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

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, 2022
presented by quarter:

Developments During the First Quarter of 2022:

•ACRE upsized an existing $20.8 million senior mortgage loan on an industrial
property located in Colorado by $3.8 million.
•ACRE originated a $4.7 million senior mortgage loan on an industrial property
located in Florida.
•ACRE originated a $5.9 million senior mortgage loan on an industrial property
located in Florida.
•ACRE originated a $55.7 million senior mortgage loan on a hotel property
located in New York.
•ACRE originated a $60.8 million senior mortgage loan on a hotel property
located in California.
•ACRE originated a $91.1 million senior mortgage loan on a residential
condominium property located in New York. This senior mortgage loan refinanced
the previously existing $71.8 million senior mortgage loan that was held by the
Company.
•ACRE originated an $18.2 million senior mortgage loan on a self storage
property located in Philadelphia.
•ACRE originated an $8.5 million senior mortgage loan on a self storage property
located in Massachusetts.
•ACRE originated a $5.9 million senior mortgage loan on a self storage property
located in New Jersey.
•ACRE originated a $5.4 million senior mortgage loan on a self storage property
located in Wisconsin.
•ACRE originated a $2.9 million senior mortgage loan on a self storage property
located in Texas.
•ACRE amended the Citibank Facility 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 ACRE's 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.
•ACRE closed the sale of the hotel property that was classified as real estate
owned to a third party for $40.0 million. During the three months ended March
31, 2022, ACRE recognized a $2.2 million gain on the sale of the hotel property
as the net carrying value of the hotel property as of the sale closing date was
lower than the net sales proceeds received by ACRE.
•ACRE re-calibrated its net exposure to interest rate changes by terminating its
interest rate cap derivative, which had a notional amount of $170.0 million on
the termination date and a strike rate of 0.50%. For the three months ended
March 31, 2022, ACRE recognized a $2.0 million realized gain within other
comprehensive income in conjunction with the termination of the interest rate
cap. In accordance with FASB ASC Topic 815, Derivatives and Hedging, the
realized gain will be recognized within current earnings over the remaining
original term of the interest rate cap derivative as it was designated as an
effective hedge.

Developments During the Second Quarter of 2022:

•ACRE originated an $82.2 million senior mortgage loan on an office property
located in Massachusetts.
•ACRE purchased a $13.8 million senior mortgage loan on a self storage property
located in Pennsylvania from a third party.
•ACRE purchased an $8.0 million senior mortgage loan on a self storage property
located in Texas from a third party.
•ACRE purchased a $7.7 million senior mortgage loan on a self storage property
located in Massachusetts from a third party.
•ACRE purchased a $6.8 million senior mortgage loan on a self storage property
located in Massachusetts from a third party.
•ACRE purchased a $4.5 million senior mortgage loan on a self storage property
located in Florida from a third party.
•ACRE originated a $133.0 million senior mortgage loan on a multifamily property
located in New York.
•ACRE originated a $100.0 million senior mortgage loan on a multifamily property
located in Texas.
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•ACRE entered into an underwriting agreement (the "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 $103.2 million, after deducting transaction expenses.

Developments During the Third Quarter of 2022:

