UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2022
OR
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-40993
Claros Mortgage Trust, Inc.
(Exact Name of Registrant as Specified in its Charter)
Maryland |
47-4074900 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
c/o Mack Real Estate Credit Strategies, L.P. |
|
60 Columbus Circle, 20th Floor, New York, NY |
10023 |
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (212) 484-0050
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
|
Trading Symbol(s) |
|
Name of each exchange on which registered |
Common Stock, $0.01 par value per share |
|
CMTG |
|
New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
|
☐ |
|
Accelerated filer |
|
☐ |
|
|
|
|
|||
Non-accelerated filer |
|
☒ |
|
Smaller reporting company |
|
☐ |
|
|
|
|
|
|
|
Emerging growth company |
|
☒ |
|
|
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of July 31, 2022, the registrant had 139,471,129 shares of common stock, $0.01 par value per share, outstanding.
Table of Contents
|
|
Page |
PART I. |
3 |
|
Item 1. |
3 |
|
|
3 |
|
|
4 |
|
|
Consolidated Statements of Changes in Redeemable Common Stock and Stockholders’ Equity |
5 |
|
6 |
|
|
8 |
|
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
32 |
Item 3. |
50 |
|
Item 4. |
52 |
|
PART II. |
|
|
Item 1. |
54 |
|
Item 1A. |
54 |
|
Item 2. |
54 |
|
Item 3. |
54 |
|
Item 4. |
54 |
|
Item 5. |
54 |
|
Item 6. |
55 |
|
57 |
||
2
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
Claros Mortgage Trust, Inc.
Consolidated Balance Sheets
(unaudited, in thousands, except share data)
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||
Assets |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
461,002 |
|
|
$ |
310,194 |
|
Restricted cash |
|
|
36,729 |
|
|
|
23,942 |
|
Loan principal payments held by servicer |
|
|
22,506 |
|
|
|
154,600 |
|
Loans receivable held-for-investment |
|
|
7,089,256 |
|
|
|
6,407,305 |
|
Less: current expected credit loss reserve |
|
|
(59,400 |
) |
|
|
(67,010 |
) |
Loans receivable held-for-investment, net |
|
|
7,029,856 |
|
|
|
6,340,295 |
|
Interests in loans receivable held-for-investment, net |
|
|
- |
|
|
|
161,850 |
|
Real estate owned, net |
|
|
404,693 |
|
|
|
406,887 |
|
Other assets |
|
|
61,416 |
|
|
|
57,503 |
|
Total assets |
|
$ |
8,016,202 |
|
|
$ |
7,455,271 |
|
|
|
|
|
|
|
|
||
Liabilities and Stockholders' Equity |
|
|
|
|
|
|
||
Repurchase agreements |
|
$ |
3,918,703 |
|
|
$ |
3,489,511 |
|
Loan participations sold, net |
|
|
273,487 |
|
|
|
167,744 |
|
Notes payable, net |
|
|
98,107 |
|
|
|
48,000 |
|
Secured term loan, net |
|
|
738,180 |
|
|
|
739,762 |
|
Debt related to real estate owned, net |
|
|
289,852 |
|
|
|
289,806 |
|
Other liabilities |
|
|
45,166 |
|
|
|
54,457 |
|
Dividends payable |
|
|
52,458 |
|
|
|
51,741 |
|
Management fee payable - affiliate |
|
|
9,843 |
|
|
|
9,983 |
|
Total liabilities |
|
$ |
5,425,796 |
|
|
$ |
4,851,004 |
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
||
Stockholders' Equity |
|
|
|
|
|
|
||
Common stock, $0.01 par value, 500,000,000 shares authorized, 140,055,714 and 140,055,714 |
|
|
1,400 |
|
|
|
1,400 |
|
Additional paid-in capital |
|
|
2,722,993 |
|
|
|
2,726,190 |
|
Dividends declared |
|
|
(929,789 |
) |
|
|
(825,659 |
) |
Retained earnings |
|
|
757,346 |
|
|
|
664,700 |
|
Total Claros Mortgage Trust, Inc. equity |
|
|
2,551,950 |
|
|
|
2,566,631 |
|
Non-controlling interests |
|
|
38,456 |
|
|
|
37,636 |
|
Total stockholders' equity |
|
|
2,590,406 |
|
|
|
2,604,267 |
|
|
|
|
|
|
|
|
||
Total liabilities and stockholders' equity |
|
$ |
8,016,202 |
|
|
$ |
7,455,271 |
|
The accompanying notes are an integral part of these consolidated financial statements.
3
Claros Mortgage Trust, Inc.
Consolidated Statements of Operations
(unaudited, in thousands, except share and per share data)
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
June 30, 2022 |
|
|
June 30, 2021 |
|
|
June 30, 2022 |
|
|
June 30, 2021 |
|
||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest and related income |
|
$ |
98,993 |
|
|
$ |
104,647 |
|
|
$ |
189,687 |
|
|
$ |
210,450 |
|
Less: interest and related expense |
|
|
46,871 |
|
|
|
46,470 |
|
|
|
86,451 |
|
|
|
92,757 |
|
Net interest income |
|
|
52,122 |
|
|
|
58,177 |
|
|
|
103,236 |
|
|
|
117,693 |
|
Revenue from real estate owned |
|
|
17,118 |
|
|
|
6,019 |
|
|
|
23,931 |
|
|
|
7,070 |
|
Total revenue |
|
|
69,240 |
|
|
|
64,196 |
|
|
|
127,167 |
|
|
|
124,763 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Management fees - affiliate |
|
|
9,843 |
|
|
|
9,737 |
|
|
|
19,650 |
|
|
|
19,363 |
|
General and administrative expenses |
|
|
4,748 |
|
|
|
2,874 |
|
|
|
9,091 |
|
|
|
4,063 |
|
Stock-based compensation expense |
|
|
604 |
|
|
|
1,452 |
|
|
|
604 |
|
|
|
(190 |
) |
Operating expenses from real estate owned |
|
|
10,536 |
|
|
|
7,091 |
|
|
|
18,316 |
|
|
|
8,791 |
|
Interest expense on debt related to real estate owned |
|
|
2,719 |
|
|
|
8,886 |
|
|
|
5,303 |
|
|
|
10,361 |
|
Depreciation on real estate owned |
|
|
1,998 |
|
|
|
1,940 |
|
|
|
3,938 |
|
|
|
3,233 |
|
Total expenses |
|
|
30,448 |
|
|
|
31,980 |
|
|
|
56,902 |
|
|
|
45,621 |
|
Realized gain on sale of loan |
|
|
30,090 |
|
|
|
- |
|
|
|
30,090 |
|
|
|
- |
|
Unrealized gain on interest rate cap |
|
|
2,837 |
|
|
|
- |
|
|
|
2,837 |
|
|
|
- |
|
Gain on foreclosure of real estate owned |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,430 |
|
Other income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5,855 |
|
(Provision) reversal of current expected credit loss reserve |
|
|
(8,530 |
) |
|
|
7,922 |
|
|
|
(10,632 |
) |
|
|
8,107 |
|
Income before income taxes |
|
|
63,189 |
|
|
|
40,138 |
|
|
|
92,560 |
|
|
|
94,534 |
|
Income tax benefit |
|
|
- |
|
|
|
1,846 |
|
|
|
- |
|
|
|
6,025 |
|
Net income |
|
$ |
63,189 |
|
|
$ |
41,984 |
|
|
$ |
92,560 |
|
|
$ |
100,559 |
|
Net loss attributable to non-controlling interests |
|
$ |
(45 |
) |
|
|
(41 |
) |
|
$ |
(86 |
) |
|
$ |
(78 |
) |
Net income attributable to preferred stock |
|
|
- |
|
|
|
4 |
|
|
|
- |
|
|
|
8 |
|
Net income attributable to common stock |
|
$ |
63,234 |
|
|
$ |
42,021 |
|
|
$ |
92,646 |
|
|
$ |
100,629 |
|
Net income per share of common stock: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic and diluted |
|
$ |
0.45 |
|
|
$ |
0.31 |
|
|
$ |
0.66 |
|
|
$ |
0.75 |
|
Weighted-average shares of common stock outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic and diluted |
|
|
139,637,949 |
|
|
|
133,433,487 |
|
|
|
139,675,019 |
|
|
|
133,520,821 |
|
The accompanying notes are an integral part of these consolidated financial statements.
4
Claros Mortgage Trust, Inc.
Consolidated Statements of Changes in Stockholders’ Equity
(unaudited, in thousands, except share data)
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
Non- |
|
|
Total |
|
|||||||||||
|
|
Common Stock |
|
|
Repurchased |
|
|
Paid-In |
|
|
Dividends |
|
|
Retained |
|
|
controlling |
|
|
Stockholders' |
|
|||||||||||
|
|
Shares |
|
|
Par Value |
|
|
Shares |
|
|
Capital |
|
|
Declared |
|
|
Earnings |
|
|
Interests |
|
|
Equity |
|
||||||||
Balance at December 31, 2021 |
|
|
140,055,714 |
|
|
$ |
1,400 |
|
|
|
(215,626 |
) |
|
$ |
2,726,190 |
|
|
$ |
(825,659 |
) |
|
$ |
664,700 |
|
|
$ |
37,636 |
|
|
$ |
2,604,267 |
|
Repurchased shares |
|
|
- |
|
|
|
- |
|
|
|
(186,289 |
) |
|
|
(3,179 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(3,179 |
) |
Contributions from non-controlling interests |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
539 |
|
|
|
539 |
|
Offering costs |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(30 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(30 |
) |
Dividends declared on common stock |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(51,672 |
) |
|
|
- |
|
|
|
- |
|
|
|
(51,672 |
) |
Net income (loss) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
29,412 |
|
|
|
(41 |
) |
|
|
29,371 |
|
Balance at March 31, 2022 |
|
|
140,055,714 |
|
|
$ |
1,400 |
|
|
|
(401,915 |
) |
|
$ |
2,722,981 |
|
|
$ |
(877,331 |
) |
|
$ |
694,112 |
|
|
$ |
38,134 |
|
|
$ |
2,579,296 |
|
Repurchased shares |
|
|
- |
|
|
|
- |
|
|
|
(33,721 |
) |
|
|
(592 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(592 |
) |
Contributions from non-controlling interests |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
367 |
|
|
|
367 |
|
Dividends declared on common stock and participating securities |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(52,458 |
) |
|
|
- |
|
|
|
- |
|
|
|
(52,458 |
) |
Stock-based compensation expense |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
604 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
604 |
|
Net income (loss) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
63,234 |
|
|
|
(45 |
) |
|
|
63,189 |
|
Balance at June 30, 2022 |
|
|
140,055,714 |
|
|
$ |
1,400 |
|
|
|
(435,636 |
) |
|
$ |
2,722,993 |
|
|
$ |
(929,789 |
) |
|
$ |
757,346 |
|
|
$ |
38,456 |
|
|
$ |
2,590,406 |
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
Non- |
|
|
Total |
|
|
Redeemable |
|
||||||||||||||||
|
|
Preferred Stock |
|
|
Common Stock |
|
|
Paid-In |
|
|
Dividends |
|
|
Retained |
|
|
controlling |
|
|
Stockholders' |
|
|
Common |
|
||||||||||||||||
|
|
Shares |
|
|
Par Value |
|
|
Shares |
|
|
Par Value |
|
|
Capital |
|
|
Declared |
|
|
Earnings |
|
|
Interests |
|
|
Equity |
|
|
Stock |
|
||||||||||
Balance at December 31, 2020 |
|
|
125 |
|
|
$ |
125 |
|
|
|
125,541,736 |
|
|
$ |
1,255 |
|
|
$ |
2,491,836 |
|
|
$ |
(573,677 |
) |
|
$ |
526,205 |
|
|
$ |
35,286 |
|
|
$ |
2,481,030 |
|
|
$ |
141,356 |
|
Adoption of ASU 2016-13 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(73,975 |
) |
|
|
- |
|
|
|
(73,975 |
) |
|
|
(4,276 |
) |
Stock-based compensation expense |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(7,394 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(7,394 |
) |
|
|
- |
|
Contributions from non-controlling interests |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
897 |
|
|
|
897 |
|
|
|
- |
|
Offering costs |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(28 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(28 |
) |
|
|
(2 |
) |
Dividends paid/accrued on preferred stock |
|
|
- |
|
|
|
(4 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(4 |
) |
|
|
- |
|
Dividends declared on common stock, redeemable common stock and vested restricted stock units |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(47,262 |
) |
|
|
- |
|
|
|
- |
|
|
|
(47,262 |
) |
|
|
(2,738 |
) |
Accrued dividends on unvested restricted stock units |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
389 |
|
|
|
- |
|
|
|
- |
|
|
|
389 |
|
|
|
- |
|
Accretion of redeemable common stock |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
81 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
81 |
|
|
|
(81 |
) |
Net income (loss) |
|
|
- |
|
|
|
4 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
55,400 |
|
|
|
(37 |
) |
|
|
55,367 |
|
|
|
3,208 |
|
Balance at March 31, 2021 |
|
|
125 |
|
|
$ |
125 |
|
|
|
125,541,736 |
|
|
$ |
1,255 |
|
|
$ |
2,484,495 |
|
|
$ |
(620,550 |
) |
|
$ |
507,630 |
|
|
$ |
36,146 |
|
|
$ |
2,409,101 |
|
|
$ |
137,467 |
|
Issuance of common stock |
|
|
- |
|
|
|
- |
|
|
|
584,767 |
|
|
|
6 |
|
|
|
(6 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Stock-based compensation expense |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,452 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,452 |
|
|
|
- |
|
Contributions from non-controlling interests |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
539 |
|
|
|
539 |
|
|
|
- |
|
Dividends paid/accrued on preferred stock |
|
|
- |
|
|
|
(4 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(4 |
) |
|
|
- |
|
Dividends declared on common stock, redeemable common stock and vested restricted stock units |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(47,262 |
) |
|
|
- |
|
|
|
- |
|
|
|
(47,262 |
) |
|
|
(2,738 |
) |
Accrued dividends on unvested restricted stock units |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(300 |
) |
|
|
- |
|
|
|
- |
|
|
|
(300 |
) |
|
|
- |
|
Accretion of redeemable common stock |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(63 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(63 |
) |
|
|
63 |
|
Net income (loss) |
|
|
- |
|
|
|
4 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
39,720 |
|
|
|
(41 |
) |
|
|
39,683 |
|
|
|
2,301 |
|
Balance at June 30, 2021 |
|
|
125 |
|
|
$ |
125 |
|
|
|
126,126,503 |
|
|
$ |
1,261 |
|
|
$ |
2,485,878 |
|
|
$ |
(668,112 |
) |
|
$ |
547,350 |
|
|
$ |
36,644 |
|
|
$ |
2,403,146 |
|
|
$ |
137,093 |
|
The accompanying notes are an integral part of these consolidated financial statements.
5
Claros Mortgage Trust, Inc.
Consolidated Statements of Cash Flows
(unaudited, in thousands)
|
|
Six Months Ended |
|
|||||
|
|
June 30, 2022 |
|
|
June 30, 2021 |
|
||
Cash flows from operating activities |
|
|
|
|
|
|
||
Net income |
|
$ |
92,560 |
|
|
$ |
100,559 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
||
Accretion of origination fees on loans receivable |
|
|
(10,495 |
) |
|
|
(12,018 |
) |
Accretion of origination fees on interests in loans receivable |
|
|
(204 |
) |
|
|
(547 |
) |
Amortization of financing costs |
|
|
9,480 |
|
|
|
10,975 |
|
Non-cash stock-based compensation |
|
|
604 |
|
|
|
(190 |
) |
Other income |
|
|
- |
|
|
|
(5,855 |
) |
Depreciation on real estate owned |
|
|
3,938 |
|
|
|
3,233 |
|
Unrealized gain on interest rate cap |
|
|
(2,837 |
) |
|
|
- |
|
Realized gain on sale of loan |
|
|
(30,090 |
) |
|
|
- |
|
Gain on foreclosure of real estate owned |
|
|
- |
|
|
|
(1,430 |
) |
Non-cash advances on loans receivable in lieu of interest |
|
|
(31,282 |
) |
|
|
(39,977 |
) |
Non-cash advances on interests in loans receivable in lieu of interest |
|
|
(2,427 |
) |
|
|
(10,140 |
) |
Non-cash advances on secured financings in lieu of interest |
|
|
37 |
|
|
|
10,886 |
|
Repayment of non-cash advances on loans receivable in lieu of interest |
|
|
18,233 |
|
|
|
54,608 |
|
Repayment of non-cash advances on interests in loans receivable in lieu of interest |
|
|
13,178 |
|
|
|
261 |
|
Repayment of non-cash advances on secured financings in lieu of interest |
|
|
- |
|
|
|
(13,458 |
) |
Provision (reversal) of current expected credit loss reserve |
|
|
10,632 |
|
|
|
(8,107 |
) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
||
Other assets |
|
|
133 |
|
|
|
(2,214 |
) |
Other liabilities |
|
|
798 |
|
|
|
4,349 |
|
Management fee payable - affiliate |
|
|
(140 |
) |
|
|
(112 |
) |
Incentive fee payable - affiliate |
|
|
- |
|
|
|
(187 |
) |
Net cash provided by operating activities |
|
$ |
72,118 |
|
|
$ |
90,636 |
|
Cash flows from investing activities |
|
|
|
|
|
|
||
Loan originations, acquisitions and advances, net of fees |
|
|
(1,549,431 |
) |
|
|
(335,465 |
) |
Advances of interests in loans receivable |
|
|
(14,653 |
) |
|
|
(63,818 |
) |
Repayments of loans receivable |
|
|
891,755 |
|
|
|
663,232 |
|
Repayments of interests in loans receivable |
|
|
165,468 |
|
|
|
2,429 |
|
Proceeds from sale of mortgage loan receivable |
|
|
132,151 |
|
|
|
- |
|
Extension and exit fees received from loans receivable |
|
|
3,652 |
|
|
|
4,213 |
|
Extension and exit fees received from interests in loans receivable |
|
|
502 |
|
|
|
- |
|
Cash, cash equivalents and restricted cash from foreclosure of properties |
|
|
- |
|
|
|
9,580 |
|
Foreclosure of real estate owned |
|
|
- |
|
|
|
(11,463 |
) |
Reserves and deposits held for loans receivable |
|
|
(220 |
) |
|
|
757 |
|
Capital expenditures on real estate assets |
|
|
(1,744 |
) |
|
|
- |
|
Net cash (used in) provided by investing activities |
|
|
(372,520 |
) |
|
|
269,465 |
|
The accompanying notes are an integral part of these consolidated financial statements.
6
Claros Mortgage Trust, Inc.
Consolidated Statements of Cash Flows
(unaudited, in thousands)
|
|
Six Months Ended |
|
|||||
|
|
June 30, 2022 |
|
|
June 30, 2021 |
|
||
Cash flows from financing activities |
|
|
|
|
|
|
||
Repurchase of common stock |
|
|
(3,771 |
) |
|
|
- |
|
Contributions from non-controlling interests |
|
|
906 |
|
|
|
1,436 |
|
Offering costs |
|
|
(300 |
) |
|
|
(30 |
) |
Dividends paid on common stock |
|
|
(103,413 |
) |
|
|
(94,530 |
) |
Dividends paid on redeemable common stock |
|
|
- |
|
|
|
(5,470 |
) |
Dividends paid on preferred stock |
|
|
- |
|
|
|
(8 |
) |
Proceeds from secured financings |
|
|
1,507,903 |
|
|
|
411,395 |
|
Payment of financing costs |
|
|
(13,208 |
) |
|
|
(11,776 |
) |
Repayments of secured financings |
|
|
(920,306 |
) |
|
|
(581,426 |
) |
Repayments of secured term loan |
|
|
(3,814 |
) |
|
|
(3,892 |
) |
Repayments of debt related to real estate owned |
|
|
- |
|
|
|
(10,000 |
) |
Net cash provided by (used in) financing activities |
|
|
463,997 |
|
|
|
(294,301 |
) |
|
|
|
|
|
|
|
||
Net increase in cash, cash equivalents and restricted cash |
|
|
163,595 |
|
|
|
65,800 |
|
Cash, cash equivalents and restricted cash, beginning of period |
|
|
334,136 |
|
|
|
430,974 |
|
Cash, cash equivalents and restricted cash, end of period |
|
$ |
497,731 |
|
|
$ |
496,774 |
|
Cash and cash equivalents, beginning of period |
|
$ |
310,194 |
|
|
$ |
427,512 |
|
Restricted cash, beginning of period |
|
|
23,942 |
|
|
|
3,462 |
|
Cash, cash equivalents and restricted cash, beginning of period |
|
$ |
334,136 |
|
|
$ |
430,974 |
|
Cash and cash equivalents, end of period |
|
$ |
461,002 |
|
|
$ |
476,983 |
|
Restricted cash, end of period |
|
|
36,729 |
|
|
|
19,791 |
|
Cash, cash equivalents and restricted cash, end of period |
|
$ |
497,731 |
|
|
$ |
496,774 |
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
||
Cash paid for interest |
|
$ |
79,859 |
|
|
$ |
82,587 |
|
Supplemental disclosure of non-cash investing and financing activities: |
|
|
|
|
|
|
||
Dividends accrued |
|
$ |
52,458 |
|
|
$ |
53,288 |
|
Loan principal payments held by servicer |
|
$ |
22,506 |
|
|
$ |
2,841 |
|
Accrued financing costs |
|
$ |
3,938 |
|
|
$ |
6,260 |
|
Accrued offering costs |
|
$ |
- |
|
|
$ |
1,649 |
|
Deposits applied against sale proceeds |
|
$ |
14,761 |
|
|
$ |
- |
|
Working capital consolidated |
|
$ |
- |
|
|
$ |
(18,546 |
) |
Settlement of loan receivable |
|
$ |
- |
|
|
$ |
103,901 |
|
Real estate acquired in settlement of loan receivable |
|
$ |
- |
|
|
$ |
414,000 |
|
Assumption of debt related to real estate owned |
|
$ |
- |
|
|
$ |
(300,000 |
) |
Conversion of restricted stock units to common shares - common stock |
|
$ |
- |
|
|
$ |
12 |
|
Conversion of restricted stock units to common shares - common stock |
|
$ |
- |
|
|
$ |
(12 |
) |
The accompanying notes are an integral part of these consolidated financial statements.
7
Claros Mortgage Trust, Inc.
Notes to Consolidated Financial Statements
(unaudited)
Note 1. Organization
Claros Mortgage Trust, Inc. (referred to throughout this report as the “Company,” “we”, “us” and “our”) is a Maryland Corporation formed on April 29, 2015 for the purpose of creating a diversified portfolio of income-producing loans collateralized by institutional quality commercial real estate. We commenced operations on August 25, 2015 (“Commencement of Operations”) and generally conduct our business through wholly-owned subsidiaries or investments in joint ventures. Any references to the Company refer to the Company, its consolidated joint venture, CMTG/TT Mortgage REIT LLC (“CMTG/TT” or “JV REIT”), a Delaware limited liability company, and the consolidated subsidiaries of each entity. The Company is traded on the New York Stock Exchange, or NYSE, under the symbol “CMTG”.
We elected and intend to maintain our qualification to be taxed as a real estate investment trust (“REIT”) under the requirements of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), for U.S. federal income tax purposes. As such, we generally are not subject to U.S. federal income tax on that portion of our income that we distribute to stockholders. See Note 12 – Income Taxes regarding taxes applicable to the Company.
We are externally managed by Claros REIT Management LP (the “Manager”), our affiliate, through a management agreement (the "Management Agreement") pursuant to which the Manager provides a management team and other professionals who are responsible for implementing our business strategy, subject to the supervision of our board of directors. In exchange for its services, the Manager is entitled to management fees and incentive fees. See Note 10 – Related Party Transactions regarding the Management Agreement.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
References to common stock in 2021 include redeemable common stock.
These unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the Securities and Exchange Commission. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of our financial position, results of operations and cash flows have been included. Our results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of the results to be expected for the full year or any other future period. The consolidated balance sheet at December 31, 2021 was derived from the audited annual financial statements but does not contain all of the footnote disclosures from the annual financial statements.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Estimates that are particularly susceptible to our judgment include, but are not limited to, the adequacy of allowance for loan losses, the determination of effective yield for recognition of interest income and interest expense and recognition of stock-based compensation expense.
8
The novel coronavirus (“COVID-19”) pandemic has evolved since its onset during the first quarter of 2020, and while the global economy has begun to recover, uncertainty around future developments remain. The ongoing pandemic state has also affected global supply chains, the labor market, and inflation, which continue to impact many industries, including the collateral underlying certain of our loans. In response, the Federal Reserve has begun raising interest rates in 2022 and has indicated that it foresees further interest rate increases throughout the year. The overall impact to the global economy will depend largely on the recovery of disrupted supply chains and industries, the extent of the labor market interruptions, the result of the Federal Reserves’ policies, and other government interventions. The current and future financial, economic and capital markets environment could remain uneven, and presents uncertainty and risk with respect to the performance of our loans receivable and real estate owned, our financial condition, results of operations, liquidity, and ability to pay dividends.
Current Expected Credit Losses
The current expected credit loss (“CECL”) reserve required under ASU 2016-13 “Financial Instruments – Credit Losses – Measurement of Credit Losses on Financial Instruments (Topic 326)” (“ASU 2016-13”), reflects our current estimate of potential credit losses related to our loan portfolio. The initial CECL allowance recorded on January 1, 2021 is reflected as a direct charge to retained earnings on our consolidated statements of changes in stockholders’ equity. Subsequent changes to the CECL allowance are recognized through net income on our consolidated statements of operations. ASU 2016-13 specifies the reserve should be based on relevant information about past events, including historical loss experience, current portfolio and market conditions and reasonable and supportable forecasts for the duration of each respective loan.
General CECL Allowance
Our loans are typically collateralized by real estate, or in the case of mezzanine loans, by an equity interest in an entity that owns real estate. We consider key credit quality indicators in underwriting loans and estimating credit losses, including, but not limited to: the capitalization of borrowers and sponsors; the expertise of the borrowers and sponsors in a particular real estate sector and geographic market; collateral type; geographic region; use and occupancy of the property; property market value; loan-to-value (“LTV”) ratio; loan amount and lien position; debt service coverage ratio; our risk rating for the same and similar loans; and prior experience with the borrower and sponsor. This information is used to assess the financial and operating capability, experience and profitability of the sponsor/borrower. Ultimate repayment of our loans is sensitive to interest rate changes, general economic conditions, liquidity, LTV ratio, existence of a liquid investment sales market for commercial properties, and availability of replacement short-term or long-term financing.
We regularly evaluate on a loan-by-loan basis, the extent and impact of any credit deterioration associated with the performance and/or value of the underlying collateral property, the financial and operating capability of the borrower/sponsor, the financial strength of loan guarantors, if any, and the overall economic environment, real estate sector, and geographic sub-market in which the borrower operates, at least quarterly. Such analyses are completed and reviewed by asset management personnel and evaluated by senior management, who utilize various data sources, including, to the extent available (i) periodic financial data such as property occupancy, tenant profile, rental rates, operating expenses, the borrower’s exit plan, and capitalization and discount rates, (ii) site inspections, (iii) sales and financing comparables, (iv) current credit spreads for refinancing and (v) other market data.
Given the length of our loan terms, management’s reasonable and supportable forecast period exceeds the loan terms and as such we do not need to apply a reversion method.
We have classified our loans receivable into the following categories to assess the impact of CECL:
For our loan receivable portfolio, we, with assistance from a third-party service provider, performed a quantitative assessment of the impact of CECL using the Expected Loss (“EL”) approach and the Lifetime Loss Rate (“LLR”) method depending on the allocated category. For transitional loans, steady & improving loans and stabilized loans, we have applied an EL approach because of the consistency in assessing credit risks and estimating expected credit losses. Due to the nature of construction loans, where repayment does not depend on the operating performance of the underlying property, we have applied a LLR approach to estimate the CECL impact.
Our allowance for loan losses reflects our estimate of the current and future economic conditions that impact the performance of the commercial real estate assets securing our loans. These estimates include unemployment rates, interest rates, price indices for commercial property, and other macroeconomic factors that may influence the likelihood and magnitude of potential credit losses for
9
our loans during their anticipated term. We license certain macroeconomic financial forecasts to inform of its view of the potential future impact that broader economic conditions may have on our loan portfolio’s performance. The forecasts are embedded in the licensed model that we use to estimate its allowance for loan losses. Selection of these economic forecasts require significant judgment about future events that, while based on the information available to us as of the balance sheet date, are ultimately unknowable with certainty, and the actual economic conditions impacting our portfolio could vary significantly from the estimates we made for the periods presented.
Additionally, we assess the obligation to extend credit through our unfunded loan commitments over each loan’s contractual period, which is considered in the estimate of the allowance for loan losses.
We evaluate the credit quality of each of our loans receivable on an individual basis and assign a risk rating at least quarterly. We have developed a loan grading system for all of its outstanding loans receivable that are collateralized directly or indirectly by real estate. Grading criteria include as-is or as-stabilized debt yield and debt service coverage ratios, term of loan, property type, loan type and other more subjective variables that include property or collateral location, as-is or as-stabilized collateral value, market conditions, industry conditions and sponsor’s financial stability. We utilize the grading system to determine each loan’s risk of loss and to provide a determination as to whether an individual loan is impaired and whether a special loan loss allowance is necessary. Based on a 5-point scale, the loans are graded “1” through “5,” from less risk to greater risk, which gradings are defined as follows:
Specific CECL Allowance
In certain circumstances we may determine that a loan is no longer suited for the model-based approach due to its unique risk characteristics, where we have deemed the borrower/sponsor to be experiencing financial difficulty, or because the repayment of the loan’s principal is collateral-dependent. We may instead elect to employ different methods to estimate loan losses that also conform to ASU 2016-13 and related guidance. If the recovery of a loan’s principal balance is entirely collateral-dependent, we may assess such an asset individually and elect to apply a practical expedient in accordance with ASU 2016-13.
For such loan we would measure the specific allowance of each loan separately by using the fair value of the collateral or the net present value of its expected future cash flows. If the fair value of the collateral is less than the carrying value of the loan, an asset-specific allowance is created as a component of our overall allowance for loan losses (following the adoption of CECL, or as a loan loss allowance prior to the adoption of CECL). Specific allowances are equal to the excess of a loan’s carrying value to the present value of its expected cash flows discounted at the loan’s effective rate or the fair value of the collateral, less estimated costs to sell, if recovery of our investment is expected solely from the collateral.
If we have determined that a loan or a portion of a loan is uncollectible, we will write-off the loan through a charge to our current expected credit loss reserve based on the present value of expected future cash flows or the fair value of the collateral less costs to sell, if repayment is expected solely from the collateral. Significant judgment is required in determining impairment and in estimating the resulting credit loss reserve, and actual losses, if any, could materially differ from those estimates.
For additional information on our General and Specific CECL Allowance please refer to Footnote 3—"Loans Portfolio—Current Expected Credit Losses”.
Real Estate Owned (and Associated Debt)
We may assume legal title or physical possession of the underlying collateral of a defaulted loan through foreclosure. If we intend to hold, operate or develop the property for a period of at least 12 months, the asset is classified as real estate owned, net. If we intend to market a property for sale in the near subsequent term, the asset is classified as real estate held for sale. Real estate owned is initially recorded at estimated fair value and is subsequently presented net of accumulated depreciation. Depreciation is computed using a straight-line method over the estimated useful lives.
