.9 million for the comparative three months endedMarch 31, 2023 and 2022 was primarily attributable to an increase in the benchmark rates over the comparative periods, and to a lessor extent, a net increase in the size of the total loan portfolio.
Net Change in Interest Expense for the Comparative three months ended
Aggregate interest expense increased by
Securitized borrowings. The net increase of$11.4 million for the comparative three months endedMarch 31, 2023 and 2022, respectively, was primarily attributable to an increase in benchmark rates over the comparative periods. The increase was partially offset by the liquidations of XAN 2020-RSO8 and XAN 2020-RSO9. (Back to Index) 46
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Senior secured financing facility. The increase of
CRE - term warehouse financing facilities. The increase of$5.1 million for the comparative three months endedMarch 31, 2023 and 2022 was attributable to the increased utilization of these facilities as well as an increase in benchmark rates over the comparative periods. 4.50% Convertible Senior Notes. The decrease of$1.4 million for the comparative three months endedMarch 31, 2023 and 2022 was primarily attributable to the redemption of the remaining$88.0 million of these notes during the year endedDecember 31, 2022 . Unsecured junior subordinated debentures. The increase of$576,000 for the comparative three months endedMarch 31, 2023 and 2022 was attributable to an increase in the benchmark interest rate for our unsecured junior subordinated debentures, over the comparative periods. (Back to
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Average Net Yield and Average Cost of Funds:
The following tables present the average net yield and average cost of funds for the three months endedMarch 31, 2023 and 2022 (dollars in thousands, except amounts in footnotes): Three Months Ended March 31, 2023 Three Months Ended March 31, 2022 Interest Average Net Interest Average Net Average Income Yield (Cost of Average Income Yield (Cost of Amortized Cost (Expense) Funds) (1) Amortized Cost (Expense) Funds) (1) Interest-earning assets CRE whole loans, floating-rate (2)$ 2,011,599 $ 44,457 8.96 %$ 1,883,227 $ 22,511 4.85 % Legacy CRE loan - - - % 640 29 18.08 % CRE mezzanine loan 4,700 13 1.09 % 4,700 117 9.96 % Other 111,119 859 3.14 % 136,673 19 0.06 % Total interest income/average net yield 2,127,418 45,329 8.64 % 2,025,240 22,676 4.54 % Interest-bearing liabilities Collateralized by: CRE whole loans (3) 1,621,061 (27,556 ) (6.89 )% 1,481,354 (10,077 ) (2.67 )% General corporate debt: Unsecured junior subordinated debentures 51,548 (1,115 ) (8.65 )% 51,548 (539 ) (4.18 )% 4.50% Convertible Senior Notes (4) - - - % 67,076 (1,356 ) (8.09 )% 5.75% Senior Unsecured Notes (5) 147,585 (2,311 ) (6.35 )% 146,986 (2,301 ) (6.35 )% 12.00% Senior Unsecured Notes (6)(7) - - - % - (178 ) - % Hedging (8) - (393 ) - % - (456 ) - % Total interest expense/average cost of funds 1,820,194 (31,375 ) (6.90 )% 1,746,964 (14,907 ) (3.23 )% Total net interest income$ 13,954 $ 7,769 (1) Average net yield includes net amortization/accretion and fee income and is computed based on average amortized cost. (2) Includes fee income of$2.1 million on our floating-rate CRE whole loans for both the three months endedMarch 31, 2023 and 2022. (3) Includes amortization expense of$1.3 million and$2.5 million for the three months endedMarch 31, 2023 and 2022, respectively, on our interest-bearing liabilities collateralized by CRE whole loans. (4) Includes amortization expense of$595,000 for the three months endedMarch 31, 2022 . (5) Includes amortization expense of$155,000 and$145,000 for the three months endedMarch 31, 2023 and 2022, respectively. (6) Includes amortization expense of$178,000 for the three months endedMarch 31, 2022 . (7) The outstanding par balance of our 12.00% Senior Unsecured Notes was redeemed in full inAugust 2021 . At any time and from time to time prior toJuly 31, 2022 , we were permitted to elect to issue up to$75.0 million of principal of additional notes. The interest expense incurred during the three months endedMarch 31, 2022 comprised amortization of deferred debt issuance costs on the remaining availability. (8) Includes net amortization expense of$393,000 and$456,000 for the three months endedMarch 31, 2023 and 2022, respectively, on 20 and 22 terminated interest rate swap agreements, respectively, that were in net loss positions at the time of termination. The remaining net losses, reported in accumulated other comprehensive loss on the consolidated balance sheets, will be accreted over the remaining life of the debt.