•ACRE purchased a $17.6 million senior mortgage loan on a self storage property
located in New Jersey from a third party.
•ACRE purchased an $11.5 million senior mortgage loan on a self storage property
located in Washington from a third party.
•ACRE originated a $20.6 million mezzanine loan on a multifamily property
located in South Carolina.
•ACRE purchased a AAA rated CRE debt security with a face amount of
$18.0 million from a third party.
•ACRE purchased a AAA rated CRE debt security with a face amount of $5.0 million
from a third party.
•ACRE purchased a AAA rated CRE debt security with a face amount of $5.0 million
from a third party.
•A wholly owned subsidiary of ACRE closed a $105.0 million note financing, which
is secured by a $133.0 million senior mortgage loan held by ACRE on a
multifamily property located in New York and is fully and unconditionally
guaranteed by ACRE pursuant to a Guaranty of Recourse Obligation. The initial
maturity date of the $105.0 million note is July 28, 2025, subject to two
12-month extensions, each of which may be exercised at ACRE's option, subject to
the satisfaction of certain conditions, including payment of an extension fee,
which, if both were exercised, would extend the maturity date to July 28, 2027.
Advances under the $105.0 million note accrue interest at a per annum rate equal
to the sum of one-month SOFR plus a spread of 2.00%.
•ACRE's Board of Directors approved a stock repurchase program of up to
$50.0 million, which is expected to be in effect until July 26, 2023, or until
the approved dollar amount has been used to repurchase shares (the "Repurchase
Program"). Pursuant to the Repurchase Program, ACRE may repurchase shares of its
common stock in amounts, at prices and at such times as it deems appropriate,
subject to market conditions and other considerations, including all applicable
legal requirements.

Developments During the Fourth Quarter of 2022:

•ACRE originated a $56.0 million senior mortgage loan on an office property
located in Illinois. This senior mortgage loan refinanced the previously
existing $61.0 million senior mortgage loan that was held by ACRE.
•ACRE amended the Wells Fargo Facility (as defined below) to, among other
things, (1) extend the funding period of the Wells Fargo Facility to December
15, 2025, (2) extend the initial maturity date of the Wells Fargo Facility to
December 15, 2025, subject to two 12-month extensions, each of which may be
exercised at ACRE's option, subject to the satisfaction of certain conditions,
including payment of an extension fee, which, if both were exercised, would
extend the maturity date of the Wells Fargo Facility to December 14, 2027 and
(3) update the interest rate on advances under the Wells Fargo Facility from a
per annum rate equal to the sum of one-month LIBOR or SOFR plus a pricing margin
range of 1.50% to 2.75%, subject to certain exceptions, to a per annum rate
equal to the sum of one-month LIBOR or SOFR plus a pricing margin range of 1.50%
to 3.75%, subject to certain exceptions.

Trends Affecting Our Business

Global markets continued to see volatility during the year, fueled by further
tightening of monetary policy and geopolitical uncertainty. In response to
heightened inflation, the Federal Reserve continues to raise interest rates,
which has created further uncertainty for the economy and for our borrowers.
These current macroeconomic conditions may continue or aggravate and could cause
the United States economy or other global economies to experience an economic
slowdown or recession. We continue to monitor the uncertainty surrounding
inflation and rising interest rates; however, the full impact that these factors
may have on our business remains uncertain.

Factors Impacting Our Operating Results

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 Fair Value of Our Assets. We originate CRE debt and related
instruments generally to be held for investment. Loans that are held for
investment are carried at cost, net of unamortized loan fees and origination
costs (the “carrying value”).

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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, and as set forth below, as of
December 31, 2022 and 2021, all loans held for investment were paying in
accordance with their contractual terms. As of December 31, 2022, the Company
had three loans held for investment on non-accrual status with a carrying value
of $99.1 million. 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.

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, 2022, 2021 and 2020.

Changes in Market Interest Rates. With respect to our business operations,
increases in interest rates, in general, may over time cause:

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

•the value of our mortgage loans to decline;

•coupons on our floating rate mortgage loans to reset to higher interest rates;
and

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

Conversely, decreases in interest rates, in general, may over time cause:

•the interest expense associated with our borrowings to decrease, subject to any
applicable floors;

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

•coupons on our floating rate mortgage loans to reset to lower interest rates,
subject to any applicable floors; and

•to the extent we enter into interest rate swap agreements as part of our
hedging strategy where we pay fixed and receive floating interest rates, the
value of these agreements to 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
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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 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, 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. Decreases in property values reduce the value of the collateral
and the potential proceeds available to a borrower to repay the underlying loan
or loans, as the case may be, which could also cause us to suffer losses.