Real estate assets are evaluated for indicators of impairment on a quarterly basis. Factors that we may consider in our impairment analysis include, among others: (1) significant underperformance relative to historical or anticipated operating results; (2) significant negative industry or economic trends; (3) costs necessary to extend the life or improve the real estate asset; (4) significant increase in competition; and (5) ability to hold and dispose of the real estate asset in the ordinary course of business. A real estate asset is considered impaired when the sum of estimated future undiscounted cash flows expected to be generated by the real estate asset over the estimated
10
remaining holding period is less than the carrying amount of such real estate asset. Cash flows include operating cash flows net of anticipated capital proceeds generated by the real estate asset. If the sum of such estimated cash flows are less than the fair value of the real estate, an impairment charge is recorded equal to the excess of the carrying value of the real estate asset over the fair value. When determining the fair value of a real estate asset, we make certain assumptions including, but not limited to, consideration of projected operating cash flows, comparable selling prices and projected cash flows from the eventual disposition of the real estate asset based upon our estimate of a capitalization rate and discount rate.
Debt assumed in an acquisition/foreclosure of real estate is recorded at its estimated fair value at the time of the acquisition. Debt related to real estate owned is non-recourse to us.
Derivative Financial Instruments
In the normal course of business, we are exposed to the effect of interest rate changes and may undertake a strategy to limit these risks through the use of derivatives. We use derivatives primarily to reduce the impact that increases in interest rates will have on our floating rate liabilities, which may consist of interest rate swaps, interest rate caps, collars, and floors.
We recognize all derivatives on the consolidated balance sheets at fair value within other assets. To determine the fair value of derivative instruments, we use a variety of methods and assumptions that are based on market conditions as of the balance sheet date, such as discounted cash flows and option-pricing models.
We have not designated derivatives as hedges to qualify for hedge accounting for financial reporting purposes and fluctuations in the fair value of these derivatives have been recognized currently in unrealized gain on interest rate cap in the accompanying consolidated statements of income.
Other Assets
Other assets include interest receivable, miscellaneous receivables, prepaid expenses, deferred tax asset (net of any valuation allowance), deposits funded relating to unclosed transactions, deferred financing costs, derivative financial instruments and repurchased shares not yet settled.
Other Liabilities
Other liabilities include interest payable, accounts payable, accrued expenses, reserves held for loans receivable and deposits.
Revenue Recognition
Interest income from loans receivable is recorded on the accrual basis based on the outstanding principal amount and the contractual terms of the loans. Recognition of fees, premiums, discounts and direct costs associated with these investments is deferred until the loan is advanced and is then amortized or accreted into interest income over the term of the loan as an adjustment to yield using the effective interest method based on expected cash flows through the expected recovery period. Income accrual may be suspended for loans when we determine that the payment of income and principal is no longer probable. Factors considered when making this determination include our assessment of the underlying collateral value, delinquency in excess of 90 days, and overall market conditions. While on non-accrual status, based on our estimation as to collectability of principal, loans are either accounted for on a cash basis, where interest income is recognized only upon actual receipt of cash, or on a cost-recovery basis, where all cash receipts reduce a loan's carrying value. If and when a loan is brought back into compliance with its contractual terms, and our Manager has determined that the borrower has demonstrated an ability and willingness to continue to make contractually required payments related to the loan, we resume accrual of interest.
Revenue from real estate owned represents revenue associated with the operations of hotel properties classified as real estate owned. Revenue from the operations of the hotel properties is recognized when guestrooms are occupied, services have been rendered or fees have been earned. Revenues are recorded net of any discounts and sales and other taxes collected from customers. Revenues consist of room sales, food and beverage sales and other hotel revenues.
Reportable Segments
We evaluate the operating performance of our investments as a whole. We previously determined that we had two operating segments and one reporting segment as a result of the foreclosure of the hotel portfolio on February 8, 2021. In the first quarter of 2022, we had a change in our Chief Operating Decision Maker (CODM) who determined that we evaluate the operating performance of our investments as a whole and make operating decisions accordingly. Therefore, we have one operating segment and one reporting
11
segment, with activities related to investing in income-producing loans collateralized by institutional quality commercial real estate. This change has been applied retrospectively to all periods presented.
Reclassifications
Certain prior period amounts in the accompanying consolidated financial statements have been reclassified to conform with the current period presentation. These reclassifications had no effect on the results of operations or financial position for any period presented.
Recent Accounting Guidance
On March 31, 2022, the Financial Accounting Standards Board ("FASB") issued ASU 2022-02, “Financial Instruments – Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures”, (“ASU 2022-02”). The standard eliminates the recognition and measurement guidance for troubled debt restructurings (“TDRs”) for creditors that have adopted ASU 2016-13 Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments, ("CECL"). In addition to eliminating the TDR accounting guidance, ASU 2022-02 changes existing disclosure requirements and introduces new disclosures related to certain modifications of instruments with borrowers experiencing financial difficulty. The standard is effective for periods beginning after December 15, 2022, with early adoption permitted. During the second quarter 2022, we adopted this standard effective January 1, 2022 and determined that one modified loan with an unpaid principal balance of $87.8 million qualified for disclosure.
The FASB issued ASU 2019-12, Income Taxes (Topic 740), (“ASU 2019-12”). ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. ASU 2019-12 also improves the consistent application of, and simplifies, GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2021, with early adoption permitted. We adopted ASU 2019-12 on January 1, 2022 and the adoption of ASU 2019-12 did not have a material impact on our consolidated financial statements.
The FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, (“ASU 2020-04”). ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions that reference the London Interbank Offering Rate ("LIBOR") or another reference rate expected to be discontinued because of reference rate reform. ASU 2020-04 is effective upon issuance of ASU 2020-04 for contract modifications and hedging relationships on a prospective basis. We have not adopted any of the optional expedients or exceptions through June 30, 2022, but will continue to evaluate the possible adoption of any such expedients or exceptions during the effective period as circumstances evolve.
Note 3. Loans Portfolio
Loans Receivable
Our loans receivable portfolio as of June 30, 2022 was comprised of the following loans ($ in thousands, except for number of loans):
|
|
Number of |
|
Loan Commitment(4) |
|
|
Unpaid Principal Balance |
|
|
Carrying |
|
|
Weighted Average Spread(2) |
|
|
Weighted Average Interest Rate(3) |
|
|||||
Loans receivable held-for-investment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Variable: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Senior loans(1) |
|
65 |
|
$ |
8,484,128 |
|
|
$ |
6,821,539 |
|
|
$ |
6,771,087 |
|
|
|
+ 3.91% |
|
|
|
5.75 |
% |
Subordinate loans |
|
3 |
|
|
139,119 |
|
|
|
136,384 |
|
|
|
136,933 |
|
|
|
+ 10.61% |
|
|
|
12.49 |
% |
|
|
68 |
|
|
8,623,247 |
|
|
|
6,957,923 |
|
|
|
6,908,020 |
|
|
|
+ 4.05% |
|
|
|
5.88 |
% |
Fixed: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Senior loans(1) |
|
4 |
|
$ |
60,335 |
|
|
$ |
55,721 |
|
|
$ |
55,585 |
|
|
N/A |
|
|
|
8.32 |
% |
|
Subordinate loans |
|
2 |
|
|
125,927 |
|
|
|
125,927 |
|
|
|
125,651 |
|
|
N/A |
|
|
|
8.49 |
% |
|
|
|
6 |
|
|
186,262 |
|
|
|
181,648 |
|
|
|
181,236 |
|
|
|
|
|
|
8.44 |
% |
|
Total/Weighted Average |
|
74 |
|
$ |
8,809,509 |
|
|
$ |
7,139,571 |
|
|
$ |
7,089,256 |
|
|
N/A |
|
|
|
5.94 |
% |
|
Current expected credit loss reserve |
|
|
|
|
|
|
|
|
|
|
(59,400 |
) |
|
|
|
|
|
|
||||
Loans receivable held-for-investment, net |
|
|
|
|
|
|
|
|
$ |
7,029,856 |
|
|
|
|
|
|
|
|||||
12
Our loans receivable portfolio as of December 31, 2021 was comprised of the following loans ($ in thousands, except for number of loans):
Certain loans receivable held by us include LIBOR/SOFR floors, which establish the minimum interest rate a borrower may pay on a loan. The weighted average LIBOR/SOFR floor in place based on unpaid principal balance on floating rate loans is 0.86% as of June 30, 2022.
The following table presents the range of LIBOR/SOFR floors held in our loan portfolio as of June 30, 2022 based on outstanding principal ($ in thousands):
One-month LIBOR/SOFR Floor Range |
|
Unpaid |
|
|
% of |
|
|
Cumulative |
|
|||
2.00% - 2.50% |
|
$ |
801,963 |
|
|
|
11 |
% |
|
|
11 |
% |
1.50% - 1.99% |
|
|
1,548,660 |
|
|
|
22 |
% |
|
|
33 |
% |
1.00% - 1.49% |
|
|
737,854 |
|
|
|
10 |
% |
|
|
43 |
% |
0.50% - 0.99% |
|
|
220,883 |
|
|
|
3 |
% |
|
|
46 |
% |
< 0.50% |
|
|
2,930,047 |
|
|
|
41 |
% |
|
|
87 |
% |
No floor |
|
|
718,516 |
|
|
|
10 |
% |
|
|
97 |
% |
Total Floating Rate Loans |
|
|
6,957,923 |
|
|
|
|
|
|
|
||
Total Fixed Rate Loans |
|
|
181,648 |
|
|
|
3 |
% |
|
|
100 |
% |
Total Loans |
|
$ |
7,139,571 |
|
|
|
|
|
|
|
||
13
The following table presents the carrying value and significant characteristics of our loans receivable on non-accrual status as of June 30, 2022 ($ in thousands):
Origination Date |
|
Initial Maturity Date |
|
Date Through Which Interest Collected |
|
Risk Rating |
|
|
Carrying Value |
|
|
Unpaid Principal Balance |
|
|
Specific CECL Reserve |
|
|
Net Carrying Value |
|
|
Interest Recognition Method(1) |
|||||
3/29/2018 |
|
1/26/2021 |
|
7/9/2020 |
|
|
4 |
|
|
$ |
78,109 |
|
|
$ |
77,619 |
|
|
|
- |
|
|
|
78,109 |
|
|
Cash Basis |
8/2/2019 |
|
10/30/2021 |
|
11/1/2021 |
|
|
4 |
|
|
|
67,000 |
|
|
|
67,000 |
|
|
|
- |
|
|
$ |
67,000 |
|
|
Cash Basis |
7/1/2019 |
|
12/30/2020 |
|
7/1/2020 |
|
|
5 |
|
|
|
3,500 |
|
|
|
3,500 |
|
|
|
- |
|
|
|
3,500 |
|
|
Cost Recovery |
Total delinquent(2) |
|
|
|
|
|
|
148,609 |
|
|
|
148,119 |
|
|
|
- |
|
|
|
148,609 |
|
|
|
||||
Total non-accrual(3) |
|
|
|
|
|
$ |
148,609 |
|
|
$ |
148,119 |
|
|
$ |
- |
|
|
$ |
148,609 |
|
|
|
||||
Carrying value of associated financings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(33,500 |
) |
|
|
|||||||
Net carrying value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
115,109 |
|
|
|
|||||||
The following table presents the carrying value and significant characteristics of our loans receivable on non-accrual status as of December 31, 2021 ($ in thousands):
Origination Date |
|
Initial Maturity Date |
|
Date Through Which Interest Collected |
|
Risk Rating |
|
|
Carrying Value |
|
|
Unpaid Principal Balance |
|
|
Specific CECL Reserve |
|
|
Net Carrying Value |
|
|
Interest Recognition Method |
|||||
5/5/2017 |
|
1/1/2023 |
|
12/1/2021 |
|
|
5 |
|
|
$ |
11,533 |
|
|
$ |
11,533 |
|
|
$ |
(333 |
) |
|
$ |
11,200 |
|
|
Cost Recovery |
7/10/2018 |
|
12/10/2023 |
|
12/1/2021 |
|
|
4 |
|
|
|
77,530 |
|
|
|
81,380 |
|
|
|
- |
|
|
|
77,530 |
|
|
Cash Basis |
Total current |
|
|
|
|
|
|
|
89,063 |
|
|
|
92,913 |
|
|
|
(333 |
) |
|
|
88,730 |
|
|
|
|||
8/2/2019 |
|
10/30/2021 |
|
11/1/2021 |
|
|
4 |
|
|
|
67,000 |
|
|
|
67,000 |
|
|
|
- |
|
|
|
67,000 |
|
|
Cash Basis |
9/21/2018 |
|
10/1/2020 |
|
2/1/2020 |
|
|
4 |
|
|
|
116,211 |
|
|
|
116,020 |
|
|
|
- |
|
|
|
116,211 |
|
|
Cash Basis |
3/29/2018 |
|
1/26/2021 |
|
7/9/2020 |
|
|
4 |
|
|
|
76,069 |
|
|
|
75,579 |
|
|
|
- |
|
|
|
76,069 |
|
|
Cash Basis |
7/1/2019 |
|
12/30/2020 |
|
7/1/2020 |
|
|
5 |
|
|
|
15,000 |
|
|
|
15,000 |
|
|
|
(6,000 |
) |
|
|
9,000 |
|
|
Cost Recovery |
Total delinquent |
|
|
|
|
|
|
274,280 |
|
|
|
273,599 |
|
|
|
(6,000 |
) |
|
|
268,280 |
|
|
|
||||
Total non-accrual(1) |
|
|
|
|
|
$ |
363,343 |
|
|
$ |
366,512 |
|
|
$ |
(6,333 |
) |
|
$ |
357,010 |
|
|
|
||||
Carrying value of associated financings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(122,450 |
) |
|
|
|||||||
Net carrying value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
234,560 |
|
|
|
|||||||
14
Activity relating to the loans receivable portfolio for the six months ended June 30, 2022 ($ in thousands):
|
|
Unpaid Principal Balance |
|
|
Deferred Fees |
|
|
Specific CECL Allowance |
|
|
Carrying Value (1) |
|
||||
Balance at December 31, 2021 |
|
$ |
6,441,238 |
|
|
$ |
(33,933 |
) |
|
$ |
(6,333 |
) |
|
$ |
6,400,972 |
|
Initial funding of new loan originations and acquisitions |
|
|
1,308,536 |
|
|
|
— |
|
|
|
— |
|
|
|
1,308,536 |
|
Advances on existing loans |
|
|
264,411 |
|
|
|
— |
|
|
|
— |
|
|
|
264,411 |
|
Non-cash advances in lieu of interest |
|
|
30,800 |
|
|
|
482 |
|
|
|
— |
|
|
|
31,282 |
|
Origination fees, extension fees and exit fees |
|
|
— |
|
|
|
(27,168 |
) |
|
|
— |
|
|
|
(27,168 |
) |
Repayments of loans receivable |
|
|
(759,661 |
) |
|
|
— |
|
|
|
— |
|
|
|
(759,661 |
) |
Repayments of non-cash advances in lieu of interest |
|
|
(18,233 |
) |
|
|
— |
|
|
|
— |
|
|
|
(18,233 |
) |
Accretion of fees |
|
|
— |
|
|
|
10,495 |
|
|
|
— |
|
|
|
10,495 |
|
Sale proceeds |
|
|
(146,912 |
) |
|
|
— |
|
|
|
— |
|
|
|
(146,912 |
) |
Gain (loss) on sale |
|
|
30,892 |
|
|
|
(191 |
) |
|
|
— |
|
|
|
30,701 |
|
Specific CECL Allowance |
|
|
— |
|
|
|
— |
|
|
|
(5,272 |
) |
|
|
(5,272 |
) |
Principal charge-offs |
|
|
(11,500 |
) |
|
|
— |
|
|
|
11,500 |
|
|
|
— |
|
Balance at June 30, 2022 |
|
$ |
7,139,571 |
|
|
$ |
(50,315 |
) |
|
$ |
(105 |
) |
|
$ |
7,089,151 |
|
General CECL Allowance |
|
|
|
|
|
|
|
|
|
|
$ |
(59,295 |
) |
|||
Carrying Value |
|
|
|
|
|
|
|
|
|
|
$ |
7,029,856 |
|
|||
During the six months ended June 30, 2022, we sold a senior loan with a carrying value of $116.2 million and recognized a realized gain of $30.1 million. The financial asset was legally isolated, the transferee has the ability to pledge the assets without constraint and control has been transferred to the transferee. We have determined the transaction constituted a sale.
In the second quarter of 2022, we modified a loan with a borrower who was experiencing financial difficulties, resulting in a decrease in the index rate floor from 1.57% to 1.00% and modified extension requirements. As of June 30, 2022, the loan had an amortized cost basis of $87.8 million and represents approximately 1.2% of total loans receivable held-for-investment, net. The loan is considered as part of the general CECL allowance. The borrower is current on all contractually obligated payments.
Interests in Loans Receivable Held-for-Investment
We had no interests in loans receivable as of June 30, 2022.
Our interests in loans receivable portfolio as of December 31, 2021 was comprised of the following loan ($ in thousands):
|
|
Number of |
|
Loan Commitment(3) |
|
|
Unpaid Principal Balance |
|
|
Carrying Value |
|
|
Stated Rate (2) |
|
Interest Rate (4) |
|||
Senior loans(1) |
|
1 |
|
$ |
200,727 |
|
|
$ |
161,566 |
|
|
$ |
161,864 |
|
|
L + 4.25% |
|
5.50% |
Current expected credit loss reserve |
|
|
|
|
|
|
|
(14 |
) |
|
|
|
|
|||||
Interests in loans receivable held-for-investment, net |
|
|
|
$ |
161,850 |
|
|
|
|
|
||||||||
15
Activity relating to the interests in loans receivable portfolio for the six months ended June 30, 2022 ($ in thousands):
|
|
Unpaid Principal Balance |
|
|
Deferred Fees |
|
|
Carrying Value (1) |
|
|||
Balance at December 31, 2021 |
|
$ |
161,566 |
|
|
$ |
298 |
|
|
$ |
161,864 |
|
Advances on existing interests in loans receivable |
|
|
14,653 |
|
|
|
— |
|
|
|
14,653 |
|
Non-cash advances in lieu of interest |
|
|
2,427 |
|
|
|
— |
|
|
|
2,427 |
|
Origination fees, extension fees and exit fees |
|
|
— |
|
|
|
(502 |
) |
|
|
(502 |
) |
Repayments of interests in loans receivable |
|
|
(165,468 |
) |
|
|
— |
|
|
|
(165,468 |
) |
Repayment of non-cash advances in lieu of interest |
|
|
(13,178 |
) |
|
|
— |
|
|
|
(13,178 |
) |
Accretion of origination fees, net |
|
|
— |
|
|
|
204 |
|
|
|
204 |
|
Balance at June 30, 2022 |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
The following table details overall statistics for our loans receivable and interests in loans receivable portfolio ($ in thousands):
|
|
Loans Receivable |
|
|
Interests in Loans Receivable |
|
||||||||
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
|
June 30, 2022 |
|
December 31, 2021 |
|
|||
Weighted average yield to maturity |
|
|
6.1 |
% |
|
|
5.6 |
% |
|
N/A |
|
|
6.7 |
% |
Weighted average term to initial maturity |
|
1.9 years |
|
|
1.8 years |
|
|
N/A |
|
0.1 year |
|
|||
Weighted average term to fully extended maturity |
|
3.6 years |
|
|
3.3 years |
|
|
N/A |
|
1.6 years |
|
|||
16
Concentration of Risk
The following table presents our loans receivable and interests in loans receivable portfolio by loan type, as well as property type and geographic location of the properties collateralizing these loans as of June 30, 2022 and December 31, 2021 ($ in thousands):
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||||||||||
Loan Type |
|
Carrying Value |
|
|
Percentage |
|
|
Carrying Value |
|
|
Percentage |
|
||||
Senior loans(1) |
|
$ |
6,826,672 |
|
|
|
96 |
% |
|
$ |
6,309,997 |
|
|
|
96 |
% |
Subordinate loans |
|
|
262,584 |
|
|
|
4 |
% |
|
|
259,172 |
|
|
|
4 |
% |
|
|
$ |
7,089,256 |
|
|
|
100 |
% |
|
$ |
6,569,169 |
|
|
|
100 |
% |
Current expected credit loss reserve |
|
$ |
(59,400 |
) |
|
|
|
|
$ |
(67,024 |
) |
|
|
|
||
|
|
$ |
7,029,856 |
|
|
|
|
|
$ |
6,502,145 |
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Property Type |
|
Carrying Value |
|
|
Percentage |
|
|
Carrying Value |
|
|
Percentage |
|
||||
Office |
|
$ |
1,033,542 |
|
|
|
15 |
% |
|
$ |
1,113,805 |
|
|
|
17 |
% |
Mixed-use |
|
|
625,146 |
|
|
|
9 |
% |
|
|
734,613 |
|
|
|
11 |
% |
Hospitality |
|
|
1,252,130 |
|
|
|
17 |
% |
|
|
1,176,842 |
|
|
|
18 |
% |
Land |
|
|
519,130 |
|
|
|
7 |
% |
|
|
631,713 |
|
|
|
10 |
% |
Multifamily |
|
|
2,878,810 |
|
|
|
41 |
% |
|
|
1,986,628 |
|
|
|
30 |
% |
For Sale Condo |
|
|
515,624 |
|
|
|
7 |
% |
|
|
710,660 |
|
|
|
11 |
% |
Other |
|
|
264,874 |
|
|
|
4 |
% |
|
|
214,908 |
|
|
|
3 |
% |
|
|
$ |
7,089,256 |
|
|
|
100 |
% |
|
$ |
6,569,169 |
|
|
|
100 |
% |
Current expected credit loss reserve |
|
$ |
(59,400 |
) |
|
|
|
|
$ |
(67,024 |
) |
|
|
|
||
|
|
$ |
7,029,856 |
|
|
|
|
|
$ |
6,502,145 |
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Geographic Location |
|
Carrying Value |
|
|
Percentage |
|
|
Carrying Value |
|
|
Percentage |
|
||||
United States |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Northeast |
|
$ |
2,010,624 |
|
|
|
29 |
% |
|
$ |
2,734,550 |
|
|
|
41 |
% |
Mid Atlantic |
|
|
1,060,559 |
|
|
|
15 |
% |
|
|
1,235,527 |
|
|
|
19 |
% |
Midwest |
|
|
448,772 |
|
|
|
6 |
% |
|
|
309,298 |
|
|
|
5 |
% |
Southeast |
|
|
1,027,054 |
|
|
|
14 |
% |
|
|
836,904 |
|
|
|
13 |
% |
Southwest |
|
|
687,724 |
|
|
|
10 |
% |
|
|
269,461 |
|
|
|
4 |
% |
West |
|
|
1,845,318 |
|
|
|
26 |
% |
|
|
1,156,896 |
|
|
|
18 |
% |
Other |
|
|
9,205 |
|
|
|
0 |
% |
|
|
26,533 |
|
|
|
0 |
% |
|
|
$ |
7,089,256 |
|
|
|
100 |
% |
|
$ |
6,569,169 |
|
|
|
100 |
% |
Current expected credit loss reserve |
|
$ |
(59,400 |
) |
|
|
|
|
$ |
(67,024 |
) |
|
|
|
||
|
|
$ |
7,029,856 |
|
|
|
|
|
$ |
6,502,145 |
|
|
|
|
||
17
Interest Income and Accretion
The following table summarizes our interest and accretion income from loans receivable held-for-investment, from interests in loans receivable held-for-investment, and from interest on cash balances, for the three and six months ended June 30, 2022 and 2021 ($ in thousands):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
June 30, 2022 |
|
|
June 30, 2021 |
|
|
June 30, 2022 |
|
|
June 30, 2021 |
|
||||
Coupon interest |
|
$ |
92,461 |
|
|
$ |
98,123 |
|
|
$ |
178,645 |
|
|
$ |
197,858 |
|
Interest on cash and cash equivalents |
|
|
341 |
|
|
|
8 |
|
|
|
343 |
|
|
|
27 |
|
Accretion of fees |
|
|
6,191 |
|
|
|
6,516 |
|
|
|
10,699 |
|
|
|
12,565 |
|
Total interest and related income |
|
$ |
98,993 |
|
|
$ |
104,647 |
|
|
$ |
189,687 |
|
|
$ |
210,450 |
|
Loan Risk Ratings
As further described in Note 2 – Summary of Significant Accounting Policies, we evaluate the credit quality of our loan portfolio on a quarterly basis. In conjunction with our quarterly loan portfolio review, we assess the risk factors of each loan and assign a risk rating based on several factors. Factors considered in the assessment include, but are not limited to, current loan-to-value, debt yield, structure, cash flow volatility, exit plan, current market environment and sponsorship level. Loans are rated “1” (less risk) through “5” (greater risk), which ratings are defined in Note 2 – Summary of Significant Accounting Policies.
The following table allocates the principal balance and carrying value of the loans receivable and interests in loans receivable based on our internal risk ratings ($ in thousands):
June 30, 2022 |
||||||||||||
Risk Rating |
|
Number of Loans |
|
Unpaid Principal Balance |
|
|
Carrying Value |
|
|
% of Total of Unpaid Principal Balance |
||
1 |
|
1 |
|
$ |
257,963 |
|
|
$ |
256,758 |
|
|
4% |
2 |
|
1 |
|
|
927 |
|
|
|
927 |
|
|
0% |
3 |
|
60 |
|
|
5,669,626 |
|
|
|
5,623,289 |
|
|
79% |
4 |
|
10 |
|
|
1,201,850 |
|
|
|
1,199,077 |
|
|
17% |
5 |
|
2 |
|
|
9,205 |
|
|
|
9,205 |
|
|
0% |
|
|
74 |
|
$ |
7,139,571 |
|
|
$ |
7,089,256 |
|
|
|
Current expected credit loss reserve |
|
|
|
|
|
(59,400 |
) |
|
|
|||
|
|
|
|
|
|
|
$ |
7,029,856 |
|
|
|
|
December 31, 2021 |
||||||||||||
Risk Rating |
|
Number of Loans |
|
Unpaid Principal Balance |
|
|
Carrying Value |
|
|
% of Total of Unpaid Principal Balance |
||
1 |
|
1 |
|
$ |
35,721 |
|
|
$ |
35,699 |
|
|
1% |
2 |
|
6 |
|
|
705,886 |
|
|
|
703,714 |
|
|
10% |
3 |
|
42 |
|
|
4,678,785 |
|
|
|
4,649,076 |
|
|
71% |
4 |
|
9 |
|
|
1,155,879 |
|
|
|
1,154,147 |
|
|
18% |
5 |
|
2 |
|
|
26,533 |
|
|
|
26,533 |
|
|
0% |
|
|
60 |
|
$ |
6,602,804 |
|
|
$ |
6,569,169 |
|
|
|
Current expected credit loss reserve |
|
|
|
|
(67,024 |
) |
|
|
||||
|
|
|
|
|
|
|
$ |
6,502,145 |
|
|
|
|
As of June 30, 2022 and December 31, 2021 , the average risk rating of our portfolio was 3.1 and 3.1, respectively, weighted by unpaid principal balance.
18
Current Expected Credit Losses
The current expected credit loss reserve required under GAAP reflects our current estimate of potential credit losses related to loans receivable, interests in loans receivable, accrued interest receivable and unfunded loan commitments. See Note 2 for further discussion of our allowance for loan losses.
During the month ended June 30, 2022, we recorded a principal charge-off of $11.5 million against a loan made to the personal estate of a former borrower. Prior to the charge-off, the loan had an unpaid principal balance $15.0 million and a specific CECL reserve of $6.0 million, resulting in a carrying value of $9.0 million. Following the charge-off, the loan carrying value was $3.5 million, which represents estimated collection. The loan is on non-accrual status and is in maturity default.
In December 2021, we received principal repayments of $81.7 million on a senior loan with an outstanding principal balance of $95.0 million, and a maturity date of May 31, 2021, and recorded a principal charge-off of $1.8 million. Following the repayment, the maturity date of the loan was extended to January 1, 2023. As of June 30, 2022 and December 31, 2021, the loan had a specific loan loss allowance of $0.1 million and $0.3 million, respectively, which represents additional collectible interest through the maturity date. As of June 30, 2022, the borrower remains current on interest payments.
During the three months ended June 30, 2022, we recorded a net provision of $8.5 million in the allowance for credit losses, which included an additional $5.5 million of specific CECL reserve prior to principal charge-off. The total allowance for loan losses decreased to $72.7 million as of June 30, 2022. The net decrease was primarily attributable to the principal charge-off which was partially offset by the increase in the size of the portfolio and changes in macroeconomic conditions.
The following table illustrates the quarterly changes in the current expected credit loss reserve for the six months ended June 30, 2022 and 2021 ($ in thousands):
19
Our primary credit quality indicator is our internal risk ratings, which are further discussed above. The following table presents the amortized cost basis of our loans receivable as of June 30, 2022 by year of origination and risk rating ($ in thousands):
|
|
|
Amortized Cost Basis by Origination Year |
|
||||||||||||||||||||||||||
Risk Rating |
|
Number of Loans |
|
Amortized Cost Basis |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|
2018 |
|
|
2017 |
|
|||||||
1 |
|
1 |
|
$ |
256,758 |
|
|
$ |
- |
|
|
$ |
256,758 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
2 |
|
1 |
|
|
927 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
927 |
|
|
|
- |
|
3 |
|
60 |
|
|
5,623,289 |
|
|
|
1,338,025 |
|
|
|
1,946,507 |
|
|
|
80,614 |
|
|
|
1,653,947 |
|
|
|
506,739 |
|
|
|
97,457 |
|
4 |
|
10 |
|
|
1,199,077 |
|
|
|
- |
|
|
|
- |
|
|
|
198,847 |
|
|
|
221,081 |
|
|
|
779,149 |
|
|
|
- |
|
5 |
|
2 |
|
|
20,705 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
15,000 |
|
|
|
- |
|
|
|
5,705 |
|
Current period charge-offs |
|
|
|
|
(11,500 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(11,500 |
) |
|
|
- |
|
|
|
- |
|
|
|
74 |
|
$ |
7,089,256 |
|
|
$ |
1,338,025 |
|
|
$ |
2,203,265 |
|
|
$ |
279,461 |
|
|
$ |
1,878,528 |
|
|
$ |
1,286,815 |
|
|
$ |
103,162 |
|
Note 4. Real Estate Owned, net
On February 8, 2021, we acquired legal title to a portfolio of hotel properties located in New York, NY through a foreclosure. Prior to February 8, 2021, the hotel portfolio represented the collateral for a $103.9 million mezzanine loan held by us. The loan was in default as a result of the borrower failing to pay debt service. A $300.0 million securitized senior mortgage held by a third party was in default as well. The securitized senior mortgage is non-recourse to us. We recorded a gain of $1.4 million resulting from the foreclosure of the loan, which was based upon the estimated fair value of the hotel properties as determined by a third-party appraisal. The fair value of $414.0 million was determined using discount rates ranging from 8.50% to 8.75% and a terminal capitalization rate of 6.00%.
On June 2, 2021, terms of the securitized senior mortgage were modified to include an extension of the maturity date to February 9, 2024, a principal repayment of $10.0 million, and the payment of $7.6 million of fees and modification costs, which included among other items, $6.3 million of interest, $1.1 million of general and administrative expenses, and $0.2 million of debt issuance costs.
