ARES COMMERCIAL REAL ESTATE CORP Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-K)

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We are a specialty finance company primarily engaged in originating and
investing in CRE loans and related investments. We are externally managed by
ACREM, a subsidiary of Ares Management, a publicly traded, leading global
alternative asset manager, pursuant to the terms of the Management Agreement.
From the commencement of our operations in late 2011, we have been primarily
focused on directly originating and managing a diversified portfolio of CRE
debt-related investments for our own account.

We were formed and commenced operations in late 2011. We are a Maryland
corporation and completed our initial public offering in May 2012. We have
elected and qualified to be taxed as a REIT for United States federal income tax
purposes under the Internal Revenue Code of 1986, as amended, commencing with
our taxable year ended December 31, 2012. We generally will not be subject to
United States federal income taxes on our REIT taxable income as long as we
annually distribute to stockholders an amount at least equal to our REIT taxable
income prior to the deduction for dividends paid and comply with various other
requirements as a REIT. We also operate our business in a manner that is
intended to permit us to maintain our exemption from registration under the 1940
Act.

Below are significant developments during the year ended December 31, 2021
presented by quarter:

Developments during the first quarter of 2021:

•ACRE originated a $45.0 million senior mortgage loan and a $13.9 million
mezzanine loan on a mixed-use property located in California.
•ACRE purchased a $105.5 million senior mortgage loan on an office property
located in Illinois from the $200 million real estate debt warehouse investment
vehicle maintained by an affiliate of the Company's Manager (the "Ares Warehouse
Vehicle").
•ACRE purchased a $5.6 million senior mortgage loan on a self storage property
located in Illinois from the Ares Warehouse Vehicle.
•ACRE purchased a $6.4 million senior mortgage loan on a self storage property
located in Florida from the Ares Warehouse Vehicle.
•ACRE purchased a $4.4 million senior mortgage loan on a self storage property
located in Florida from the Ares Warehouse Vehicle.
•ACRE purchased a $7.0 million senior mortgage loan on a self storage property
located in Florida from the Ares Warehouse Vehicle.
•ACRE purchased a $10.8 million senior mortgage loan on a self storage property
located in Florida from the Ares Warehouse Vehicle.
•ACRE purchased a $6.5 million senior mortgage loan on a self storage property
located in Missouri from the Ares Warehouse Vehicle.
•ACRE Commercial Mortgage 2021-FL4 Ltd. (the "FL4 Issuer") and ACRE Commercial
Mortgage 2021-FL4 LLC, both wholly owned indirect subsidiaries of ACRE, issued
approximately $603.0 million principal balance secured floating rate notes and
$64.3 million of preferred equity in the FL4 Issuer. ACRE retained (through one
of its wholly owned subsidiaries) approximately $62.5 million of the FL4 CLO
Securitization.
•ACRE entered into an interest rate swap (the "Swap") with Morgan Stanley
Capital Services, LLC ("Morgan Stanley Capital") for the initial notional amount
of $870.0 million, which amortizes according to an agreed upon notional
schedule. The Swap requires ACRE to pay a fixed interest rate of 0.2075% and for
Morgan Stanley Capital to pay a floating rate equal to one-month LIBOR, subject
to a 0.00% floor. The Swap has a termination date of December 15, 2023.
•ACRE entered into an interest rate cap (the "Cap") with Morgan Stanley Capital
for the initial notional amount of $275.0 million, which amortizes according to
an agreed upon notional schedule. The Cap is tied to one-month LIBOR with a
strike rate of 0.50%. The Cap has a termination date of December 15, 2023.
•ACRE entered into an underwriting agreement (the "March 2021 Underwriting
Agreement") in which ACRE agreed to sell an aggregate of 7,000,000 shares of
ACRE's common stock, par value $0.01 per share. The public offering generated
net proceeds of approximately $100.7 million, after deducting transaction
expenses.

Developments during the second quarter of 2021:

•ACRE originated a $19.5 million senior mortgage loan on a student housing
property located in Alabama.
•ACRE originated a $15.0 million mezzanine loan on a portfolio of self storage
properties located in New Jersey. Subsequent to the origination of the
$15.0 million mezzanine loan, ACRE purchased a $40.5 million senior mortgage
loan on the same portfolio of self storage properties from the Ares Warehouse
Vehicle.
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•ACRE purchased a $53.3 million senior mortgage loan on a residential
condominium property located in New York from a third party. At the purchase
date, ACRE already owned the corresponding $18.6 million mezzanine loan.
•ACRE purchased a $100.7 million senior mortgage loan on an industrial property
located in Illinois from the Ares Warehouse Vehicle.
•ACRE originated a $37.5 million senior mortgage loan on a multifamily property
located in South Carolina.
•ACRE purchased a $44.7 million senior mortgage loan on an industrial property
located in New Jersey from the Ares Warehouse Vehicle.
•ACRE Commercial Mortgage 2017-FL3 Ltd. (the "FL3 Issuer") and ACRE Commercial
Mortgage 2017-FL3 LLC (the "FL3 Co-Issuer") entered into a First Supplement to
Amended and Restated Indenture (the "2021 Amended Indenture") with Wells Fargo
Bank, National Association, as advancing agent and note administrator, and
Wilmington Trust, National Association, as trustee, which governs the FL3 CLO
Securitization. The purpose of the 2021 Amended Indenture was to, among other
things, extend the reinvestment period to March 31, 2024, extend the date on and
after which the FL3 Issuer may redeem the Notes held by third parties to March
17, 2025 (the "Redemption Date"), and eliminate the prepayment fee due on the
Redemption Date.
•ACRE entered into an underwriting agreement (the "June 2021 Underwriting
Agreement") in which ACRE agreed to sell an aggregate of 6,500,000 shares of
ACRE's common stock, par value $0.01 per share. The public offering generated
net proceeds of approximately $101.6 million, after deducting transaction
expenses.

Developments during the third quarter of 2021:

•ACRE purchased a $78.3 million pari-passu participation in a $227.1 million
senior mortgage loan on a mixed use property located in New York from an Ares
Management managed investment vehicle.
•ACRE originated a $75.0 million senior mortgage loan on a residential
condominium property located in Florida.
•ACRE originated an $81.0 million senior mortgage loan on an office property
located in New York.
•ACRE purchased a $3.2 million senior mortgage loan on a self storage property
located in Colorado from a third party.
•ACRE purchased an $8.6 million senior mortgage loan on a self storage property
located in Arizona from a third party.
•ACRE purchased a $7.4 million senior mortgage loan on a self storage property
located in Arizona from a third party.
•ACRE originated a $20.8 million senior mortgage loan on an industrial property
located in Colorado.
•ACRE purchased an $85.0 million pari-passu note in a senior mortgage loan on an
office property located in North Carolina from an Ares Management managed
investment vehicle.
•ACRE originated a $1.3 million senior mortgage loan on an industrial property
located in Georgia.
•ACRE originated a $3.0 million senior mortgage loan on an industrial property
located in Pennsylvania.
•ACRE originated a $2.9 million senior mortgage loan on an industrial property
located in Colorado.
•ACRE originated an $89.7 million pari-passu participation in a $115.7 million
senior mortgage loan on an office property located in Arizona. Subsequent to the
origination of the $89.7 million participation, ACRE purchased the remaining
$26.0 million pari-passu participation from the Ares Warehouse Vehicle.
•ACRE originated a $2.7 million senior mortgage loan on an industrial property
located in Arizona.