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, is also an important factor in determining our operating results.
Generally, as the size of our portfolio grows, the amount of interest income we
receive increases and, at such times, we may achieve certain economies of scale
and can 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.

Stock Repurchase Program

On July 26, 2022, our Board of Directors approved a stock repurchase program of
up to $50.0 million, which is expected to be in effect until July 26, 2023, or
until the approved dollar amount has been used to repurchase shares (the
"Repurchase Program"). Pursuant to the Repurchase Program, we may repurchase
shares of our common stock in amounts, at prices and at such times as we deem
appropriate, subject to market conditions and other considerations, including
all applicable legal requirements. Repurchases may include purchases on the open
market or privately negotiated transactions, under Rule 10b5-1 trading plans,
under accelerated share repurchase programs, in tender offers and otherwise. The
Repurchase Program does not obligate us to acquire any particular amount of
shares of our common stock and may be modified or suspended at any time at our
discretion. We did not conduct any repurchases under the Repurchase Program
during the year ended December 31, 2022.

Loans Held for Investment Portfolio

As of December 31, 2022, our portfolio included 60 loans held for investment,
excluding 150 loans that were repaid, sold or converted to real estate owned
since inception. As of December 31, 2022, the aggregate originated commitment
under these loans at closing was approximately $2.6 billion and outstanding
principal was $2.3 billion. During the year ended December 31, 2022, we funded
approximately $676.9 million of outstanding principal and received repayments of
$823.2 million of outstanding principal. As of December 31, 2022, 90.2% of our
loans have LIBOR or SOFR floors, with a weighted average floor of 0.95%,
calculated based on loans with LIBOR or SOFR floors. References to LIBOR or "L"
are to 30-day LIBOR and references to SOFR or "S" are to 30-day SOFR (unless
otherwise specifically stated).

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, 2022, all loans
held for investment were paying 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, 2022 ($ in
thousands):
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                                                                                    As of December 31, 2022
                                                                                                                                           Weighted
                                                                                                                                            Average
                                          Carrying Amount         Outstanding            Weighted Average Unleveraged Effective            Remaining
                                                (1)              Principal (1)                            Yield                          Life (Years)
Senior mortgage loans                     $  2,225,725          $   2,243,818                      8.4  % (2)         8.8  % (3)                

1.3

Subordinated debt and preferred equity
investments                                     38,283                 39,003                     14.0  % (2)        14.0  % (3)                   

2.8

Total loans held for investment portfolio $ 2,264,008 $ 2,282,821

                      8.5  % (2)         8.9  % (3)                

1.4

_______________________________

(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, 2022
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, 2022 as weighted by the total outstanding principal balance of each
interest accruing loan (excludes loans on non-accrual status as of December 31,
2022).

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. These 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 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.

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See Note 4 to our consolidated financial statements included in this annual
report on Form 10-K for CECL related disclosures.

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

In January 2023, the senior mortgage loan held by us on an office property
located in Illinois was not repaid upon its contractual maturity, which
triggered an event of default under the loan agreement. As of February 14, 2023,
the outstanding principal balance of the senior Illinois loan is $27.2 million.

In January 2023, the senior mortgage loan held by us on a mixed-use property
located in California did not receive the January interest payment, which
triggered an event of default under the loan agreement. As of February 14, 2023,
the outstanding principal balance of the senior California loan is $37.9
million.

In January 2023, we sold the senior loan collateralized by a residential
property in California and was in maturity default due to the failure of the
borrower to repay the outstanding principal balance of the loan by the maturity
date. We sold the loan at an all-cash price of $10.0 million, with estimated net
proceeds of $9.8 million.

In February 2023, the senior mortgage loan held by us on a mixed-use property
located in Florida was not repaid upon its contractual maturity, which triggered
an event of default under the loan agreement. As of February 14, 2023, the
outstanding principal balance of the senior Florida loan is $84.0 million.