The following table presents additional detail related to our real estate owned, net as of June 30, 2022 and December 31, 2021 ($ in thousands):
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||
Land |
|
$ |
123,100 |
|
|
$ |
123,100 |
|
Building |
|
|
284,400 |
|
|
|
284,400 |
|
Capital Improvements |
|
|
1,744 |
|
|
|
- |
|
Furniture, fixtures and equipment |
|
|
6,500 |
|
|
|
6,500 |
|
Real estate assets |
|
|
415,744 |
|
|
|
414,000 |
|
Less: accumulated depreciation |
|
|
(11,051 |
) |
|
|
(7,113 |
) |
Real estate owned, net |
|
$ |
404,693 |
|
|
$ |
406,887 |
|
Note 5. Repurchase Agreements, Loan Participations Sold, Net, Notes Payable, Net, Secured Term Loan, Net, Debt Related to Real Estate Owned, Net, and Acquisition Facility
As of June 30, 2022 and December 31, 2021, we financed certain of our loans receivables using repurchase agreements, the sale of loan participations, and notes payable. The financings bear interest at a rate equal to LIBOR/SOFR plus a credit spread or at a fixed rate. Financing agreements generally contain covenants that include certain financial requirements, including maintenance of minimum liquidity, minimum tangible net worth, maximum debt to tangible net worth ratio, and minimum debt service coverage ratio as defined in agreements. As of June 30, 2022 and December 31, 2021, we are in compliance with all covenants under our financing agreements.
20
The following table summarizes our portfolio financings as of June 30, 2022 and December 31, 2021 ($ in thousands):
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
|
||||||||||||||||||
|
|
Capacity |
|
|
Borrowing Outstanding |
|
|
Weighted |
|
|
Capacity |
|
|
Borrowing Outstanding |
|
|
Weighted |
|
|
||||||
Repurchase agreements |
|
$ |
4,515,000 |
|
|
$ |
3,703,306 |
|
|
|
+ 2.05% |
|
|
$ |
4,065,000 |
|
|
$ |
3,274,508 |
|
|
|
+ 2.00% |
|
|
Repurchase agreements - Side Car |
|
|
271,171 |
|
|
|
215,397 |
|
|
|
+ 4.51% |
|
|
|
271,171 |
|
|
|
215,003 |
|
|
|
+ 4.50% |
|
|
Loan participations sold |
|
|
274,252 |
|
|
|
274,252 |
|
|
|
+ 3.84% |
|
|
|
168,322 |
|
|
|
168,322 |
|
|
|
+ 3.79% |
|
|
Notes payable |
|
|
229,950 |
|
|
|
100,512 |
|
|
|
+ 3.04% |
|
|
|
48,000 |
|
|
|
48,000 |
|
|
|
+ 4.00% |
|
|
Secured Term Loan |
|
|
758,904 |
|
|
|
758,904 |
|
|
|
+ 4.50% |
|
|
|
762,717 |
|
|
|
762,717 |
|
|
|
+ 4.50% |
|
|
Debt related to real estate owned |
|
|
290,000 |
|
|
|
290,000 |
|
|
|
+ 2.78% |
|
|
|
290,000 |
|
|
|
290,000 |
|
|
|
+ 2.78% |
|
|
Total / weighted average |
|
$ |
6,339,277 |
|
|
$ |
5,342,371 |
|
|
|
+ 2.65% |
|
|
$ |
5,605,210 |
|
|
$ |
4,758,550 |
|
|
|
+ 2.65% |
|
|
Repurchase Agreements
The following table summarizes our repurchase agreements by lender as of June 30, 2022 ($ in thousands):
Lender |
|
Initial |
|
Fully |
|
Maximum |
|
|
Borrowing |
|
|
Undrawn |
|
|||
JP Morgan Chase Bank, N.A. - Main Pool |
|
6/29/2025 |
|
6/29/2027 |
|
$ |
1,500,000 |
|
|
$ |
1,355,946 |
|
|
$ |
144,054 |
|
JP Morgan Chase Bank, N.A. - Side Car |
|
5/27/2023 |
|
5/27/2024 |
|
|
271,171 |
|
|
|
215,397 |
|
|
|
55,774 |
|
Morgan Stanley Bank, N.A. |
|
1/26/2023 |
|
1/26/2025 |
|
|
1,000,000 |
|
|
|
840,996 |
|
|
|
159,004 |
|
Goldman Sachs Bank USA |
|
5/31/2023 |
|
5/31/2025 |
|
|
500,000 |
|
|
|
393,398 |
|
|
|
106,602 |
|
Wells Fargo Bank, N.A. |
|
9/29/2023 |
|
9/29/2026 |
|
|
750,000 |
|
|
|
704,000 |
|
|
|
46,000 |
|
Barclays Bank PLC |
|
12/20/2022 |
|
12/20/2025 |
|
|
500,000 |
|
|
|
186,383 |
|
|
|
313,617 |
|
Deutsche Bank AG, New York Branch |
|
6/26/2023 |
|
6/26/2023 |
|
|
265,000 |
|
|
|
222,583 |
|
|
|
42,417 |
|
Total |
|
|
|
|
|
$ |
4,786,171 |
|
|
$ |
3,918,703 |
|
|
$ |
867,468 |
|
The following table summarizes our repurchase agreements by lender as of December 31, 2021 ($ in thousands):
Lender |
|
Initial |
|
Fully |
|
Maximum |
|
|
Borrowing |
|
|
Undrawn |
|
|||
JP Morgan Chase Bank, N.A. - Main Pool(2) |
|
6/29/2025 |
|
6/29/2027 |
|
$ |
1,250,000 |
|
|
$ |
1,173,280 |
|
|
$ |
76,720 |
|
JP Morgan Chase Bank, N.A. - Side Car |
|
5/27/2023 |
|
5/27/2024 |
|
|
271,171 |
|
|
|
215,003 |
|
|
|
56,168 |
|
Morgan Stanley Bank, N.A.(3) |
|
1/26/2023 |
|
1/26/2024 |
|
|
1,000,000 |
|
|
|
1,000,000 |
|
|
|
- |
|
Goldman Sachs Bank USA |
|
5/31/2022 |
|
5/31/2023 |
|
|
750,000 |
|
|
|
410,551 |
|
|
|
339,449 |
|
Barclays Bank PLC |
|
12/20/2022 |
|
12/20/2025 |
|
|
500,000 |
|
|
|
193,884 |
|
|
|
306,116 |
|
Deutsche Bank AG, New York Branch |
|
6/26/2022 |
|
6/26/2023 |
|
|
265,000 |
|
|
|
211,372 |
|
|
|
53,628 |
|
Wells Fargo Bank, N.A. |
|
9/29/2023 |
|
9/29/2026 |
|
|
300,000 |
|
|
|
285,421 |
|
|
|
14,579 |
|
Total |
|
|
|
|
|
$ |
4,336,171 |
|
|
$ |
3,489,511 |
|
|
$ |
846,660 |
|
21
Liabilities under our repurchase agreements as of June 30, 2022 are summarized as follows ($ in thousands):
Lender |
|
Weighted |
|
|
Borrowing Outstanding |
|
|
Carrying |
|
|
Carrying |
|
||||
JP Morgan Chase Bank, N.A. - Main Pool |
|
|
2.4 |
|
|
$ |
1,355,946 |
|
|
$ |
1,355,946 |
|
|
$ |
1,851,860 |
|
JP Morgan Chase Bank, N.A. - Side Car |
|
|
0.7 |
|
|
|
215,397 |
|
|
|
215,397 |
|
|
|
451,048 |
|
Morgan Stanley Bank, N.A. |
|
|
2.1 |
|
|
|
840,996 |
|
|
|
840,996 |
|
|
|
1,298,072 |
|
Goldman Sachs Bank USA |
|
|
1.3 |
|
|
|
393,398 |
|
|
|
393,398 |
|
|
|
578,900 |
|
Wells Fargo Bank, N.A. |
|
|
2.6 |
|
|
|
704,000 |
|
|
|
704,000 |
|
|
|
911,857 |
|
Barclays Bank PLC |
|
|
1.4 |
|
|
|
186,383 |
|
|
|
186,383 |
|
|
|
285,166 |
|
Deutsche Bank AG, New York Branch |
|
|
1.8 |
|
|
|
222,583 |
|
|
|
222,583 |
|
|
|
352,989 |
|
Total/Weighted Average |
|
|
2.1 |
|
|
$ |
3,918,703 |
|
|
$ |
3,918,703 |
|
|
$ |
5,729,892 |
|
Liabilities under our repurchase agreements as of December 31, 2021 are summarized as follows ($ in thousands):
Lender |
|
Weighted |
|
|
Borrowing Outstanding |
|
|
Carrying |
|
|
Carrying |
|
||||
JP Morgan Chase Bank, N.A. - Main Pool |
|
|
1.6 |
|
|
$ |
1,173,280 |
|
|
$ |
1,173,280 |
|
|
$ |
1,626,719 |
|
JP Morgan Chase Bank, N.A. - Side Car |
|
|
0.9 |
|
|
|
215,003 |
|
|
|
215,003 |
|
|
|
436,325 |
|
Morgan Stanley Bank, N.A. |
|
|
2.4 |
|
|
|
1,000,000 |
|
|
|
1,000,000 |
|
|
|
1,709,758 |
|
Goldman Sachs Bank USA |
|
|
1.3 |
|
|
|
410,551 |
|
|
|
410,551 |
|
|
|
589,825 |
|
Barclays Bank PLC |
|
|
1.4 |
|
|
|
193,884 |
|
|
|
193,884 |
|
|
|
283,716 |
|
Deutsche Bank AG, New York Branch |
|
|
2.3 |
|
|
|
211,372 |
|
|
|
211,372 |
|
|
|
327,671 |
|
Wells Fargo Bank, N.A. |
|
|
2.8 |
|
|
|
285,421 |
|
|
|
285,421 |
|
|
|
362,742 |
|
Total/Weighted Average |
|
|
1.9 |
|
|
$ |
3,489,511 |
|
|
$ |
3,489,511 |
|
|
$ |
5,336,756 |
|
The repurchase facilities are partially recourse to us. The maximum guaranty under the repurchase agreements that we would be responsible for as of June 30, 2022 and December 31, 2021 was $1.1 billion and $944.0 million, respectively.
Loan Participations Sold
Our loan participations sold as of June 30, 2022 are summarized as follows ($ in thousands):
|
Contractual |
|
Maximum |
|
Borrowing Outstanding |
|
|
Carrying |
|
|
Carrying |
|
|||
Variable: |
|
|
|
|
|
|
|
|
|
|
|
|
|||
(2) |
8/1/2022 |
|
8/1/2023 |
|
|
148,322 |
|
|
|
148,295 |
|
|
|
291,353 |
|
|
10/18/2023 |
|
10/18/2024 |
|
|
105,930 |
|
|
|
105,473 |
|
|
|
193,033 |
|
Fixed: |
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
12/31/2024 |
|
12/31/2025 |
|
|
20,000 |
|
|
|
19,719 |
|
|
|
143,941 |
|
Total |
|
$ |
274,252 |
|
|
$ |
273,487 |
|
|
$ |
628,327 |
|
|||
22
Our loan participations sold as of December 31, 2021 are summarized as follows ($ in thousands):
|
Contractual |
|
Maximum |
|
Borrowing Outstanding |
|
|
Carrying |
|
|
Carrying |
|
|||
Variable: |
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
8/1/2022 |
|
8/1/2023 |
|
|
148,322 |
|
|
|
148,133 |
|
|
|
290,783 |
|
Fixed: |
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
12/31/2024 |
|
12/31/2025 |
|
|
20,000 |
|
|
|
19,611 |
|
|
|
130,061 |
|
Total |
|
$ |
168,322 |
|
|
$ |
167,744 |
|
|
$ |
420,844 |
|
|||
Notes Payable
Our notes payable as of June 30, 2022 are summarized as follows ($ in thousands):
Contractual |
|
Maximum |
|
Borrowing Outstanding |
|
|
Carrying |
|
|
Carrying |
|
|||
12/31/2024 |
|
12/31/2025 |
|
|
94,322 |
|
|
|
92,915 |
|
|
|
143,941 |
|
2/2/2026 |
|
2/2/2027 |
|
|
6,190 |
|
|
|
5,192 |
|
|
|
9,274 |
|
Total |
|
$ |
100,512 |
|
|
$ |
98,107 |
|
|
$ |
153,215 |
|
||
Our notes payable as of December 31, 2021 are summarized as follows ($ in thousands):
Contractual |
|
Maximum |
|
Borrowing Outstanding |
|
|
Carrying |
|
|
Carrying |
|
|||
1/4/2022 (2) |
|
1/4/2022 |
|
$ |
48,000 |
|
|
$ |
48,000 |
|
|
$ |
116,512 |
|
Secured Term Loan, Net
On August 9, 2019, we entered into a $450.0 million secured term loan. On December 1, 2020, the secured term loan was modified to increase the aggregate principal amount by $325.0 million, increase the interest rate, and to increase the quarterly amortization payment. On December 2, 2021, we entered into a modification of our secured term loan which reduced the interest rate to the greater of (i) 1-month SOFR plus a 0.10% credit spread adjustment, and (ii) 0.50%, plus a credit spread of 4.50%.
The secured term loan as of June 30, 2022 is summarized as follows ($ in thousands):
Contractual |
|
Stated |
|
|
|
Borrowing |
|
|
|
|
||
Maturity Date |
|
Rate (1) |
|
Interest Rate |
|
Outstanding |
|
|
Carrying Value |
|
||
8/9/2026 |
|
S + 4.50% |
|
6.29% |
|
$ |
758,904 |
|
|
$ |
738,180 |
|
The secured term loan as of December 31, 2021 is summarized as follows ($ in thousands):
Contractual |
|
Stated |
|
|
|
Borrowing |
|
|
|
|
||
Maturity Date |
|
Rate (1) |
|
Interest Rate |
|
Outstanding |
|
|
Carrying Value |
|
||
8/9/2026 |
|
S + 4.50% |
|
5.00% |
|
$ |
762,717 |
|
|
$ |
739,762 |
|
The secured term loan is partially amortizing, with principal payments of $1.9 million due in quarterly installments.
23
Debt Related to Real Estate Owned, Net
On February 8, 2021 we assumed a $300.0 million securitized senior mortgage in connection with a UCC foreclosure on a portfolio of seven limited service hotels. On June 2, 2021, we entered into an agreement to amend the terms of the securitized senior mortgage which included an extension of the maturity date to February 9, 2024, a principal repayment of $10.0 million, and the payment of $7.6 million of fees and modification costs, which included among other items, $6.3 million of interest expense, $1.1 million of general and administrative expenses, and $0.2 million of debt issuance costs.
Our debt related to real estate owned as of June 30, 2022 is summarized as follows ($ in thousands):
Contractual |
|
Stated |
|
|
|
|
Borrowing |
|
|
|
|
|||
Maturity Date |
|
Rate (1) |
|
Interest Rate |
|
|
Outstanding |
|
|
Carrying Value |
|
|||
February 9, 2024 |
|
L + 2.78% |
|
|
4.57 |
% |
|
$ |
290,000 |
|
|
$ |
289,852 |
|
Our debt related to real estate owned as of December 31, 2021 is summarized as follows ($ in thousands):
Contractual |
|
Stated |
|
|
|
|
Borrowing |
|
|
|
|
|||
Maturity Date |
|
Rate (1) |
|
Interest Rate |
|
|
Outstanding |
|
|
Carrying Value |
|
|||
February 9, 2024 |
|
L + 2.78% |
|
|
3.53 |
% |
|
$ |
290,000 |
|
|
$ |
289,806 |
|
Acquisition Facility
On June 29, 2022, we entered into a $150.0 million full recourse credit facility. The facility generally provides interim financing for eligible loans for up to 180 days at an initial advance rate of 75%, which begins to decline after the 90th day. The facility matures on June 29, 2025 and earns interest at a rate of 1-month SOFR, plus a 0.10% credit spread adjustment, plus a spread of 2.25%. With the consent of our lenders, and subject to certain conditions, the commitment of the facility may be increased up to $500.0 million. As of June 30, 2022, the outstanding balance of the facility is $0.
Interest Expense and Amortization
The following table summarizes our interest and amortization expense on secured financings, debt related to real estate owned and on the secured term loan for the three and six months ended June 30, 2022 and 2021 ($ in thousands):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
June 30, 2022 |
|
|
June 30, 2021 |
|
|
June 30, 2022 |
|
|
June 30, 2021 |
|
||||
Interest on secured financings |
|
$ |
31,702 |
|
|
$ |
28,887 |
|
|
$ |
57,113 |
|
|
$ |
58,589 |
|
Interest on secured term loan |
|
|
10,299 |
|
|
|
11,652 |
|
|
|
19,858 |
|
|
|
23,205 |
|
Interest on debt related to real estate owned (1) |
|
|
2,719 |
|
|
|
8,886 |
|
|
|
5,303 |
|
|
|
10,361 |
|
Amortization of financing costs |
|
|
4,870 |
|
|
|
5,931 |
|
|
|
9,480 |
|
|
|
10,963 |
|
Total interest and related expense |
|
$ |
49,590 |
|
|
$ |
55,356 |
|
|
$ |
91,754 |
|
|
$ |
103,118 |
|
Note 6. Derivatives
As part of the agreement to amend the terms of our debt related to real estate owned on June 2, 2021, we have an interest rate cap with a notional amount of $290.0 million and a maturity date of February 15, 2024 for $275,000.
The interest rate cap effectively limits the maximum interest rate of our debt related to real estate owned to 5.78%. Increases or decreases in the fair value of our interest rate cap are recorded as an unrealized gain or loss on interest rate cap on our consolidated income statements and the fair value is recorded in other assets on our consolidated balance sheets. The fair value of the interest rate cap is $2.8 million at June 30, 2022.
24
Note 7. Fair Value Measurements
ASC 820, “Fair Value Measurement and Disclosures” establishes a framework for measuring fair value as well as disclosures about fair value measurements. It emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use when pricing an asset or liability. As a basis for considering market participant assumptions in fair value measurements, the standards establish a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).
Level 1 inputs utilize unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability other than quoted prices, such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement fall is based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.
Financial Instruments Reported at Fair Value
The fair value of our interest rate cap is determined by using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rise above the strike rate of the interest rate cap. The variable interest rates used in the calculation of projected receipts on the interest rate cap are based on a third party expert's expectation of future interest rates derived from observable market interest rate curves and volatilities. Our interest rate cap is classified as Level 2 in the fair value hierarchy and is valued at $2.8 million at June 30, 2022 and $0 at December 31, 2021.
Financial Instruments Not Reported at Fair Value
The carrying value and estimated fair value of financial instruments not recorded at fair value on a recurring basis but required to be disclosed at fair value were as follows ($ in thousands):
|
|
June 30, 2022 |
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
Fair Value Hierarchy Level |
|
||||||||||||
|
|
Carrying |
|
|
Unpaid Principal Balance |
|
|
Fair Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||||
Loans receivable held-for-investment, net |
|
$ |
7,029,856 |
|
|
$ |
7,139,571 |
|
|
$ |
7,043,862 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
7,043,862 |
|
Repurchase agreements |
|
|
3,918,703 |
|
|
|
3,918,703 |
|
|
|
3,918,703 |
|
|
|
- |
|
|
|
- |
|
|
|
3,918,703 |
|
Loan participations sold, net |
|
|
273,487 |
|
|
|
274,252 |
|
|
|
273,856 |
|
|
|
- |
|
|
|
- |
|
|
|
273,856 |
|
Notes payable, net |
|
|
98,107 |
|
|
|
100,512 |
|
|
|
100,275 |
|
|
|
- |
|
|
|
- |
|
|
|
100,275 |
|
Secured term loan, net |
|
|
738,180 |
|
|
|
758,904 |
|
|
|
724,753 |
|
|
|
- |
|
|
|
- |
|
|
|
724,753 |
|
Debt related to real estate owned, net |
|
|
289,852 |
|
|
|
290,000 |
|
|
|
280,473 |
|
|
|
- |
|
|
|
- |
|
|
|
280,473 |
|
|
|
December 31, 2021 |
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
Fair Value Hierarchy Level |
|
||||||||||||
|
|
Carrying |
|
|
Unpaid Principal Balance |
|
|
Fair Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||||
Loans receivable held-for-investment, net |
|
$ |
6,340,295 |
|
|
$ |
6,441,238 |
|
|
$ |
6,434,157 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
6,434,157 |
|
Interests in loans receivable held-for- |
|
|
161,850 |
|
|
|
161,566 |
|
|
|
161,883 |
|
|
|
- |
|
|
|
- |
|
|
|
161,883 |
|
Repurchase agreements |
|
|
3,489,511 |
|
|
|
3,489,511 |
|
|
|
3,484,834 |
|
|
|
- |
|
|
|
- |
|
|
|
3,484,834 |
|
Loan participations sold, net |
|
|
167,744 |
|
|
|
168,322 |
|
|
|
168,738 |
|
|
|
- |
|
|
|
- |
|
|
|
168,738 |
|
Notes payable, net |
|
|
48,000 |
|
|
|
48,000 |
|
|
|
48,000 |
|
|
|
- |
|
|
|
- |
|
|
|
48,000 |
|
Secured term loan, net |
|
|
739,762 |
|
|
|
762,717 |
|
|
|
762,717 |
|
|
|
- |
|
|
|
- |
|
|
|
762,717 |
|
Debt related to real estate owned, net |
|
|
289,806 |
|
|
|
290,000 |
|
|
|
281,723 |
|
|
|
- |
|
|
|
- |
|
|
|
281,723 |
|
25
Note 8. Equity
Common Stock
Our charter provides for the issuance of up to 500,000,000 shares of common stock with a par value of $0.01 per share. We had 140,055,714 common shares issued and 139,620,078 and 139,840,088 common shares outstanding as of June 30, 2022 and December 31, 2021, respectively.
The following table provides a summary of the number of common shares outstanding during the six months ended June 30, 2022 and 2021, including redeemable common stock:
|
|
Six Months Ended |
|
|||||
Common Stock Outstanding |
|
June 30, 2022 |
|
|
June 30, 2021 |
|
||
Beginning balance |
|
|
139,840,088 |
|
|
|
132,848,720 |
|
Conversion of fully vested RSUs to common shares |
|
|
- |
|
|
|
584,767 |
|
Repurchase of common shares |
|
|
(220,010 |
) |
|
|
- |
|
Ending balance |
|
|
139,620,078 |
|
|
|
133,433,487 |
|
Repurchased Shares
We entered into an agreement (the “10b5-1 Purchase Plan”) with Morgan & Stanley Co. LLC, pursuant to which Morgan Stanley & Co. LLC, as our agent, will buy in the open market up to $25.0 million of our common stock in the aggregate during the period beginning on December 6, 2021 and ending at the earlier of 12 months and the date on which all the capital committed to the 10b5-1 Purchase Plan is expended. The 10b5-1 Purchase Plan will require Morgan Stanley & Co. LLC to purchase shares of our common stock on our behalf when the market price per share is below the book value per common share, subject to certain daily limits prescribed by the 10b5-1 Purchase Plan. For the period from December 6, 2021 through June 30, 2022, we repurchased 435,636 shares of common stock under the repurchase program at an average price per share of $16.93 for a total of $7.4 million.
Dividends
The following table details our dividend activity for common and preferred stock ($ in thousands, except per share data):
|
|
For the Quarter Ended |
|
|||||||||||||
|
|
March 31, 2022 |
|
|
June 30, 2022 |
|
||||||||||
|
|
Amount |
|
|
Per Share |
|
|
Amount |
|
|
Per Share |
|
||||
Dividends declared - common stock |
|
$ |
51,672 |
|
|
$ |
0.37 |
|
|
$ |
51,659 |
|
|
$ |
0.37 |
|
Record Date - common stock |
|
March 31, 2022 |
|
|
June 30, 2022 |
|
||||||||||
Payment Date - common stock |
|
April 15, 2022 |
|
|
July 15, 2022 |
|
||||||||||
|
|
For the Quarter Ended |
|
|||||||||||||
|
|
March 31, 2021 |
|
|
June 30, 2021 |
|
||||||||||
|
|
Amount |
|
|
Per Share |
|
|
Amount |
|
|
Per Share |
|
||||
Dividends declared - common stock |
|
$ |
50,000 |
|
|
$ |
0.37 |
|
|
$ |
50,000 |
|
|
$ |
0.37 |
|
Dividends declared - preferred stock(1) |
|
$ |
4 |
|
|
$ |
0.03 |
|
|
$ |
4 |
|
|
$ |
0.03 |
|
Record Date - common stock |
|
March 19, 2021 |
|
|
June 16, 2021 |
|
||||||||||
Payment Date - common stock |
|
April 1, 2021 |
|
|
July 7, 2021 |
|
||||||||||
26
Note 9. Earnings per Share
We calculate basic earnings per share (“EPS”) using the two-class method, which defines unvested share-based payment awards that contain nonforfeitable rights to dividends as participating securities. Under the two-class method, earnings (distributed and undistributed) are allocated to common stock and participating securities based on their respective rights. Basic EPS is calculated by dividing our net income attributable to common stockholders minus participating securities' share in earnings by the weighted average number of shares of common stock outstanding during each period.
Diluted EPS is calculated under the more dilutive of the treasury stock or the two-class method. Under the treasury stock method, diluted EPS is calculated by dividing net income attributable to common stockholders by the weighted average number of shares of common stock outstanding plus the incremental potential shares of common stock assumed issued during the period if they are dilutive.
As of June 30, 2022 and 2021 we had no dilutive securities. As a result, basic and diluted EPS are the same. The calculation of basic and diluted EPS is as follows ($ in thousands, except for share and per share data):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
June 30, 2022 |
|
|
June 30, 2021 |
|
|
June 30, 2022 |
|
|
June 30, 2021 |
|
||||
Net income attributable to common stockholders |
|
$ |
63,234 |
|
|
$ |
42,021 |
|
|
$ |
92,646 |
|
|
$ |
100,629 |
|
Dividends on participating securities |
|
|
(799 |
) |
|
|
- |
|
|
|
(799 |
) |
|
|
- |
|
Participating securities' share in earnings |
|
|
(31 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Basic earnings |
|
$ |
62,404 |
|
|
$ |
42,021 |
|
|
$ |
91,847 |
|
|
$ |
100,629 |
|
Weighted average number of common stock, basic and diluted |
|
|
139,637,949 |
|
|
|
133,433,487 |
|
|
|
139,675,019 |
|
|
|
133,520,821 |
|
Net income per share of common stock, basic and diluted |
|
$ |
0.45 |
|
|
$ |
0.31 |
|
|
$ |
0.66 |
|
|
$ |
0.75 |
|
For the six months ended June 30, 2022 and 2021, 204,908 and 0 weighted average unvested RSUs, respectively, were excluded from the calculation of diluted EPS because the effect was anti-dilutive. For the three months ended June 30, 2022 and 2021, 407,565 and 0 weighted average unvested RSUs, respectively, were excluded from the calculation of diluted EPS because the effect was anti-dilutive.
Note 10. Related Party Transactions
The activities of the Company are managed by the Manager. Pursuant to the terms of the Management Agreement, the Manager is responsible for originating investment opportunities, providing asset management services and administering the day-to-day operations of the Company. The Management Agreement will remain in-place until August 25, 2025 unless terminated at an earlier date upon the occurrence of certain events. The Manager is entitled to receive a management fee, an incentive fee and a termination fee as defined below.
The following table summarizes our management fees ($ in thousands):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
June 30, 2022 |
|
|
June 30, 2021 |
|
|
June 30, 2022 |
|
|
June 30, 2021 |
|
||||
Management fees |
|
$ |
9,843 |
|
|
$ |
9,737 |
|
|
$ |
19,650 |
|
|
$ |
19,363 |
|
Total |
|
$ |
9,843 |
|
|
$ |
9,737 |
|
|
$ |
19,650 |
|
|
$ |
19,363 |
|
Management Fees
Effective October 1, 2015, the Manager earns a base management fee in an amount equal to 1.50% per annum of Stockholders’ Equity. Management fees are reduced by our pro rata share of any management fees and incentive fees (if incentive fees are not incurred by us) paid to the Manager by CMTG/TT. Management fees are paid quarterly, in arrears. Management fees of $9.8 million and $10.0 million were accrued and were included in management fee payable – affiliate, in the consolidated balance sheets at June 30, 2022 and December 31, 2021.
Subsequent to June 30, 2022, we amended and restated our Management Agreement primarily to provide for reimbursement of allocable costs, including compensation, of the Manager’s non-investment professionals, to provide for automatic one-year renewals of the agreement following its original expiration date, unless it is otherwise terminated by our board of directors, and to remove historical provisions that are no longer relevant to our business and certain reporting requirements that are not customary for a public company.
27
Incentive Fees
The Manager is entitled to an incentive fee equal to 20% of the excess of our Core Earnings on a rolling four-quarter basis, as defined in the Management Agreement, over a 7.00% return on Stockholders’ Equity, as defined in the Management Agreement of the Company. Incentive fees are reduced by our pro rata share of any incentive fees paid to the Manager by CMTG/TT.
The Manager is entitled to an incentive fee equal to 3.33% of the excess of CMTG/TT’s Core Earnings on a rolling four-quarter basis, as defined in the Management Agreement, over a 7.00% return on Unitholders’ Equity of CMTG/TT.
There were no accrued incentive fees on the consolidated balance sheets at June 30, 2022 and December 31, 2021, respectively.
Termination Fees
If we elect to terminate the Management Agreement, we are required to pay the Manager a termination fee equal to three times the sum of the average total annual amount of management fees and the average annual incentive fee paid by us over the prior two years.
Reimbursable Expenses
The Manager or its affiliates are entitled to reimbursement for certain documented costs and expenses incurred by them on our behalf, as set forth in the Management Agreement, excluding any expenses specifically required to be borne by the Manager under the Management Agreement. For the three months ended June 30, 2022 and 2021, we had no reimbursements of out-of-pocket costs incurred on our behalf by our manager. For the six months ended June 30, 2022 and 2021, we reimbursed $0.1 million and $0 of out-of-pocket costs incurred on our behalf by our manager.
Loans Receivable Held-for-Investment
As of June 30, 2022 and December 31, 2021, we have one loan with an outstanding principal balance of $81.8 million and $54.0 million, respectively, and a loan commitment of $141.1 million, whereby the borrower is an affiliate of a shareholder in our common stock who owns approximately 10.8% of common stock outstanding as of June 30, 2022 .
Note 11. Stock-Based Compensation
We are externally managed and do not currently have any employees. On March 30, 2016, we adopted the 2016 Incentive Award Plan (the “Plan”) to promote the success and enhance the value of the Company by linking the individual interests of employees of the Manager and its affiliates to those of our stockholders. The maximum number of shares that may be issued under the Plan is equal to 8,281,594 shares.
On April 4, 2019, the Board granted 877,498 time-based Restricted Stock Units ("RSUs") pursuant to the Plan which immediately became vested. Dividend equivalent payments accrued as if those shares were outstanding for all dividends declared during the period beginning August 25, 2015. The fair value of time-based RSUs was recognized immediately. The fair value of the 877,498 RSUs was determined to be $20.00 per share on the grant date based on our share issuances proximate to the grant date. On April 4, 2021, 584,767 fully vested RSUs were delivered and converted to common shares. During the six months ended June 30, 2021, 292,731 time-based RSUs were forfeited prior to their delivery, resulting in the reversal of $5.9 million of previously recognized stock-based compensation expense which is included as other income in the consolidated statements of operations.
On April 4, 2019, the Board granted 1,622,499 performance-based RSUs pursuant to the Plan of which 0% to 100% were scheduled to vest at the conclusion of a three-year performance period commencing on January 1, 2019, at varying levels, if we achieved a minimum cumulative Total Stockholder Return Percentage in excess of 18% over that period. Total Stockholder Return Percentage is equal to the quotient of (i) the sum of (A) the tangible net book value per common share as of December 31, 2021 less $19.84 and (B) the aggregate amount of dividends paid with respect to common stock during the performance period, (ii) and $19.84, calculated on a fully diluted basis. Dividend equivalents were scheduled to accrue and be paid to participants at the conclusion of the performance period based on the number of RSUs that vested. The fair value of the 1,622,499 performance-based RSUs was determined to be $20.00 per share on the grant date based on our share issuances proximate to the grant date. In the event that a change in control or an initial public offering (“IPO”) had occurred prior to the completion of the performance period, the RSUs would have immediately vested prior to such change in control or IPO and dividend equivalents would have become payable. Upon completion of our IPO in November 2021, 1,097,293 RSUs immediately vested and dividend equivalents of $4.9 million were paid.