Real Estate Income and Other Revenue
The following table sets forth information relating to our real estate income and other revenue for the periods presented (dollars in thousands):
For the Three Months Ended March 31, 2023 2022 Dollar Change Percent Change Real estate income and other revenue: Real estate income$ 7,071 $ 3,138 $ 3,933 125 % Other revenue 33 16 17 106 % Total$ 7,104 $ 3,154 $ 3,950 125 % Aggregate real estate income and other revenue increased by$4.0 million for the comparative three months endedMarch 31, 2023 and 2022. We primarily attribute the changes to the acquisition of two revenue-generating properties in the second quarter of 2022. Additionally, real estate income at our hotel property acquired in 2020 benefited from increased personal and business travel resulting from lifted COVID-19 restrictions that occurred late in the spring of 2022. In the third quarter 2022, we received the deed-in-lieu of foreclosure on a hotel property that also contributed to the increase in real estate income for two of the three months endedMarch 31, 2023 prior to being sold. (Back to
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(Back to Index) Operating Expenses
The following tables set forth information relating to our operating expenses for the periods presented (dollars in thousands):
For the Three Months Ended March 31, 2023 2022 Dollar Change Percent Change Operating expenses: General and administrative$ 2,979 $ 3,457 $ (478 ) (14 )% Real estate expenses 8,860 4,794 4,066 85 % Management fees - related party 1,773 1,682 91 5 % Equity compensation - related party 894 744 150 20 % Corporate depreciation and amortization 23 22 1 5 % Provision for (reversal of) credit losses, net 5,096 (1,802 ) 6,898 383 % Total$ 19,625 $ 8,897 $ 10,728 121 %
Aggregate operating expenses increased by
General and administrative. General and administrative expenses decreased by$478,000 for the comparative three months endedMarch 31, 2023 and 2022. The following table summarizes the information relating to our general and administrative expenses for the periods presented (dollars in thousands): For the Three Months Ended March 31, 2023 2022 Dollar Change Percent Change
General and administrative Professional services$ 1,520 $ 1,892 $ (372 ) (20 )% Wages and benefits 391 360 31 9 % D&O insurance 319 356 (37 ) (10 )% Operating expenses 268 159 109 69 % Director fees 206 337 (131 ) (39 )% Dues and subscriptions 203 205 (2 ) (1 )% Tax penalties, interest & franchise tax 66 139 (73 ) (53 )% Travel 6 9 (3 ) (33 )% Total$ 2,979 $ 3,457 $ (478 ) (14 )% The decrease in general and administrative expense for the comparative three months endedMarch 31, 2023 and 2022 was primarily attributable to a decrease in professional services in connection with (i) legal expenses incurred during the three months endedMarch 31, 2022 pertaining to the liquidation of 2020-RSO8 and 2020-RSO9 compounded by reimbursement from a borrower for legal costs during the three months endedMarch 31, 2023 and (ii) the timing of CRE valuations for the year end audit. Real estate expenses. The increase of$4.1 million for the comparative three months endedMarch 31, 2023 and 2022 was primarily attributable to the acquisition of two properties, a hotel and a student housing complex inApril 2022 , as well as increased operating expenses incurred on a hotel property acquired inNovember 2020 due to growth in its operations in the current year and incremental operating expenses incurred on a hotel property on which we received the deed-in-lieu of foreclosure inJuly 2022 . The increase for the comparative three months was partially offset by the sale of an office property inSeptember 2022 , as well as a decrease in depreciation expense on one office property acquired inOctober 2021 over the comparative periods. Provision for (reversal of) credit losses, net. The provision for credit losses of$5.1 million for the three months endedMarch 31, 2023 was primarily attributable to modeled increases in expected general portfolio credit risk as well as a general decline in macroeconomic conditions. The reversal of credit losses of$1.8 million for the three months endedMarch 31, 2022 was attributable to overall, general improvements in expected macroeconomic conditions and improvements in property-level operations on loan collateral. (Back to Index) 49