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 2023. The first quarter 2023 and supplemental cash dividends will be
payable on April 18, 2023 to common stockholders of record as of March 31, 2023.
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RESULTS OF OPERATIONS

For the years ended December 31, 2022 and 2021

The following table sets forth a summary of our consolidated results of
operations for the years ended December 31, 2022 and 2021 ($ in thousands):

                                                                          For the years ended
                                                                             December 31,
                                                                                      2022               2021
Total revenue                                                                     $ 106,849          $ 102,069
Total expenses                                                                       32,728             40,877
Provision for current expected credit losses                                         46,061                 10

Gain on sale of real estate owned                                                     2,197                  -
Income before income taxes                                                           30,257             61,182
Income tax expense, including excise tax                                                472                722
Net income attributable to common stockholders                              

$ 29,785 $ 60,460

The following tables set forth select details of our consolidated results of
operations for the years ended December 31, 2022 and 2021 ($ in thousands):

Net Interest Margin

                                For the years ended December 31,
                                                            2022           2021
Interest income                                          $ 170,171      $ 133,631
Interest expense                                           (65,994)       (50,080)
Net interest margin                                      $ 104,177      $  83,551



For the years ended December 31, 2022 and 2021, net interest margin was
approximately $104.2 million and $83.6 million, respectively. For the years
ended December 31, 2022 and 2021, interest income of $170.2 million and $133.6
million, respectively, was generated by weighted average earning assets of
$2.5 billion and $2.2 billion, respectively, offset by $66.0 million and $50.1
million, respectively, of interest expense, unused fees and amortization of
deferred loan costs. The weighted average borrowings under the Secured Funding
Agreements, Notes Payable (excluding the Note Payable on the hotel property that
was recognized as real estate owned in our consolidated balance sheets), the
Secured Term Loan, secured borrowings (described in Note 7 to our consolidated
financial statements included in this annual report on Form 10-K) and
securitization debt were $1.9 billion for the year ended December 31, 2022 and
$1.6 billion for the year ended December 31, 2021. The increase in net interest
margin for the year ended December 31, 2022 compared to the year ended December
31, 2021 primarily relates to an increase in our weighted average earning assets
and weighted average borrowings for the year ended December 31, 2022, the
benefit received from our interest rate hedging derivative contracts for the
year ended December 31, 2022, the benefit received from the increase in LIBOR
and SOFR rates on our loans held for investment for the year ended December 31,
2022 and the impact of the accelerated recognition of deferred fees and
prepayment penalties received from borrowers related to loans that were repaid
during the year ended December 31, 2022.

Revenue 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 hotel property as real estate owned. For the years ended December
31, 2022 and 2021, revenue from real estate owned was $2.7 million and $18.5
million, respectively. Revenues consisted of room sales, food and beverage sales
and other hotel revenues. The decrease in revenue from real estate owned for the
year ended December 31, 2022 compared to the year ended December 31, 2021 is
primarily due to the year ended December 31, 2022 only including two months of
hotel operations. In connection with the sale of the hotel property, we provided
a senior mortgage loan to the buyer of the hotel property. The initial advance
funded under such loan was $30.7 million, with up to another $25.0 million of
additional loan proceeds to be available
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for future advances to cover a portion of the anticipated property renovation
plan costs, provided certain conditions are satisfied. At closing, the buyer
contributed $12.9 million of equity into the purchase. Additionally, the buyer
is required to fund an additional $8.7 million of equity associated with the
anticipated property renovation plan costs.

Operating Expenses

                                                                              For the years
                                                                             ended December
                                                                                   31,
                                                                                     2022              2021
Management and incentive fees to affiliate                                        $ 14,898          $ 12,136
Professional fees                                                                    3,350             2,436
General and administrative expenses                                                  6,394             4,741
General and administrative expenses reimbursed to affiliate                          3,777             3,016
Expenses from real estate owned                                                      4,309            18,548
Total expenses                                                                    $ 32,728          $ 40,877



See the Related Party Expenses, Other Expenses and Expenses from Real Estate
Owned discussions below for the cause of the decrease in operating expenses for
the year ended December 31, 2022 compared to the year ended December 31, 2021.