Developments during the fourth quarter of 2021:

•ACRE originated a $23.1 million senior mortgage loan on a multifamily property
located in Texas.
•ACRE originated a $6.7 million senior mortgage loan on an industrial property
located in Tennessee.
•ACRE originated a $7.0 million senior mortgage loan on an industrial property
located in Pennsylvania.
•ACRE originated a $9.5 million senior mortgage loan on an industrial property
located in Florida.
•ACRE purchased a $9.0 million senior mortgage loan on a self storage property
located in Missouri from a third party.
•ACRE purchased a $10.2 million senior mortgage loan on a self storage property
located in Washington from a third party.
•ACRE purchased a $12.2 million senior mortgage loan on a self storage property
located in Maryland from a third party.
•ACRE purchased a $12.5 million senior mortgage loan on a self storage property
located in Maryland from a third party.
•ACRE purchased a $12.8 million senior mortgage loan on a self storage property
located in Pennsylvania from a third party.
•ACRE originated a $10.4 million senior mortgage loan on an industrial property
located in Texas.
•ACRE originated a $31.7 million senior mortgage loan on a multifamily property
located in California.
•ACRE originated a $68.8 million senior mortgage loan on a multifamily property
located in Texas.
•ACRE purchased a $67.0 million senior mortgage loan on a multifamily property
and office property located in South Carolina from the Ares Warehouse Vehicle.
•ACRE purchased a $23.1 million senior mortgage loan on a multifamily property
located in Washington from the Ares Warehouse Vehicle.
•ACRE purchased a $30.9 million senior mortgage loan on an industrial property
located in Texas from the Ares Warehouse Vehicle.
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•ACRE purchased a $25.5 million senior mortgage loan on an industrial property
located in Florida from the Ares Warehouse Vehicle.
•ACRE upsized an existing senior mortgage loan by $5.1 million on an industrial
property located in Pennsylvania.
•ACRE entered into a Purchase and Sale Agreement to sell the hotel property that
is recognized as real estate owned in its consolidated balance sheets to a third
party for $40.0 million and the sale is expected to close in the first quarter
of 2022.
•ACRE elected to increase the maximum commitment for the Wells Fargo Facility
from $350.0 million to $450.0 million.
•ACRE amended the CNB Facility to, among other things, (1) increase the
commitment amount from $50.0 million to $75.0 million and (2) update the
interest rate on advances under the CNB Facility to a per annum rate equal to
the sum of, at the Company's option, either (a) Daily Simple SOFR (with a 0.35%
floor) plus 2.65% or (b) a base rate (which is the highest of a prime rate, the
federal funds rate plus 0.50%, or Daily Simple SOFR plus 1.00%) plus 1.00%;
provided that in no event shall the interest rate be less than 2.65%.
•ACRE amended the Secured Term Loan to, among other things, (1) increase the
commitment amount from $60.0 million to $150.0 million, (2) extend the maturity
date of the Secured Term Loan to November 12, 2026 and (3) update the interest
rate on advances under the Secured Term Loan to the following fixed rates: (i)
4.50% per annum until May 12, 2025, (ii) after May 12, 2025 through November 12,
2025, the interest rate increases 0.125% every three months and (iii) after
November 12, 2025 through November 12, 2026, the interest rate increases 0.250%
every three months.

Factors Affecting Our Results of Operations

The results of our operations are affected by a number of factors and primarily
depend on, among other things, the level of our net interest income, the market
value of our assets and the supply of, and demand for, commercial mortgage
loans, CRE debt and other financial assets in the marketplace. Our net interest
income, which reflects the amortization of origination fees and direct costs, is
recognized based on the contractual rate and the outstanding principal balance
of the loans we originate. Interest rates will vary according to the type of
investment, conditions in the financial markets, creditworthiness of our
borrowers, competition and other factors, none of which can be predicted with
any certainty. Our operating results may also be impacted by credit losses in
excess of initial anticipations or unanticipated credit events experienced by
borrowers.

Changes in the fair value of our assets. We issue CRE debt and related instruments generally intended to be held for investment purposes. Loans held for investment purposes are carried at cost, net of unamortized loan fees and origination fees (the “carrying amount”).

Loans are generally collateralized by real estate. The extent of any credit
deterioration associated with the performance and/or value of the underlying
collateral property and the financial and operating capability of the borrower
could impact the expected amounts received. We monitor the performance of our
loans held for investment portfolio under the following methodology: (1)
borrower review, which analyzes the borrower's ability to execute on its
original business plan, reviews its financial condition, assesses pending
litigation and considers its general level of responsiveness and cooperation;
(2) economic review, which considers underlying collateral (i.e. leasing
performance, unit sales and cash flow of the collateral and its ability to cover
debt service, as well as the residual loan balance at maturity); (3) property
review, which considers current environmental risks, changes in insurance costs
or coverage, current site visibility, capital expenditures and market
perception; and (4) market review, which analyzes the collateral from a supply
and demand perspective of similar property types, as well as from a capital
markets perspective. Such analyses are completed and reviewed by asset
management and finance personnel who utilize various data sources, including
periodic financial data such as property occupancy, tenant profile, rental
rates, operating expenses, and the borrower's exit plan, among other factors.

Loans are generally placed on non-accrual status when principal or interest
payments are past due 30 days or more or when there is reasonable doubt that
principal or interest will be collected in full. Accrued and unpaid interest is
generally reversed against interest income in the period the loan is placed on
non-accrual status. Interest payments received on non-accrual loans may be
recognized as income or applied to principal depending upon management's
judgment regarding the borrower's ability to make pending principal and interest
payments. Non-accrual loans are restored to accrual status when past due
principal and interest are paid and, in management's judgment, are likely to
remain current. We may make exceptions to placing a loan on non-accrual status
if the loan has sufficient collateral value and is in the process of collection.
Other than as set forth in Note 3 to our consolidated financial statements
included in this annual report on Form 10-K, as of December 31, 2021, all loans
held for investment were paying in accordance with their contractual terms. As
of December 31, 2020, all loans were paying in accordance with their contractual
terms. As of December 31, 2021, the Company had two loans held for investment on
non-accrual status with a carrying value of $45.0 million. As of December 31,
2020, the Company had three loans held for investment on non-accrual status with
a carrying value of $67.1 million.

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Loan balances that are deemed to be uncollectible are written off as a realized
loss and are deducted from the current expected credit loss reserve. The
write-offs are recorded in the period in which the loan balance is deemed
uncollectible based on management's judgment. There were no write-offs during
the years ended December 31, 2021, 2020 and 2019.

Changes in market interest rates. With respect to our business operations, increases in interest rates, in general, may, over time, result in:

•the interest expense associated with our borrowings to increase, subject to applicable ceilings;

•the value of our mortgages will decline;

•coupons on our variable rate mortgages to return to higher interest rates; and

•To the extent that we enter into interest rate swap contracts as part of our hedging strategy where we pay fixed interest rates and receive floating interest rates, the value of these contracts will increase.

Conversely, declines in interest rates, in general, can, over time, lead to:

• lower interest charges associated with our borrowings, subject to applicable floors;

•the value of our mortgage portfolio to increase, for those mortgages with applicable floors;

•coupons on our variable rate mortgages to lower them to lower interest rates, subject to any applicable floors; and

•To the extent that we enter into interest rate swap contracts as part of our hedging strategy where we pay fixed interest rates and receive floating interest rates, the value of these contracts will decrease.