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(Back to Index) Other Income (Expense)
The following table sets forth information relating to our other income (expense) incurred for the periods presented (dollars in thousands):
For the Three Months Ended March 31, 2023 2022 Dollar Change Percent Change Other income (expense): Loss on extinguishment of debt $ -$ (460 ) $ 460 (100 )% Gain on sale of real estate 745 - 745 100 % Other income 110 798 (688 ) (86 )% Total $ 855$ 338 $ 517 153 %
Aggregate other income increased
Loss on extinguishment of debt. There were no losses on extinguishment of debt in the three months endedMarch 31, 2023 . The loss of$460,000 for the three months endedMarch 31, 2022 was attributable to non-cash losses in connection with the ratable acceleration of the 4.50% Convertible Senior Notes' market discount due to the partial redemption of our 4.50% Convertible Senior Notes inFebruary 2022 . Gain on sale of real estate. The increase of$745,000 for the comparative three months endedMarch 31, 2023 and 2022 was attributed to the sale of a hotel property in the Northeast region inFebruary 2023 that generated$745,000 of non-recurring gains. Other Income. The decrease of$688,000 during the comparative three months endedMarch 31, 2023 and 2022, was primarily attributable to a loan recovery received on a middle market loan that was previously charged off during the three months endedMarch 31, 2022 . During the three months endedMarch 31, 2023 , no loan recoveries occurred. (Back to Index) 50
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(Back to Index) Financial Condition Summary
Our total assets were
Investment Portfolio
The tables below summarize the amortized cost and net carrying amount of our investment portfolio, classified by asset type, atMarch 31, 2023 andDecember 31, 2022 as follows (dollars in thousands, except amounts in footnotes): Weighted Net Carrying Percent of Average At March 31, 2023 Amortized Cost Amount (1) Portfolio Coupon Loans held for investment: CRE whole loans, floating-rate$ 1,990,090 $ 1,970,891 93.55 % 8.62% CRE mezzanine loan 4,700 - 0.00 % 10.00% 1,994,790 1,970,891 93.55 % Other investments: Investments in unconsolidated entities 1,548 1,548 0.07 % N/A (4) Investments in real estate (2) 97,205 97,205 4.61 % N/A (4) Property held for sale (3) 37,352 37,352 1.77 % N/A (4) 136,105 136,105 6.45 % Total investment portfolio$ 2,130,895 $ 2,106,996 100.00 % Weighted Net
Carrying Percent of Average
At December 31, 2022 Amortized Cost Amount (1) Portfolio Coupon Loans held for investment: CRE whole loans, floating-rate$ 2,052,890 $ 2,038,787 93.56 % 7.99% CRE mezzanine loan 4,700 - 0.00 % 10.00% 2,057,590 2,038,787 93.56 % Other investments: Investments in unconsolidated entities 1,548 1,548 0.07 % N/A (4) Investments in real estate (2) 88,132 88,132 4.04 % N/A (4) Property held for sale (3) 50,744 50,744 2.33 % N/A (4) 140,424 140,424 6.44 % Total investment portfolio$ 2,198,014 $ 2,179,211 100.00 % (1) Net carrying amount includes an allowance for credit losses of$23.9 million and$18.8 million atMarch 31, 2023 andDecember 31, 2022 , respectively. (2) Includes real estate-related right of use assets of$19.4 million and$19.5 million , mortgage payable of$18.3 million and$18.2 million , intangible assets of$8.6 million and$8.9 million , lease liabilities of$43.0 million and$42.9 million and other liabilities of$55,000 and$64,000 atMarch 31, 2023 andDecember 31, 2022 , respectively. (3) Includes property held for sale-related liabilities of$3.0 million at bothMarch 31, 2023 andDecember 31, 2022 . (4) There are no stated rates associated with these investments. CRE loans. During the three months endedMarch 31, 2023 , we originated a$16.0 million floating-rate CRE whole loan commitment (of which$1.2 million was an unfunded loan commitment), funded$14.9 million of previously unfunded loan commitments and received$94.1 million in proceeds from loan payoffs and paydowns. (Back to Index) 51