Related Party Expenses

For the year ended December 31, 2022, related party expenses included $14.9
million in management and incentive fees due to our Manager pursuant to the
Management Agreement, which consisted of $11.5 million in management fees and
$3.4 million in incentive fees. For the year ended December 31, 2022, related
party expenses also included $3.8 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, 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. The
increase in management fees for the year ended December 31, 2022 compared to the
year ended December 31, 2021 primarily relates to an increase in our weighted
average stockholders' equity for the year ended December 31, 2022 as a result of
the public offering of 7,000,000 shares of our common stock in May 2022, which
generated net proceeds of approximately $103.2 million. The increase in
incentive fees for the year ended December 31, 2022 compared to the year ended
December 31, 2021 primarily relates to our Core Earnings (defined below) for the
year ended December 31, 2022 exceeding the 8% minimum return by a higher margin
than the year ended December 31, 2021. "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. On April 25, 2022, ACRE and ACREM entered
into an amendment to the Management Agreement to (a) include a $2.4 million
adjustment to reverse the impact of accumulated depreciation following the sale
of the hotel real estate owned property for the three months ended March 31,
2022 and to (b) include a $2.0 million adjustment to include the realized gain
from the termination of the interest rate cap derivative for the three months
ended March 31, 2022, in each case, with respect to Core Earnings for the three
months ended March 31, 2022. Core Earnings is defined in the Management
Agreement and is used to calculate the incentive fees the Company pays to ACREM.
The increase in allocable general and administrative expenses due to our Manager
for the year ended December 31, 2022 compared to the year ended December 31,
2021 primarily relates to an increase in the percentage of time allocated to us
by employees of our Manager due to changes in transaction activity year over
year and the inclusion of additional eligible expense reimbursements per the
Amended and Restated Management Agreement that became effective during the year
ended December 31, 2022.

Other Expenses

For the years ended December 31, 2022 and 2021, professional fees were $3.4
million and $2.4 million, respectively. The increase in professional fees for
the year ended December 31, 2022 compared to the year ended December 31, 2021
primarily relates to an increase in our use of third-party professionals due to
changes in transaction activity year over year. For the years ended December 31,
2022 and 2021, general and administrative expenses were $6.4 million and $4.7
million, respectively. The increase in general and administrative expenses for
the year ended December 31, 2022 compared to the year
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ended December 31, 2021 primarily relates to an increase in stock-based
compensation expense due to restricted stock and restricted stock unit awards
granted after December 31, 2021.

Expenses From Real Estate Owned

For the years ended December 31, 2022 and 2021, expenses from real estate owned
was comprised of the following ($ in thousands):

                                                 For the years ended December 31,
                                                                              2022          2021
   Hotel operating expenses                                                 $ 3,631      $ 16,058
   Interest expense on note payable                                         

678 1,665

   Depreciation expense                                                           -           825
   Expenses from real estate owned                                          

$ 4,309 $ 18,548



For the years ended December 31, 2022 and 2021, hotel operating expenses were
$3.6 million and $16.1 million, respectively. Hotel operating expenses consisted
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 included housekeeping and front office wages and payroll
taxes, reservation systems, room supplies, laundry services and other costs.
Food and beverage expense primarily included the cost of food, the cost of
beverages and associated labor costs. Other operating expenses included 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 decrease
in hotel operating expenses for the year ended December 31, 2022 compared to the
year ended December 31, 2021 is primarily due to the year ended December 31,
2022 only including two months of hotel operations. For the years ended December
31, 2022 and 2021, interest expense on our note payable was $0.7 million and
$1.7 million, respectively. The decrease in interest expense on our note payable
for the year ended December 31, 2022 compared to the year ended December 31,
2021 is primarily attributed to the year ended December 31, 2022 only including
two months of hotel operations. This was partially offset by the accelerated
recognition of deferred costs for the year ended December 31, 2022 due to the
repayment of our note payable in conjunction with the sale of the hotel property
to a third party on March 1, 2022. For the year ended December 31, 2022, no
depreciation expense was incurred as the hotel property was classified as real
estate owned held for sale effective in November 2021. For the year ended
December 31, 2021, depreciation expense was $0.8 million.