On May 24, 2022, we adopted the Deferred Compensation Plan to provide our directors and certain executives with an opportunity to defer payment of their equity-based compensation pursuant to the terms of the Deferred Compensation Plan.
28
The Board awards time-based RSUs to eligible non-employee Board members on an annual basis as part of such Board members’ annual compensation in accordance with the Non-Employee Director Compensation Program. The time-based awards are generally issued in the second quarter on the date of the annual meeting of our stockholders, in conjunction with the director’s election to the Board, and the awards vest on the earlier of (x) the one-year anniversary of the grant date and (y) the date of the next annual meeting of our stockholders following the grant date, subject to the applicable participants' continued service through such vesting date. On June 1, 2022, the eligible non-employee members of the Board were automatically granted an aggregate of 29,280 time-based RSUs under the Plan. Each RSU was granted with the right to receive dividend equivalents. Additionally, certain directors elected to defer their RSUs pursuant to the terms of the Deferred Compensation Plan. Such deferred awards will become payable on the earliest to occur of the participant’s separation from service or a change in control. The fair value of the 29,280 RSUs was determined to be $20.49 per share on the grant date based on the closing price of common stock on such date.
On June 14, 2022, the Board granted an aggregate of 2,130,000 time-based RSUs to employees of the Manager or its affiliates, which vest in three equal installments on each of the first, second and third anniversaries of the grant date, subject to the applicable participant’s continued service through each vesting date. Each RSU was granted with the right to receive dividend equivalents. The fair value of the 2,130,000 RSUs was determined to be $18.72 per share on the grant date based on the closing price of common stock on such date.
For the three and six months ended June 30, 2022 we recognized $0.6 million of stock-based compensation expense related to the RSUs. For the three and six months ended June 30, 2021, we recognized $1.5 million of compensation expense and a net reversal of previously recognized compensation expense of $0.2 million, respectively. Stock-based compensation expense is considered non-cash compensation expense for the three and six months ended June 30, 2022 and 2021.
Stock-based compensation expense is recognized in earnings on a straight-line basis over the applicable award’s vesting period. Forfeitures of stock-base compensation awards are recognized as they occur. As of June 30, 2022, total unrecognized compensation expense was $39.9 million based on the grant date fair value of RSUs granted. This expense is expected to be recognized over a period of 2.9 years from June 30, 2022.
The following table details the RSU activity during the six months ended June 30, 2022 and 2021:
|
|
Time-based Restricted Stock Units |
|
|
Performance-based Restricted Stock Units |
|
||||||||||
|
|
|
|
|
Weighted-Average |
|
|
|
|
|
Weighted-Average |
|
||||
|
|
Number of |
|
|
Grant Date Fair |
|
|
Number of |
|
|
Grant Date Fair |
|
||||
|
|
Restricted Shares |
|
|
Value Per Share |
|
|
Restricted Shares |
|
|
Value Per Share |
|
||||
Unvested, December 31, 2021 |
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
$ |
- |
|
Granted |
|
|
2,159,280 |
|
|
$ |
18.74 |
|
|
|
- |
|
|
$ |
- |
|
Unvested, June 30, 2022 |
|
|
2,159,280 |
|
|
$ |
18.74 |
|
|
|
- |
|
|
$ |
- |
|
|
|
Time-based Restricted Stock Units |
|
|
Performance-based Restricted Stock Units |
|
||||||||||
|
|
|
|
|
Weighted-Average |
|
|
|
|
|
Weighted-Average |
|
||||
|
|
Number of |
|
|
Grant Date Fair |
|
|
Number of |
|
|
Grant Date Fair |
|
||||
|
|
Restricted Shares |
|
|
Value Per Share |
|
|
Restricted Shares |
|
|
Value Per Share |
|
||||
Unvested, December 31, 2020 |
|
|
- |
|
|
$ |
- |
|
|
|
1,622,499 |
|
|
$ |
20.00 |
|
Forfeited/cancelled |
|
|
- |
|
|
$ |
- |
|
|
|
(525,206 |
) |
|
$ |
20.00 |
|
Unvested, June 30, 2021 |
|
|
- |
|
|
$ |
- |
|
|
|
1,097,293 |
|
|
$ |
20.00 |
|
29
Note 12. Income Taxes
We have elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code commencing with our taxable year ended December 31, 2015 and expect to continue to operate so as to qualify as a REIT. As a result, we will generally not be subject to federal and state income tax on that portion of our income that we distribute to stockholders if we distribute at least 90% of our taxable income, determined without regard to the deduction for dividends paid and excluding any net capital gains and activity conducted within our taxable REIT subsidiary (“TRS”), and comply with certain other requirements to qualify as a REIT. Since Commencement of Operations, we were in compliance with all REIT requirements and we plan to continue to operate so that we meet the requirements for taxation as a REIT. Therefore, other than amounts relating to our TRS, as described below, we have not provided for current income tax expense related to our REIT taxable income for the three and six months ended June 30, 2022 and 2021. Additionally, no provision has been made for federal or state income taxes in the accompanying financial statements, as we believe we have met the prescribed requisite requirements.
Our real estate owned is held in a TRS. A TRS is a corporation that is owned directly or indirectly by a REIT and has jointly elected with the REIT to be treated as a TRS for tax purposes. TRSs provide REITs the flexibility to hold, up to 20% of their total assets, entities or investments that otherwise would not be permissible in the REIT structure. Our TRS is not consolidated for U.S. federal income tax purposes and is taxed separately as a corporation. For financial reporting purposes, a provision or benefit for current and deferred taxes is established for the portion of earnings or expense recognized by us with respect to our TRS. No current or deferred tax benefit or expense was recorded for the three and six months ended June 30, 2022. We recorded deferred income tax benefit of $1.8 million and $6.0 million during the three and six months ended June 30, 2021.
We did not have any deferred tax assets or deferred tax liabilities at June 30, 2022 or December 31, 2021.
The TRS had a net operating loss (“NOL”) carryforward in the amount of $47.1 million at June 30, 2022, the impact of which has been reflected in the deferred tax asset recorded by us. Deferred tax assets are recognized only to the extent that it is more likely than not that they will be realized based on consideration of all available evidence, including the future reversals of existing taxable temporary differences, future projected taxable income and tax planning strategies. Valuation allowances are provided if, based upon the weight of the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The NOL could be carried forward indefinitely for federal income tax purposes and generally for a period of 20 years for state and local purposes. Based upon the available objective evidence at June 30, 2022, we determined it was more likely than not that the deferred tax assets of our TRS would not be utilized in future periods. As a result, we recorded a $19.7 million valuation allowance to fully reserve against these deferred tax assets.
We recognize tax benefits for uncertain tax positions only if it is more likely than not that the position is sustainable based on its technical merits. Interest and penalties on uncertain tax positions are included as a component of the provision for income taxes in our consolidated statements of income. As of June 30, 2022 and December 31, 2021, we have not recorded any amounts for uncertain tax positions.
Our tax returns are subject to audit by taxing authorities. Tax years 2018 through 2021 remain open to examination by major taxing jurisdictions to which we are subject to taxes.
Note 13. Commitments and Contingencies
We hold a 51% interest in CMTG/TT as a result of committing to invest $124.9 million in CMTG/TT. Distributions representing repayment proceeds from CMTG/TT’s loans may be recalled by CMTG/TT, if the repayment occurred at least six months prior to the loan’s initial maturity date. As of June 30, 2022 and December 31, 2021, we contributed $163.1 million and $162.1 million, respectively to CMTG/TT and have received return of capital distributions of $123.2 million, of which $111.1 million were recallable. As of June 30, 2022 and December 31, 2021, CMTG’s remaining capital commitment to CMTG/TT was $72.9 million and $73.8 million, respectively.
As of June 30, 2022 and December 31, 2021, we had aggregate unfunded loan commitments of $1.7 billion and $1.1 billion, which amounts will generally be funded to finance lease-related or capital expenditures by our borrowers, subject to borrowers achieving certain conditions precedent to such funding. These future commitments will expire over the remaining term of the loans, none of which exceed five years.
As of June 30, 2022 and December 31, 2021, we had $596.5 million and $584.3 million of undrawn capacity on existing secured financing commitments relating to both the current unpaid principal balance of our loan portfolio and our unfunded loan commitments, which are subject to us pledging additional collateral that is subsequently approved by our financing counterparty.
30
Our contractual payments under all borrowings by maturity were as follows as of June 30, 2022 ($ in thousands):
Year |
|
Amount |
|
|
2022 |
|
$ |
521,453 |
|
2023 |
|
|
956,555 |
|
2024 |
|
|
1,845,233 |
|
2025 |
|
|
951,636 |
|
2026 |
|
|
1,067,494 |
|
|
|
$ |
5,342,371 |
|
In the normal course of business, we may enter into contracts that contain a variety of representations and provide for general indemnifications. Our maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against us that have not yet occurred. However, based on experience, we expect the risk of loss to be remote.
Note 14. Subsequent Events
We have evaluated subsequent events through the filing of this Quarterly Report on Form 10-Q and determined that the following events or transactions that have occurred:
1. We originated/acquired two floating rate loans with an aggregate loan commitment of $149.5 million, of which $145.6 million was funded at closing.
2. We received the full repayment of one loan with an unpaid principal balance of $258.0 million at June 30, 2022.
31
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with our unaudited consolidated financial statements and notes thereto appearing elsewhere in this quarterly report on Form 10-Q. References herein to “Claros Mortgage Trust,” “Company”, “we”, “us” or “our” refer to Claros Mortgage Trust, Inc. and its subsidiaries unless the context specifically require otherwise.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
We make forward-looking statements herein and will make forward-looking statements in future filings with the SEC, press releases or other written or oral communications within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). For these statements, we claim the protections of the safe harbor for forward-looking statements contained in such Sections. Forward-looking statements are subject to substantial risks and uncertainties, many of which are difficult to predict and are generally beyond our control. These forward-looking statements include information about possible or assumed future results of our business, financial condition, liquidity, results of operations, plans and objectives. When we use the words "believe," "expect," "anticipate," "estimate," "plan," "continue," "intend," "should," "may" or similar expressions, it intends to identify forward-looking statements. Statements regarding the following subjects, among others, may be forward-looking: the macro- and micro-economic impact of the COVID-19 pandemic; the severity and duration of the COVID-19 pandemic; actions taken by governmental authorities to contain the COVID-19 pandemic or treat its impact; the efficacy of the vaccines or other remedies and the speed of their distribution and administration; the impact of the COVID-19 pandemic on our financial condition, results of operations, liquidity and capital resources; market trends in our industry, interest rates, real estate values, the debt securities markets or the general economy; the demand for commercial real estate loans; our business and investment strategy; our operating results; actions and initiatives of the U.S. government and governments outside of the United States, changes to government policies and the execution and impact of these actions, initiatives and policies; the state of the economy generally or in specific geographic regions; economic trends and economic recoveries; our ability to obtain and maintain financing arrangements, including secured debt arrangements and securitizations; the timing and amount of expected future fundings of unfunded commitments; the availability of debt financing from traditional lenders; the volume of short-term loan extensions; the demand for new capital to replace maturing loans; expected leverage; general volatility of the securities markets in which we participate; changes in the value of our assets; the scope of our target assets; interest rate mismatches between our target assets and any borrowings used to fund such assets; changes in interest rates and the market value of our target assets; changes in prepayment rates on our target assets; effects of hedging instruments on our target assets; rates of default or decreased recovery rates on our target assets; the degree to which hedging strategies may or may not protect us from interest rate volatility; impact of and changes in governmental regulations, tax law and rates, accounting, legal or regulatory issues or guidance and similar matters; our continued maintenance of our qualification as a REIT for U.S. federal income tax purposes; our continued exclusion from registration under the Investment Company Act of 1940, as amended (the "1940 Act"); the availability of opportunities to acquire commercial mortgage-related, real estate-related and other securities; the availability of qualified personnel; estimates relating to our ability to make distributions to our stockholders in the future; our present and potential future competition; and unexpected costs or unexpected liabilities, including those related to litigation.
The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. Forward-looking statements are not predictions of future events. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us. See "Item 1A. Risk Factors" of this Quarterly Report on Form 10-Q and our Annual Report. These and other risks, uncertainties, and factors, including those described in the annual, quarterly and current reports that we file with the SEC, could cause our actual results to differ materially from those included in any forward-looking statements we make. All forward-looking statements speak only as of the date they are made. New risks and uncertainties arise over time and it is not possible to predict those events or how they may affect us. Except as required by law, we are not obligated to, and do not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Introduction
We are a CRE finance company focused primarily on originating senior and subordinate loans on transitional CRE assets located in major U.S. markets, including mortgage loans secured by a first priority or subordinate mortgage on transitional CRE assets, and subordinate loans including mezzanine loans secured by a pledge of equity ownership interests in the direct or indirect property owner rather than directly in the underlying commercial properties. These loans are subordinate to a mortgage loan but senior to the property owner’s equity ownership interests. Transitional CRE assets are properties that require repositioning, renovation, rehabilitation, leasing, development or redevelopment or other value-added elements in order to maximize value. We believe our Sponsor’s real estate development, ownership and operations experience and infrastructure differentiates us in lending on these transitional CRE assets. Our objective is to be a premier provider of debt capital for transitional CRE assets and, in doing so, to generate attractive risk-adjusted returns for our stockholders over time, primarily through dividends. We strive to create a diversified investment portfolio of CRE loans
32
that we generally intend to hold to maturity. We focus primarily on originating loans ranging from $50 million to $300 million on transitional CRE assets located in major markets with attractive fundamental characteristics supported by macroeconomic tailwinds.
We were organized as a Maryland corporation on April 29, 2015 and commenced operations on August 25, 2015, and are traded on the New York Stock Exchange, or NYSE, under the symbol “CMTG”. We have elected and believe we have qualified to be taxed as a REIT for U.S. federal income tax purposes commencing with our taxable year ended December 31, 2015. We are externally managed and advised by our Manager, an investment adviser registered with the SEC pursuant to the Investment Advisers Act of 1940, as amended. We operate our business in a manner that permits us to maintain our exclusion from registration under the 1940 Act.
I. Key Financial Measures and Indicators
As a CRE finance company, we believe the key financial measures and indicators for our business are net income per share, dividends declared per share, Distributable Earnings per share, book value per share, adjusted book value per share, Net Debt-to-Equity Ratio and Total Leverage Ratio. During the three months ended June 30, 2022, we had net income per share of $0.45, Distributable Earnings per share of $0.43, Distributable Earnings excluding realized losses per share of $0.51, and declared dividends of $0.37 per share. As of June 30, 2022, our book value per share was $18.00, our adjusted book value per share was $18.59, our Net-Debt-to-Equity Ratio was 1.9x, and our Total Leverage Ratio was 2.3x. We use Net Debt-to-Equity Ratio and Total Leverage Ratio, financial measures which are not prepared in accordance with GAAP, to evaluate our financial leverage, which in the case of our Total Leverage Ratio, makes certain adjustments that we believe provide a more conservative measure of our financial condition.
Net Income Per Share and Dividends Declared Per Share
The following table sets forth the calculation of basic and diluted net income per share and dividends declared per share ($ in thousands, except share and per share data):
|
|
Three Months Ended |
|
|||||
|
|
June 30, 2022 |
|
|
March 31, 2022 |
|
||
Basic and diluted earnings |
|
$ |
62,404 |
|
|
$ |
29,412 |
|
Weighted average shares of common stock outstanding, basic and diluted |
|
|
139,637,949 |
|
|
|
139,712,501 |
|
Basic and diluted net income per share of common stock |
|
$ |
0.45 |
|
|
$ |
0.21 |
|
Dividends declared per share of common stock |
|
$ |
0.37 |
|
|
$ |
0.37 |
|
Distributable Earnings
Distributable Earnings is a non-GAAP measures used to evaluate our performance excluding the effects of certain transactions, non-cash items and GAAP adjustments, as determined by our Manager, that we believe are not necessarily indicative of our current performance and operations. Distributable Earnings is a non-GAAP measure, which we define as net income as determined in accordance with GAAP, excluding (i) non-cash stock-based compensation expense (income), (ii) real estate depreciation and amortization, (iii) any unrealized gains or losses from mark-to-market valuation changes (other than permanent impairments) that are included in net income for the applicable period, (iv) one-time events pursuant to changes in GAAP and (v) certain non-cash items, which in the judgment of our Manager, should not be included in Distributable Earnings. Pursuant to the Management Agreement, we use Core Earnings, which is substantially the same as Distributable Earnings excluding incentive fees, to determine the incentive fees we pay our Manager. Distributable Earnings is substantially the same as Core Earnings, as defined in the Management Agreement, for the periods presented.
Distributable Earnings, and other similar measures, have historically been a useful indicator of mortgage REITs’ ability to cover their dividends, and to mortgage REITs themselves in determining the amount of any dividends. Distributable Earnings is a key factor, among others, considered by the board of directors in setting the dividend and as such we believe Distributable Earnings is useful to investors. Accordingly, we believe providing Distributable Earnings on a supplemental basis to our net income as determined in accordance with GAAP is helpful to our stockholders in assessing the overall performance of our business.
We believe that Distributable Earnings provides meaningful information to consider in addition to our net income and cash flows from operating activities determined in accordance with GAAP. We believe Distributable Earnings helps us to evaluate our performance excluding the effects of certain transactions, non-cash items and GAAP adjustments, as determined by our Manager, that we believe are not necessarily indicative of our current performance and operations. Distributable Earnings does not represent net income or cash flows from operating activities and should not be considered as an alternative to GAAP net income, an indication of our cash flows from operating activities, a measure of our liquidity or an indication of funds available for our cash needs. In addition, our methodology for
33
calculating Distributable Earnings may differ from the methodologies employed by other companies to calculate the same or similar supplemental performance measures and, accordingly, our reported Distributable Earnings may not be comparable to the Distributable Earnings reported by other companies.
While Distributable Earnings excludes the impact of our unrealized current provision for credit losses, loan losses are charged off and recognized through Distributable Earnings when deemed non-recoverable. Non-recoverability is determined (i) upon the resolution of a loan (i.e. when the loan is repaid, fully or partially, or in the case of foreclosure, when the underlying asset is sold), or (ii) with respect to any amount due under any loan, when such amount is determined to be non-collectible. During the three months ended June 30, 2022, we recorded an $8.5 million increase in the CECL reserve, which has been excluded from Distributable Earnings.
In determining distributable earnings per share, the dilutive effect of unvested RSUs are considered. The weighted-average diluted shares outstanding used for Distributable Earnings has been adjusted from weighted-average diluted shares under GAAP to include unvested RSUs.
The table below summarizes the reconciliation from weighted-average diluted shares under GAAP to the weighted-average diluted shares used for Distributable Earnings:
|
|
Three Months Ended |
|
|||||
Weighted-Averages |
|
June 30, 2022 |
|
|
March 31, 2022 |
|
||
Diluted Shares - GAAP |
|
|
139,637,949 |
|
|
|
139,712,501 |
|
Unvested RSUs |
|
|
407,565 |
|
|
|
- |
|
Diluted Shares - Distributable Earnings |
|
|
140,045,514 |
|
|
|
139,712,501 |
|
The following table provides a reconciliation of net income attributable to common stock to Distributable Earnings ($ in thousands, except share and per share data):
|
|
Three Months Ended |
|
|||||
|
|
June 30, 2022 |
|
|
March 31, 2022 |
|
||
Net income attributable to common stock: |
|
$ |
63,234 |
|
|
$ |
29,412 |
|
Adjustments: |
|
|
|
|
|
|
||
Non-cash stock-based compensation expense |
|
|
604 |
|
|
|
— |
|
Provision for current expected credit loss reserve |
|
|
8,530 |
|
|
|
2,102 |
|
Depreciation expense |
|
|
1,998 |
|
|
|
1,940 |
|
Unrealized gain on interest rate cap |
|
|
(2,837 |
) |
|
|
— |
|
Distributable Earnings prior to principal charge-offs |
|
$ |
71,529 |
|
|
$ |
33,454 |
|
Principal charge-offs |
|
|
(11,500 |
) |
|
|
— |
|
Distributable Earnings |
|
$ |
60,029 |
|
|
$ |
33,454 |
|
Weighted average diluted shares - Distributable Earnings |
|
|
140,045,514 |
|
|
|
139,712,501 |
|
Diluted Distributable Earnings per share prior to principal charge-offs |
|
$ |
0.51 |
|
|
$ |
0.24 |
|
Diluted Distributable Earnings per share |
|
$ |
0.43 |
|
|
$ |
0.24 |
|
Book Value Per Share
We believe that presenting book value per share adjusted for the general allowance for loan losses and accumulated depreciation is useful for investors as it enhances the comparability across the industry. We believe that our investors and lenders consider book value excluding these items as an important metric related to our overall capitalization.
34
The following table sets forth the calculation of our book value and our adjusted book value per share ($ in thousands, except share and per share data):
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||
Total Stockholders’ Equity |
|
$ |
2,590,406 |
|
|
$ |
2,604,267 |
|
Non-controlling interest |
|
|
(38,456 |
) |
|
|
(37,636 |
) |
Stockholders’ Equity, net of non-controlling interest |
|
$ |
2,551,950 |
|
|
$ |
2,566,631 |
|
Number of Shares Common Stock Outstanding and unvested RSUs at Period End |
|
|
141,779,358 |
|
|
|
139,840,088 |
|
Book Value per share(1) |
|
$ |
18.00 |
|
|
$ |
18.35 |
|
Add back: accumulated depreciation on real estate owned |
|
|
0.08 |
|
|
|
0.05 |
|
Add back: general CECL reserve |
|
|
0.51 |
|
|
|
0.48 |
|
Adjusted Book Value per share |
|
$ |
18.59 |
|
|
$ |
18.88 |
|
II. Our Portfolio
The below table summarizes our loan portfolio as of June 30, 2022 ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
Weighted Average(2) |
|
|
|
|
|
|||||||||
|
|
Number of |
|
|
Loan Commitment(1) |
|
|
Unpaid |
|
|
Yield to Maturity(3) |
|
|
Term to |
|
|
LTV(5) |
|
|
||||||
Senior loans |
|
|
69 |
|
|
$ |
8,544,463 |
|
|
$ |
6,877,260 |
|
|
|
6.1 |
% |
|
|
3.6 |
|
|
|
66.9 |
% |
|
Subordinate loans |
|
|
5 |
|
|
|
265,046 |
|
|
|
262,311 |
|
|
|
7.2 |
% |
|
|
2.4 |
|
|
|
68.1 |
% |
|
Total / Weighted Average |
|
|
74 |
|
|
$ |
8,809,509 |
|
|
$ |
7,139,571 |
|
|
|
6.1 |
% |
|
|
3.6 |
|
|
|
67.8 |
% |
|
Portfolio Activity and Overview
The following table summarizes changes in unpaid principal balance within our portfolio, for both our loans and for our interests in loans (i.e., loans in which we have acquired an interest in a loan for which the transferor did not account for the transaction as a sale under GAAP) for the three and six months ended June 30, 2022 ($ in thousands):
35
|
|
Three Months Ended June 30, 2022 |
|
|
Six Months Ended June 30, 2022 |
|
||||||||||||||||||
|
|
Loans Receivable |
|
|
Interests |
|
|
Total |
|
|
Loans Receivable |
|
|
Interests |
|
|
Total |
|
||||||
Unpaid principal balance, beginning of period |
|
$ |
7,080,932 |
|
|
$ |
152,841 |
|
|
$ |
7,233,773 |
|
|
$ |
6,441,238 |
|
|
$ |
161,566 |
|
|
$ |
6,602,804 |
|
Initial funding of loans |
|
|
623,747 |
|
|
|
— |
|
|
|
623,747 |
|
|
|
1,308,536 |
|
|
|
— |
|
|
|
1,308,536 |
|
Advances on loans |
|
|
171,725 |
|
|
|
— |
|
|
|
171,725 |
|
|
|
295,211 |
|
|
|
17,080 |
|
|
|
312,291 |
|
Loan repayments |
|
|
(609,313 |
) |
|
|
(152,841 |
) |
|
|
(762,154 |
) |
|
|
(777,894 |
) |
|
|
(178,646 |
) |
|
|
(956,540 |
) |
Sale of loan receivable |
|
|
(116,020 |
) |
|
|
— |
|
|
|
(116,020 |
) |
|
|
(116,020 |
) |
|
|
— |
|
|
|
(116,020 |
) |
Principal charge-offs |
|
|
(11,500 |
) |
|
|
— |
|
|
|
(11,500 |
) |
|
|
(11,500 |
) |
|
|
— |
|
|
|
(11,500 |
) |
Total net fundings |
|
$ |
58,639 |
|
|
$ |
(152,841 |
) |
|
$ |
(94,202 |
) |
|
$ |
698,333 |
|
|
$ |
(161,566 |
) |
|
$ |
536,767 |
|
Unpaid principal balance, end of period |
|
$ |
7,139,571 |
|
|
$ |
— |
|
|
$ |
7,139,571 |
|
|
$ |
7,139,571 |
|
|
$ |
— |
|
|
$ |
7,139,571 |
|
The following table details our loan investments individually based on unpaid principal balances as of June 30, 2022 ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Loan Number |
|
Loan type |
|
Origination Date |
|
Loan Commitment(1) |
|
|
Unpaid Principal Balance |
|
|
Carrying Value |
|
|
Fully Extended Maturity(2) |
|
Property Type |
|
Construction(5) |
|
|
Location |
|
Risk Rating |
|
||||
1 |
|
Senior |
|
11/1/2019 |
|
|
390,000 |
|
|
|
390,000 |
|
|
|
388,622 |
|
|
11/1/2026 |
|
Multifamily |
|
|
- |
|
|
NY |
|
3 |
|
2 |
|
Senior |
|
12/16/2021 |
|
|
405,000 |
|
|
|
385,743 |
|
|
|
382,705 |
|
|
6/16/2027 |
|
Multifamily |
|
|
- |
|
|
CA |
|
3 |
|
3 |
|
Senior |
|
7/12/2018 |
|
|
290,000 |
|
|
|
290,000 |
|
|
|
291,353 |
|
|
8/1/2023 |
|
Hospitality |
|
|
- |
|
|
NY |
|
4 |
|
4 |
|
Senior |
|
10/18/2019 |
|
|
303,080 |
|
|
|
263,249 |
|
|
|
262,597 |
|
|
10/18/2024 |
|
For Sale Condo |
|
Y |
|
|
CA |
|
3 |
|
|
5(3) |
|
Senior |
|
12/30/2021 |
|
|
257,963 |
|
|
|
257,963 |
|
|
|
256,758 |
|
|
12/30/2026 |
|
Multifamily |
|
|
- |
|
|
VA |
|
1 |
|
6 |
|
Senior |
|