Credit Risk. We are subject to varying degrees of credit risk in connection with
our target investments. Our Manager seeks to mitigate this risk by seeking to
originate or acquire investments of higher quality at appropriate prices with
appropriate risk adjusted returns given anticipated and unanticipated losses, by
employing a comprehensive review and selection process and by proactively
monitoring originated or acquired investments (see the performance monitoring
methodology above in Changes in Fair Value of Our Assets). Nevertheless,
unanticipated credit losses could occur that could adversely impact our
operating results and stockholders' equity.

Performance of Commercial Real Estate Related Markets. Our business is dependent
on the general demand for, and value of, commercial real estate and related
services, which are sensitive to economic conditions. Demand for multifamily and
other commercial real estate generally increases during periods of stronger
economic conditions, resulting in increased property values, transaction volumes
and loan origination volumes. During periods of weaker economic conditions,
multifamily and other commercial real estate may experience higher property
vacancies, lower demand and reduced values. These conditions can result in lower
property transaction volumes and loan originations.

Availability of Leverage and Equity. We expect to use leverage to make
additional investments that may increase our potential returns. We may not be
able to obtain the amount of leverage we desire and, consequently, the returns
generated from our investments may be less than we currently expect. To grow our
portfolio of investments, we also may determine to raise additional equity. Our
access to additional equity will depend on many factors, and our ability to
raise equity in the future cannot be predicted at this time.

Size of Portfolio. The size of our portfolio of investments, as measured both by
the aggregate principal balance and the number of our CRE loans and our other
investments, will also be an important factor in determining our operating
results. Generally, as the size of our portfolio grows, the amount of interest
income we receive will increase and we may achieve certain economies of scale
and diversify risk within our portfolio investments. A larger portfolio,
however, may result in increased expenses; for example, we may incur additional
interest expense or other costs to finance our investments. Also, if the
aggregate principal balance of our portfolio grows but the number of our loans
or the number of our borrowers does not grow, we could face increased risk by
reason of the concentration of our investments.

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Loans Held for Investment Portfolio

As of December 31, 2021, our portfolio included 72 loans held for investment,
excluding 116 loans that were repaid, sold or converted to real estate owned
since inception. As of December 31, 2021, the aggregate originated commitment
under these loans at closing was approximately $2.8 billion and outstanding
principal was $2.4 billion. During the year ended December 31, 2021, we funded
approximately $1.3 billion of outstanding principal and received repayments of
$657.2 million of outstanding principal. As of December 31, 2021, 93.1% of our
loans have LIBOR floors, with a weighted average floor of 1.10%, calculated
based on loans with LIBOR floors. References to LIBOR or "L" are to 30-day LIBOR
(unless otherwise specifically stated).

Except as disclosed in Note 3 to our consolidated financial statements included in this Annual Report on Form 10-K, as of December 31, 2021all loans held for investment purposes were repaying in accordance with their contractual terms.

Our loans held for investment are accounted for at amortized cost. The following
table summarizes our loans held for investment as of December 31, 2021 ($ in
thousands):
                                                                                    As of December 31, 2021
                                                                                                                                           Weighted
                                                                                                                                            Average
                                          Carrying Amount         Outstanding            Weighted Average Unleveraged Effective            Remaining
                                                (1)              Principal (1)                            Yield                          Life (Years)
Senior mortgage loans                     $  2,397,655          $   2,411,718                      5.3  % (2)         5.4  % (3)                

1.5

Subordinated debt and preferred equity
investments                                     16,728                 17,394                     13.7  % (2)        13.7  % (3)                   

4.0

Total loans held for the investment portfolio $2,414,383 $2,429,112

                      5.4  % (2)         5.5  % (3)                

1.6

_______________________________

(1)The difference between the Carrying Amount and the Outstanding Principal
amount of the loans held for investment consists of unamortized purchase
discount, deferred loan fees and loan origination costs.
(2)Unleveraged Effective Yield is the compounded effective rate of return that
would be earned over the life of the investment based on the contractual
interest rate (adjusted for any deferred loan fees, costs, premiums or
discounts) and assumes no dispositions, early prepayments or defaults. The total
Weighted Average Unleveraged Effective Yield is calculated based on the average
of Unleveraged Effective Yield of all loans held by us as of December 31, 2021
as weighted by the outstanding principal balance of each loan.
(3)Unleveraged Effective Yield is the compounded effective rate of return that
would be earned over the life of the investment based on the contractual
interest rate (adjusted for any deferred loan fees, costs, premiums or
discounts) and assumes no dispositions, early prepayments or defaults. The total
Weighted Average Unleveraged Effective Yield is calculated based on the average
of Unleveraged Effective Yield of all interest accruing loans held by us as of
December 31, 2021 as weighted by the total outstanding principal balance of each
interest accruing loan (excludes loans on non-accrual status as of December 31,
2021).

Critical Accounting Estimates

Our consolidated financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP"), which require management to
make estimates and assumptions that affect reported amounts. The estimates and
assumptions are based on historical experience and other factors management
believes to be reasonable. Actual results may differ from those estimates and
assumptions. We believe the following critical accounting policy represents an
area where more significant judgments and estimates are used in the preparation
of our consolidated financial statements.
Current Expected Credit Loss Reserve. In June 2016, the FASB issued ASU No.
2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments. The standard replaced the incurred loss
impairment methodology pursuant to GAAP with a methodology that reflects current
expected credit losses ("CECL") on both the outstanding balances and unfunded
commitments on loans held for investment and requires consideration of a broader
range of historical experience adjusted for current conditions and reasonable
and supportable forecast information to inform credit loss estimates (the "CECL
Reserve"). ASU No. 2016-13 was effective for annual reporting periods beginning
after December 15, 2019, including interim periods within that reporting period.
We adopted ASU No. 2016-13 on a modified retrospective basis through a
cumulative-effect adjustment to retained earnings as of January 1, 2020.
Subsequent period increases and decreases to expected credit losses impact
earnings and are recorded within provision for current expected credit losses in
our consolidated statements of operations. The CECL Reserve related to
outstanding balances on loans held for investment required
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under ASU No. 2016-13 is a valuation account that is deducted from the amortized
cost basis of our loans held for investment in our consolidated balance sheets.
The CECL Reserve related to unfunded commitments on loans held for investment is
recorded within other liabilities in our consolidated balance sheets.

We estimate our CECL Reserve primarily using a probability-weighted model that
considers the likelihood of default and expected loss given default for each
individual loan. Calculation of the CECL Reserve requires loan specific data,
which includes capital senior to us when we are the subordinate lender, changes
in net operating income, debt service coverage ratio, loan-to-value, occupancy,
property type and geographic location. Estimating the CECL Reserve also requires
significant judgment with respect to various factors, including (i) the
appropriate historical loan loss reference data, (ii) the expected timing of
loan repayments, (iii) calibration of the likelihood of default to reflect the
risk characteristics of our floating-rate loan portfolio and (iv) our current
and future view of the macroeconomic environment. We may consider loan-specific
qualitative factors on certain loans to estimate our CECL Reserve. In order to
estimate the future expected loan losses relevant to our portfolio, we utilize
historical market loan loss data licensed from a third party data service. The
third party's loan database includes historical loss data for commercial
mortgage-backed securities, or CMBS, issued dating back to 1998, which we
believe is a reasonably comparable and available data set to our type of loans.

See note 4 included in these consolidated financial statements for information relating to CECL.