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The following is a summary of our loans (dollars in thousands, except amounts in footnotes): Unamortized Allowance Contractual (Discount) for Credit Interest Maturity Description Quantity Principal Premium, net (1) Amortized Cost Losses Carrying Value Rates (2) Dates (3)(4) AtMarch 31, 2023 : 1M BR plus 2.86% to 1M BR plus April 2023 Whole loans (5)(6) 78$ 2,001,105 $ (11,015 ) $ 1,990,090 $ (19,199 ) $ 1,970,891 8.61% to July 2026 Mezzanine loan (5) 1 4,700 - 4,700 (4,700 ) - 10.00% June 2028 Total$ 2,005,805 $ (11,015 ) $ 1,994,790 $ (23,899 ) $ 1,970,891 AtDecember 31, 2022 : 1M BR plus 2.85% to 1M BR plus January 2023 Whole loans (5)(6) 81$ 2,065,504 $ (12,614 ) $ 2,052,890 $ (14,103 ) $ 2,038,787 8.50% to July 2026 Mezzanine loan (5) 1 4,700 - 4,700 (4,700 ) - 10.00% June 2028 Total$ 2,070,204 $ (12,614 ) $ 2,057,590 $ (18,803 ) $ 2,038,787 (1) Amounts include unamortized loan origination fees of$10.7 million and$12.3 million and deferred amendment fees of$267,000 and$308,000 atMarch 31, 2023 andDecember 31, 2022 , respectively. (2) Benchmark rates ("BR") comprise one-month LIBOR or one-month Term SOFR. AtMarch 31, 2023 , all of our whole loans used one-month SOFR. Weighted-average one-month benchmark rates were 4.74% and 4.21% atMarch 31, 2023 andDecember 31, 2022 , respectively. Additionally, weighted-average benchmark rate floors were 0.66% and 0.68% atMarch 31, 2023 andDecember 31, 2022 , respectively. (3) Maturity dates exclude contractual extension options, subject to the satisfaction of certain terms that may be available to the borrowers. (4) Maturity dates exclude three whole loans, with amortized costs of$51.0 million and$51.6 million , in maturity default atMarch 31, 2023 andDecember 31, 2022 , respectively. (5) Substantially all loans are pledged as collateral under various borrowings atMarch 31, 2023 andDecember 31, 2022 . (6) CRE whole loans had$143.6 million and$158.2 million in unfunded loan commitments atMarch 31, 2023 andDecember 31, 2022 , respectively. These unfunded loan commitments are advanced as the borrowers formally request additional funding and meet certain benchmarks, as permitted under the loan agreement, and any necessary approvals have been obtained. AtMarch 31, 2023 , 23.2%, 23.1% and 13.9% of our CRE loan portfolio was concentrated in the Southwest, Southeast and Mountain regions, respectively, based on carrying value, as defined by the NCREIF. AtDecember 31, 2022 , 23.2%, 21.5% and 16.2% of our CRE loan portfolio was concentrated in the Southwest, Southeast and Mountain regions, respectively, based on carrying value. AtMarch 31, 2023 andDecember 31, 2022 , no single loan or investment represented more than 10% of our total assets and no single investment group generated over 10% of our revenue. Investments in unconsolidated entities. Our investments in unconsolidated entities atMarch 31, 2023 andDecember 31, 2022 comprised a 100% interest in the common shares of Resource Capital Trust I ("RCT I") andRCC Trust II ("RCT II"), with a value of$1.5 million in the aggregate, or 3.0% of each trust. We record our investments in RCT I's and RCT II's common shares as investments in unconsolidated entities using the cost method, recording dividend income when declared by RCT I and RCT II. We recorded dividends from our investments in RCT I's and RCT II's common shares, reported in other revenue on the consolidated statement of operations, of$33,000 during the three months endedMarch 31, 2023 . During the three months endedMarch 31, 2022 , we recorded dividends of$16,000 . Investments in real estate and property held for sale. AtMarch 31, 2023 , we held investments in five real estate properties, four of which are included in investments in real estate and one of which is included in properties held for sale on the consolidated balance sheets.