6/30/2022 |
|
|
227,000 |
|
|
|
211,222 |
|
|
|
208,271 |
|
|
6/30/2029 |
|
Hospitality |
|
|
- |
|
|
CA |
|
3 |
|
7 |
|
Senior |
|
12/27/2018 |
|
|
210,000 |
|
|
|
207,548 |
|
|
|
207,548 |
|
|
2/1/2025 |
|
Mixed-use |
|
|
- |
|
|
NY |
|
4 |
|
8 |
|
Senior |
|
10/4/2019 |
|
|
263,000 |
|
|
|
202,051 |
|
|
|
201,582 |
|
|
10/1/2025 |
|
Mixed-use |
|
Y |
|
|
DC |
|
3 |
|
|
9 |
|
Senior |
|
7/26/2021 |
|
|
225,000 |
|
|
|
200,529 |
|
|
|
198,908 |
|
|
7/26/2026 |
|
Hospitality |
|
|
- |
|
|
GA |
|
3 |
|
10 |
|
Senior |
|
9/7/2018 |
|
|
192,600 |
|
|
|
192,600 |
|
|
|
192,208 |
|
|
10/18/2024 |
|
Land |
|
|
- |
|
|
NY |
|
3 |
|
11 |
|
Senior |
|
1/14/2022 |
|
|
170,000 |
|
|
|
170,000 |
|
|
|
168,564 |
|
|
1/14/2027 |
|
Multifamily |
|
|
- |
|
|
CO |
|
3 |
|
12 |
|
Senior |
|
4/14/2022 |
|
|
193,400 |
|
|
|
166,700 |
|
|
|
164,900 |
|
|
4/14/2027 |
|
Multifamily |
|
|
- |
|
|
MI |
|
3 |
|
13 |
|
Senior |
|
9/27/2019 |
|
|
258,400 |
|
|
|
155,668 |
|
|
|
154,081 |
|
|
9/26/2026 |
|
Office |
|
|
- |
|
|
GA |
|
4 |
|
14 |
|
Senior |
|
2/28/2019 |
|
|
150,000 |
|
|
|
150,000 |
|
|
|
149,750 |
|
|
2/28/2024 |
|
Office |
|
|
- |
|
|
CT |
|
3 |
|
15 |
|
Senior |
|
2/15/2022 |
|
|
262,500 |
|
|
|
149,423 |
|
|
|
146,961 |
|
|
2/15/2027 |
|
Multifamily |
|
Y |
|
|
CA |
|
3 |
|
|
16 |
|
Senior |
|
1/9/2018 |
|
|
148,500 |
|
|
|
148,500 |
|
|
|
148,182 |
|
|
1/9/2024 |
|
Hospitality |
|
|
- |
|
|
VA |
|
3 |
|
17 |
|
Senior |
|
12/30/2021 |
|
|
147,500 |
|
|
|
147,500 |
|
|
|
147,072 |
|
|
12/30/2025 |
|
Multifamily |
|
|
- |
|
|
PA |
|
3 |
|
18 |
|
Senior |
|
9/20/2019 |
|
|
225,000 |
|
|
|
145,685 |
|
|
|
143,941 |
|
|
12/31/2025 |
|
For Sale Condo |
|
Y |
|
|
FL |
|
3 |
|
|
19 |
|
Senior |
|
8/8/2019 |
|
|
154,999 |
|
|
|
136,093 |
|
|
|
135,416 |
|
|
8/8/2026 |
|
Multifamily |
|
|
- |
|
|
CA |
|
3 |
|
20 |
|
Senior |
|
9/2/2021 |
|
|
166,812 |
|
|
|
133,705 |
|
|
|
131,624 |
|
|
9/2/2026 |
|
Other |
|
Y |
|
|
GA |
|
3 |
|
|
21 |
|
Senior |
|
4/26/2022 |
|
|
151,698 |
|
|
|
133,059 |
|
|
|
131,295 |
|
|
4/26/2027 |
|
Multifamily |
|
|
- |
|
|
TX |
|
3 |
|
22 |
|
Senior |
|
12/10/2021 |
|
|
130,000 |
|
|
|
130,000 |
|
|
|
129,095 |
|
|
12/10/2026 |
|
Multifamily |
|
|
- |
|
|
VA |
|
3 |
|
23 |
|
Subordinate |
|
12/9/2021 |
|
|
125,000 |
|
|
|
125,000 |
|
|
|
124,724 |
|
|
1/1/2027 |
|
Office |
|
|
- |
|
|
IL |
|
3 |
|
24 |
|
Senior |
|
9/24/2021 |
|
|
127,535 |
|
|
|
122,535 |
|
|
|
121,562 |
|
|
9/24/2028 |
|
Hospitality |
|
|
- |
|
|
TX |
|
3 |
|
25 |
|
Senior |
|
9/30/2019 |
|
|
122,500 |
|
|
|
122,500 |
|
|
|
122,319 |
|
|
2/9/2027 |
|
Office |
|
|
- |
|
|
NY |
|
3 |
|
26 |
|
Senior |
|
4/29/2019 |
|
|
120,000 |
|
|
|
119,377 |
|
|
|
119,377 |
|
|
4/29/2024 |
|
Mixed-use |
|
|
- |
|
|
NY |
|
3 |
|
27 |
|
Senior |
|
3/1/2022 |
|
|
122,000 |
|
|
|
118,600 |
|
|
|
117,649 |
|
|
2/28/2027 |
|
Multifamily |
|
|
- |
|
|
TX |
|
3 |
|
28 |
|
Senior |
|
7/20/2021 |
|
|
113,500 |
|
|
|
113,500 |
|
|
|
113,083 |
|
|
7/20/2026 |
|
Multifamily |
|
|
- |
|
|
IL |
|
3 |
|
29 |
|
Senior |
|
2/13/2020 |
|
|
124,810 |
|
|
|
111,604 |
|
|
|
111,097 |
|
|
2/13/2025 |
|
Office |
|
|
- |
|
|
CA |
|
4 |
|
30 |
|
Senior |
|
6/17/2022 |
|
|
127,250 |
|
|
|
108,096 |
|
|
|
106,505 |
|
|
6/17/2027 |
|
Multifamily |
|
|
- |
|
|
TX |
|
3 |
|
31(4) |
|
Senior |
|
6/8/2018 |
|
|
104,250 |
|
|
|
104,250 |
|
|
|
105,343 |
|
|
1/15/2022 |
|
Land |
|
|
- |
|
|
NY |
|
4 |
|
32 |
|
Senior |
|
12/15/2021 |
|
|
103,000 |
|
|
|
103,000 |
|
|
|
102,242 |
|
|
12/15/2026 |
|
Multifamily |
|
|
- |
|
|
TN |
|
3 |
|
33 |
|
Senior |
|
10/11/2017 |
|
|
97,500 |
|
|
|
97,500 |
|
|
|
97,457 |
|
|
10/31/2023 |
|
Hospitality |
|
|
- |
|
|
CA |
|
3 |
|
34 |
|
Senior |
|
8/2/2021 |
|
|
100,000 |
|
|
|
95,474 |
|
|
|
94,852 |
|
|
8/2/2026 |
|
Office |
|
|
- |
|
|
CA |
|
3 |
|
35 |
|
Senior |
|
1/27/2022 |
|
|
100,800 |
|
|
|
94,749 |
|
|
|
93,981 |
|
|
1/27/2027 |
|
Multifamily |
|
|
- |
|
|
NV |
|
3 |
|
36 |
|
Senior |
|
3/31/2020 |
|
|
87,750 |
|
|
|
87,750 |
|
|
|
87,750 |
|
|
2/9/2025 |
|
Office |
|
|
- |
|
|
TX |
|
4 |
|
37 |
|
Senior |
|
4/1/2020 |
|
|
141,084 |
|
|
|
81,807 |
|
|
|
80,614 |
|
|
4/1/2026 |
|
Office |
|
Y |
|
|
TN |
|
3 |
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Loan Number |
|
Loan type |
|
Origination Date |
|
Loan Commitment(1) |
|
|
Unpaid Principal Balance |
|
|
Carrying Value |
|
|
Fully Extended Maturity(2) |
|
Property Type |
|
Construction(5) |
|
|
Location |
|
Risk Rating |
|
||||
38 |
|
Senior |
|
7/10/2018 |
|
|
78,825 |
|
|
|
78,825 |
|
|
|
75,525 |
|
|
7/10/2025 |
|
Hospitality |
|
|
- |
|
|
CA |
|
4 |
|
39(4) |
|
Subordinate |
|
3/29/2018 |
|
|
77,619 |
|
|
|
77,619 |
|
|
|
78,109 |
|
|
1/26/2021 |
|
Land |
|
|
- |
|
|
NY |
|
4 |
|
40 |
|
Senior |
|
4/5/2019 |
|
|
75,500 |
|
|
|
75,500 |
|
|
|
75,359 |
|
|
4/5/2024 |
|
Mixed-use |
|
|
- |
|
|
NY |
|
3 |
|
41 |
|
Senior |
|
12/14/2018 |
|
|
75,000 |
|
|
|
74,996 |
|
|
|
74,918 |
|
|
12/14/2023 |
|
Multifamily |
|
|
- |
|
|
DC |
|
3 |
|
42 |
|
Senior |
|
8/26/2021 |
|
|
84,810 |
|
|
|
69,869 |
|
|
|
69,206 |
|
|
8/27/2026 |
|
Office |
|
|
- |
|
|
GA |
|
3 |
|
43(4) |
|
Senior |
|
8/2/2019 |
|
|
67,000 |
|
|
|
67,000 |
|
|
|
67,000 |
|
|
1/30/2022 |
|
Land |
|
|
- |
|
|
NY |
|
4 |
|
44 |
|
Senior |
|
12/22/2021 |
|
|
76,350 |
|
|
|
63,276 |
|
|
|
62,610 |
|
|
12/22/2026 |
|
Multifamily |
|
|
- |
|
|
TX |
|
3 |
|
45 |
|
Senior |
|
12/30/2021 |
|
|
63,005 |
|
|
|
63,005 |
|
|
|
62,706 |
|
|
12/30/2025 |
|
For Sale Condo |
|
|
- |
|
|
VA |
|
3 |
|
46 |
|
Senior |
|
8/29/2018 |
|
|
60,000 |
|
|
|
60,000 |
|
|
|
59,975 |
|
|
8/31/2023 |
|
Hospitality |
|
|
- |
|
|
NY |
|
3 |
|
47 |
|
Senior |
|
1/19/2022 |
|
|
73,677 |
|
|
|
51,563 |
|
|
|
50,897 |
|
|
1/19/2027 |
|
Hospitality |
|
|
- |
|
|
TN |
|
3 |
|
48 |
|
Senior |
|
3/15/2022 |
|
|
53,300 |
|
|
|
49,844 |
|
|
|
49,370 |
|
|
3/15/2027 |
|
Multifamily |
|
|
- |
|
|
AZ |
|
3 |
|
49 |
|
Senior |
|
6/3/2021 |
|
|
79,600 |
|
|
|
46,700 |
|
|
|
46,065 |
|
|
6/3/2026 |
|
Other |
|
|
- |
|
|
MI |
|
3 |
|
50 |
|
Senior |
|
3/22/2021 |
|
|
110,135 |
|
|
|
45,764 |
|
|
|
45,023 |
|
|
3/22/2026 |
|
Other |
|
Y |
|
|
MA |
|
3 |
|
|
51 |
|
Senior |
|
11/2/2021 |
|
|
77,115 |
|
|
|
42,376 |
|
|
|
41,649 |
|
|
11/2/2026 |
|
Multifamily |
|
Y |
|
|
FL |
|
3 |
|
|
52 |
|
Senior |
|
2/4/2022 |
|
|
44,768 |
|
|
|
37,083 |
|
|
|
36,679 |
|
|
2/4/2027 |
|
Multifamily |
|
|
- |
|
|
TX |
|
3 |
|
53(4) |
|
Subordinate |
|
12/21/2018 |
|
|
31,300 |
|
|
|
31,300 |
|
|
|
31,456 |
|
|
6/21/2022 |
|
Land |
|
|
- |
|
|
NY |
|
3 |
|
54 |
|
Senior |
|
4/18/2019 |
|
|
30,000 |
|
|
|
30,000 |
|
|
|
29,875 |
|
|
5/1/2023 |
|
Office |
|
|
- |
|
|
MA |
|
3 |
|
55 |
|
Subordinate |
|
7/2/2021 |
|
|
30,200 |
|
|
|
27,465 |
|
|
|
27,368 |
|
|
7/2/2024 |
|
Land |
|
|
- |
|
|
FL |
|
3 |
|
56 |
|
Senior |
|
1/10/2022 |
|
|
130,461 |
|
|
|
25,925 |
|
|
|
24,625 |
|
|
1/9/2027 |
|
Life Sciences |
|
Y |
|
|
PA |
|
3 |
|
|
57 |
|
Senior |
|
8/2/2019 |
|
|
24,930 |
|
|
|
24,930 |
|
|
|
25,109 |
|
|
2/2/2024 |
|
For Sale Condo |
|
|
- |
|
|
NY |
|
3 |
|
58 |
|
Senior |
|
12/30/2021 |
|
|
141,791 |
|
|
|
24,684 |
|
|
|
23,305 |
|
|
12/30/2026 |
|
Mixed-use |
|
Y |
|
|
FL |
|
3 |
|
|
59 |
|
Senior |
|
2/17/2022 |
|
|
28,479 |
|
|
|
23,924 |
|
|
|
23,674 |
|
|
2/17/2027 |
|
Multifamily |
|
|
- |
|
|
TX |
|
3 |
|
60 |
|
Senior |
|
3/9/2018 |
|
|
26,200 |
|
|
|
21,586 |
|
|
|
21,271 |
|
|
5/31/2023 |
|
For Sale Condo |
|
|
- |
|
|
NY |
|
4 |
|
61 |
|
Senior |
|
4/29/2021 |
|
|
17,500 |
|
|
|
17,500 |
|
|
|
17,646 |
|
|
4/29/2023 |
|
Land |
|
|
- |
|
|
PA |
|
3 |
|
62 |
|
Senior |
|
2/2/2022 |
|
|
90,000 |
|
|
|
10,170 |
|
|
|
9,274 |
|
|
2/2/2027 |
|
Office |
|
Y |
|
|
WA |
|
3 |
|
|
63 |
|
Senior |
|
5/5/2017 |
|
|
5,705 |
|
|
|
5,705 |
|
|
|
5,705 |
|
|
1/1/2023 |
|
Other |
|
|
- |
|
|
Other |
|
5 |
|
64 |
|
Senior |
|
11/24/2021 |
|
|
60,255 |
|
|
|
5,659 |
|
|
|
5,062 |
|
|
11/24/2026 |
|
Multifamily |
|
Y |
|
|
NV |
|
3 |
|
|
65 |
|
Senior |
|
1/31/2022 |
|
|
34,641 |
|
|
|
5,226 |
|
|
|
4,884 |
|
|
1/31/2027 |
|
Other |
|
Y |
|
|
FL |
|
3 |
|
|
66 |
|
Senior |
|
6/30/2022 |
|
|
48,500 |
|
|
|
4,670 |
|
|
|
4,186 |
|
|
6/30/2026 |
|
Other |
|
Y |
|
|
NV |
|
3 |
|
|
67(4) |
|
Senior |
|
7/1/2019 |
|
|
3,500 |
|
|
|
3,500 |
|
|
|
3,500 |
|
|
12/30/2020 |
|
Other |
|
|
- |
|
|
Other |
|
5 |
|
68 |
|
Subordinate |
|
8/2/2018 |
|
|
927 |
|
|
|
927 |
|
|
|
927 |
|
|
8/2/2023 |
|
Other |
|
|
- |
|
|
NY |
|
2 |
|
69 |
|
Senior |
|
1/4/2022 |
|
|
32,795 |
|
|
|
- |
|
|
|
(328 |
) |
|
1/4/2027 |
|
Other |
|
Y |
|
|
GA |
|
3 |
|
|
70 |
|
Senior |
|
2/18/2022 |
|
|
32,083 |
|
|
|
- |
|
|
|
(321 |
) |
|
2/18/2027 |
|
Other |
|
Y |
|
|
FL |
|
3 |
|
|
71 |
|
Senior |
|
2/25/2022 |
|
|
53,984 |
|
|
|
- |
|
|
|
(540 |
) |
|
2/25/2027 |
|
Other |
|
Y |
|
|
GA |
|
3 |
|
|
72 |
|
Senior |
|
4/19/2022 |
|
|
23,378 |
|
|
|
- |
|
|
|
(234 |
) |
|
4/19/2027 |
|
Other |
|
Y |
|
|
GA |
|
3 |
|
|
73 |
|
Senior |
|
4/19/2022 |
|
|
24,245 |
|
|
|
- |
|
|
|
(242 |
) |
|
4/19/2027 |
|
Other |
|
Y |
|
|
GA |
|
3 |
|
|
74 |
|
Senior |
|
5/13/2022 |
|
|
202,500 |
|
|
|
- |
|
|
|
(2,025 |
) |
|
5/13/2027 |
|
Mixed-use |
|
Y |
|
|
VA |
|
3 |
|
|
Total |
|
|
8,809,509 |
|
|
|
7,139,571 |
|
|
|
7,089,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
CECL Allowance |
|
|
|
|
|
|
|
|
(59,400 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Grand Total/Weighted Average |
|
|
8,809,509 |
|
|
|
7,139,571 |
|
|
|
7,029,856 |
|
|
|
|
|
|
27.5% |
|
|
|
|
|
|
|||||
Real Estate Owned, Net
On February 8, 2021, we acquired legal title to a portfolio of hotel properties located in New York, NY through a foreclosure. Prior to February 8, 2021, the hotel portfolio represented the collateral for the $103.9 million mezzanine loan that we held, which was in default as a result of the borrower failing to pay debt service. The hotel portfolio appears as real estate owned, net on our balance sheet and, as of June 30, 2022, was encumbered by a $290.0 million securitized senior mortgage, which is included as a liability on our balance sheet. Refer to Note 4 to our consolidated financial statements for additional details.
Asset Management
Our Manager proactively manages the loans in our portfolio from closing to final repayment and our Sponsor has dedicated asset management employees to perform asset management services. Following the closing of an investment, the asset management team rigorously monitors the loan, with an emphasis on ongoing financial, legal, market condition and quantitative analyses. Through the final repayment of a loan, the asset management team maintains regular contact with borrowers, servicers and local market experts monitoring performance of the collateral, anticipating borrower, property and market issues, and enforcing our rights and remedies when appropriate.
From time to time, some of our borrowers may experience delays in the execution of their business plans. As a transitional lender, we work with our borrowers to execute loan modifications which typically include additional equity contributions from borrowers, repurposing of reserves, temporary deferrals of interest or principal, and partial deferral of coupon interest as payment-in-kind interest.
37
We have completed a number of loan modifications to date, and we may continue to make additional modifications depending on the business plans, financial condition, liquidity and results of operations of our borrowers.
Our Manager reviews our entire loan portfolio at least quarterly, undertakes an assessment of the performance of each loan, and assigns it a risk rating between “1” and “5,” from least risk to greatest risk, respectively. The weighted average risk rating of our total loan exposure was 3.1 at June 30, 2022.
Current Expected Credit Losses and Loan Risk Ratings
On January 1, 2021, we adopted ASU 2016-13, which implemented the CECL accounting model. Following adoption, we recorded a $78.3 million cumulative effect adjustment to retained earnings.
During the three months ended June 30, 2022, we recorded a principal charge-off of $11.5 million against a loan made to the personal estate of a former borrower. Prior to the charge-off, the loan had an unpaid principal balance $15.0 million and a specific CECL reserve of $6.0 million, resulting in a carrying value of $9.0 million. Following the charge-off, the loan carrying value was $3.5 million, which represents estimated collection. The loan is on non-accrual status and is in maturity default.
During three months ended June 30, 2022, we recorded a provision of $8.5 million in the allowance for credit losses, which was offset by the principal charge-off of $11.5 million, bringing our total reserve to $72.7 million as of June 30, 2022.
In December 2021, we received a partial principal repayment of $81.7 million on a senior loan with an outstanding principal balance of $95.0 million, and a maturity date of May 31, 2021, and recorded a principal charge-off of $1.8 million. Following the repayment, the maturity date of the loan was extended to January 1, 2023. As of June 30, 2022, the loan had a specific CECL reserve of $0.1 million.
Portfolio Financing
Our portfolio financing arrangements include repurchase facilities, asset-specific financing structures, mortgages on real estate owned and Secured Term Loan borrowings.
The following table summarizes our loan portfolio financing ($ in thousands):
|
|
June 30, 2022 |
|
|||||||||
|
|
Capacity |
|
|
Unpaid |
|
|
Weighted |
|
|||
Repurchase agreements |
|
$ |
4,515,000 |
|
|
$ |
3,703,306 |
|
|
|
+ 2.05% |
|
Repurchase agreements - Side Car |
|
|
271,171 |
|
|
|
215,397 |
|
|
|
+ 4.51% |
|
Loan participations sold |
|
|
274,252 |
|
|
|
274,252 |
|
|
|
+ 3.84% |
|
Notes payable |
|
|
229,950 |
|
|
|
100,512 |
|
|
|
+ 3.04% |
|
Secured Term Loan |
|
|
758,904 |
|
|
|
758,904 |
|
|
|
+ 4.50% |
|
Debt related to real estate owned |
|
|
290,000 |
|
|
|
290,000 |
|
|
|
+ 2.78% |
|
Total / weighted average |
|
$ |
6,339,277 |
|
|
$ |
5,342,371 |
|
|
|
+ 2.65% |
|
Repurchase Agreements
We finance certain of our loans using secured revolving repurchase facilities. As of June 30, 2022, aggregate borrowings outstanding under our secured revolving repurchase facilities totaled $3.9 billion, with a weighted average coupon of one-month LIBOR or Term SOFR plus 2.18% per annum. All weighted averages are based on unpaid principal balance. As of June 30, 2022, outstanding borrowings under these facilities had a weighted average term to fully extended maturity (assuming we exercise all extension options and our counterparty agrees to such extension options) of 3.9 years.
Each of the secured revolving repurchase facilities contains “margin maintenance” provisions, which are designed to allow the lender to require additional collateral to secure borrowings against assets that are determined to have experienced a diminution in value.
38
The amount of margin that may be required is generally determined by multiplying the assessed diminution in value of the collateral by the then-current advance rate applicable to such collateral. Since inception through June 30, 2022, we have not received any margin calls under any of our repurchase facilities.
Loan Participations Sold
We finance certain investments via the sale of a participation in loans receivable that we own, and we present the loan participation sold as a liability on our consolidated balance sheet when such arrangement does not qualify as a sale under GAAP. In instances where we have multiple loan participations with the same lender, the financings are generally not cross-collateralized. Each of our loan participations sold is generally term-matched to its corresponding loan collateral. As of June 30, 2022, we had three loans financed with separate participations sold to three counterparties.
Notes Payable
We finance certain investments on a match-term, non-recourse basis with such financings collateralized by our loans receivable, which we refer to as notes payable. Each of our notes payable is generally term-matched to its corresponding loan collateral. As of June 30, 2022, two of our loans were financed with notes payable.
Secured Term Loan
On August 9, 2019, we entered into our secured term loan of $450.0 million. Our secured term loan is collateralized by a pledge of equity in certain subsidiaries and their related assets, as well as a first priority security interest in selected assets. On December 1, 2020, our secured term loan was modified to increase the aggregate principal amount by $325.0 million, increase the interest rate, and increase the quarterly amortization payment. Our secured term loan is presented net of any original issue discount and transaction expenses which are deferred and recognized as a component of interest expense over the life of the loan using the effective interest method.
On December 2, 2021, we entered into a modification of our secured term loan which reduced the interest rate to the greater of (i) 1-month SOFR plus a 0.10% credit spread adjustment and (ii) 0.50%, plus a credit spread of 4.50%. The Secured Term matures on August 9, 2026. As of June 30, 2022, our Secured Term Loan has an unpaid principal balance of $758.9 million and a carrying value of $738.2 million.
Our Secured Term Loan includes various customary affirmative and negative covenants, including, but not limited to, reporting requirements and certain operational restrictions, including restrictions on dividends, distributions or other payments from our subsidiaries.
Debt Related to Real Estate Owned
On February 8, 2021 we assumed a $300.0 million securitized senior mortgage in connection with a Uniform Commercial Code foreclosure on a portfolio of seven limited service hotels located in New York, New York. In June 2021, we modified the securitized senior mortgage, which resulted in an extension of the contractual maturity date to February 9, 2024, a principal repayment of $10.0 million, and the payment of $7.6 million of fees and modification costs, among other items. The securitized senior mortgage is non-recourse to us. Our debt related to real estate owned as of June 30, 2022 has an outstanding principal balance of $290.0 million, a carrying value of $289.9 million and a stated rate of L+2.78%, subject to a LIBOR floor of 0.75%.
Derivatives
As part of the agreement to amend the terms of our debt related to real estate owned on June 2, 2021, we have an interest rate cap with a notional amount of $290.0 million and a maturity date of February 15, 2024 for $275,000.
The interest rate cap effectively limits the maximum interest rate of our debt related to real estate owned to 5.78%. Increases or decreases in the fair value of our interest rate cap are recorded as an unrealized gain or loss on interest rate cap on our consolidated income statements and the fair value is recorded in other assets on our consolidated balance sheets.
Acquisition Facility
39
On June 29, 2022, we entered into a $150.0 million full recourse credit facility. The facility generally provides interim financing for eligible loans for up to 180 days at an initial advance rate of 75%, which begins to decline after the 90th day. The facility matures on June 29, 2025 and earns interest at a rate of 1-month SOFR, plus a 0.10% credit spread adjustment, plus a spread of 2.25%. With the consent of our lenders, and subject to certain conditions, the commitment of the facility may be increased up to $500.0 million. As of June 30, 2022, the outstanding balance of the facility is $0.
As of June 30, 2022, we were in compliance with all financial covenants under our financings.
Non-Consolidated Senior Interests Sold and Non-Consolidated Senior Interests Held by Third Parties
In certain instances, we use structural leverage through the non-recourse syndication of a match-term senior loan interest to a third party which qualifies for sale accounting under GAAP, or through the acquisition of a subordinate loan for which a non-recourse senior interest is retained by a third party. In such instances, the senior loan is not included on our balance sheet.
The following table summarizes our non-consolidated senior interests and related retained subordinate interests as of June 30, 2022 ($ in thousands):
Non-Consolidated Senior Interests |
|
Loan |
|
|
Loan |
|
|
Unpaid |
|
|
Carrying |
|
|
Spread(1) |
|
|
Term to |
|
||||||
Floating rate non-consolidated senior loans |
|
|
3 |
|
|
$ |
184,500 |
|
|
$ |
178,656 |
|
|
N/A |
|
|
|
L + 4.47% |
|
|
|
0.6 |
|
|
Retained floating rate subordinate loans |
|
|
3 |
|
|
|
139,119 |
|
|
|
136,384 |
|
|
|
136,933 |
|
|
|
L + 10.61% |
|
|
|
0.4 |
|
Fixed rate non-consolidated senior loans |
|
|
2 |
|
|
$ |
867,000 |
|
|
$ |
859,660 |
|
|
N/A |
|
|
|
3.47 |
% |
|
|
4.4 |
|
|
Retained fixed rate subordinate loans |
|
|
2 |
|
|
|
125,927 |
|
|
|
125,927 |
|
|
|
125,651 |
|
|
|
8.49 |
% |
|
|
4.5 |
|
40
Floating and Fixed Rate Portfolio
Our business model seeks to minimize our exposure to changing interest rates by originating floating rate loans and as much as possible, match-funding the duration of our financing of such loans and using the same benchmark indices, typically one-month LIBOR or Term SOFR. As of June 30, 2022, 97.5% of our loans based on unpaid principal balance were floating rate and the majority of our floating rate loans were financed with liabilities that require interest payments based on floating rates also determined by reference to one-month LIBOR or Term SOFR plus a spread, which resulted in approximately $1.6 billion of net floating rate exposure.
The following table details our net floating rate exposure as of June 30, 2022 ($ in thousands):
|
|
Net Floating |
|
|
Floating rate assets(1) |
|
$ |
6,957,923 |
|
Floating rate liabilities(1) |
|
|
(5,322,371 |
) |
Net floating rate exposure |
|
$ |
1,635,552 |
|
LIBOR and certain other floating rate benchmark indices to which our floating rate loans and other loan agreements are tied to, are the subject of recent national, international and regulatory guidance and proposals for reform. On March 5, 2021, the Financial Conduct Authority of the United Kingdom, or the FCA, which regulates. LIBOR’s administrator, ICE Benchmark Administration Limited, or IBA, announced that all LIBOR tenors relevant to us will cease to be published or will no longer be representative after June 30, 2023 (and that all other LIBOR tenors will cease to be published or will no longer be representative either after December 31, 2021, or after June 30, 2023). The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, has identified the Secured Overnight Financing Rate, or SOFR, a new index calculated using short-term repurchase agreements backed by Treasury securities, as its preferred alternative rate for USD LIBOR.
Our agreements generally allow for a new interest rate index to be used if LIBOR is no longer available. We have begun and expect to continue to utilize alternative rates referenced in our agreements or negotiate a replacement reference rate for LIBOR.
We have an interest rate cap with a notional amount of $290.0 million and a maturity date of February 15, 2024 on our debt related to real estate owned. The interest rate cap effectively limits the maximum interest rate of our debt related to real estate owned to 5.78%. We have not employed other interest rate derivatives (interest rate swaps, caps, collars or swaptions) to hedge our loan portfolio’s cash flow or fair value exposure to increases in interest rates, but we may do so in the future.
Results of Operations – Three Months Ended June 30, 2022 and March 31, 2022
As previously disclosed, beginning with our Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, and for all subsequent reporting periods, we have elected to present results of operations by comparing to the immediately preceding period, as well as the same year to date period in the prior year. Given the dynamic nature of our business and the sensitivity to the real estate and capital markets, we believe providing analysis of results of operations by comparing to the immediately preceding period is more meaningful to our stockholders in assessing the overall performance of our current business.
Operating Results
The following table sets forth information regarding our consolidated results of operations for the three months ended June 30, 2022, and March 31, 2022 ($ in thousands, except per share data):
41
|
|
Three Months Ended |
|
|
|
|
|
|
|
|||||||
|
|
June 30, 2022 |
|
|
March 31, 2022 |
|
|
$ Change |
|
|
% Change |
|
||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest and related income |
|
$ |
98,993 |
|
|
$ |
90,694 |
|
|
$ |
8,299 |
|
|
|
9 |
% |
Less: interest and related expense |
|
|
46,871 |
|
|
|
39,580 |
|
|
|
7,291 |
|
|
|
18 |
% |
Net interest income |
|
|
52,122 |
|
|
|
51,114 |
|
|
|
1,008 |
|
|
|
2 |
% |
Revenue from real estate owned |
|
|
17,118 |
|
|
|
6,813 |
|
|
|
10,305 |
|
|
|
151 |
% |
Total revenue |
|
|
69,240 |
|
|
|
57,927 |
|
|
|
11,313 |
|
|
|
20 |
% |
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Management fees - affiliate |
|
|
9,843 |
|
|
|
9,807 |
|
|
|
36 |
|
|
|
0 |
% |
General and administrative expenses |
|
|
4,748 |
|
|
|
4,343 |
|
|
|
405 |
|
|
|
9 |
% |
Stock based compensation expense |
|
|
604 |
|
|
|
- |
|
|
|
604 |
|
|
|
100 |
% |
Operating expenses on real estate owned |
|
|
10,536 |
|
|
|
7,780 |
|
|
|
2,756 |
|
|
|
35 |
% |
Interest expense from debt related to real estate owned |
|
|
2,719 |
|
|
|
2,584 |
|
|
|
135 |
|
|
|
5 |
% |
Depreciation on real estate owned |
|
|
1,998 |
|
|
|
1,940 |
|
|
|
58 |
|
|
|
3 |
% |
Total expenses |
|
|
30,448 |
|
|
|
26,454 |
|
|
|
3,994 |
|
|
|
15 |
% |
Realized gain on sale of loan |
|
|
30,090 |
|
|
|
- |
|
|
|
30,090 |
|
|
|
100 |
% |
Unrealized gain on interest rate cap |
|
|
2,837 |
|
|
|
- |
|
|
|
2,837 |
|
|
|
10 |
% |
(Provision) reversal of current expected credit loss reserve |
|
|
(8,530 |
) |
|
|
(2,102 |
) |
|
|
(6,428 |
) |
|
|
306 |
% |
Net income |
|
$ |
63,189 |
|
|
$ |
29,371 |
|
|
$ |
33,818 |
|
|
|
115 |
% |
Net loss attributable to non-controlling interests |
|
$ |
(45 |
) |
|
$ |
(41 |
) |
|
$ |
(4 |
) |
|
|
10 |
% |
Net income attributable to common stock |
|
$ |
63,234 |
|
|
$ |
29,412 |
|
|
$ |
33,822 |
|
|
|
115 |
% |
Net income per share of common stock - basic and diluted |
|
$ |
0.45 |
|
|
$ |
0.21 |
|
|
$ |
0.24 |
|
|
|
114 |
% |
Comparison of the three months ended June 30, 2022 and March 31, 2022
Revenue
Revenue increased $11.3 million during the three months ended June 30, 2022, compared to the three months ended March 31, 2022. The increase is primarily due to an increase in revenue from real estate owned of $10.3 million due to seasonally higher occupancy and rates during the second quarter, as well as a COVID-induced slowdown in travel in the first quarter. Additionally, the increase in revenue was driven by an increase in net interest income of $1.0 million for the comparative period, which was driven by an increase in interest income earned of $8.3 million primarily as a result of reference rate increases during the second quarter of 2022, offset in part by an increase in interest expense of $7.3 million primarily as a result of reference rate increases during the second quarter of 2022.
Expenses
Expenses are primarily comprised of base management fees payable to our Manager, general and administrative expenses, stock based compensation expense, operating expenses from real estate owned, interest expense from debt related to real estate owned, and depreciation on real estate owned. Expenses increased by $4.0 million during the three months ended June 30, 2022 as compared to the three months ended March 31, 2022, primarily due to:
(i) an increase in operating expenses from real estate owned of $2.8 million during the comparative period, due to increased variable operating expenses in connection with the higher occupancy levels;
(ii) an increase in stock based compensation expense of $0.6 million due to restricted stock units granted during the second quarter of 2022; and
(iii) an increase in general and administrative expenses of $0.4 million during the comparative period, primarily due to marginally higher operating costs.
Realized gain on sale of loan
During the three months ended June 30, 2022, we realized a gain on the sale of a loan of $30.1 million. There were no loans sold during the three months ended March 31, 2022.
42
Unrealized gain on interest rate cap
Unrealized gain on interest rate cap was $2.8 million higher during the comparative period due to the recognition of a $2.8 million gain resulting from an increase in the fair value of the interest rate cap during the three months ended June 30, 2022.
(Provision) reversal of current expected credit loss reserve
The provision for current expected credit loss reserves was $6.4 million greater than the provision for current expected credit loss reserves during the comparative period, due to an increase to a specific CECL reserve on one loan which was charged-off, as well as an increase in the size of the portfolio and changes in macroeconomic conditions as of June 30, 2022, as compared to our loan portfolio as of March 31, 2022.