Recent accounting pronouncements

See Note 2 to our consolidated financial statements included in this Annual Report on Form 10-K, which describes recent accounting pronouncements that we have adopted or are currently evaluating.

RECENT DEVELOPMENTS

On January 13, 2022, we amended the Citibank Facility (as defined herein) to,
among other things, extend the initial maturity date and funding availability
period to January 13, 2025, subject to two 12-month extensions, each of which
may be exercised at our option assuming no existing defaults under the Citibank
Facility and applicable extension fees being paid, which, if both were
exercised, would extend the maturity date of the Citibank Facility to January
13, 2027. The amendment also modified the interest rate provisions in the
Citibank Facility such that advances under the Citibank Facility in connection
with new loans pledged to the Citibank Facility will utilize term SOFR or a SOFR
average, at the election of ACRE.

On February 10, 2022, ACRC Lender C LLC ("ACRC Lender C"), a subsidiary of ACRE
and ACRE, as guarantor, entered into a second amendment to the Second Amended
and Restated Substitute Guaranty related to the Citibank Facility. The purpose
of the amendment is to, among other things, (i) increase the guarantor's
permitted ratio of indebtedness to tangible net worth to not more than 4.5:1 and
(ii) remove the guarantor's financial covenant that limited recourse
indebtedness.

On February 10, 2022, ACRC Lender MS LLC ("ACRC Lender MS"), a subsidiary of
ACRE and ACRE, as guarantor, entered into an amendment to the Guaranty and
Indemnity related to the Morgan Stanley Facility (as defined herein). The
purpose of the amendment is to, among other things, (i) increase the guarantor's
permitted ratio of indebtedness to tangible net worth to not more than 4.5:1 and
(ii) remove the guarantor's financial covenant that limited recourse
indebtedness.

On February 10, 2022, ACRE, as guarantor, entered into a second amendment to the
Guaranty related to the MetLife Facility (as defined herein). The purpose of the
amendment is to, among other things, (i) increase the guarantor's permitted
ratio of indebtedness to tangible net worth to not more than 4.5:1 and (ii)
remove the guarantor's financial covenant that limited recourse indebtedness.

On February 10, 2022, ACRC Lender W LLC and ACRC Lender W TRS (collectively,
"ACRC Lender W"), each a subsidiary of ACRE, and ACRE, as guarantor, entered
into (i) the Third Amended and Restated Master Repurchase and Securities
Contract and (ii) the Second Amended and Restated Guarantee, each with Wells
Fargo Bank, National Association ("Wells Fargo"). The purpose of the amendments
are to, among other things, (a) modify the interest rate provisions in the Wells
Fargo Facility such that financings under the Wells Fargo Facility (as defined
herein) in connection with new loans pledged to the Wells Fargo Facility will
utilize term SOFR or a SOFR average, as agreed between ACRC Lender W and Wells
Fargo, (b) increase the guarantor's permitted ratio of indebtedness to tangible
net worth to not more than 4.5:1 and (c) remove the guarantor's financial
covenant that limited recourse indebtedness.

At February 14, 2022we have created and fully funded a $5.9 million senior mortgage loan on an industrial building located in Florida. The loan has an annual interest rate of LIBOR plus 5.90%.

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On February 14, 2022, we originated and fully funded a $4.7 million senior
mortgage loan on an industrial property located in Florida. The loan has a per
annum interest rate of LIBOR plus 5.75%.

Our Board of Directors declared a regular cash dividend of $0.33 per common
share and a supplemental cash dividend of $0.02 per common share for the first
quarter of 2022. The first quarter 2022 and supplemental cash dividends will be
payable on April 14, 2022 to common stockholders of record as of March 31, 2022.

RESULTS OF OPERATIONS

For the years ended December 31, 2021 and 2020

The following table presents a summary of our consolidated results of operations for the years ended December 31, 2021 and 2020 (in thousands of dollars):

                                                                          For the years ended
                                                                             December 31,
                                                                                      2021              2020
Total revenue                                                                     $ 102,069          $ 82,696
Total expenses                                                                       40,877            36,311
Provision for current expected credit losses                                             10            20,185
Realized losses on loans sold                                                             -             4,008

Income before income taxes                                                           61,182            22,192
Income tax expense, including excise tax                                                722               352
Net income attributable to common stockholders                              

$60,460 $21,840

The following tables set forth certain details of our consolidated results of operations for the years ended December 31, 2021 and 2020 (in thousands of dollars):

Net Interest Margin
                                For the years ended December 31,
                                                            2021           2020
Interest income                                          $ 133,631      $ 121,052
Interest expense                                           (50,080)       (51,949)
Net interest margin                                      $  83,551      $  69,103



For the years ended December 31, 2021 and 2020, net interest margin was
approximately $83.6 million and $69.1 million, respectively. For the years ended
December 31, 2021 and 2020, interest income of $133.6 million and $121.1
million, respectively, was generated by weighted average earning assets of $2.2
billion and $1.8 billion, respectively, offset by $50.1 million and $51.9
million, respectively, of interest expense, unused fees and amortization of
deferred loan costs. The weighted average borrowings under the Wells Fargo
Facility, the Citibank Facility, the CNB Facility, the MetLife Facility and the
Morgan Stanley Facility (individually defined below and collectively, the
"Secured Funding Agreements"), Notes Payable (as defined below and excluding the
Note Payable on the hotel property that is recognized as real estate owned in
our consolidated balance sheets), the Secured Term Loan, Secured Borrowings and
securitization debt (as defined below) were $1.6 billion for the year ended
December 31, 2021 and $1.5 billion for the year ended December 31, 2020. The
increase in net interest margin for the year ended December 31, 2021 compared to
the year ended December 31, 2020 primarily relates to an increase in our
weighted average earning assets and weighted average borrowings for the year
ended December 31, 2021. In addition, in January 2021, we issued $540.5 million
of securitization debt, a portion of the proceeds of which were used to pay down
debt with a higher cost of funds than the issued securitization debt.

Income from real estate owned

On March 8, 2019, we acquired legal title to a hotel property through a deed in
lieu of foreclosure. Prior to March 8, 2019, the hotel property collateralized a
$38.6 million senior mortgage loan that we held that was in maturity default due
to the failure of the borrower to repay the outstanding principal balance of the
loan by the December 2018 maturity date. In conjunction with the deed in lieu of
foreclosure, we derecognized the $38.6 million senior mortgage loan and
recognized the
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hotel property as real estate owned. For the years ended December 31, 2021 and
2020, revenue from real estate owned was $18.5 million and $13.6 million,
respectively. Revenues consist of room sales, food and beverage sales and other
hotel revenues. The increase in revenue from real estate owned for the year
ended December 31, 2021 compared to the year ended December 31, 2020 is
primarily due to the ongoing recovery from the impact of the COVID-19 pandemic
as occupancy and overall revenue at the hotel property increased for the year
ended December 31, 2021.

Operating Expenses
                                                                                For the years
                                                                               ended December
                                                                                     31,
                                                                                       2021              2020
Management and incentive fees to affiliate                                          $ 12,136          $  8,159
Professional fees                                                                      2,436             2,640
General and administrative expenses                                                    4,741             3,732
General and administrative expenses reimbursed to affiliate                            3,016             3,653
Expenses from real estate owned                                                       18,548            18,127
Total expenses                                                                      $ 40,877          $ 36,311



See the Related Party Expenses, Other Expenses and Expenses from Real Estate
Owned discussions below for the cause of the increase in operating expenses for
the year ended December 31, 2021 compared to the year ended December 31, 2020.