Provision for Current Expected Credit Losses

For the years ended December 31, 2022 and 2021, the provision for current
expected credit losses was $46.1 million and $10 thousand, respectively. The
increase in the provision for current expected credit losses for the year ended
December 31, 2022 compared to the year ended December 31, 2021 is primarily due
to changes to the loan portfolio, including new loan production, and the impact
of the current macroeconomic environment on certain assets, including rising
inflation, and rapidly rising interest rates, partially offset by shorter
average remaining loan term and loan repayments during the year ended December
31, 2022.

The current expected credit loss reserve ("CECL Reserve") takes into
consideration our estimates relating to the impact of macroeconomic conditions
on CRE properties and is not specific to any loan losses or impairments on our
loans held for investment, unless the Company determines that a specific reserve
is warranted for a select asset. 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 macroeconomic conditions.

Gain on Sale of Real Estate Owned

For the year ended December 31, 2022, we recognized a $2.2 million gain on the
sale of the hotel property that was recognized as real estate owned as the net
carrying value of the hotel property as of the March 1, 2022 sale date was lower
than the net sales proceeds received by the Company.

For the years ended December 31, 2021 and 2020

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The comparison of our results of operations for the fiscal years ended December
31, 2021 and 2020 can be found in our annual report on Form 10-K for the fiscal
year ended December 31, 2021 located within Part II, Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations, which
is incorporated by reference herein.

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. As a
result of the current macroeconomic environment, borrowers may be unable to make
interest and principal payments timely, including at the maturity date of the
borrower's loan. We have increased our CECL Reserve to reflect this risk. Our
Secured Funding Agreements contain 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. During the COVID-19 pandemic, to mitigate
the risk of future margin calls, we proactively engaged in discussions with
certain of our lenders to modify the terms of our borrowings on certain assets
within these facilities, in order to, among other things, reduce the amounts we
were borrowing against such assets and/or increase the borrowing spreads. If we
experience borrower default as a result of the current macroeconomic conditions,
we may not be able to negotiate modifications to our borrowings with our
lenders, similar to those negotiated during COVID-19, or to 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 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. 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 FL4 collateralized loan obligation securitization debt ("FL4
CLO Securitization", together with our FL3 CLO Securitization, 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 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.
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We have commitments to fund various senior mortgage loans, as well as
subordinated debt and preferred equity investments in our portfolio. 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.

As of February 14, 2023, we had approximately $216 million in liquidity
including $141 million of unrestricted cash and $75 million of availability
under our Secured Funding Agreements.

At the Market Stock Offering Program

On November 22, 2019, we entered into an equity distribution agreement (the
"Equity Distribution Agreement"), governing an "at the market offering" program
having an aggregate offering price of up to $100.0 million. During the year
ended December 31, 2022, we sold 190,369 shares of our common stock under the
Equity Distribution Agreement at an average price of $15.33 per share. The sales
generated net proceeds of approximately $2.9 million. The "at the market
offering" program is currently unavailable.

Equity Offerings

On May 20, 2022, we closed the public offering of an aggregate of 7,000,000
shares of our common stock, generating net proceeds of approximately
$103.2 million, after deducting transaction expenses.