Results of Operations – Six Months Ended June 30, 2022, and June 30, 2021
The following table sets forth information regarding our consolidated results of operations for six months ended June 30, 2022 and 2021 ($ in thousands, except per share data):
|
|
Six Months Ended |
|
|
|
|
|
|
|
|||||||
|
|
June 30, 2022 |
|
|
June 30, 2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest and related income |
|
$ |
189,687 |
|
|
$ |
210,450 |
|
|
$ |
(20,763 |
) |
|
|
-10 |
% |
Less: interest and related expense |
|
|
86,451 |
|
|
|
92,757 |
|
|
|
(6,306 |
) |
|
|
-7 |
% |
Net interest income |
|
|
103,236 |
|
|
|
117,693 |
|
|
|
(14,457 |
) |
|
|
-12 |
% |
Revenue from real estate owned |
|
|
23,931 |
|
|
|
7,070 |
|
|
|
16,861 |
|
|
|
238 |
% |
Total revenue |
|
|
127,167 |
|
|
|
124,763 |
|
|
|
2,404 |
|
|
|
2 |
% |
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Management fees - affiliate |
|
|
19,650 |
|
|
|
19,363 |
|
|
|
287 |
|
|
|
1 |
% |
General and administrative expenses |
|
|
9,091 |
|
|
|
4,063 |
|
|
|
5,028 |
|
|
|
124 |
% |
Stock based compensation |
|
|
604 |
|
|
|
(190 |
) |
|
|
794 |
|
|
|
-418 |
% |
Operating expenses from real estate owned |
|
|
18,316 |
|
|
|
8,791 |
|
|
|
9,525 |
|
|
|
108 |
% |
Interest expense on debt related to real estate owned |
|
|
5,303 |
|
|
|
10,361 |
|
|
|
(5,058 |
) |
|
|
-49 |
% |
Depreciation on real estate owned |
|
|
3,938 |
|
|
|
3,233 |
|
|
|
705 |
|
|
|
22 |
% |
Total expenses |
|
|
56,902 |
|
|
|
45,621 |
|
|
|
11,281 |
|
|
|
25 |
% |
Realized gain on sale of loan |
|
|
30,090 |
|
|
|
- |
|
|
|
30,090 |
|
|
|
100 |
% |
Unrealized gain on interest rate cap |
|
|
2,837 |
|
|
|
- |
|
|
|
2,837 |
|
|
|
100 |
% |
Gain on foreclosure of real estate owned |
|
|
- |
|
|
|
1,430 |
|
|
|
(1,430 |
) |
|
|
-100 |
% |
Other Income |
|
|
- |
|
|
|
5,855 |
|
|
|
(5,855 |
) |
|
|
-100 |
% |
(Provision) reversal of current expected credit loss reserve |
|
|
(10,632 |
) |
|
|
8,107 |
|
|
|
(18,739 |
) |
|
|
-231 |
% |
Income before income taxes |
|
|
92,560 |
|
|
|
94,534 |
|
|
|
(1,974 |
) |
|
|
-2 |
% |
Income tax benefit |
|
|
- |
|
|
|
6,025 |
|
|
|
(6,025 |
) |
|
|
-100 |
% |
Net income |
|
$ |
92,560 |
|
|
$ |
100,559 |
|
|
$ |
(7,999 |
) |
|
|
-8 |
% |
Net loss attributable to non-controlling interests |
|
$ |
(86 |
) |
|
$ |
(78 |
) |
|
$ |
(8 |
) |
|
|
10 |
% |
Net income attributable to preferred stock |
|
$ |
- |
|
|
$ |
8 |
|
|
$ |
(8 |
) |
|
|
-100 |
% |
Net income attributable to common stock |
|
$ |
92,646 |
|
|
$ |
100,629 |
|
|
$ |
(7,983 |
) |
|
|
-8 |
% |
Net income per share of common stock - basic and diluted |
|
$ |
0.66 |
|
|
$ |
0.75 |
|
|
$ |
(0.09 |
) |
|
|
-12 |
% |
Comparison of the six months ended June 30, 2022 and June 30, 2021
Revenue
Revenue increased $2.4 million during the six months ended June 30, 2022, compared to the six months ended June 30, 2021. The increase is primarily due to an increase in revenue from real estate owned of $16.9 million due to improved travel and demand at the hotel portfolio for the comparative period. The increase was partially offset by a decrease in net interest income of $14.5 million for the comparative period, which was driven by a decrease in interest income earned of $20.8 million, primarily as a result of the replacement of higher yielding assets with floors with lower yielding assets, offset in part by a decrease in interest expense of $6.3 million, as a result of the repayment of higher cost financings in connection with the repayment of our assets.
43
Expenses
Expenses are primarily comprised of base management fees payable to our Manager, general and administrative expenses, stock based compensation expense, operating expenses from real estate owned, interest expense from debt related to real estate owned, and depreciation on real estate owned. Expenses increased by $11.3 million, during the six months ended June 30, 2022, as compared to the six months ended June 30, 2021, primarily due to:
(i) an increase in operating expenses from real estate owned of $9.5 million during the comparative period, due to increased variable operating expenses in connection with higher occupancy levels at the hotel portfolio during the comparative period;
(ii) an increase in general and administrative expenses of $5.0 million during the comparative period, due primarily to an increase in general operating expenses incurred in connection with becoming a public company as of November 3, 2021;
(iii) an increase in stock based compensation of $0.8 million during the comparative period, due to restricted stock units granted during the second quarter of 2022;
(iv) the increases were partially offset by a decrease in interest expense on debt related to real estate owned of $5.1 million as a result of the agreement to amend the terms of the securitized senior mortgage in June of 2021, which included a principal repayment of $10.0 million, and the payment of $7.6 million of fees and modification costs which included among other items, $6.3 million of interest expense.
Realized gain on sale of loan
During the six months ended June 30, 2022, we realized a gain on the sale of a loan of $30.1 million. There were no loans sold during the six months ended June 30, 2021.
Unrealized gain on interest rate cap
Unrealized gain on interest rate cap was $2.8 million higher during the comparative period due to the recognition of a $2.8 million gain resulting from an increase in the fair value of the interest rate cap during the six months ended June 30, 2022.
Gain on foreclosure of real estate owned
During the six months ended June 30, 2021, we recognized a gain of $1.4 million on the foreclosure of a portfolio of seven limited-service hotel properties located in New York, New York. This gain is based upon the estimated fair value of the hotel properties of $414.0 million as determined by a third-party appraisal, and our assumption of working capital and debt related to real estate owned, relative to our basis in the investment at the time of foreclosure. The fair value was determined using discount rates ranging from 8.50% to 8.75% and a terminal capitalization rate of 6.00% on projected net operating profits on the hotels.
Other income
During the six months ended June 30, 2021, 292,731 fully-vested time-based RSU awards were forfeited prior to their delivery pursuant to the terms of the RSU award documents, resulting in us reversing previously recognized compensation expense associated with these RSU awards.
(Provision) reversal of current expected credit loss reserve
During the six months ended June 30, 2022, we recorded a provision of current expected credit loss reserves of $10.6 million compared to a reversal of current expected credit loss reserves of $8.1 million during the six months ended June 30, 2021. The provision is primarily attributable to an increase in size of the portfolio and changes in macroeconomic conditions during the comparative period.
Income tax benefit
Income tax benefit was $6.0 million lower during the comparative period. The change in the comparative periods is due to the recognition of a full valuation allowance of our deferred tax asset during the six months ended June 30, 2022.
44
Liquidity and Capital Resources
Capitalization
We have capitalized our business to date primarily through the issuance of shares of our common stock and borrowings under our secured financings and our Secured Term Loan. As of June 30, 2022, we had 139,620,078 shares of our common stock outstanding, representing $2.6 billion of stockholders’ equity and we also had $5.3 billion of outstanding borrowings under our secured financings, our Secured Term Loan, our debt related to real estate owned, and our acquisition Facility. As of June 30, 2022, our secured financings consisted of six secured revolving repurchase facilities for loan investments with capacity of $4.8 billion and an outstanding balance of $3.9 billion, five asset-specific financings for loan investments with an outstanding balance of $374.8 million and an acquisition facility with a capacity of $150.0 million and no outstanding balance. As of June 30, 2022, our Secured Term Loan had an outstanding balance of $758.9 million and our debt related to real estate owned had an outstanding balance of $290.0 million.
Net Debt-to-Equity Ratio and Total Leverage Ratio
Net Debt-to-Equity Ratio and Total Leverage Ratio are non-GAAP measures that we use to evaluate our financial leverage, which in the case of our Total Leverage Ratio, makes certain adjustments that we believe provide a more conservative measure of our financial condition.
Net Debt-to-Equity Ratio is calculated as the ratio of asset specific debt (repurchase agreements, loan participations sold, net, notes payable, net, and debt related to real estate owned, net) and secured term loan, less cash and cash equivalents to total equity.
Total Leverage Ratio is similar to Net Debt-to-Equity Ratio, however it includes non-consolidated senior interests sold and non-consolidated senior interests held by third parties. Non-consolidated senior interests sold and non-consolidated senior interests held by third parties, as applicable, are secured by the same collateral as our loan and are structurally senior in repayment priority relative to our loan. We believe the inclusion of non-consolidated senior interests sold and non-consolidated senior interests held by third parties provides a meaningful measure of our financial leverage.
The following table presents our Net Debt-to-Equity and Total Leverage Ratios as of June 30, 2022 and December 31, 2021 ($ in thousands):
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||
Asset specific debt |
|
$ |
4,580,149 |
|
|
$ |
3,995,061 |
|
Secured term loan, net |
|
|
738,180 |
|
|
|
739,762 |
|
Total debt |
|
|
5,318,329 |
|
|
|
4,734,823 |
|
Less: cash and cash equivalents |
|
|
(461,002 |
) |
|
|
(310,194 |
) |
Net Debt |
|
$ |
4,857,327 |
|
|
$ |
4,424,629 |
|
Total Stockholders’ Equity |
|
$ |
2,590,406 |
|
|
$ |
2,604,267 |
|
Net Debt-to-Equity Ratio |
|
1.9x |
|
|
1.7x |
|
||
Non-consolidated senior loans |
|
|
1,038,316 |
|
|
|
1,063,939 |
|
Total Leverage |
|
$ |
5,895,643 |
|
|
$ |
5,488,568 |
|
Total Leverage Ratio |
|
2.3x |
|
|
2.1x |
|
||
Sources of Liquidity
Our primary sources of liquidity include cash and cash equivalents, interest income from our loans, loan repayments, available borrowings under our secured revolving repurchase facilities and identified borrowing capacity related to our notes payable and loan participations sold, borrowings under our Secured Term Loan, and proceeds from the issuance of our common stock. The following table sets forth, as of June 30, 2022 and December 31, 2021, our sources of available liquidity ($ in thousands):
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||
Cash and cash equivalents |
|
$ |
461,002 |
|
|
$ |
310,194 |
|
Loan principal payments held by servicer(1) |
|
|
19,201 |
|
|
|
67,100 |
|
Acquisition facility(2) |
|
|
150,000 |
|
|
|
— |
|
Total sources of liquidity |
|
$ |
630,203 |
|
|
$ |
377,294 |
|
45
We have $735.3 million unpaid principal balance of unencumbered loans at June 30, 2022. In addition, we have $596.5 million of undrawn capacity on existing secured financing commitments relating to both the current unpaid principal balance of our loan portfolio and our unfunded commitments. Such commitments are subject to pledging additional collateral that is subsequently approved by our financing counterparty.
Liquidity Needs
In addition to our ongoing loan origination and acquisition activity, our primary liquidity needs include future fundings to our borrowers on our unfunded loan commitments, interest and principal payments on outstanding borrowings under our financings, operating expenses and dividend payments to our stockholders necessary to satisfy REIT dividend requirements. Additionally, our financing, repurchase and term loan agreements require us to maintain minimum levels of liquidity in order to satisfy certain financial covenants. We currently maintain, and seek to maintain, excess cash and liquidity to comply with minimum liquidity requirements under our financings, and if necessary, to reduce borrowings under our secured financings, including our repurchase agreements.
As of June 30, 2022, we had aggregate unfunded loan commitments of $1.7 billion which comprise funding for capital expenditures and construction, leasing costs, and interest and carry costs, and their funding will vary depending on the progress of capital projects, leasing, and cash flows at the properties securing our loans. Therefore, the exact timing and amounts of such future loan fundings are uncertain and will depend on the current and future performance of the underlying collateral assets. We expect to fund our loan commitments over the remaining maximum term of the related loans, which have a weighted-average future funding period of 2.6 years.
Contractual Obligations and Commitments
Our contractual obligations and commitments as of June 30, 2022 were as follows ($ in thousands):
|
|
Payment Timing |
|
|||||||||||||||||
|
|
Total |
|
|
Less than |
|
|
1 to |
|
|
3 to |
|
|
More than |
|
|||||
Unfunded loan commitments(1) |
|
$ |
1,669,938 |
|
|
$ |
47,524 |
|
|
$ |
1,181,536 |
|
|
$ |
440,878 |
|
|
$ |
— |
|
Secured financings, term loan agreement, and debt |
|
|
5,891,513 |
|
|
|
1,021,615 |
|
|
|
3,110,946 |
|
|
|
1,758,952 |
|
|
|
- |
|
Total |
|
$ |
7,561,451 |
|
|
$ |
1,069,139 |
|
|
$ |
4,292,482 |
|
|
$ |
2,199,830 |
|
|
$ |
— |
|
We are required to pay our Manager, in cash, a base management fee and incentive fees (to the extent earned) on a quarterly basis in arrears. The tables above do not include the amounts payable to our Manager under the Management Agreement as they are not fixed and determinable.
As a REIT, we generally must distribute substantially all of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gains, to stockholders in the form of dividends to comply with certain of the provisions of the Internal Revenue Code. To the extent that we satisfy this distribution requirement but distribute less than 100% of our REIT taxable income, we will be subject to U.S. federal income tax on our undistributed REIT taxable income. Our REIT taxable income does not necessarily equal our net income as calculated in accordance with GAAP or our Distributable Earnings as described previously.
46
Loan Maturities
The following table summarizes the future scheduled repayments of principal based on initial maturity dates for the loan portfolio as of June 30, 2022 ($ in thousands):
Year |
|
Unpaid |
|
|
Loan |
|
||
2022 |
|
$ |
744,172 |
|
|
$ |
784,007 |
|
2023 |
|
|
1,735,005 |
|
|
|
1,909,110 |
|
2024 |
|
|
2,241,955 |
|
|
|
2,737,594 |
|
2025 |
|
|
1,549,104 |
|
|
|
2,097,368 |
|
2026 |
|
|
460,666 |
|
|
|
872,761 |
|
Thereafter |
|
|
125,000 |
|
|
|
125,000 |
|
Total |
|
$ |
6,855,902 |
|
|
$ |
8,525,840 |
|
Cash Flows
The following table provides a breakdown of the net change in our cash and cash equivalents and restricted cash for the six months ended June 30, 2022 and 2021 ($ in thousands):
|
|
June 30, 2022 |
|
|
June 30, 2021 |
|
||
Net cash flows provided by operating activities |
|
$ |
72,118 |
|
|
$ |
90,636 |
|
Net cash flows (used in) provided by investing activities |
|
|
(372,520 |
) |
|
|
269,465 |
|
Net cash flows (used in) provided by financing activities |
|
|
463,997 |
|
|
|
(294,301 |
) |
Net increase in cash and cash equivalents |
|
$ |
163,595 |
|
|
$ |
65,800 |
|
We experienced a net increase in cash and cash equivalents and restricted cash of $164.0 million during the six months ended June 30, 2022, compared to a net decrease of $65.8 million during the six months ended June 30, 2021.
During the six months ended June 30, 2022, we made initial fundings of $1.3 billion of new loans and $312.2 million of advances on existing loans and made repayments on financings arrangements of $920.3 million. We received $1.5 billion of proceeds from borrowings under our financing arrangements, received $1.0 billion from loan repayments and received $132.2 million of sales proceeds.
Income Taxes
We have elected and believe we have qualified to be taxed as a REIT for U.S. federal income tax purposes, commencing with our initial taxable year ended December 31, 2015. We generally must distribute annually at least 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gain, to maintain our REIT status. To the extent that we satisfy this distribution requirement, but distribute less than 100% of our REIT taxable income, we will be subject to U.S. federal income tax on our undistributed REIT taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we pay (or are treated as paying) out to our stockholders in a calendar year is less than a minimum amount specified under U.S. federal tax laws. Our real estate owned is held in a TRS. Our TRS is not consolidated for U.S. federal income tax purposes and is taxed separately as a corporation. For financial reporting purposes, a provision or benefit for current and deferred taxes is established for the portion of earnings or expense recognized by us with respect to our TRS.
Our qualification as a REIT also depends on our ability to meet various other requirements imposed by the Internal Revenue Code, which relate to organizational structure, diversity of stock ownership and certain restrictions with regard to the nature of our assets and the sources of our income. Even if we qualify as a REIT, we may be subject to certain U.S. federal income and excise taxes and state and local taxes on our income and assets. If we fail to maintain our qualification as a REIT for any taxable year, we may be subject to material penalties as well as federal, state and local income tax on our REIT taxable income at regular corporate rates and we would not be able to qualify as a REIT for the subsequent four full taxable years. As of June 30, 2022, we were in compliance with all REIT requirements.
47
Refer to Note 12 to our consolidated financial statements for additional information about our income taxes.
Off-Balance Sheet Arrangements
As of June 30, 2022, we had no off-balance sheet arrangements.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires our Manager to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. We believe that all of the decisions and estimates are reasonable, based upon the information available to us. We believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements.
Refer to Note 2 to our consolidated financial statements for a description of our significant accounting policies.
Current Expected Credit Losses (“CECL”)
The CECL reserve required under ASU 2016-13 “Financial Instruments – Credit Losses – Measurement of Credit Losses on Financial Instruments (Topic 326)” (“ASU 2016-13”), reflects our current estimate of potential credit losses related to our loan portfolio. The initial CECL allowance recorded on January 1, 2021 is reflected as a direct charge to retained earnings on our consolidated statements of changes in redeemable common stock and stockholders’ equity.
For our loan portfolio, we, with assistance from a third-party service provider, performed a quantitative assessment of the impact of CECL using the Expected Loss, or EL, approach and the Lifetime Loss Rate, or LLR, method depending on the allocated bucket. For transitional loans, steady & improving loans and stabilized loans, we have applied an EL approach because of the consistency in assessing credit risks and estimating expected credit losses. Due to the nature of construction loans, where repayment does not depend on the operating performance of the underlying property, we have applied a LLR approach to estimate the CECL impacts. In certain circumstances we may determine that a loan is no longer suited for the model-based approach due to its unique risk characteristics, or because the repayment of the loan’s principal is collateral-dependent. We may instead elect to employ different methods to estimate loan losses that also conform to ASU 2016-13 and related guidance. If the recovery of that loan’s principal balance is entirely collateral-dependent, we may assess such an asset individually and elect to apply a practical expedient in accordance with ASU 2016-13. Our allowance for loan losses reflects our estimation of the current and future economic conditions that impact the performance of the commercial real estate assets securing our loans. These estimations include unemployment rates, interest rates, price indices for commercial property, and other macroeconomic factors that may influence the likelihood and magnitude of potential credit losses for our loans during their anticipated term. We license certain macroeconomic financial forecasts to inform our view of the potential future impact that broader economic conditions may have on its loan portfolio’s performance. The forecasts are embedded in the licensed model that we use to estimate our allowance for loan losses as discussed below. Selection of these economic forecasts require significant judgment about future events that, while based on the information available to us as of the respective balance sheet dates, are ultimately unknowable with certainty, and the actual economic conditions impacting our loan portfolio could vary significantly from the estimates we made for the periods presented. Additionally, we assess the obligation to extend credit through our unfunded loan commitments over each loan’s contractual period, which is considered in the estimation of the allowance for loan losses.
Real estate owned, net
We may assume legal title or physical possession of the underlying collateral of a defaulted loan through foreclosure. Foreclosed real estate owned, net is initially recorded at estimated fair value and is presented net of accumulated depreciation and impairment charges and the assets and liabilities are presented separately when legal title or physical possession is assumed. If the fair value of the real estate is lower than the carrying value of the loan, the difference, along with any previously recorded Specific CECL Allowances, are recorded as a realized loss on investments in the consolidated statement of operations. Conversely, if the fair value of the real estate is greater than the carrying value of the loan, the difference, along with any previously recorded Specific CECL Allowances, are recorded as a realized gain on investments in the consolidated statement of operations.
Acquisition of real estate is accounted for using the acquisition method under Accounting Standards Codification ("ASC") Topic 805, "Business Combinations." We recognize and measure identifiable assets acquired, liabilities assumed and any noncontrolling interest in the acquiree, if applicable, based on their relative fair values. If applicable, we recognize and measure intangible assets and expense acquisition-related costs in the periods in which the costs are incurred and the services are received.
48
Real estate assets that are acquired for investment are assumed at their estimated fair value at acquisition and presented net of accumulated depreciation and impairment charges, if any. Upon acquisition, we allocate the value of acquired real estate assets based on the fair value of the acquired land, building, furniture, fixtures and equipment, and intangible assets, if applicable. Real estate assets are depreciated using the straight-line method over estimated useful lives of up to 40 years for buildings and up to 8 years for furniture, fixtures and equipment. Renovations and/or replacements that improve or extend the life of the real estate asset are capitalized and depreciated over their estimated useful lives. The cost of ordinary repairs and maintenance are expensed as incurred.
Real estate assets are evaluated for indicators of impairment on a quarterly basis. Factors that we may consider in its impairment analysis include, among others: (1) significant underperformance relative to historical or anticipated operating results; (2) significant negative industry or economic trends; (3) costs necessary to extend the life or improve the real estate asset; (4) significant increase in competition; and (5) ability to hold and dispose of the real estate asset in the ordinary course of business. A real estate asset is considered impaired when the sum of estimated future undiscounted cash flows expected to be generated by the real estate asset over the estimated remaining holding period is less than the carrying amount of such real estate asset. Cash flows include operating cash flows and anticipated capital proceeds generated by the real estate asset. An impairment charge is recorded equal to the excess of the carrying value of the real estate asset over the fair value.
When determining the fair value of a real estate asset, we make certain assumptions including, but not limited to, consideration of projected operating cash flows, comparable selling prices and projected cash flows from the eventual disposition of the real estate asset based upon our estimate of a capitalization rate and discount rate.
49
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Risk
Rising interest rates will generally increase our net interest income, while declining interest rates will generally decrease our net interest income. However, rising interest rates will not result in an increase of net interest income to the extent that borrowers were already bearing interest at a contractual rate floor in excess of the new benchmark rate. Our net interest income may decrease in such circumstances due to an increase in the interest expense of our borrowings, absent a corresponding increase of interest income, until such time as benchmark rates exceed the applicable rate floors.
During 2022, the Federal Reserve began a campaign to increase interest rates to combat escalating inflation. In the first and second quarter of 2022, the Federal Reserve approved a 0.25% and 0.75% rate increase, respectively, and has indicated that it foresees raising interest rates further throughout the year. In July 2022, the Federal Reserve raised rates another 0.75%. Higher interest rates imposed by the Federal Reserve to address inflation may increase our interest expense, which may not be fully offset by any resulting increase in interest income.
The following table illustrates the impact on our interest income and interest expense for the twelve-month period following June 30, 2022, assuming a decrease in LIBOR or SOFR of 50 basis points or an increase of 50, 100 and 150 basis points in the applicable interest rate benchmark (based on one-month LIBOR of 1.79% and Term SOFR of 1.69% as of June 30, 2022 ($ in thousands):
|
|
|
|
|
Decrease |
|
|
Increase |
|
|
|
|
|
|
|
|||||
Assets (Liabilities) |
|
|
Change in |
|
50 Basis Points |
|
|
50 Basis Points |
|
|
100 Basis Points |
|
|
150 Basis Points |
|
|||||
$ |
1,635,552 |
|
|
Net interest income |
|
$ |
1,500 |
|
|
$ |
4,752 |
|
|
$ |
12,632 |
|
|
$ |
21,641 |
|
|
|
|
Net interest income per share |
|
$ |
0.01 |
|
|
$ |
0.03 |
|
|
$ |
0.09 |
|
|
$ |
0.15 |
|
|
LIBOR as our Reference Rate
We are actively assessing and monitoring the risks associated with the planned or potential discontinuation or unavailability of certain reference rates, including LIBOR, and the transition to alternative reference rates. Our assessment includes communicating with industry working groups and trade associations to develop strategies for transitions from current benchmarks to alternative reference rates. We intend to update our operational processes and models to cohesively transition to an alternative reference rate. In addition, we continue to analyze and evaluate our existing loan agreements and financings to determine the impact of the discontinuation of LIBOR and to address consequential changes to those legacy contracts. LIBOR and certain other floating rate benchmark indices to which our floating rate loans and other loan agreements are tied are the subject of recent national, international and regulatory guidance and proposals for reform. As of December 31, 2021, the ICE Benchmark Association, or IBA, ceased publication of all non-USD LIBOR settings and previously announced its intention to cease publication of remaining U.S. dollar LIBOR settings immediately after June 30, 2023. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, has identified the Secured Overnight Financing Rate, or SOFR, a new index calculated using short-term repurchase agreements backed by Treasury securities, as its preferred alternative rate for USD LIBOR. Although SOFR is the ARRC’s recommended replacement rate, at this time, it is not possible to predict how markets will respond to SOFR, or other alternative reference rates as the transition away from USD LIBOR continues.
Credit Risk
Our loans and other investments are also subject to credit risk, including the risk of default. By its very nature, our investment strategy emphasizes prudent risk management and capital preservation by primarily originating senior loans utilizing underwriting techniques resulting in relatively conservative loan-to-value ratio levels to insulate us from loan losses absent a significant diminution in collateral value. In addition, we seek to manage credit risk through performance of extensive due diligence on our collateral, borrower and guarantors, as applicable, that evaluates, among other things, title, environmental and physical condition of collateral, comparable sales and leasing analysis of similar collateral, the quality of and alternative uses for the real estate collateral being underwritten, submarket trends, our borrower’s track record and the reasonableness of the borrower’s projections prior to originating a loan. Subsequent to loan origination, we also manage credit risk through proactive investment monitoring and, whenever possible, limiting our own leverage to partial recourse or non-recourse, match-funding financing. Notwithstanding these efforts, there can be no assurance that we will be able to avoid losses in all circumstances. The performance and value of our loans and investments depend upon the borrower’s ability to improve and operate the properties that serve as our collateral so that they produce cash flows adequate to pay
50
interest and principal due to us. To monitor this risk, our Sponsor’s asset management team monitors the performance of our loan portfolio and our Sponsor’s asset management and origination teams maintain regular contact with borrowers, co-lenders and local market experts to monitor the performance of the underlying loan collateral, anticipate borrower, property and market issues and, to the extent necessary or appropriate, enforce our rights as the lender.
In addition, we are exposed to the risks generally associated with the CRE market, including variances in occupancy rates, capitalization rates, absorption rates and other macroeconomic factors beyond our control. We seek to manage these risks through our underwriting, loan structuring, financing structuring and asset management processes.
In the event that we are forced to foreclose, our broader Sponsor platform includes professionals experienced in CRE development, ownership, property management and asset management which enables us to execute the workout of a troubled loan and protect investors’ capital in a way that we believe many non-traditional lenders cannot.
Prepayment Risk
Prepayment risk is the risk that principal will be repaid prior to initial maturity, which may require us to identify new investment opportunities to deploy such capital at a similar rate of return in order to avoid an overall reduction in our net interest income. We may structure our loans with spread maintenance, minimum multiples and make-whole provisions to protect against early repayment. Typically, investments are structured with the equivalent of 12 to 24 months’ spread maintenance or a minimum level of income that an investment must return. In general, an increase in prepayment rates accelerates the accretion of deferred income, including origination fees and exit fees, which increases interest income earned on the asset during the period of repayment. Conversely, if capital that is repaid is not subsequently redeployed into investment opportunities generating a similar return, future periods may experience reduced net interest income.
Extension Risk
Loans are expected to be repaid at maturity, unless the borrower repays early or meets contractual conditions to qualify for a maturity extension. We expect that the economic and market disruptions caused by the COVID-19 pandemic may lead to a decrease in prepayment rates and an increase in the number of our borrowers who exercise extension options or seek extensions outside of their existing agreements if certain conditions to exercising such extension options have not been achieved. This could have a negative impact on our results of operations and cash flows. However, in the case of a loan maturity extension, we are often entitled to extension fees, principal paydowns and/or spread increases. Our Manager computes the projected weighted average life of our assets based on the initial and fully extended scheduled maturity dates of loans in our portfolio.
Capital Markets Risks
We are exposed to risks related to the equity capital markets and our related ability to raise capital through the issuance of our common stock or other equity or equity-related instruments. We are also exposed to risks related to the debt capital markets and our related ability to finance our business through borrowings under secured and unsecured financings, secured revolving repurchase facilities or other debt instruments or facilities. As a REIT, we are required to distribute a significant portion of our REIT taxable income annually, which constrains our ability to retain and accumulate operating earnings and therefore requires us to utilize debt or equity capital to finance the growth of our business. We seek to mitigate these risks by monitoring the debt and equity capital markets, the maturity profile of our in-place loan portfolio related to secured financings, and future loan funding requirements to inform our decisions on the amount, timing and terms of capital we raise.
Each of the secured revolving repurchase facilities involves “margin maintenance” provisions, which are designed to allow the repurchase lender to maintain a certain margin of credit enhancement against the loan assets which serve as collateral. The lender’s margin amount is typically based on a percentage of the market value of the loan asset and/or mortgaged property collateral. However, certain of our repurchase facilities permit valuation adjustments solely as a result of collateral-specific credit events, while other repurchase facilities contain provisions also allowing our lenders to make margin calls or require additional collateral upon the occurrence of adverse changes in the markets or interest rate or spread fluctuations, subject to minimum thresholds, among other factors. As of June 30, 2022, we have not received any margin calls under any of our repurchase facilities.
Counterparty Risk
The nature of our business requires us to hold cash and cash equivalents and obtain financing from various financial institutions. This exposes us to the risk that these financial institutions may not fulfill their obligations to us under these various contractual arrangements. We mitigate this exposure by depositing our cash and cash equivalents and entering into financing agreements with high credit-quality institutions.
51
The nature of our loans and other investments also exposes us to the risk that our loan counterparties are unable to execute their business plans, and as a result do not make required interest and principal payments on scheduled due dates, as well as the impact of our borrowers’ tenants not making scheduled rent payments when contractually due. We seek to manage this risk through a comprehensive credit analysis prior to making an investment and rigorous monitoring of our borrowers’ progress in executing their business plans as well as market conditions that may affect the underlying collateral, through our asset management process. Each loan is structured with various lender protections that are designed to prevent bad acts / fraudulent behavior by borrowers, as well as require borrowers to adhere to their stated business plans while the loan is outstanding. Such protections include, without limitation: cash management accounts, “bad boy” carveout guarantees, completion guarantees, guarantor minimum net worth and liquidity requirements, approval rights over major decisions, and performance tests throughout the loan term.
Our relationships with our repurchase agreement providers subject us to counterparty risks in the event a counterparty is unable to fund its undrawn credit capacity, particularly in the event of a counterparty’s bankruptcy. We seek to manage this risk by diversifying our financing sources across counterparties and financing types, and monitoring our counterparties’ financial condition and liquidity.
Currency Risk
To date, we have made no loans and hold no assets or liabilities denominated or payable in foreign currencies, although we may do so in the future.
We may in the future hold assets denominated or payable in foreign currencies, which would expose us to foreign currency risk. As a result, a change in foreign currency exchange rates may have a positive or an adverse impact on the valuation of our assets, as well as our income and dividends. Any such changes in foreign currency exchange rates may impact the measurement of such assets or income for the purposes of our REIT tests and may affect the amounts available for payment of dividends to our stockholders.
Although not required, if applicable, we may hedge any currency exposures in a prudent manner. However, such currency hedging strategies may not eliminate all of our currency risk due to, among other things, uncertainties in the timing and/or amount of payments received on the related investments and/or unequal, inaccurate or unavailability of hedges to perfectly offset changes in future exchange rates. Additionally, we may be required under certain circumstances to collateralize our currency hedges for the benefit of the hedge counterparty, which could adversely affect our liquidity.