In
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The following table summarizes the book value of our investments in real estate
and related intangible assets at
March 31, 2023 December 31, 2022 Accumulated Accumulated Depreciation & Carrying Depreciation & Carrying Cost Basis Amortization Value Cost Basis Amortization Value Assets: Investments in real estate, equity: Investments in real estate (1)$ 133,522 $ (2,951 )$ 130,571 $ 123,219 $ (2,251 )$ 120,968 Right of use assets (2)(3) 19,664 (273 ) 19,391 19,664 (205 ) 19,459 Intangible assets (4) 11,474 (2,846 ) 8,628 11,474 (2,594 ) 8,880 Subtotal 164,660 (6,070 ) 158,590 154,357 (5,050 ) 149,307 Investments in real estate from lending activities: Properties held for sale (5) 40,377 - 40,377 53,769 - 53,769 Total 205,037 (6,070 ) 198,967 208,126 (5,050 ) 203,076 Liabilities: Investments in real estate, equity: Mortgage payable 18,089 207 18,296 18,089 155 18,244 Other liabilities 247 (192 ) 55 247 (183 ) 64 Lease liabilities (3)(6) 43,260 (226 ) 43,034 43,260 (393 ) 42,867 Subtotal (7) 61,596 (211 ) 61,385 61,596 (421 ) 61,175 Investments in real estate from lending activities: Liabilities held for sale 3,025 - 3,025 3,025 - 3,025 Total 64,621 (211 ) 64,410 64,621 (421 ) 64,200 Total net investments in real estate and properties held for sale (8)$ 140,416 $ 134,557 $ 143,505 $ 138,876 (1) Includes$38.4 million of land, which is not depreciable, atMarch 31, 2023 andDecember 31, 2022 , respectively. (2) Primarily comprises a$19.0 million right of use asset, associated with an acquired ground lease of$42.6 million accounted for as an operating lease atMarch 31, 2023 andDecember 31, 2022 . Amortization is booked to real estate expenses on the consolidated statements of operations. (3) Refer to Note 8 in the Notes to the Consolidated Financial Statements for additional information on our remaining operating leases. (4) Primarily comprises a franchise intangible of$5.1 million and$5.3 million , a management contract of$3.1 million and a customer list of$357,000 and$427,000 atMarch 31, 2023 andDecember 31, 2022 , respectively. (5) AtDecember 31, 2022 , properties held for sale included two properties originally acquired inNovember 2020 andJuly 2022 . AtMarch 31, 2023 , the property acquired inNovember 2020 was in property held for sale. (6) Primarily comprises a$42.6 million ground lease at a hotel property with a remaining term of 93 years. Lease expenses for the three months endedMarch 31, 2023 were$661,000 . (7) Excludes$2.2 million of deferred debt issuance costs on construction loans that can be drawn upon subsequent toMarch 31, 2023 . (8) Excludes items of working capital, either acquired or assumed. (Back to
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(Back to Index) Financing Receivables The following tables show the activity in the allowance for credit losses for the three months endedMarch 31, 2023 and year endedDecember 31, 2022 (in thousands): Three Months Year Ended EndedMarch 31 ,December 31, 2023 2022
Allowance for credit losses at beginning of period $ 18,803
$ 8,805 Provision for credit losses 5,096 12,295 Charge offs - (2,297 ) Allowance for credit losses at end of period $ 23,899$ 18,803
During the three months ended
At
•
One office mezzanine loan in the Northeast region with a principal balance of$4.7 million at bothMarch 31, 2023 andDecember 31, 2022 . We fully reserved this loan in the fourth quarter of 2022, and it continues to be fully reserved atMarch 31, 2023 . The loan entered payment default inFebruary 2023 and has been placed on nonaccrual status.