Cash Flows

The following table sets forth changes in cash and cash equivalents for the
years ended December 31, 2022 and 2021 ($ in thousands):

For the years ended December

                                                                                       31,
                                                                             2022               2021
Net income                                                               $ 

29,785 $ 60,460
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:

                                                       27,372            (12,110)
Net cash provided by (used in) operating activities                         57,157             48,350
Net cash provided by (used in) investing activities                        193,173           (699,685)
Net cash provided by (used in) financing activities                       (159,667)           627,174
Change in cash and cash equivalents                                      $  

90,663 $ (24,161)

During the years ended December 31, 2022 and 2021, cash and cash equivalents
increased (decreased) by $90.7 million and $(24.2) million, respectively.

Operating Activities

For the years ended December 31, 2022 and 2021, net cash provided by operating
activities totaled $57.2 million and $48.4 million, respectively. For the year
ended December 31, 2022, adjustments to net income related to operating
activities primarily included the provision for current expected credit losses
of $46.1 million, accretion of discounts, deferred loan origination fees and
costs of $10.3 million, amortization of deferred financing costs of
$7.1 million, change in other assets of $17.7 million and gain on sale of real
estate owned of $2.2 million. For the year ended December 31, 2021, adjustments
to net income related to operating activities primarily included the provision
for current expected credit losses of $10 thousand, accretion of discounts,
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.

Investing Activities

For the years ended December 31, 2022 and 2021, net cash provided by (used in)
investing activities totaled $193.2 million and $(699.7) million, respectively.
This change in net cash provided by investing activities was primarily as a
result of the cash received from principal repayment of loans held for
investment and from the sale of real estate owned
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exceeding the cash used for the origination and funding of loans held for
investment and purchases of available-for-sale debt securities for the year
ended December 31, 2022.

Financing Activities

For the year ended December 31, 2022, net cash used in financing activities
totaled $159.7 million and primarily related to repayments of our Secured
Funding Agreements of $402.0 million, repayments of our Notes Payable of $51.1
million, repayments of debt of consolidated VIEs of $85.9 million and dividends
paid of $71.8 million, partially offset by proceeds from our Secured Funding
Agreements of $267.2 million, proceeds from our Notes Payable of $105.0 million
and proceeds from the sale of our common stock of $106.3 million. 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 years ended December 31, 2021 and 2020

The comparison of our cash flows for the fiscal years ended December 31, 2021
and 2020 can be found in our annual report on Form 10-K for the fiscal year
ended December 31, 2021 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 Financing 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, 2022                                                                                     December 31, 2021
                               Total              Outstanding                                                                             Total              Outstanding
                             Commitment             Balance                    Interest Rate                  Maturity Date             Commitment             Balance               Interest Rate              Maturity Date
Secured Funding Agreements:
Wells Fargo Facility       $   450,000          $     270,798             

Base Rate(1)+1.50 to 3.75% December 15, 2025 (2) $ 450,000

     $    399,528           LIBOR+1.50 to 2.75%         December 14, 2022 

(2)

Citibank Facility              325,000                236,240             

Base Rate(1)+1.50 to 2.10% January 13, 2025 (3) 325,000

           192,970           LIBOR+1.50 to 2.25%         January 13, 2022   (3)
CNB Facility                    75,000                      -                   SOFR+2.65%                   March 10, 2023    (4)         75,000                     -               SOFR+2.65%               March 10, 2022    (4)
MetLife Facility               180,000                      -             Base Rate(1)+2.10 to 2.50%         August 13, 2023   (5)        180,000                20,648           LIBOR+2.10 to 2.50%          August 13, 2022   

(5)

Morgan Stanley
Facility                       250,000                198,193             

Base Rate(1)+1.50 to 3.00% January 16, 2024 (6) 250,000

          226,901           LIBOR+1.50 to 3.00%         January 16, 2023   (6)
Subtotal                   $ 1,280,000          $     705,231                                                                         $ 1,280,000          $    840,047

Notes Payable              $   105,000          $     105,000                   SOFR+2.00%                    July 28, 2025    (7)    $    51,755          $     51,110           LIBOR+3.00 to 3.75%                (7)