Real Estate Risk
The market values of loans secured directly or indirectly by CRE assets are subject to volatility and may be adversely affected by a number of factors, including, but not limited to, the impacts of the COVID-19 pandemic discussed above, national, regional, local and foreign economic conditions (which may be adversely affected by industry slowdowns and other factors); regional or local real estate conditions; changes or continued weakness in specific industry segments; construction quality, age and design; demographic factors; and retroactive changes to building or similar codes and regulatory requirements. In addition, decreases in property values reduce the value of the loan collateral and the potential proceeds available to a borrower to repay the underlying loans, which could also cause us to suffer losses. We seek to manage these risks through our underwriting, loan structuring, financing structuring and asset management processes.
Financing Risk
We finance our business through a variety of means, including the syndication of non-consolidated senior interests, notes payable, borrowings under our repurchase facilities, the syndication of pari passu portions of our loans, the syndication of senior participations in our originated senior loans, and our secured term loan. Over time, as market conditions change, we may use other forms of financing in addition to these methods of financing. Weakness or volatility in the debt capital markets, the CRE and mortgage markets, changes in regulatory requirements, and the economy generally, in particular as a result of the current COVID-19 pandemic, could adversely affect one or more of our lenders or potential lenders and could cause one or more of our lenders or potential lenders to be unwilling or unable to provide us with financing or to increase the costs of that financing or otherwise offer unattractive terms for that financing. In addition, we may seek to finance our business through the issuance of our common stock or other equity or equity-related instruments, though there is no assurance that such financing will be available on a timely basis with attractive terms, or at all.
Item 4. Controls and Procedures.
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed with the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
52
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act of 1934) during the three months ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
As of June 30, 2022 an evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) under the Securities Exchange Act of 1934). Based on that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2022.
53
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we may be involved in various claims and legal actions arising in the ordinary course of business. As of June 30, 2022, we were not involved in any material legal proceedings.
Item 1A. Risk Factors.
For a discussion of our potential risks and uncertainties, see the information under the heading “Risk Factors” in the Prospectus. There have been no material changes to our principal risks that we believe are material to our business, results of operations, and financial condition from the risk factors disclosed in our Annual Report file on Form 10-K, which is accessible on the SEC’s website at www.sec.gov.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
Our Manager provides us with investment advisory and investment management services, pursuant to the terms of the Management Agreement, which we amended on August 2, 2022 to conform certain provisions with common market practices and remove outdated provisions that ceased to be relevant. The Amended and Restated Management Agreement between CMTG and the Manager is a ten-year agreement that provides for automatic one-year renewal periods starting on August 25, 2025, subject to certain termination and nonrenewal rights that are exercisable by a two-thirds vote by the independent directors of CMTG’s board of directors. If the independent directors of CMTG’s board of directors decline to renew the Amended and Restated Management Agreement other than for cause, CMTG is required to pay the Manager a termination fee equal to three times the total 24-month trailing average annual base management fee and incentive compensation earned by the Manager through the most recently completed calendar quarter.
Relevant changes made in the August 2022 amendment to the Amended and Restated Management Agreement were (i) removing reporting requirements that exceed or may differ from the Company’s obligations under the federal securities laws, (ii) removing unnecessary provisions relating to historical joint ventures, (iii) providing for reimbursement to the Manager of the allocable salaries and other compensation of the Manager’s non-investment professionals who provide services to the Company under the Amended and Restated Management Agreement, based upon the percentage of time devoted by such professionals to CMTG’s affairs, (iv) causing the Amended and Restated Management Agreement to automatically renew for a 1-year term as of each anniversary of the original expiration date of the management agreement and (v) amending the termination provision to (a) allow for the Company to decline to renew the Amended and Restated Management Agreement without cause with 180 days’ prior written notice upon certain determinations made by at least two-thirds of the independent directors and (b) remove certain circumstances under which the Company would not be obligated to pay the Manager a termination fee.
Pursuant to the Amended and Restated Management Agreement, CMTG is also required to reimburse the Manager or its affiliates for documented costs and expenses incurred by it and its affiliates on behalf of CMTG, except those specifically required to be borne by the Manager under the Management Agreement. The Manager is responsible for, and CMTG does not reimburse the Manager or its affiliates for, the expenses related to investment personnel of the Manager and its affiliates who provide services to CMTG. The foregoing description of the Amended and Restated Management Agreement is qualified in its entirety by reference to the Amended and Restated Management Agreement, a copy of which has been filed as Exhibit 10.1 hereto and is incorporated herein by reference.
54
Item 6. Exhibits.
Exhibit Number |
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Description |
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3.1 |
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3.2 |
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10.1* |
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10.2 |
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10.3 |
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10.4 |
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10.5* |
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10.6 |
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31.1* |
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31.2* |
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32.1* |
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32.2* |
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101.INS |
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Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema Document |
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101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104 |
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Cover Page Interactive Data File (embedded within the Inline XBRL document) |
55
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* |
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Filed herewith |
56
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Claros Mortgage Trust, Inc. |
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Date: August 2, 2022 |
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By: |
/s/ Richard J. Mack |
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Richard J. Mack |
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Chief Executive Officer (Principal Executive Officer) |
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Date: August 2, 2022 |
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By: |
/s/ Jai Agarwal |
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Jai Agarwal |
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Chief Financial Officer (Principal Financial and Accounting Officer) |
57
Exhibit 10.1
AMENDED AND RESTATED MANAGEMENT AGREEMENT
THIS AMENDED AND RESTATED MANAGEMENT AGREEMENT is made as of August 2, 2022, by and between CLAROS MORTGAGE TRUST, INC., a Maryland corporation (the “Company”), and CLAROS REIT MANAGEMENT LP, a Delaware limited partnership (together with its permitted assignees, the “Manager”).
WHEREAS, the Company is a corporation that has elected and believes it has qualified to be taxed as a real estate investment trust for federal income tax purposes;
WHEREAS, the Company desires to retain the Manager to provide investment advisory and investment management services to it on the terms and conditions set forth herein, and the Manager wishes to be retained to provide such services; and
WHEREAS, the Company and the Manager entered into the original Management Agreement on August 25, 2015, an Amended and Restated Management Agreement on June 8, 2016, which was subsequently amended on October 26, 2021 (the “Amended Management Agreement”), and, notwithstanding the Amended Management Agreement or this amendment and restatement, the Company and the Manager desire that any reference to “the date of this Agreement” or any phrase of similar intent shall continue to refer to August 25, 2015, for all purposes;
NOW THEREFORE, in consideration of the mutual agreements set forth herein, the parties hereto agree as follows:
Section 1. Definitions. The following terms have the following meanings assigned to them:
“Advisers Act” shall have the meaning set forth in Section 2(b) of this Agreement.
“Affiliate” means a Person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the Person specified (for this purpose, “control” shall mean either the possession, directly or indirectly, of either the power to direct or cause the direction of the management and policies of the entity or the distribution of its profits, whether by the ownership of voting securities, partnership shares, by contract or otherwise). For the avoidance of doubt, neither Almanac nor any of its Affiliates shall be considered to be an Affiliate of the Manager or MRECS for purposes of this Agreement.
“Agreement” means this Management Agreement, as amended, restated or supplemented from time to time.
“Almanac” means NB Alternatives Advisers LLC, a Delaware limited liability company, together with its successors and assigns.
“Anti-Corruption Event” shall mean (a) the Company, the Manager or any of their respective employees takes any action, directly or indirectly, or causes or directs anyone to take any action, that results in a violation of any applicable statute, law or regulation relating to bribery or corruption (collectively, “Anti-Corruption Laws”) with the intent of obtaining or retaining business or an advantage for the Company, the Manager or their Affiliates; (b) the Company or the Manager fails to take all reasonable measures to procure or ensure that the Company, the Manager and their respective employees conduct their businesses in conformity with all Anti-Corruption Laws, including maintaining accurate books and records and implementing appropriate policies and procedures to prevent any of the foregoing from violating any Anti-Corruption Laws with the intent of obtaining or retaining business or an advantage for the Company, the Manager and/or their Affiliates; (c) either the Company or the Manager (i) fails to direct and instruct any person that it appoints or designates (and that is not an Affiliate of the Company or the Manager) to take any action on its behalf with respect to the business of the Company, the Manager or their Subsidiaries to comply with all Anti-Corruption Laws and (ii) to the extent that the Company or the Manager has knowledge of a violation of such Anti-Corruption Laws, the Company or the Manager, as applicable, fails to take reasonable and appropriate efforts to remediate such violation as permitted under law, contract or regulation; or (d) either the Company or the Manager fails to use reasonable efforts to cause any person it appoints or designates (and that is not an Affiliate of the Company or the Manager) to make to and in favor of the Company and the Manager, as applicable, representations, warranties and covenants consistent with the foregoing.
|US-DOCS\131332066.10||
“Arbitrator” shall have meaning set forth in Section 12(d) of this Agreement.
“Auditor” shall have the meaning set forth in Section 4(a) of this Agreement.
“Bankruptcy” means, with respect to any Person, (a) the filing by such Person of a voluntary petition seeking liquidation, reorganization, arrangement or readjustment, in any form, of its debts under Title 11 of the United States Code or any other federal, state or foreign insolvency law, or such Person’s filing an answer consenting to or acquiescing in any such petition, (b) the making by such Person of any assignment for the benefit of its creditors, (c) the expiration of 90 days after the filing of an involuntary petition under Title 11 of the Unites States Code, an application for the appointment of a receiver for a material portion of the assets of such Person, or an involuntary petition seeking liquidation, reorganization, arrangement or readjustment of its debts under any other federal, state or foreign insolvency law, provided that the same shall not have been vacated, set aside or stayed within such 90-day period or (d) the entry against it of a final and non-appealable order for relief under any bankruptcy, insolvency or similar law now or hereinafter in effect.
“Base Management Fee” means a base management fee equal to 1.5% per annum, calculated and paid (in cash) quarterly in arrears, of the Stockholders’ Equity.
“Board of Directors” means the Board of Directors of the Company (or any committee thereof), as such terms are defined in, and as such bodies are constituted and governed by, the Governing Instruments of the Company.
“Business Day” shall have the meaning given to such term in Rule 14d-1(g) under the Exchange Act.
“Code” means the Internal Revenue Code of 1986, as amended.
“Company” shall have the meaning set forth in the introductory paragraph of this Agreement and shall include, unless the context otherwise requires, the Company’s Subsidiaries.
“Company Account” shall have the meaning set forth in Section 8 of this Agreement.
“Company Costs” shall have the meaning set forth in Section 13 of this Agreement.
“Company Indemnified Party” shall have the meaning set forth in Section 15(b) of this Agreement.
“Company Party” means any of the Company and the Company’s direct or indirect parents, stockholders, Subsidiaries, or Affiliates.
“Confidential Information” means (a) all confidential, proprietary or nonpublic information of or concerning the performance, terms, business, operations, activities, personnel, training, finances, actual or potential investments, plans, personal lives, habits, history, compensation, clients, investors, borrowers, lenders, business associations, know-how, business methods or otherwise of (i) any Investment, any potential Investment or any Company Party and (ii) any director, officer, employee, member, partner, client, investor or business associate of any Company Party, and (b) the services contemplated by this Agreement, the terms of this Agreement, and the fact that any Company Party has invested in any Investment or may be evaluating an Investment.
“Core Earnings” means the net income (loss) of the Company, computed in accordance with GAAP, excluding (i) non-cash equity compensation expense, (ii) Incentive Fees, (iii) real estate depreciation and amortization (i.e., Investments consisting of debt investments related to real estate to the extent that the Company forecloses upon the property or properties underlying such debt investments), (iv) any unrealized gains or losses from valuation changes (other than permanent impairments) that are included in net income for the applicable period (regardless of whether such items are included in other comprehensive income or loss, or in net income or loss), (v) one-time events pursuant to changes in GAAP and (vi) certain non-cash items, which in the judgment of the Manager, should not be included in Core Earnings. For clauses (v) and (vi), such exclusions shall only be applied after discussions between the Manager and the Independent Directors and after approval by a majority of the Independent Directors.
|US-DOCS\131332066.10||
“Counterproposal” shall have the meaning set forth in Section 12(d) of this Agreement.
“Excess Funds” shall have the meaning set forth in Section 2(i) of this Agreement.
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
“Expenses” shall have the meaning set forth in Section 13 of this Agreement.
“GAAP” means generally accepted accounting principles, as applied in the United States.
“Governing Instruments” means, with regard to any entity, the articles of incorporation and bylaws in the case of a corporation, certificate of limited partnership (if applicable) and the partnership agreement in the case of a general or limited partnership, the articles of formation and the operating agreement in the case of a limited liability company, the trust instrument in the case of a trust, or similar governing documents, in each case as amended from time to time.
“Guidelines” shall have the meaning set forth in Section 2(c)(i) of this Agreement.
“Incentive Fee” means the incentive management fee calculated and payable (in cash) with respect to each calendar quarter (or part thereof that this Agreement is in effect) in arrears in an amount, not less than zero, equal to the difference between (1) the product of (a) 20% and (b) the difference between (i) the Core Earnings of the Company on a rolling four-quarter basis and before the Incentive Fee for the current quarter, and (ii) the product of (A) the weighted average of the issue price per share of the Company’s common stock in all of the Company’s offerings of its common stock from and after the date of this Agreement (including an offering that results in a listing on a national stock exchange) multiplied by the weighted average number of shares of the Company’s common stock outstanding (including, for the avoidance of doubt, any restricted shares of common stock and any other shares of common stock underlying awards granted under one or more of the Company’s equity incentive plans, if any) in such four quarter period, and (B) 7% per annum (or 1.75% per quarter) and (2) the sum of any Incentive Fee paid to the Manager with respect to the first three calendar quarters of such previous four quarters, if any; provided, however, that no Incentive Fee shall be payable with respect to any calendar quarter unless aggregate Core Earnings for the 12 most recently completed calendar quarters is greater than zero.
For purposes of calculating the Incentive Fee prior to the completion of a 12-month period during the term of this Agreement, the Incentive Fee shall be calculated on the basis of the number of days that this Agreement has been in effect.
If the date of the expiration of the Term does not correspond to the end of a fiscal quarter, the Manager’s Incentive Fee shall be calculated for the period beginning on the day after the end of the fiscal quarter immediately preceding the date of the expiration of the Term and ending on the date of the expiration of the Term, which Incentive Fee shall be calculated using Core Earnings for the 12-month period ending on the date of the expiration of the Term.
“Indemnitee” shall have the meaning set forth in Section 15(b) of this Agreement.
“Indemnitor” shall have the meaning set forth in Section 15(c) of this Agreement.
“Independent Director” means, a member of the Board of Directors who is “independent” in accordance with the Company’s Governing Instruments and the rules of the applicable national securities exchange
“Investment” means an investment by the Company or any of its Subsidiaries.
“Investment Company Act” means the Investment Company Act of 1940, as amended.
“Manager” shall have the meaning set forth in the introductory paragraph of this Agreement.
“Manager Indemnified Party” shall have the meaning set forth in Section 15(a) of this Agreement.
“Monitoring Services” shall have the meaning set forth in Section 2(c) of this Agreement.
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“MRECS” shall have the meaning set forth in Section 2(b) of this Agreement.
“Origination Services” shall have the meaning set forth in Section 2(c)(ii) of this Agreement.
“Person” means any individual, corporation, partnership, joint venture, limited liability company, estate, trust, unincorporated association, any federal, state, county or municipal government or any bureau, department or agency thereof and any fiduciary acting in such capacity on behalf of any of the foregoing.
“Plan” shall have the meaning set forth in Section 12(f) of this Agreement.
“Portfolio Management Services” shall have the meaning set forth in Section 2(c) of this Agreement.
“REIT” means a “real estate investment trust,” as defined under Section 856 of the Code.
“Responsible Personnel” means the personnel of the Manager (or any Affiliate thereof) who will be primarily responsible for carrying out this Agreement.
“Securities Act” means the Securities Act of 1933, as amended.
“Stockholders’ Equity” means:
(a) The Company’s stockholders’ equity (excluding any amounts resulting from issuances of equity securities covered in clause (b) below), plus
(b) the sum of the net proceeds from all issuances of the Company’s equity securities from and after the date of this Agreement (allocated on a pro rata daily basis for such issuances during the fiscal quarter of any such issuance), plus
(c) the Company’s retained earnings at the end of the most recently completed fiscal quarter (as determined in accordance with GAAP, without taking into account any non-cash equity compensation expense incurred in current or prior periods), less
(d) any amount that the Company has paid for repurchases of its common stock since inception, excluding
(e) any unrealized gains, losses (other than permanent impairments) or other items that have impacted stockholders’ equity as reported in financial statements prepared under GAAP (regardless of whether such items are included in other comprehensive income or loss, or in net income), and as adjusted to exclude
(f) one-time events pursuant to changes in GAAP and in certain non-cash items;
in each case, after discussions between the Manager and the Board of Directors and approval by the Company.
“Subsidiary” means any subsidiary of the Company; any partnership, the general partner of which is the Company or any subsidiary of the Company; any limited liability company, the managing member of which is the Company or any subsidiary of the Company; and any corporation or other entity of which a majority of (i) the voting power of the voting equity securities or (ii) the outstanding equity interests is owned, directly or indirectly, by the Company or any subsidiary of the Company.
“Term” shall have the meaning set forth in Section 17(a) of this Agreement.
“Termination Fee” shall have the meaning set forth in Section 17(f) of this Agreement.
“Treasury Regulations” means the regulations promulgated under the Code as amended from time to time.
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Section 2. Appointment and Duties of the Manager.
(a) The Company hereby appoints the Manager to manage the Investments and provide the Origination Services, subject to the further terms and conditions set forth in this Agreement, and the Manager hereby agrees to use its commercially reasonable efforts to perform each of the duties set forth herein. Unless otherwise provided, the appointment gives the Manager discretionary authority over the Investments and in the performance of the Portfolio Management Services, the Monitoring Services and the Origination Services, each as defined below. The appointment of the Manager shall be exclusive to the Manager except to the extent that the Manager otherwise agrees, in its sole and absolute discretion, and except to the extent that the Manager elects, pursuant to the terms of this Agreement, to cause the duties of the Manager hereunder to be provided by third parties. Whenever in this Agreement the approval of the Company is required, such approval shall be obtained through the affirmative action of the Board of Directors.
(b) The parties acknowledge that (i) the Manager is a special purpose vehicle serving as the investment manager of the Company; (ii) the Manager is an Affiliate of Mack Real Estate Credit Strategies, L.P. (“MRECS”), an investment adviser that is registered under the Investment Advisers Act of 1940, as amended (the “Advisers Act”); (iii) the Manager performs its services for the Company through the personnel and facilities of MRECS and/or its Affiliates; (iv) the Manager has no, and will have no, employees or other persons acting on its behalf other than (A) officers, partners and employees of MRECS, or (B) other persons who are subject to the supervision and control of MRECS; (v) all of the investment advisory activities of the Manager are subject to the Advisers Act and the rules thereunder; and (vi) the Manager is an investment adviser that is registered under the Advisers Act.
(c) The Manager, in its capacity as manager of the Investments and the day-to-day operations of the Company, at all times will be subject to the supervision, direction and management of the Company through its Board of Directors and the approvals required by this Agreement. The Manager will have only such functions and authority as the Company through its Board of Directors may delegate to it, including the functions and authority identified herein and delegated to the Manager hereby, and must provide its services in accordance with the investment objectives, policies and restrictions from time to time set by the Company through its Board of Directors. The Manager will be responsible for the day-to-day operations of the Company and will perform (or cause to be performed) such services and activities relating to the Investments and operations of the Company as may be appropriate, including:
(i) serving as the Company’s consultant with respect to the periodic review of the investment guidelines, any modification to which shall be approved by the Company (such guidelines as initially approved and attached hereto as Exhibit A, as the same may be modified with such approval, the “Guidelines”), and other policies for approval by the Company;
(ii) identifying, investigating, analyzing and selecting possible opportunities and, subject to the Guidelines, originating Investments consistent with the Guidelines, and recommending to the Company strategies for the same (the “Origination Services”);
(iii) subject to approval of the Company, acquiring, originating, financing, retaining, negotiating for prepayment, refinancing, hypothecating, pledging, selling, restructuring or disposing of Investments consistent with the Guidelines, and recommending to the Company strategies for the same;
(iv) meeting or corresponding with the Company to discuss, develop and document a course of action to be taken with respect to any Investment that has cleared all applicable approval processes of the Manager or with respect to amendments or changes to the Guidelines;
(v) supervising the structure of the acquisition, origination or advance of any Investment;
(vi) performing financial analyses, reviewing files and borrower reports concerning the Investments and reporting salient details thereof to the Company;
(vii) overseeing physical due diligence investigations of and reviewing and assessing any liens or other encumbrances on properties securing any Investments;
(viii) advising on the compliance and licensing necessary to own and manage the Investments;
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(ix) with respect to prospective acquisitions, sales or exchanges of Investments, conducting negotiations on behalf of the Company with sellers, purchasers and brokers and, if applicable, their respective agents and representatives (in cooperation with legal counsel chosen by the Manager and approved by the Company);
(x) advising the Company on, preparing, negotiating, executing (and amending or modifying post-execution, as applicable) and entering into, on behalf of the Company, (x) subject to approval by the Company, credit facilities (including term loans and revolving facilities), securities repurchase and reverse repurchase agreements, resecuritizations, securitizations, warehouse facilities, applications and agreements relating to programs established by the U.S. government, commercial paper, exchange-traded and over-the-counter derivatives agreements, including interest rate swap agreements and other hedging instruments, and (y) subject to approval by the Company (except as expressly provided in Section 2(e) below) all other agreements, engagements and attendant documentation required for the Company to conduct its business, which shall include any market and/or industry standard documentation and the standard representations contained therein;
(xi) establishing and implementing loan origination networks and conducting loan underwriting, due diligence and the execution of loan transactions;
(xii) overseeing loan portfolio servicers;
(xiii) providing the Company with portfolio management, including the periodic review and evaluation of the performance of the Company’s portfolio of Investments;
(xiv) subject to approval by the Company, engaging and supervising, on the Company’s behalf and at the Company’s expense, independent contractors, advisors, consultants, attorneys, accountants, auditors and other service providers that provide various services, including investment banking, securities brokerage, mortgage brokerage, credit analysis, risk management services, asset management services, loan servicing, other financial, legal or accounting services, due diligence services, underwriting review services, transfer agent and registrar services and all other services as may be required relating to the Investments and the Company’s day-to-day operations;
(xv) coordinating and managing operations of any co-investment interests or joint venture held by the Company and conducting all matters with the co-investment partners or joint venture;
(xvi) arranging marketing materials, advertising, industry group activities (such as conference participations and industry organization memberships) and other promotional efforts designed to promote the Company’s business;
(xvii) providing executive and administrative personnel, office space and office services required in rendering services to the Company;
(xviii) administering the day-to-day operations and performing and supervising the performance of such other administrative functions necessary to the management of the Company, as may be agreed upon by the Manager and the Company, including the collection of revenues and the payment of the debts and obligations of the Company and maintenance of appropriate computer systems to perform such administrative functions;
(xix) communicating on behalf of the Company with the holders of any of its equity or debt securities, as required to satisfy the reporting and other requirements of any governmental bodies or agencies or trading markets and to maintain effective relations with such holders;
(xx) counseling the Company in connection with policy decisions to be made by the Company;
(xxi) evaluating and, subject to approval of the Company, entering into hedging strategies and engaging in hedging activities on behalf of the Company, consistent with the Guidelines;
(xxii) assisting the Company in retaining advisors to advise the Company regarding the maintenance of its qualification as a REIT and monitoring compliance with the various REIT qualification tests and other rules set out in the Code and Treasury Regulations thereunder;
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(xxiii) counseling the Company regarding the maintenance of its exemptions from the status of an investment company required to register under the Investment Company Act, monitoring compliance with the requirements for maintaining such exemptions and using commercially reasonable efforts to cause it to maintain such exemptions from such status;
(xxiv) furnishing reports and statistical and economic research to the Company regarding the Manager’s activities and services;
(xxv) meeting with the Board of Directors on a monthly basis, or with such other frequency as the Board of Directors may reasonably request, regarding the Manager’s activities and services;
(xxvi) monitoring the operating performance of the Investments and providing periodic reports thereto to the Board of Directors, including comparative information with respect to such operating performance and budgeted or projected operating results;
(xxvii) subject to approval by the Company, investing and reinvesting any moneys and securities of the Company (including investing in short-term investments pending the acquisition of other Investments, payment of fees, costs and expenses, or payments of dividends or distributions to stockholders and partners of the Company) and advising the Company as to its capital structure and capital raising;
(xxviii) assisting the Company in retaining qualified accountants and legal counsel, as applicable, to assist in developing appropriate accounting systems and procedures, internal controls and other compliance procedures and testing systems with respect to financial reporting obligations and compliance with the provisions of the Code applicable to REITs, and to conduct quarterly compliance reviews with respect thereto;
(xxix) cooperating with the Company and providing the Company with all such information as the Company may request relating to the Investments in connection with any audit of the Company being performed internally or otherwise, provided that the Company shall reimburse the Manager for any extraordinary costs or expenses incurred in connection therewith;
(xxx) assisting the Company in obtaining and maintaining all appropriate licenses, including in connection with the sourcing, origination or acquisition of Investments, and in qualifying to do business in all applicable jurisdictions;
(xxxi) assisting the Company in complying with all regulatory requirements applicable to it in respect of its business activities, including preparing or causing to be prepared all financial statements required under applicable regulations and contractual undertakings and all reports and documents, if any, required under the Exchange Act, the Securities Act or by stock exchange requirements;
(xxxii) assisting the Company in taking all necessary actions to enable it to make required tax filings and reports, including soliciting stockholders for required information to the extent required by the provisions of the Code applicable to REITs;
(xxxiii) to the extent the Company invests in securities pursuant to clause (xxvii) above, placing, or facilitating the placement of, all orders pursuant to the Manager’s investment determinations for the Company either directly with the issuer or with a broker or dealer (including any affiliated broker or dealer), and acknowledging the receipt of brokers’ risk disclosure statements, electronic trading disclosure statements and similar disclosures;
(xxxiv) handling and resolving all claims, disputes or controversies (including all litigation, arbitration, settlement or other proceedings or negotiations) on the Company’s behalf in which the Company may be involved or to which it may be subject arising out of its day-to-day operations (other than with the Manager or its Affiliates), subject to such limitations or parameters as may be imposed from time to time by the Company;
(xxxv) using commercially reasonable efforts to cause Expenses incurred by the Company or on its behalf to be commercially reasonable or commercially customary and within the expense guidelines set by the Company from time to time;
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(xxxvi) advising the Company with respect to and structuring long-term financing vehicles for the Investments, and offering and selling securities, publicly or privately, in connection with any such structured financing;
(xxxvii) maintaining, at all times, adequate books, records and supporting documents to verify the amount, receipts and uses of all disbursements of funds passing in conjunction with this Agreement (such books, records and supporting documents shall be subject to review in connection with the aforementioned audits and shall be prepared in accordance with GAAP);
(xxxviii) performing such other services as may be required from time to time for management and other activities relating to the Investments and business of the Company as the Board of Directors shall reasonably request or the Manager shall deem appropriate under the particular circumstances;
(xxxix) administering draw requests permitted to be made under the documentation evidencing an Investment, including, without limitation, confirming that all conditions to such draw requests have been satisfied; and
(xl) using commercially reasonable efforts to cause the Company to comply with all applicable laws.
Without limiting the foregoing, the Manager will perform portfolio management services (the “Portfolio Management Services”) on behalf of the Company with respect to the Investments. Such Portfolio Management Services will include, but not be limited to, consulting with the Company on the acquisition and disposition of, and other opportunities in connection with, the Company’s portfolio of Investments; the collection of information pertaining to the Investments, interest rates and general economic conditions; periodic review and evaluation of the performance of the Company’s portfolio of Investments; acting as liaison between the Company and banking, mortgage banking, investment banking and other parties with respect to the purchase, financing and disposition of Investments; and other customary functions related to portfolio management. Additionally, the Manager will perform monitoring services (the “Monitoring Services”) on behalf of the Company with respect to any loan servicing activities provided by third parties in respect of any whole loans owned by the Company. Such Monitoring Services will include, but not be limited to, negotiating servicing agreements; acting as a liaison between the servicers of the Investments and the Company; review of servicers’ delinquency, foreclosure and other reports on Investments; supervising claims filed under any insurance policies; and enforcing the obligation of any servicer to repurchase Investments.
(d) For the period of, and on the terms and conditions set forth in, this Agreement, the Company hereby constitutes, appoints and authorizes the Manager as its true and lawful agent and attorney-in-fact, in its name, place and stead, to negotiate, execute, deliver and enter into (and amend or modify post-execution, as applicable) such credit finance, securities repurchase and reverse repurchase agreements, warehouse finance agreements, brokerage agreements, interest rate swap agreements and other derivatives documentation, including exchange-traded and over-the-counter agreements, custodial agreements, “to be announced” forward contracts, agreements relating to borrowings under programs established by the U.S. government and/or any U.S. government agency, such as Government National Mortgage Association, or a federally chartered corporation, such as Federal National Mortgage Association or Federal Home Loan Corporation, which guarantees payments of principal and interest on mortgage-backed securities, and such other agreements, instruments and authorizations on their behalf. This power of attorney is deemed to be coupled with an interest.
(e) The Manager may enter into agreements with other parties, including its Affiliates, for the purpose of engaging one or more parties for and on behalf, and at the sole cost and expense of the Company, to provide credit analysis, risk management services, loan origination services, asset management services, portfolio servicing, and/or other services to the Company (including Portfolio Management Services and Monitoring Services) pursuant to agreement(s) with terms which are then customary for agreements regarding the provision of services to companies that have assets similar in type, quality and value to the Investments; provided that (i) any such agreements entered into with Affiliates of the Manager shall require the approval of a majority of the Independent Directors or be on terms no more favorable to such Affiliate than would be obtained from an independent third party providing similar services on an arm’s-length basis, and (ii) the Manager shall remain liable for the performance of such services and shall oversee any such party in performing such services.
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(f) Subject to approval by the Company, the Manager may retain, for and on behalf of the Company, and at the Company’s sole cost and expense, such services of accountants, legal counsel, appraisers, insurers, brokers, transfer agents, registrars, developers, investment banks, valuation firms, financial advisors, due diligence firms, underwriting review firms, banks and other lenders, and others as the Manager deems necessary or advisable in connection with the management and operations of the Company. Notwithstanding anything contained herein to the contrary, the Manager shall have the right to cause any such services to be rendered by its personnel or, upon approval of a majority of the Independent Directors, its Affiliates. Except as otherwise provided herein, the Company shall pay or reimburse the Manager or its Affiliates performing such services for the cost thereof; provided that, subject to Section 13 of this Agreement, such costs and reimbursements are no greater than those that would be payable to outside professionals or consultants engaged to perform such services pursuant to agreements negotiated on an arm’s-length basis.
(g) Subject to approval by the Company, the Manager may effect transactions by or through the agency of another Person, with it or its Affiliates which have an arrangement under which that Person or its Affiliates will, from time to time, provide to or procure for the Manager and/or its Affiliates goods, services or other benefits (including research and advisory services; economic and political analysis, including valuation and performance measurement; market analysis, data and quotation services; computer hardware and software incidental to the above goods and services; clearing and custodian services and investment-related publications), the nature of which is such that the transaction can reasonably be expected to benefit the Company as a whole, and may contribute to an improvement in the performance of the Company, the Manager or its Affiliates in providing services to the Company on terms that no direct payment is made, but instead the Manager and/or its Affiliates undertake to place business with that party.