•
One retail loan in the Northeast region, with a principal balance of$8.0 million at bothMarch 31, 2023 andDecember 31, 2022 , for which foreclosure was determined to be probable. The loan was modified inFebruary 2021 to extend the loan's maturity toDecember 2021 and has since entered into payment default and has been put on nonaccrual status. The loan had an as-is appraised value in excess of its principal and interest balances, and, as such, had no allowance for current expected credit losses ("CECL") atMarch 31, 2023 andDecember 31, 2022 , respectively.
•
One office loan in the Southwest region, with a principal balance of$20.1 million and$20.7 million atMarch 31, 2023 andDecember 31, 2022 , respectively, for which foreclosure was determined to be probable. The loan had an initial maturity ofMarch 2022 , was modified three times to extend its maturity toJune 2022 and has since entered into payment default and has been put on nonaccrual status. However, in exchange for payments, comprising principal paydowns, interest payments and the reimbursement of certain legal fees, received betweenOctober 2022 andApril 2023 , we have agreed to temporarily defer our right to foreclose on the property untilJuly 2023 . Additionally, at bothMarch 31, 2023 andDecember 31, 2022 , this loan had an as-is appraised value in excess of its principal and interest balances, and, as such, had no CECL allowance.
Credit quality indicators
Commercial Real Estate Loans
CRE loans are collateralized by a diversified mix of real estate properties and are assessed for credit quality based on the collective evaluation of several factors, including but not limited to: collateral performance relative to underwritten plan, time since origination, current implied and/or re-underwritten loan-to-collateral value ("LTV") ratios, loan structure and exit plan. Depending on the loan's performance against these various factors, loans are rated on a scale from 1 to 5, with loans rated 1 representing loans with the highest credit quality and loans rated 5 representing loans with the lowest credit quality. Loans are rated a 2 at origination. The factors evaluated provide general criteria to monitor credit migration in our loan portfolio; as such, a loan's rating may improve or worsen, depending on new information received. (Back to Index) 54
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The criteria set forth below should be used as general guidelines and, therefore, not every loan will have all of the characteristics described in each category below.
Risk Rating Risk Characteristics
1 • Property performance has surpassed underwritten expectations.
• Occupancy is stabilized, the property has had a history of consistently high occupancy, and the property has a diverse and high quality tenant mix.
2 • Property performance is consistent with underwritten expectations
and covenants and performance criteria are being met or exceeded. • Occupancy is stabilized, near stabilized or is on track with underwriting.
3 • Property performance lags behind underwritten expectations.
• Occupancy is not stabilized and the property has some tenancy rollover.
4 • Property performance significantly lags behind underwritten
expectations. Performance criteria and loan covenants have required occasional waivers. • Occupancy is not stabilized and the property has a large amount of tenancy rollover.
5 • Property performance is significantly worse than underwritten
expectations. The loan is not in compliance with loan
covenants and
performance criteria and may be in default. Expected sale proceeds would not be sufficient to pay off the loan at maturity. • The property has a material vacancy rate and significant rollover of remaining tenants. • An updated appraisal is required upon designation and
updated on an
as-needed basis.
All CRE loans are evaluated for any credit deterioration by debt asset management and certain finance personnel on at least a quarterly basis. Mezzanine loans may experience greater credit risks due to their nature as subordinated investments.
For the purpose of calculating the quarterly provision for credit losses under CECL, we pool CRE loans based on the underlying collateral property type and utilize a probability of default and loss given default methodology for approximately one year after which we immediately revert to a historical mean loss ratio.