Related party expenses

For the year ended December 31, 2021, related party expenses included $12.1
million in management and incentive fees due to our Manager pursuant to the
Management Agreement, which consisted of $9.4 million in management fees and
$2.8 million in incentive fees. For the year ended December 31, 2021, related
party expenses also included $3.0 million for our share of allocable general and
administrative expenses for which we were required to reimburse our Manager
pursuant to the Management Agreement. For the year ended December 31, 2020,
related party expenses included $8.2 million in management and incentive fees
due to our Manager pursuant to the Management Agreement, which consisted of $7.3
million in management fees and $0.8 million in incentive fees. For the year
ended December 31, 2020, related party expenses also included $3.7 million for
our share of allocable general and administrative expenses for which we were
required to reimburse our Manager pursuant to the Management Agreement. The
increase in management fees for the year ended December 31, 2021 compared to the
year ended December 31, 2020 primarily relates to an increase in our weighted
average stockholders' equity for the year ended December 31, 2021 as a result of
the public offering of 7,000,000 shares of our common stock in March 2021, which
generated net proceeds of approximately $100.7 million, and the public offering
of 6,500,000 shares of our common stock in June 2021, which generated net
proceeds of approximately $101.6 million. The increase in incentive fees for the
year ended December 31, 2021 compared to the year ended December 31, 2020
primarily relates to our Core Earnings for the twelve months ended December 31,
2021 exceeding the 8% minimum return by a higher margin than the twelve months
ended December 31, 2020. "Core Earnings" is defined in the Management Agreement
as GAAP net income (loss) computed in accordance with GAAP, excluding non-cash
equity compensation expense, the incentive fee, depreciation and amortization
(to the extent that any of our target investments are structured as debt and we
foreclose on any properties underlying such debt), any unrealized gains, losses
or other non-cash items recorded in net income (loss) for the period, regardless
of whether such items are included in other comprehensive income or loss, or in
net income (loss), and one-time events pursuant to changes in GAAP and certain
non-cash charges after discussions between our Manager and our independent
directors and after approval by a majority of our independent directors. The
decrease in allocable general and administrative expenses due to our Manager for
the year ended December 31, 2021 compared to the year ended December 31, 2020
primarily relates to a decrease in the percentage of time allocated to us by
employees of our Manager due to changes in transaction activity year over year.

Other expenses

For the years ended December 31, 2021 and 2020, professional fees were $2.4
million and $2.6 million, respectively. The decrease in professional fees for
the year ended December 31, 2021 compared to the year ended December 31, 2020
primarily relates to a decrease in our use of third-party professionals due to
changes in transaction activity year over year. For the years ended December 31,
2021 and 2020, general and administrative expenses were $4.7 million and $3.7
million, respectively. The increase in general and administrative expenses for
the year ended December 31, 2021 compared to the year ended December 31, 2020
primarily relates to an increase in stock-based compensation expense due to new
restricted stock and restricted stock unit grants awarded after December 31,
2020.
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Contents

Real estate expenses

For the years ended December 31, 2021 and 2020, expenses related to owned real estate included the following (in thousands of dollars):

                                                 For the years ended December 31,
                                                                              2021          2020
   Hotel operating expenses                                                $ 16,058      $ 15,567
   Interest expense on note payable                                         

1,665 1,668

   Depreciation expense                                                         825           892
   Expenses from real estate owned                                         

$18,548 $18,127



For the years ended December 31, 2021 and 2020, hotel operating expenses were
$16.1 million and $15.6 million, respectively. Hotel operating expenses consist
primarily of expenses incurred in the day-to-day operation of our hotel
property, including room expense, food and beverage expense and other operating
expenses. Room expense includes housekeeping and front office wages and payroll
taxes, reservation systems, room supplies, laundry services and other costs.
Food and beverage expense primarily includes the cost of food, the cost of
beverages and associated labor costs. Other operating expenses include labor and
other costs associated with administrative departments, sales and marketing,
repairs and maintenance, real estate taxes, insurance, utility costs and
management and incentive fees paid to the hotel property manager. The increase
in hotel operating expenses for the year ended December 31, 2021 compared to the
year ended December 31, 2020 is primarily due to the ongoing recovery from the
impact of the COVID-19 pandemic as occupancy and overall expenses at the hotel
property increased for the year ended December 31, 2021. Hotel operating
expenses for the year ended December 31, 2020 were significantly impacted by the
COVID-19 pandemic, which significantly reduced occupancy and forced us to
implement plans to reduce overall operating expenses at the hotel property. For
both the years ended December 31, 2021 and 2020, interest expense on our note
payable was $1.7 million. For the years ended December 31, 2021 and 2020,
depreciation expense was $0.8 million and $0.9 million, respectively.

Provision for current expected credit losses

For the years ended December 31, 2021 and 2020, the provision for current
expected credit losses was $10 thousand and $20.2 million, respectively. The
decrease in the provision for current expected credit losses for the year ended
December 31, 2021 compared to the year ended December 31, 2020 is primarily due
to forecasted improvement in macroeconomic factors, shorter average remaining
loan term and loan payoffs, partially offset by growth in the loan portfolio and
other changes to the loan portfolio during the year ended December 31, 2021.

The CECL Reserve takes into consideration our estimates relating to the
macroeconomic impact of the COVID-19 pandemic on CRE properties and is not
specific to any loan losses or impairments on our loans held for investment.
Additionally, the CECL Reserve is not an indicator of what we expect our CECL
Reserve would have been absent the current and potential future impacts of the
COVID-19 pandemic.

Realized losses on loans sold

In July 2020, we closed the sale of a senior mortgage loan with outstanding
principal of $31.5 million, which was collateralized by a hotel property located
in Minnesota, to a third party. In addition, in August 2020, we closed the sale
of two senior mortgage loans to a third party with outstanding principal of
$39.9 million and $29.6 million, respectively, which were collateralized by
multifamily properties located in Illinois and Texas, respectively. For the year
ended December 31, 2020, we recognized an aggregate net realized loss of $4.0
million in our consolidated statements of operations upon the sale of the three
senior mortgage loans as the carrying value exceeded the sale prices of the
loans.

For the years ended December 31, 2020 and 2019

The comparison of the fiscal years ended December 31, 2020 and 2019 can be found
in our annual report on Form 10-K for the fiscal year ended December 31, 2020
located within Part II, Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations, which is incorporated by
reference herein.

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LIQUIDITY AND CAPITAL RESOURCES

Liquidity is a measure of our ability to meet potential cash requirements,
including ongoing commitments to repay borrowings, fund and maintain our assets
and operations, make distributions to our stockholders and other general
business needs. We use significant cash to purchase our target investments, make
principal and interest payments on our borrowings, make distributions to our
stockholders and fund our operations.

Our primary sources of cash generally consist of unused borrowing capacity under
our Secured Funding Agreements, the net proceeds of future equity offerings,
payments of principal and interest we receive on our portfolio of assets and
cash generated from our operating activities. Principal repayments from mortgage
loans in securitizations where we retain the subordinate securities are applied
sequentially, first used to pay down the senior notes, and accordingly, we will
not receive any proceeds from repayment of loans in the securitizations until
all senior notes are repaid in full.

