Overview of Company’s Financial Performance

The company reported a net loss of $77.7 million for Q1 2024, compared to a net loss of $37.5 million in Q1 2023. The increased net loss was primarily driven by higher provision for credit losses of $75.6 million in Q1 2024 compared to $46.4 million in Q1 2023.

The company’s loan portfolio had $2.7 billion of unpaid principal balance across 71 loans at March 31, 2024, with a weighted average risk rating of 3.0 compared to 2.8 at December 31, 2023. The increase in weighted average risk rating reflects downgrades of certain loans to higher risk categories.

The company declared common stock dividends of $0.15 per share and Series A Preferred Stock dividends of $0.43750 per share in Q1 2024.

Revenue and Profit Trends

• Net interest income decreased to $12.5 million in Q1 2024 from $22.9 million in Q1 2023, driven by higher nonaccrual loans and lower average interest-earning assets.

• Provision for credit losses increased to $75.6 million in Q1 2024 from $46.4 million in Q1 2023, reflecting allowance increases on certain collateral-dependent loans.

• Operating expenses increased to $12.2 million in Q1 2024 from $10.6 million in Q1 2023, mainly due to real estate owned operations in Q1 2024.

Strengths and Weaknesses

Strengths

• Strong liquidity position with $155.2 million of unrestricted cash at March 31, 2024.

• 56.5% of portfolio financing from non-mark-to-market sources provides stability.

• In compliance with all financial covenants under financing agreements at March 31, 2024.

Weaknesses

• 10 loans with $539.7 million unpaid principal balance on nonaccrual status at March 31, 2024.

• Loan portfolio weighted average risk rating increased to 3.0 at March 31, 2024 from 2.8 at December 31, 2023.

• Decline in net interest income and increase in provision for credit losses.

Outlook

The company faces significant uncertainty in the commercial real estate market, with volatility in property values, constrained transaction activity, and borrower repayment challenges. These dynamics have stressed certain borrowers’ ability to perform on their loans.

The company is focused on actively managing its portfolio and working with borrowers to maximize loan performance. However, if challenging conditions persist, the company may see further credit rating downgrades, nonaccrual loans, and provisions for credit losses.

Maintaining strong liquidity and moderate leverage remains a priority for the company to navigate market uncertainty. The company continues to explore additional financing sources to further diversify its capital structure.

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