Credit risk profiles of CRE loans at amortized cost were as follows (in thousands, except amounts in the footnotes):
Rating 1 Rating 2 Rating 3 Rating 4 Rating 5 Total (1) AtMarch 31, 2023 : Whole loans, floating-rate $ -$ 1,532,268 362,903$ 43,958 $ 50,961 $ 1,990,090 Mezzanine loan - - - - 4,700 4,700 Total $ -$ 1,532,268 $ 362,903 $ 43,958 $ 55,661 $ 1,994,790 AtDecember 31, 2022 : Whole loans, floating-rate $ -$ 1,635,376 $ 309,491 $ 85,226 $ 22,797 $ 2,052,890 Mezzanine loan - - - - 4,700 4,700 Total $ -$ 1,635,376 $ 309,491 $ 85,226 $ 27,497 $ 2,057,590 (1)
The total amortized cost of CRE loans excluded accrued interest receivable of
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Credit risk profiles of CRE loans by origination year at amortized cost were as follows (in thousands, except amounts in footnotes):
2023 2022 2021 2020 2019 Prior Total (1) AtMarch 31, 2023 : Whole loans, floating-rate: (2) Rating 2$ 14,759 $ 480,017 $ 944,121 $ 52,722 $ 26,949 $ 13,700 $ 1,532,268 Rating 3 - 52,619 203,273 34,387 27,887 44,737 362,903 Rating 4 - - 43,958 - - - 43,958 Rating 5 - - - - 42,936 8,025 50,961 Total whole loans, floating-rate 14,759 532,636 1,191,352 87,109 97,772 66,462 1,990,090 Mezzanine loan (rating 5) - - - - - 4,700 4,700 Total$ 14,759 $ 532,636 $ 1,191,352 $ 87,109 $ 97,772 $ 71,162 $ 1,994,790 Current Period Gross Write-Offs (3) $ - $ - $ - $ - $ - $ - $ - 2022 2021 2020 2019 2018 Prior Total (1) AtDecember 31, 2022 : Whole loans, floating-rate: (2) Rating 2$ 526,606 $ 1,003,060 $ 64,944 $ 26,977 $ 13,789 $ -$ 1,635,376 Rating 3 - 192,490 44,657 27,881 44,463 - 309,491 Rating 4 - - - 20,742 64,484 - 85,226 Rating 5 - - - 22,797 - - 22,797 Total whole loans, floating-rate 526,606 1,195,550 109,601 98,397 122,736 - 2,052,890 Mezzanine loan (rating 5) - - - - 4,700 - 4,700 Total$ 526,606 $ 1,195,550 $ 109,601 $ 98,397 $ 127,436 $ -$ 2,057,590 (1) The total amortized cost of CRE loans excluded accrued interest receivable of$12.5 million and$11.9 million atMarch 31, 2023 andDecember 31, 2022 , respectively. (2) Acquired CRE whole loans are grouped within each loan's year of origination. (3) There were no charge-offs during the three months endedMarch 31, 2023 .
At both
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(Back to Index) Loan Portfolio Aging Analysis The following table presents the CRE loan portfolio aging analysis as of the dates indicated for CRE loans at amortized cost (in thousands, except amounts in footnotes): Total Loans > Greater Total Loans 90 Days than 90 Total Receivable and 30-59 Days 60-89 Days Days (1) Past Due Current (2) (3) Accruing AtMarch 31, 2023 : Whole loans, floating-rate $ - $ -$ 50,961 $ 50,961 $ 1,939,129 $ 1,990,090 $ - Mezzanine loan (4) 4,700 - - 4,700 - 4,700 - Total$ 4,700 $ -$ 50,961 $ 55,661 $ 1,939,129 $ 1,994,790 $ - AtDecember 31, 2022 : Whole loans, floating-rate $ - $ -$ 28,767 $ 28,767 $ 2,024,123 $ 2,052,890 $ - Mezzanine loan (4) - - - - 4,700 4,700 - Total $ - $ -$ 28,767 $ 28,767 $ 2,028,823 $ 2,057,590 $ - (1) During the three months endedMarch 31, 2023 and 2022,, we recognized interest income of$1.1 million and$641,000 , respectively, on three loans with a principal payment past due greater than 90 days atMarch 31, 2023 . (2) Includes one whole loan with an amortized cost of$22.8 million , in maturity default atDecember 31, 2022 . (3) The total amortized cost of CRE loans excluded accrued interest receivable of$12.5 million and$11.9 million atMarch 31, 2023 andDecember 31, 2022 , respectively. (4) Fully reserved at bothMarch 31, 2023 andDecember 31, 2022 . AtMarch 31, 2023 , we had three CRE whole loans, with total amortized costs of$51.0 million , and one mezzanine loan, with a total amortized cost of$4.7 million , in payment default. One CRE whole loan was made current with respect to debt service inApril 2023 . AtDecember 31, 2022 , we had three CRE whole loans, with total amortized costs of$51.6 million , in payment default.