We expect our primary sources of cash to continue to be sufficient to fund our
operating activities and cash commitments for investing and financing activities
for at least the next 12 months and thereafter for the foreseeable future. Due
to the impact of the COVID-19 pandemic, in 2020 and to a lesser extent in 2021,
we experienced borrowers unable to pay interest and principal payments timely,
including at the maturity date of the borrower's loan. Our Secured Funding
Agreements contains margin call provisions following the occurrence of certain
mortgage loan credit events. If we are unable to make the required payment or if
we fail to meet or satisfy any of the covenants in our Financing Agreements, we
would be in default under these agreements, and our lenders could elect to
declare outstanding amounts due and payable, terminate their commitments,
require the posting of additional collateral, including cash to satisfy margin
calls, and enforce their interests against existing collateral. We are also
subject to cross-default and acceleration rights with respect to our Financing
Agreements. Given the impact of the COVID-19 pandemic on the real estate
industry and the potential impact on our borrowers, to mitigate the risk of
future margin calls we proactively engaged in discussions with certain of our
lenders in 2020 and to a lesser extent in 2021 to modify the terms of our
borrowings on certain assets within these facilities, in order to, among other
things, reduce the amounts we are borrowing against such assets and/or increase
the borrowing spreads. As a result of the ongoing risks of COVID-19, there is no
guarantee that borrowers will be able to pay interest and principal payments
timely. We may not receive financing from our Secured Funding Agreements with
respect to our commitments to fund our loans held for investment in the future.
See "Summary of Financing Agreements" below for a description of our Financing
Agreements.

Subject to maintaining our qualification as a REIT and our exemption from
registration under the 1940 Act, we expect that our primary sources of enhancing
our liquidity will be financing, to the extent available to us, through credit,
secured funding and other lending facilities, other sources of private
financing, including warehouse and repurchase facilities, and public or private
offerings of our equity or debt securities. On July 19, 2019, we filed a
registration statement on Form S-3 with the SEC, which became effective on
August 2, 2019, in order to permit us to offer, from time to time, in one or
more offerings or series of offerings up to $1.25 billion of our common stock,
preferred stock, debt securities, subscription rights to purchase shares of our
common stock, warrants representing rights to purchase shares of our common
stock, preferred stock or debt securities, or units. The specifics of any future
offerings, along with the use of proceeds of any securities offered, will be
described in detail in a prospectus supplement, or other offering materials, at
the time of any offering. We also have and may continue to access liquidity
through our "At the Market Stock Offering Program" which was established in
November 2019 pursuant to which we may sell, from time to time, up to
$100.0 million of shares of our common stock. Furthermore, we have sold, and may
continue to sell certain of our mortgage loans, or interests therein, in order
to manage liquidity needs. Subject to maintaining our qualification as a REIT,
we may also change our dividend practice, including by reducing the amount of,
or temporarily suspending, our future dividends or making dividends that are
payable in cash and shares of our common stock for some period of time. We are
also able to access additional liquidity through the (i) reinvestment provisions
in our FL3 CLO Securitization, which allows us to replace mortgage assets in our
FL3 CLO Securitization which have repaid and (ii) future funding acquisition
provisions in our CLO Securitizations, which allows us to use mortgage asset
repayment funds to acquire additional funded pari-passu participations related
to the mortgage assets then-remaining in our FL4 CLO Securitization; each
subject to the satisfaction of certain reinvestment or acquisition conditions,
which may include receipt of a Rating Agency Confirmation and investor approval.
There can be no assurance that the conditions for reinvestment or acquisition
will be satisfied and whether our CLO Securitizations will acquire any
additional mortgage assets or funded pari-passu participations. In addition, our
CLO Securitizations contain certain senior note overcollateralization ratio
tests. To the extent we fail to meet these tests, amounts that would otherwise
be used to make payments on the subordinate securities that we hold will be used
to repay principal on the more senior securities to the extent necessary to
satisfy any senior note overcollateralization ratio and we may incur significant
losses. Our sources of liquidity may be impacted to the extent we do not receive
cash payments that we would otherwise expect to receive from the CLO
Securitizations if these tests were met.

Ares Management or one of its investment vehicles, including the Ares Warehouse
Vehicle, may originate mortgage loans. We have had and may continue to have the
opportunity to purchase such loans that are determined by our Manager in
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good faith to be appropriate for us, depending on our available liquidity. Ares
Management or one of its investment vehicles may also acquire mortgage loans
from us.

From February 14, 2022we had about $189 million in cash, of which $114 million unallocated cash and $75 million availability under secured financing agreements.

In the Market Share Offering Program

On November 22, 2019, we entered into an equity distribution agreement (the
"Equity Distribution Agreement"), pursuant to which we may offer and sell, from
time to time, shares of our common stock, par value $0.01 per share, having an
aggregate offering price of up to $100.0 million. Subject to the terms and
conditions of the Equity Distribution Agreement, sales of common stock, if any,
may be made in transactions that are deemed to be an "at the market offering" as
defined in Rule 415(a)(4) under the Securities Act of 1933, as amended. During
the year ended December 31, 2021, we sold an aggregate of 137,237 shares of our
common stock under the Equity Distribution Agreement at an average price of
$15.68 per share. The sales generated net proceeds of approximately $2.1
million.

Equity offerings

On March 15, 2021, we entered into the March 2021 Underwriting Agreement, by and
among us, ACREM, and Wells Fargo Securities, LLC, BofA Securities, Inc. and
Morgan Stanley & Co. LLC, as representatives of the several underwriters listed
therein (collectively, the "March 2021 Underwriters"). Pursuant to the terms of
the March 2021 Underwriting Agreement, we agreed to sell, and the March 2021
Underwriters agreed to purchase, subject to the terms and conditions set forth
in the March 2021 Underwriting Agreement, an aggregate of 7,000,000 shares of
our common stock, par value $0.01 per share. The public offering closed on March
18, 2021 and generated net proceeds of approximately $100.7 million, after
deducting transaction expenses. We used the net proceeds from the public
offering to repay indebtedness and to invest in mortgage loans and other target
assets and investments consistent with our investment strategies and investment
guidelines.

On June 17, 2021, we entered into the June 2021 Underwriting Agreement, by and
among us, ACREM, and Wells Fargo Securities, LLC, BofA Securities, Inc. and
Morgan Stanley & Co. LLC, as representatives of the several underwriters listed
therein (collectively, the "June 2021 Underwriters"). Pursuant to the terms of
the June 2021 Underwriting Agreement, we agreed to sell, and the June 2021
Underwriters agreed to purchase, subject to the terms and conditions set forth
in the June 2021 Underwriting Agreement, an aggregate of 6,500,000 shares of the
Company's common stock, par value $0.01 per share. The public offering closed on
June 22, 2021 and generated net proceeds of approximately $101.6 million, after
deducting transaction expenses. We used the net proceeds from the public
offering to repay indebtedness and to invest in mortgage loans and other target
assets and investments consistent with our investment strategies and investment
guidelines.

Cash Flows

The following table shows the changes in cash and cash equivalents for the years ended December 31, 2021 and 2020 (in thousands of dollars):

For fiscal years ending in December

                                                                                       31,
                                                                             2021               2020
Net income                                                               $ 

60 460 $21,840
Adjustments to reconcile net income to net cash provided by (used in) operating activities:

                                                       (12,110)            9,922
Net cash provided by (used in) operating activities                          48,350            31,762
Net cash provided by (used in) investing activities                        (699,685)          (81,867)
Net cash provided by (used in) financing activities                         627,174           119,246
Change in cash and cash equivalents                                      $  

(24,161) $69,141

Over the years ended December 31, 2021 and 2020, cash and cash equivalents increased (decreased) by ($24.2) million and $69.1 millionrespectively.