Secured Term Loan          $   150,000          $     150,000                      4.50%                    November 12, 2026  (8)    $   150,000          $    150,000                  4.50%                November 12, 2026  (8)
Total                      $ 1,535,000          $     960,231                                                                         $ 1,481,755          $  1,041,157

_____________________________

(1)The base rate is LIBOR for loans pledged prior to December 31, 2021 and SOFR
for loans pledged subsequent to December 31, 2021.
(2)The maturity date of the master repurchase funding facility with Wells Fargo
Bank, National Association (the "Wells Fargo Facility") is subject to two
12-month extensions at our option provided that certain conditions are met and
applicable extension fees are paid. In December 2022, we amended the Wells Fargo
Facility to, among other things, (1) extend the funding period to December 15,
2025, (2) extend the initial maturity date to December 15, 2025 and (3) modify
the interest rate on advances under the Wells Fargo Facility to a per annum rate
equal to the sum of one-month LIBOR or SOFR, as applicable, plus a pricing
margin range of 1.50% to 3.75%, subject to certain exceptions. 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.
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(3)In January 2022, we amended the Citibank Facility 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 provided that certain conditions are met and applicable extension fees
are paid.
(4)In March 2022, we exercised a 12-month extension option on the secured
revolving funding facility with City National Bank (the "CNB Facility").
(5)In July 2022, we exercised a 12-month extension option on the revolving
master repurchase facility with Metropolitan Life Insurance Company (the
"MetLife Facility"). The MetLife Facility is subject to one 12-month extension,
which may be exercised at our option provided that certain conditions are met
and applicable extension fees are paid.
(6)In December 2022, we exercised a 12-month extension option on the master
repurchase and securities contract with Morgan Stanley (the "Morgan Stanley
Facility"). The Morgan Stanley Facility is subject to one 12-month extension,
which may be exercised at our option provided that certain conditions are met
and applicable extension fees are paid.
(7)A wholly owned subsidiary of ours is party to a Credit and Security Agreement
with the lender referred to therein, which provides for a $105.0 million note
(the "Notes Payable"). The $105.0 million note is subject to two 12-month
extensions at our option provided that certain conditions are met and applicable
extension fees are paid. A consolidated subsidiary of ours was party to a
$23.5 million note agreement with the lender referred to therein. In June 2022,
the $23.5 million note was repaid in full and not extended. The outstanding
principal on the note at the time of repayment was $22.8 million. In March 2022,
the $28.3 million note, which was secured by a hotel property located in New
York that was recognized as real estate owned in our consolidated balance
sheets, was repaid in full and not extended. The outstanding principal on the
note at the time of repayment was $28.3 million.
(8)The maturity date of 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") is November
12, 2026 and the interest rate on advances under the Secured Term Loan are 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, 2022,
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, 2022, the carrying amount and outstanding principal of our
CLO Securitizations was $777.7 million and $779.0 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.

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 macroeconomic environment 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 or SOFR curve or another
alternative interest index rate commonly used for floating rate loans.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

Our contractual obligations as of December 31, 2022 are described in the
following table ($ in thousands):

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                                                      Less than                                                         More than
                                   Total               1 year             1 to 3 years           3 to 5 years            5 years
Wells Fargo Facility           $   270,798          $        -          $     270,798          $           -          $         -
Citibank Facility                  236,240                   -                236,240                      -                    -

CNB Facility                             -                   -                      -                      -                    -
MetLife Facility                         -                   -                      -                      -                    -
Morgan Stanley Facility            198,193                   -                198,193                      -                    -
Notes Payable                      105,000                   -                105,000                      -                    -
Secured Term Loan                  150,000                   -                      -                150,000                    -
Future Loan Funding
Commitments                        227,487              36,279                169,543                 21,665                    -
Total                          $ 1,187,718          $   36,279          $     979,774          $     171,665          $         -



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 Agreement

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 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 and debt service
requirements under 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
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distributions or we may elect to make a portion of the Required Distribution in
the form of a taxable stock distribution or distribution of debt securities.

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