Modifications
During the three months ended
During the three months endedMarch 31, 2022 , we entered into one agreement that extended one CRE whole loan, with a total amortized cost of$21.8 million , which represented 1.1% of the total amortized cost of the portfolio.
Restricted Cash
AtMarch 31, 2023 , we had restricted cash of$33.9 million , which consisted of$33.4 million of restricted cash held within our five consolidated securitization entities and$525,000 held in escrow for deposits or tax payments at our real estate properties. AtDecember 31, 2022 , we had restricted cash of$38.6 million , which consisted of$38.2 million held within our five consolidated securitization entities and$400,000 held in escrow for deposits or tax payments at our real estate properties or pledged with minimum reserve balance requirements. The decrease of$4.7 million was primarily attributable to net loan purchase activity within two of our consolidated securitization entities.
Accrued Interest Receivable
The following table summarizes our accrued interest receivable at
December 31, March 31, 2023 2022 Net Change Accrued interest receivable from loans$ 12,462 $ 11,936 $ 526 Accrued interest receivable from promissory note, escrow, sweep and reserve accounts 108 33 75 Total$ 12,570 $ 11,969 $ 601 (Back to Index) 57
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The increase of
Other Assets
The following table summarizes our other assets atMarch 31, 2023 andDecember 31, 2022 (in thousands): December 31, March 31, 2023 2022 Net Change Tax receivables and prepaid taxes $ 202$ 224 $ (22 ) Other receivables 906 1,086 (180 ) Other prepaid expenses 2,200 2,181 19 Fixed assets - non real estate 350 326 24 Other assets, miscellaneous 656 547 109 Total $ 4,314$ 4,364 $ (50 ) The decrease of$50,000 in other assets was primarily attributable to receivables held at our real estate properties and miscellaneous receivables from our real estate properties acquired in 2022 offset by the purchase of other assets at our real estate properties.
Deferred Tax Assets
AtMarch 31, 2023 andDecember 31, 2022 , our net deferred tax asset was zero, resulting from a full valuation allowance of$20.8 million and$21.2 million , respectively, on our deferred tax asset as we believed it was more likely than not that some or all of the deferred tax assets would not be realized. We will continue to evaluate our ability to realize the tax benefits associated with deferred tax assets by analyzing forecasted taxable income using both historical and projected future operating results, the reversal of existing temporary differences, taxable income in prior carry back years (if permitted) and the availability of tax planning strategies.
Derivative Instruments
Historically, we sought to mitigate the potential impact on net income (loss) of adverse fluctuations in interest rates incurred on our borrowings by entering into hedging agreements. We classified our interest rate hedges as cash flow hedges, which are hedges that eliminate the risk of changes in the cash flows of a financial asset or liability. We terminated interest rate swap positions associated with our prior financed CMBS portfolio inApril 2020 . At termination, we realized a loss of$11.8 million . AtMarch 31, 2023 andDecember 31, 2022 , we had a loss of$6.2 million and$6.6 million , respectively, recorded in accumulated other comprehensive loss, which will be amortized into earnings over the remaining life of the debt. During the three months endedMarch 31, 2023 , we recorded amortization expense of$416,000 reported in interest expense on the consolidated statements of operations. During the three months endedMarch 31, 2022 , we recorded amortization expense of$479,000 , reported in interest expense on the consolidated statements of operations. AtMarch 31, 2023 andDecember 31, 2022 , we had unrealized gains of$233,000 and$256,000 , respectively, attributable to two terminated interest rate swaps, in accumulated other comprehensive loss on the consolidated balance sheets, to be accreted into earnings over the remaining life of the debt. During both the three months endedMarch 31, 2023 and 2022, we recorded accretion income, reported in interest expense on the consolidated statements of operations, of$23,000 , to accrete the accumulated other comprehensive income on the terminated swap agreements.
The following tables present the effect of derivative instruments on our
consolidated statements of operations for the three months ended
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