Operational activities

For the years ended December 31, 2021 and 2020, net cash provided by operating
activities totaled $48.4 million and $31.8 million, respectively. For the year
ended December 31, 2021, adjustments to net income related to operating
activities
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primarily included the provision for current expected credit losses of
$10 thousand, accretion of deferred loan origination fees and costs of
$8.4 million, amortization of deferred financing costs of $9.9 million and
change in other assets of $18.5 million. For the year ended December 31, 2020,
adjustments to net income related to operating activities primarily included the
provision for current expected credit losses of $20.2 million, accretion of
deferred loan origination fees and costs of $7.4 million, amortization of
deferred financing costs of $6.4 million and change in other assets of
$15.3 million.

Investing activities

For the years ended December 31, 2021 and 2020, net cash used in investing
activities totaled $699.7 million and $81.9 million, respectively. This change
in net cash used in investing activities was primarily as a result of the cash
used for the origination and funding of loans held for investment exceeding the
cash received from principal repayment of loans held for investment for the year
ended December 31, 2021.

Financing Activities

For the year ended December 31, 2021, net cash provided by financing activities
totaled $627.2 million and primarily related to proceeds from our Secured
Funding Agreements of $970.0 million, proceeds from our Secured Term Loan of
$90.0 million, proceeds from the issuance of debt of consolidated VIEs of $540.5
million and proceeds from the sale of our common stock of $204.8 million,
partially offset by repayments of our Secured Funding Agreements of
$885.5 million, repayments of our Notes Payable of $27.9 million, repayments of
our Secured Term Loan of $50.0 million, repayments of our Secured Borrowings of
$37.5 million, repayments of debt of consolidated VIEs of $121.2 million and
dividends paid of $58.4 million. For the year ended December 31, 2020, net cash
provided by financing activities totaled $119.2 million and primarily related to
proceeds from our Secured Funding Agreements of $473.5 million, proceeds from
Secured Borrowings of $60.2 million and proceeds from the sale of our common
stock of $73.2 million, partially offset by repayments of our Secured Funding
Agreements of $446.5 million and dividends paid of $42.8 million.

For the years ended December 31, 2020 and 2019

The comparison of the fiscal years ended December 31, 2020 and 2019 can be found
in our annual report on Form 10-K for the fiscal year ended December 31, 2020
located within Part II, Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations, which is incorporated by
reference herein.

Summary of funding agreements

The sources of financing, as applicable in a given period, under our Secured
Funding Agreements, Notes Payable and the Secured Term Loan (collectively, the
"Financing Agreements") are described in the following table ($ in thousands):
                                                                                                                          As of
                                                               December 31, 2021                                                                                  December 31, 2020
                               Total              Outstanding                                                                    Total              Outstanding
                             Commitment             Balance               Interest Rate              Maturity Date             Commitment             Balance                Interest Rate              Maturity Date
Secured Funding Agreements:
Wells Fargo Facility       $   450,000          $    399,528           LIBOR+1.50 to 2.75%         December 14, 2022  (1)    $   350,000          $     336,001           LIBOR+1.45 to 2.75%         December 14, 2022  (1)
Citibank Facility              325,000               192,970           LIBOR+1.50 to 2.25%         January 13, 2022   (2)        325,000                117,506           LIBOR+1.50 to 2.25%         December 13, 2021  (2)
CNB Facility                    75,000                     -               SOFR+2.65%               March 10, 2022    (3)         50,000                 50,000               LIBOR+2.65%              March 10, 2021    (3)
MetLife Facility               180,000                20,648           LIBOR+2.10 to 2.50%          August 13, 2022   (4)        180,000                104,124           LIBOR+2.10 to 2.50%          August 13, 2022   (4)
Morgan Stanley
Facility                       250,000               226,901           LIBOR+1.50 to 3.00%         January 16, 2023   (5)        150,000                147,921           LIBOR+1.75 to 2.85%         January 16, 2023   (5)
Subtotal                   $ 1,280,000          $    840,047                                                                 $ 1,055,000          $     755,552

Notes Payable              $    51,755          $     51,110           LIBOR+3.00 to 3.75%                (6)                $    84,155          $      63,122           LIBOR+2.50 to 3.75%                (6)

Secured Term Loan          $   150,000          $    150,000                  4.50%                November 12, 2026  (7)    $   110,000          $     110,000               LIBOR+5.00%             December 22, 2021  (7)
Total                      $ 1,481,755          $  1,041,157                                                                 $ 1,249,155          $     928,674


_____________________________

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(1)The maturity date of the master repurchase funding facility with Wells Fargo
Bank, National Association (the "Wells Fargo Facility") is subject to three
12-month extensions at our option provided that certain conditions are met and
applicable extension fees are paid. The maximum commitment may be increased to
up to $500.0 million at our option, subject to the satisfaction of certain
conditions, including payment of an upsize fee. In December 2021, we elected to
increase the maximum commitment for the Wells Fargo Facility from $350.0 million
to $450.0 million.
(2)The maturity date of the master repurchase facility with Citibank, N.A. (the
"Citibank Facility") is subject to two 12-month extensions at our option
provided that certain conditions are met and applicable extension fees are paid.
In November 2021, we amended the Citibank Facility to extend the initial
maturity date to January 13, 2022. See Note 17 to our consolidated financial
statements included in this annual report on Form 10-K for a subsequent event
related to the Citibank Facility.
(3)In March 2021, we exercised a 12-month extension option on the secured
revolving funding facility with City National Bank (the "CNB Facility"). In
November 2021, we amended the CNB Facility to, among other things, (1) increase
the commitment amount from $50.0 million to $75.0 million and (2) update the
interest rate on advances under the CNB Facility to a per annum rate equal to
the sum of, at the Company's option, either (a) Daily Simple SOFR (with a 0.35%
floor) plus 2.65% or (b) a base rate (which is the highest of a prime rate, the
federal funds rate plus 0.50%, or Daily Simple SOFR plus 1.00%) plus 1.00%;
provided that in no event shall the interest rate be less than 2.65%.
(4)The maturity date of the revolving master repurchase facility with
Metropolitan Life Insurance Company (the "MetLife Facility") is subject to two
12-month extensions at our option provided that certain conditions are met and
applicable extension fees are paid.
(5)The maturity date of the master repurchase and securities contract with
Morgan Stanley (the "Morgan Stanley Facility") is subject to two 12-month
extensions at our option provided that certain conditions are met and applicable
extension fees are paid. The Morgan Stanley Facility has an accordion feature
that provides for a $100.0 million permanent increase in the commitment amount
from $150.0 million to $250.0 million, which may be exercised at our option,
subject to the satisfaction of certain conditions, including payment of an
upsized commitment fee. In June 2021, we exercised the option to increase the
commitment amount from $150.0 million to $250.0 million.
(6)Certain of our consolidated subsidiaries are party to two separate note
agreements (the "Notes Payable") with the lenders referred to therein,
consisting of (1) a $28.3 million note that has a maturity date of June 10, 2024
and (2) a $23.5 million note that has an initial maturity date of September 5,
2022, subject to two 12-month extensions at our option provided that certain
conditions are met and applicable extension fees are paid. In March 2021, the
$32.4 million note, which was secured by a $40.5 million senior mortgage loan
held by us on an industrial property located in North Carolina, was repaid in
full and not extended. The outstanding principal on the note at the time of
repayment was $27.9 million.
(7)In December 2020, we exercised the 12-month extension option on the Credit
and Guaranty Agreement with the lenders referred to therein and Cortland Capital
Market Services LLC, as administrative agent and collateral agent for the
lenders (the "Secured Term Loan"). During the extension period, the spread on
advances under the Secured Term Loan increased every three months by 0.125%,
0.375% and 0.750% per annum, respectively, beginning after the third-month of
the extension period. In March 2021, we voluntarily elected to repay
$50.0 million of outstanding principal at par on the Secured Term Loan prior to
the scheduled maturity as permitted by the contractual terms of the Secured Term
Loan. In November 2021, we amended the Secured Term Loan to, among other things,
(1) increase the commitment amount to $150.0 million, (2) extend the maturity
date of the Secured Term Loan to November 12, 2026 and (3) update the interest
rate on advances under the Secured Term Loan to the following fixed rates: (i)
4.50% per annum until May 12, 2025, (ii) after May 12, 2025 through November 12,
2025, the interest rate increases 0.125% every three months and (iii) after
November 12, 2025 through November 12, 2026, the interest rate increases 0.250%
every three months.

Our Financing Agreements contain various affirmative and negative covenants,
including negative pledges, and provisions related to events of default that are
normal and customary for similar financing agreements. As of December 31, 2021,
we were in compliance with all financial covenants of each respective Financing
Agreement. We may be required to fund commitments on our loans held for
investment in the future and we may not receive funding from our Secured Funding
Agreements with respect to these commitments. See Note 6 to our consolidated
financial statements included in this annual report on Form 10-K for more
information on our Financing Agreements.

Securitizations

As of December 31, 2021, the carrying amount and outstanding principal of our
CLO Securitizations was $861.2 million and $864.8 million, respectively. See
Note 16 to our consolidated financial statements included in this annual report
on Form 10-K for additional terms and details of our CLO Securitizations.

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Secured Borrowings

As of December 31, 2021, the carrying amount and outstanding principal of our
secured borrowings was $22.6 million and $22.7 million, respectively. See Note 7
to our consolidated financial statements included in this annual report on Form
10-K for additional terms and details of our secured borrowings.

Leverage policies

We intend to use prudent amounts of leverage to increase potential returns to
our stockholders. To that end, subject to maintaining our qualification as a
REIT and our exemption from registration under the 1940 Act, we intend to
continue to use borrowings to fund the origination or acquisition of our target
investments. Given current market conditions and our focus on first or senior
mortgages, we currently expect that such leverage would not exceed, on a
debt-to-equity basis, a 4.5-to-1 ratio. Our charter and bylaws do not restrict
the amount of leverage that we may use. The amount of leverage we will deploy
for particular investments in our target investments will depend upon our
Manager's assessment of a variety of factors, which may include, among others,
our liquidity position, the anticipated liquidity and price volatility of the
assets in our loans held for investment portfolio, the potential for losses and
extension risk in our portfolio, the gap between the duration of our assets and
liabilities, including hedges, the availability and cost of financing the
assets, our opinion of the creditworthiness of our financing counterparties, the
impact of the COVID-19 pandemic on the United States economy generally or in
specific geographic regions and commercial mortgage markets, our outlook for the
level and volatility of interest rates, the slope of the yield curve, the credit
quality of our assets, the collateral underlying our assets, and our outlook for
asset spreads relative to the LIBOR curve.

OBLIGATIONS AND CONTRACTUAL COMMITMENTS

Our contractual obligations from December 31, 2021 are described in the following table (in thousands of dollars):

                                                     Less than                                                         More than
                                   Total               1 year            1 to 3 years           3 to 5 years            5 years
Wells Fargo Facility           $   399,528          $ 399,528          $           -          $           -          $         -
Citibank Facility                  192,970            192,970                      -                      -                    -

CNB Facility                             -                  -                      -                      -                    -
MetLife Facility                    20,648             20,648                      -                      -                    -
Morgan Stanley Facility            226,901                  -                226,901                      -                    -
Notes Payable                       51,110             22,835                 28,275                      -                    -
Secured Term Loan                  150,000                  -                      -                150,000                    -
Future Loan Funding
Commitments                        233,741             48,798                165,517                 19,426                    -
Total                          $ 1,274,898          $ 684,779          $     420,693          $     169,426          $         -



The table above does not include the related interest expense under the Secured
Funding Agreements, Notes Payable and the Secured Term Loan, as all our interest
is variable. Additionally, the table above does not include extension options,
as applicable, under the Secured Funding Agreements, Notes Payable and the
Secured Term Loan.

We may enter into certain contracts that may contain a variety of
indemnification obligations, principally with underwriters and counterparties to
repurchase agreements. The maximum potential future payment amount we could be
required to pay under these indemnification obligations may be unlimited.

Other than as set forth in this annual report on Form 10-K, we do not have any
relationships with unconsolidated entities or financial partnerships, such as
entities often referred to as structured investment vehicles, special purpose
entities or variable interest entities, established to facilitate off-balance
sheet arrangements or other contractually narrow or limited purposes. Further,
we have not guaranteed any obligations of unconsolidated entities or entered
into any commitment or intend to provide additional funding to any such
entities.

Management contract

We are also required to pay our Manager a base management fee of 1.5% of our
stockholders' equity per year, an incentive fee and expense reimbursements
pursuant to our Management Agreement. The table above does not include the
amounts payable to our Manager under our Management Agreement as they are not
fixed and determinable. See Note 14 to our
                                       67
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  Table of C    ontents
consolidated financial statements included in this annual report on Form 10-K
for additional terms and details of the fees payable under our Management
Agreement.

DIVIDENDS

We elected to be taxed as a REIT for United States federal income tax purposes
and, as such, anticipate annually distributing to our stockholders at least 90%
of our REIT taxable income, prior to the deduction for dividends paid. If we
distribute less than 100% of our REIT taxable income in any tax year (taking
into account any distributions made in a subsequent tax year under Sections
857(b)(9) or 858 of the Code), we will pay tax at regular corporate rates on
that undistributed portion. Furthermore, if we distribute less than the sum of
1) 85% of our ordinary income for the calendar year, 2) 95% of our capital gain
net income for the calendar year and 3) any undistributed shortfall from our
prior calendar year (the "Required Distribution") to our stockholders during any
calendar year (including any distributions declared by the last day of the
calendar year but paid in the subsequent year), then we are required to pay
non-deductible excise tax equal to 4% of any shortfall between the Required
Distribution and the amount that was actually distributed. Any of these taxes
would decrease cash available for distribution to our stockholders. The 90%
distribution requirement does not require the distribution of net capital gains.
However, if we elect to retain any of our net capital gain for any tax year, we
must notify our stockholders and pay tax at regular corporate rates on the
retained net capital gain. The stockholders must include their proportionate
share of the retained net capital gain in their taxable income for the tax year,
and they are deemed to have paid the REIT's tax on their proportionate share of
the retained capital gain. Furthermore, such retained capital gain may be
subject to the nondeductible 4% excise tax. If we determine that our estimated
current year taxable income (including net capital gain) will be in excess of
estimated dividend distributions (including capital gains dividends) for the
current year from such income, we accrue excise tax on a portion of the
estimated excess taxable income as such taxable income is earned.

Before we make any distributions, whether for United States federal income tax
purposes or otherwise, we must first meet both our operating requirements and
debt service on our Financing Agreements and other debt payable. If our cash
available for distribution is less than our REIT 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.

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