(h) To the extent the Company invests in securities, the Manager has no duty or obligation to seek in advance competitive bidding for the most favorable commission rate applicable to any particular purchase, sale or other transaction, or to select any broker-dealer on the basis of its purported or “posted” commission rate, but will endeavor to be aware of the current level of charges of eligible broker-dealers and to minimize the expense incurred for effecting purchases, sales and other transactions to the extent consistent with the interests and policies of the Company. Although the Manager will generally seek competitive commission rates, it is not required to pay the lowest commission or commission equivalent, provided that such decision is made in good faith to promote the best interests of the Company.
(i) Notwithstanding anything contained in this Agreement to the contrary, except to the extent that the payment of additional moneys is proven by the Company to have been required as a direct result of the Manager’s acts or omissions which result in the right of the Company to terminate this Agreement pursuant to Section 17 of this Agreement, the Manager shall not be required to expend money (“Excess Funds”) in connection with any Expenses that are required to be paid for or reimbursed by the Company pursuant to Section 13 of this Agreement in excess of that contained in any applicable Company Account (as herein defined) or otherwise made available by the Company to be expended by the Manager hereunder.
(j) Subject always to the terms of this Agreement, the investment authority granted to the Manager shall include, to the extent approved by the Company, the authority to exercise whatever powers the Company may possess with respect to any of its Investments held in the Company’s accounts, including, but not limited to, the right to effect remedies regarding delinquencies or defaults with respect to any Investments, the right to vote proxies, the power to exercise rights, options, warrants, conversion privileges and redemption privileges, and to tender securities pursuant to a tender offer.
(k) To the extent the Company invests in securities, the Manager shall have authority to instruct the custodian (if any) to: (i) deliver or accept delivery of, upon receipt of payment or payment upon receipt of, securities, commodities or other property underlying any futures or options contracts, and other property purchased or sold in the account, and (ii) deposit margin or collateral which shall include the transfer of money, securities or other property to the extent necessary to meet the obligations of the account with respect to any investments made pursuant to the Guidelines.
(l) In performing its duties under this Section 2 of this Agreement, the Manager shall be entitled to rely reasonably on qualified experts and professionals (including accountants, legal counsel and other service providers) hired by the Manager at the Company’s sole cost and expense, provided that such qualified experts and professionals have been approved in advance in writing by the Company and are not Affiliates of the Manager.
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Section 3. Devotion of Time; Additional Activities.
(a) The Manager and its Affiliates will provide the Company with a management team, including a chief executive officer, chief financial officer and other appropriate support personnel, to provide the management services to be provided by the Manager to the Company hereunder. None of the officers, employees or other personnel of the Manager initially will be dedicated exclusively to the Company, nor is the Manager or its personnel obligated to dedicate any specific portion of its or their time to the Company (other than such portion of their time as is necessary and appropriate, commensurate with the level of activity of the Company from time to time, for the Manager to perform its services under this Agreement). If it so chooses, the Company may hire dedicated employees in the future and will be responsible for any such employee’s salary and other compensation.
(b) Nothing in this Agreement shall (i) prevent the Manager, MRECS or any of their respective Affiliates, officers, directors, employees or personnel, from engaging in other businesses or from rendering services of any kind to any other Person, including investing in, or rendering advisory services to others investing in, any type of business (including acquisitions of assets that meet the principal objectives of the Company but not a business the primary purpose of which is to invest in assets that meet the Guidelines) or (ii) in any way bind or restrict the Manager, MRECS or any of their respective Affiliates, officers, directors, employees or personnel from buying, selling or trading any securities or assets for their own accounts or for the account of others for whom the Manager, MRECS or any of their respective Affiliates, officers, directors, employees or personnel may be acting. When making decisions where a conflict of interest may arise, the Manager will endeavor to allocate acquisition and financing opportunities in a fair and equitable manner over time as between the Company and the Manager’s other funds and clients, in accordance with MRECS’s then prevailing policies and procedures with respect to conflicts resolution among MRECS’s and MRECS’s Affiliates’ managed investment vehicles or accounts. While information and recommendations supplied to the Company shall, in the Manager’s reasonable and good faith judgment, be appropriate under the circumstances and in light of the investment objectives, policies and strategies of the Company, they may be different from the information and recommendations supplied by the Manager, MRECS or any of their respective Affiliates to their other managed investment vehicles or accounts.
(c) Managers, partners, officers, employees, personnel and agents of the Manager or its Affiliates may serve as directors, officers, employees, personnel, agents, nominees or signatories for the Company to the extent permitted by its Governing Instruments or by any resolutions duly adopted by the Board of Directors pursuant to the Company’s Governing Instruments. When executing documents or otherwise acting in such capacities for the Company, such persons shall use their respective titles in the Company.
(d) The Company agrees to take, or cause to be taken, all actions reasonably required to permit and enable the Manager to carry out its duties and obligations under this Agreement, including all steps reasonably necessary to allow the Manager to enable the Company to make any governmental filings in a timely manner or to deliver any financial statements or other reports with respect to the Company, provided that the Company shall have no obligation to take, or cause to be taken, any action that would relate to the licenses or business of the Manager (as opposed to the licenses or business of the Company). If the Manager is not able to provide a service, or in the reasonable judgment of the Manager it is not prudent to provide a service, without the approval of the Company, then the Manager shall use commercially reasonable efforts to promptly obtain such approval and shall be excused from providing such service (and shall not be in breach of this Agreement) until the applicable approval has been obtained.
Section 4. Reporting.
(a) The Manager shall prepare, or cause to be prepared, all reports, financial or otherwise, with respect to the Company reasonably required by the Board of Directors in order for the Company to comply with their Governing Instruments or any other materials required to be filed with any governmental body or agency, and shall prepare, or cause to be prepared, all materials and data necessary to complete such reports and other materials including an annual audit of the Company’s books of account by any one of PricewaterhouseCoopers, Ernst & Young, KPMG or Deloitte & Touche or such other nationally recognized registered independent public accounting firm as may be selected by the Board of Directors from time to time (the “Auditor”).
Section 5. Origination Services. The Manager, whether directly or through MRECS, and their respective Affiliates, undertake to use all commercially reasonable efforts to present to the Company a continuing and suitable investment
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program for the Company consistent with the Guidelines in accordance with this Section 5. With respect to any potential Investment presented by the Manager to the Company, the Manager shall provide such information as may be reasonably necessary and available for the Board of Directors to consider the matter in question and render an informed decision, or as otherwise may be reasonably requested by the Board of Directors (including proposed term sheets, diligence information, appraisals, environmental reports or other information relating to the applicable Investment).
Section 6. Agency. The Manager shall act as agent of the Company in making, acquiring, originating, financing and disposing of Investments, disbursing and collecting the funds of the Company, paying the debts and fulfilling the obligations of the Company, supervising the performance of professionals engaged by or on behalf of the Company and handling, prosecuting and settling any claims of or against the Company, the Board of Directors, holders of the Company’s securities or representatives or property of the Company.
Section 7. Standards of Care. The Manager shall perform its duties hereunder with the care, skill, prudence and diligence that a prudent person acting in a like capacity and familiar with such matters would use under conditions prevailing at the time. The Manager understands and acknowledges that it has fiduciary duties to the Company as provided by the Advisers Act. Notwithstanding the foregoing, the Manager does not guarantee the performance or profitability of an Investment recommended by the Manager.
Section 8. Bank Accounts. At the direction of the Company, the Manager may establish and maintain one or more bank accounts in the name of the Company (any such account, a “Company Account”), and may collect and deposit funds into any such Company Account or Company Accounts, and disburse funds from any such Company Account or Company Accounts, under such terms and conditions as the Company may approve; and the Manager shall from time to time render appropriate accountings of such collections and payments to the Company and, upon request, to the auditors of the Company.
Section 9. Records; Confidentiality.
(a) The Manager agrees to maintain and to preserve for the Company such records as are necessary and proper or required by applicable law, and such records shall be accessible for inspection by representatives of the Company at any time during normal business hours upon reasonable advance written notice; provided that, for the avoidance of doubt, such records shall not include, and the Company shall not have access to, without the prior written consent of MRECS or the Manager (as applicable), any records of MRECS, any records maintained by the Manager for its own behalf or for its other clients, or any proprietary information of MRECS or the Manager.
(b) The Manager shall keep confidential any and all Confidential Information and shall not disclose any such Confidential Information (or use the same except in furtherance of its duties under this Agreement) to unaffiliated third parties except (i) with the prior written consent of the Company; (ii) to legal counsel, accountants and other professional advisors; (iii) to appraisers, financing sources and others in the ordinary course of the Company’s business; (iv) to governmental officials having jurisdiction over the Company; (v) in connection with any governmental or regulatory filings of the Company or disclosure or presentations to the Company’s stockholders or prospective stockholders; (vi) upon the receipt of an appropriate document subpoena or other appropriate request for documents from any federal, state, county or municipal government or any bureau, department or agency thereof, provided that if the Manager determines, in its sole discretion, not to provide documents in accordance with this Section 9(b), it may oppose such document subpoena or other request, provided that the Manager shall be responsible for all reasonable direct costs of such opposition; or (vii) to the extent such information is otherwise publicly available. Notwithstanding anything herein to the contrary, each of the following shall be deemed to be excluded from the provisions hereof: any Confidential Information that (A) has become publicly available through the actions of a Person other than the Manager, (B) is released in writing by the Company to the public or to Persons who are not under a similar obligation of confidentiality to the Company, or (C) is obtained by the Manager from a third party without breach by such third party of an obligation of confidence with respect to the Confidential Information disclosed.
(c) The provisions of this Section 9 shall survive the expiration or earlier termination of this Agreement for a period of one year.
Section 10. Representations and Agreements.
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(a) The Company represents, warrants and covenants that, as of the date of this Agreement:
(i) the Company is duly organized, validly existing and in good standing under the laws of the State of Maryland, has the corporate power and authority and the legal right to own and operate its Investments and to conduct the business in which it is now engaged and is duly qualified as a foreign corporation and in good standing under the laws of each jurisdiction where the conduct of its business requires such qualification, except for failures to be so qualified, authorized or licensed that could not in the aggregate have a material adverse effect on the business operations, assets or financial condition of the Company and the Subsidiaries, if any, taken as a whole;
(ii) the Company has the corporate power and authority and the legal right to make, deliver and perform this Agreement and all obligations required hereunder, and has taken all necessary corporate action to authorize this Agreement on the terms and conditions hereof and the execution, delivery and performance of this Agreement and all obligations required hereunder. No consent of any other Person that has not already been obtained, including stockholders and creditors of the Company, and no license, permit, approval or authorization of, exemption by, notice or report to, or registration, filing or declaration with, any governmental authority is required by the Company in connection with this Agreement or the execution, delivery, performance, validity or enforceability of this Agreement and all obligations required hereunder. This Agreement has been, and each instrument or document required hereunder will be, executed and delivered by a duly authorized officer of the Company, and this Agreement constitutes, and each instrument or document required hereunder when executed and delivered hereunder will constitute, the legally valid and binding obligation of the Company enforceable against the Company in accordance with its terms;
(iii) the execution, delivery and performance of this Agreement and the documents or instruments required hereunder will not violate any provision of any existing law or regulation binding on the Company, or any order, judgment, award or decree of any court, arbitrator or governmental authority binding on the Company, or the Governing Instruments of, or any securities issued by the Company or of any mortgage, indenture, lease, contract or other agreement, instrument or undertaking to which the Company is a party or by which the Company or any of its assets may be bound, the violation of which would have a material adverse effect on the business operations, assets or financial condition of the Company and its Subsidiaries, if any, taken as a whole, and will not result in, or require the creation or imposition of, any lien on any of its property, assets or revenues pursuant to the provisions of any such mortgage, indenture, lease, contract or other agreement, instrument or undertaking.
(b) The Manager represents, warrants and covenants that, as of the date of this Agreement::
(i) the Manager is duly organized, validly existing and in good standing under the laws of the State of Delaware, has the limited partnership power and authority and the legal right to own and operate its assets and to conduct the business in which it is now engaged and is duly qualified as a foreign limited partnership and in good standing under the laws of each jurisdiction where the conduct of its business requires such qualification, except for failures to be so qualified, authorized or licensed that could not in the aggregate have a material adverse effect on the business operations, assets or financial condition of the Manager and its subsidiaries, if any, taken as a whole;
(ii) the Manager has the limited partnership power and authority and the legal right to make, deliver and perform this Agreement and all obligations required hereunder and has taken all necessary limited partnership action to authorize this Agreement on the terms and conditions hereof and the execution, delivery and performance of this Agreement and all obligations required hereunder. No consent of any other Person that has not already been obtained, including partners and creditors of the Manager, and no license, permit, approval or authorization of, exemption by, notice or report to, or registration, filing or declaration with, any governmental authority is required by the Manager in connection with this Agreement or the execution, delivery, performance, validity or enforceability of this Agreement and all obligations required hereunder. This Agreement has been, and each instrument or document required hereunder will be, executed and delivered by a duly authorized officer of the Manager, and this Agreement constitutes, and each instrument or document required hereunder when executed and delivered hereunder will constitute, the legally valid and binding obligation of the Manager enforceable against the Manager in accordance with its terms;
(iii) the execution, delivery and performance of this Agreement and the documents or instruments required hereunder will not violate any provision of any existing law or regulation binding on the Manager, or any order, judgment, award or decree of any court, arbitrator or governmental authority binding on the Manager, or the Governing Instruments of or any securities issued by the Manager, or of any mortgage, indenture, lease, contract or
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other agreement, instrument or undertaking to which the Manager is a party or by which the Manager or any of its assets may be bound, the violation of which would have a material adverse effect on the business operations, assets or financial condition of the Manager and its subsidiaries, if any, taken as a whole, and will not result in, or require, the creation or imposition of any lien or any of its property, assets or revenues pursuant to the provisions of any such mortgage, indenture, lease, contract or other agreement, instrument or undertaking;
(iv) the Manager is solvent and has the ability to pay its debts as they become due;
(v) in performing its duties under this Agreement, the Manager is in compliance in all material respects with and will comply in all material respects with all requirements of any federal, state or local law, rule, regulation or ordinance which apply to its obligations hereunder and the operation of its business;
(vi) the Manager has not made and will not make, and none of its subsidiaries and, to the knowledge of the Manager, none of the Responsible Personnel have made or will make (A) any unlawful contribution or gift, or provide any entertainment, to any foreign or U.S. government official or employee; (B) any payment or take any action that violates or would be in violation of any provision of any federal, state or local or other applicable domestic or foreign law, rule, regulation or ordinance regarding illegal payments or corrupt practices, or, whether currently or formerly subject thereto, any provision of the Foreign Corrupt Practices Act of 1977, as amended; or (C) any bribe, rebate, payoff, influence payment, kickback or other unlawful payment;
(vii) the operations of the Manager and its subsidiaries are and have been conducted at all times in compliance with the financial recordkeeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, and with the money laundering statutes of all other applicable jurisdictions, the rules and regulations thereunder and any related or similar rules, regulations or guidelines issued, administered or enforced by any governmental agency, and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Manager or any of its Affiliates with respect to such laws is pending or, to the knowledge of the Manager, threatened;
(viii) the Manager is not, and none of its Affiliates and, to the knowledge of the Manager, none of the Responsible Personnel, is currently subject to or doing business with or in any country subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury;
(ix) the Manager agrees to certify the Manager’s compliance with the provisions of clauses (v), (vi), (vii) and (viii) of this Section 10(b) if requested by the Company from time to time during the term of this Agreement; and
(x) the Manager shall promptly give notice to the Company if it attains knowledge that any of the foregoing acknowledgments, representations, warranties or agreements shall no longer be true in any material respect.
Section 11. Obligations of Manager; Restrictions.
(a) The Manager shall require each borrower, guarantor, seller or transferor of an Investment to make such representations and warranties regarding such Investments as may be in the judgment of the Manager necessary and appropriate. In addition, the Manager shall take such other action as it deems necessary or appropriate with regard to the protection of the Investments.
(b) The Manager shall refrain from any action that (i) is not in compliance with the Guidelines (other than as authorized by the Company upon request by the Manager); (ii) could adversely affect the status of the Company as a REIT under the Code (including with respect to directing or managing any investment by the Company in securities); (iii) would adversely and materially affect the Company’s or any Subsidiary’s status as an entity intended to be exempted or excluded from investment company status under the Investment Company Act; (iv) would violate any law, rule or regulation of any governmental body or agency having jurisdiction over the Company; or (v) would otherwise not be permitted by the Company’s Governing Instruments. If the Manager is ordered to take any such action by the Board of Directors, the Manager shall promptly notify the Board of Directors of the Manager’s judgment that such action would adversely and materially affect such status or violate any such law, rule or regulation or the Governing Instruments. Notwithstanding the foregoing, the Manager, its directors, members, officers, stockholders,
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managers, personnel, employees and any Person controlling or controlled by the Manager and any Person providing sub-advisory services to the Manager shall not be liable to the Company, the Board of Directors, or the Company’s stockholders, members or partners, for any act or omission by the Manager, its directors, officers, stockholders, personnel or employees except as provided in Section 15 of this Agreement.
(c) The Company shall have the right to periodically review the Guidelines and the Company’s portfolio of Investments but will not review each proposed Investment, except as otherwise provided herein. If the Company determines in its periodic review of transactions that a particular transaction does not comply with the Guidelines, then the Company will consider what corrective action, if any, can be taken. The Manager shall be permitted to rely upon the direction of the secretary of the Company to evidence the approval of the Board of Directors with respect to a proposed acquisition.
(d) In the event that the Company purchases Investments from or sells Investments to MRECS or its Affiliates or their respective managed investment vehicles or accounts, any such transaction shall require the approval of the Company.
(e) In the event that the Company enters into any joint venture arrangements with MRECS or its Affiliates or their respective managed investment vehicles or accounts, or if the Company invests in or arranges financing from or provides financing to MRECS or its Affiliates or their respective managed investment vehicles or accounts, any such transaction shall require the approval of the Company.
Section 12. Compensation.
(a) During the Term (each as defined below), the Company shall pay the Manager the Base Management Fee and the Incentive Fee.
(b) The Base Management Fee shall be payable quarterly in arrears commencing with the first calendar quarter ending after the date of this Agreement (with such initial payment pro-rated based on the number of days during such quarter that this Agreement was in effect as a percentage of the total number of days in such quarter and with the last payment similarly pro-rated based on the termination date of this Agreement). The Manager shall compute each installment of the Base Management Fee within thirty (30) days after the end of the fiscal quarter with respect to which such installment is payable. A copy of the computations made by the Manager to calculate such installment shall thereafter promptly be delivered to the Board of Directors and, upon such delivery, payment of such installment of the Base Management Fee shown therein shall be due and payable in cash no later than the date which is ten (10) Business Days after the date of delivery to the Board of Directors of such computations.
(c) The Incentive Fee shall be payable in arrears, in quarterly installments commencing with the first calendar quarter ending after the date on which this Agreement was executed (with such initial payment pro-rated based on the number of days during such quarter that this Agreement was in effect). The Manager shall compute each installment of the Incentive Fee within thirty (30) days after the end of the fiscal quarter with respect to which such installment is payable. A copy of the computations made by the Manager to calculate such installment shall thereafter promptly be delivered to the Board of Directors and, upon such delivery, payment of such installment of the Incentive Fee shown therein shall be due and payable in cash no later than the date which is ten (10) Business Days after the date of delivery to the Board of Directors of such computations.
(d) If the Company has any objections to the computations made by the Manager with respect to an installment of the Base Management Fee or Incentive Fee in accordance with Section 12(b) and Section 12(c), the Company shall deliver to the Manager, within five (5) Business Days after the date of delivery to the Company of such computations, a statement setting forth a counterproposal with reasonably detailed support for the basis thereof (the “Counterproposal”). The Company and the Manager shall negotiate in good faith to agree on the correct computation, but if they do not reach a final resolution within thirty (30) days after the delivery of the Counterproposal, the Company and the Manager shall submit the dispute for final resolution to an independent certified public accounting firm of national reputation other than the Auditor mutually agreed by the Company and the Manager (and if the parties cannot agree to such alternative firm, each of them shall name an independent certified public accounting firm of national reputation other than the Auditor and those two shall select an independent certified public accounting firm of national reputation other than the Auditor) (the firm so determined, the “Arbitrator”). The Company and the Manager shall use
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their reasonable best efforts to cause the Arbitrator to resolve the dispute and make a final determination in writing as soon as practicable and in any event within thirty (30) days after the submission of any dispute to the Arbitrator. The Company and the Manager shall promptly comply with all reasonable requests by the Arbitrator for information, books, records and similar items. The fees and expenses of the Arbitrator shall be borne by the Company, on the one hand, and the Manager, on the other hand, in such amount(s) as shall be determined by the Arbitrator based on the proportion that the aggregate amount of the dispute is attributable to the Company, on the one hand, or the Manager, on the other hand, as determined by the Arbitrator. The resolution of the dispute by the Arbitrator shall be final, binding and non-appealable on the parties hereto. If it is determined that the amounts paid to Manager in respect of the Base Management Fee or Incentive Fee were incorrect, the applicable party shall pay to the other any overpaid or underpaid amounts within ten (10) Business Days of such determination of the Arbitrator.
(e) To the extent that the Company makes a request for services of the Manager that are outside of the ordinary course of business and the services contemplated by this Agreement, the Company shall compensate the Manager for any additional costs, fees and expenses incurred by the Manager as a result thereby.
(f) Pursuant to the terms of that certain Claros Mortgage Trust, Inc. 2016 Incentive Award Plan (the “Plan”), the Company shall grant equity awards to the Manager or officers of the Manager on an annual basis in the maximum aggregate amount permitted by the Plan, with the recipients and amounts of individual grants to be determined by the Company in good faith after consultation with the Manager.
Section 13. Expenses of the Company. The Company shall pay all of its costs and expenses and shall reimburse the Manager for documented expenses of the Manager incurred on its behalf (collectively, the “Expenses”), excepting those costs and expenses that are specifically the responsibility of the Manager as set forth herein. As used herein, “Company Costs” means, without duplication, the following costs and expenses relating to the Investments and other operations of the Company (together with all costs and expenses that are expressly designated elsewhere in this Agreement as being the sole responsibility of the Company), but, in each such case, only to the extent such costs and expenses are not costs and expenses that are specifically the responsibility of the Manager as set forth herein:
(i) expenses in connection with an initial public offering by the Company or an initial public offering by any Affiliate of the Company in which the Company participates, and any other offering, and transaction costs (including legal and accounting expenses) incident to the acquisition, disposition and financing of Investments, including any costs incurred in connection with any failed investment transaction or abandoned potential investment transaction;
(ii) costs of legal, tax, accounting, third party administrators for the establishment and maintenance of the books and records, consulting, auditing, administrative and other similar services rendered for the Company by providers retained by the Manager or the Company or, if such services are provided by the Manager, amounts which are (x) no greater than those which would be payable to outside professionals or consultants engaged to perform such services pursuant to agreements negotiated on an arm’s-length basis and (y) to the extent the same do not fall within the parameters of this Agreement, approved by the Company;
(iii) (x) the compensation and expenses of the Company’s directors, if any, and (y) the allocable share of the cost of liability insurance under a universal insurance policy covering the Company, the Manager, MRECS and its Affiliates, or under a separate insurance policy covering the Company, to indemnify the Company’s directors and officers;
(iv) costs associated with the establishment and maintenance of any of the Company’s credit facilities, repurchase agreements, and securitization vehicles or other indebtedness of the Company (including commitment fees, accounting fees, legal fees, closing and other similar costs) or any of the Company’s securities offerings (including an initial public offering);
(v) expenses in connection with the application for, and participation in, programs established by the U.S. government or any other governmental body or agency;
(vi) expenses connected with communications to holders of the Company’s securities and other bookkeeping and clerical work necessary in maintaining relations with holders of such securities and in complying
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with the continuous reporting and other requirements of governmental bodies or agencies, including all costs of preparing and filing required reports with the Securities and Exchange Commission, the costs payable by the Company to any transfer agent and registrar in connection with the listing and/or trading of the Company’s stock on any exchange, the fees payable by the Company to any such exchange in connection with its listing, and the costs of preparing, printing and mailing the Company’s annual report to its stockholders and proxy materials with respect to any meeting of the Company’s stockholders;
(vii) costs associated with any computer software or hardware, electronic equipment or purchased information technology services from third-party vendors that is used for the Company;
(viii) expenses incurred by managers, officers, personnel and agents of the Manager for travel on the Company’s behalf and other out-of-pocket expenses incurred by managers, officers, personnel and agents of the Manager in connection with the origination, purchase, financing, refinancing, sale or other disposition of an Investment or establishment and maintenance of any of the Company’s credit facilities, repurchase agreements, securitization vehicles and borrowings under programs established by the U.S. government or any other governmental body or agency or any of the Company’s securities offerings (including an initial public offering);
(ix) costs, expenses and fees incurred with respect to market information systems and publications, research and analysis services provided by third parties, research publications, information and other materials, and settlement, clearing and custodial fees and expenses;
(x) compensation and expenses of the Company’s custodian and transfer agent, if any;
(xi) the costs of maintaining compliance with all supranational, national, federal, state and local rules and regulations or any other regulatory agency;
(xii) all taxes and license fees levied against the Company or its assets or operations;
(xiii) all insurance costs incurred in connection with the operation of the Company’s business;
(xiv) costs and expenses incurred in contracting with third parties, including Affiliates of the Manager, for the servicing and special servicing of the Investments;
(xv) all other costs and expenses relating to the business operations of the Company, including the costs and expenses of originating, acquiring, owning, protecting, maintaining, developing and disposing of Investments, including appraisal, valuation, reporting, audit and legal fees;
(xvi) expenses relating to any office(s) or office facilities, including disaster backup recovery sites and facilities, maintained for the Company or Investments separate from the office or offices of the Manager;
(xvii) expenses connected with the payments of interest, dividends or distributions in cash or any other form authorized or caused to be made by the Board of Directors to or on account of holders of the Company’s securities, including in connection with any dividend reinvestment plan;
(xviii) any judgment or settlement of pending or threatened proceedings (whether civil, criminal or otherwise), including any costs or expenses in connection therewith, against the Company, or against any trustee, director or officer of the Company in his or her capacity as such for which the Company is required to indemnify such trustee, director or officer by any court or governmental agency;
(xix) all costs and expenses relating to the development and management of the Company’s website, if any;
(xx) the allocable share of expenses under a universal insurance policy covering the Manager, MRECS or their Affiliates in connection with obtaining and maintaining “errors and omissions” insurance coverage and other insurance coverage which is customarily carried by property, asset and investment managers performing functions
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similar to those of the Manager, in an amount which is comparable to that customarily maintained by other managers or servicers of similar assets;
(xxi) all costs and expenses associated with any listing, and the maintenance of such listing, of the Company’s securities on a national stock exchange; and
(xxii) the Manager or its Affiliates will be reimbursed for the Company’s allocable share of the compensation, including without limitation, annual base salary, bonus, any related withholding taxes and employee benefits, paid to (1) the Manager’s personnel serving as the Company’s chief financial officer based on the percentage of his or her time spent managing the Company’s affairs, and (2) other corporate finance, tax, accounting, internal audit, legal, risk management, operations, compliance and other non-investment personnel of the Manager and its Affiliates who spend all or a portion of their time managing the Company’s affairs; salaries and other compensation of the Manager’s non-investment professionals who provide services to the Company under this Agreement based on the percentage of their time spent serving the Company, provided that, for purposes of clarity, the Company shall not be required to reimburse any such compensation for any of the Manager’s investment personnel, including but not limited to, Manager personnel serving as the Company’s chief executive officer or president.
The parties understand and agree that the reimbursement obligations of the Company contained herein applies to all Expenses of the Manager incurred during the 2022 calendar year and each period thereafter.
The Manager may, at its option, elect not to seek reimbursement for certain expenses during a given quarterly period, which determination shall not be deemed to construe a waiver of reimbursement for similar expenses in future periods. In the event that an initial public offering is consummated by the Company, the Company will reimburse the Manager for all organizational, formation and offering costs it has incurred on behalf of the Company.
The provisions of this Section 13 shall survive the expiration or earlier termination of this Agreement to the extent such expenses have previously been incurred or are incurred in connection with such expiration or termination.
Section 14. Calculations of Expenses. The Manager shall prepare a statement documenting the Expenses of the Company and the Expenses properly incurred by the Manager on behalf of the Company during each fiscal quarter, and shall deliver such statement to the Company within thirty (30) days after the end of each fiscal quarter. Expenses incurred by the Manager on behalf of the Company, including Expenses allocated to the Company pursuant to Section 13 of this Agreement, shall be reimbursed by the Company to the Manager on the tenth (10th) Business Day immediately following the date of delivery of such statement. The provisions of this Section 14 shall survive the expiration or earlier termination of this Agreement.
Section 15. Limits of Manager Responsibility; Indemnification.
(a) The Manager assumes no responsibility under this Agreement other than to render the services called for under this Agreement and shall not be responsible for any action of the Board of Directors in following or declining to follow any advice or recommendations of the Manager, including as set forth in Section 11(b) of this Agreement. The Manager, its officers, stockholders, members, managers, directors, employees, consultants, personnel, any Person controlling or controlled by the Manager and any of such Person’s officers, stockholders, members, managers, directors, employees, consultants and personnel, and any Person providing sub-advisory services to the Manager (each, a “Manager Indemnified Party”) will not be liable to the Company, the Board of Directors, or the Company’s stockholders, members or partners for any acts or omissions by any Manager Indemnified Party (including market movements or trade errors that may result from ordinary negligence, such as errors in the investment decision making process or in the trade process), pursuant to or in accordance with this Agreement, except by reason of acts or omissions constituting fraud or gross negligence in the performance of the Manager’s duties under this Agreement or a material breach by the Manager of this Agreement, as determined by a judgment at first instance of a court of competent jurisdiction. The Company shall, to the full extent lawful, reimburse, indemnify and hold each Manager Indemnified Party harmless of and from any and all expenses, losses, damages, liabilities, demands, charges and claims of any nature whatsoever (including attorneys’ fees) in respect of or arising from any acts or omissions of such Manager Indemnified Party made in good faith in the performance of the Manager’s duties under this Agreement and not constituting such Manager Indemnified Party’s fraud or gross negligence in the performance of the Manager’s duties under this Agreement.
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(b) The Manager shall, to the full extent lawful, reimburse, indemnify and hold the Company, its stockholders, directors and officers and each other Person, if any, controlling the Company (each, a “Company Indemnified Party”, and together with a Manager Indemnified Party, the “Indemnitee”), harmless of and from any and all expenses, losses, damages, liabilities, demands, charges and claims of any nature whatsoever (including attorneys’ fees) in respect of or arising from the Manager’s fraud or gross negligence in the performance of its duties under this Agreement or any claims by the Manager’s personnel relating to the terms and conditions of their employment by the Manager, as determined by a judgment at first instance of a court of competent jurisdiction.
(c) The Indemnitee will promptly notify the party against whom indemnity is claimed (the “Indemnitor”) of any claim for which it seeks indemnification; provided, however, that the failure to so notify the Indemnitor will not relieve the Indemnitor from any liability which it may have hereunder, except to the extent such failure actually prejudices the Indemnitor. The Indemnitor shall have the right to assume the defense and settlement of such claim; provided that the Indemnitor notifies the Indemnitee of its election to assume such defense and settlement within thirty (30) days after the Indemnitee gives the Indemnitor notice of the claim. In such case, the Indemnitee will not settle or compromise such claim, and the Indemnitor will not be liable for any such settlement made without its prior written consent. If the Indemnitor is entitled to, and does, assume such defense by delivering the aforementioned notice to the Indemnitee, the Indemnitee will (i) have the right to approve the Indemnitor’s counsel (which approval will not be unreasonably withheld, delayed or conditioned), (ii) be obligated to cooperate in furnishing evidence and testimony and in any other manner in which the Indemnitor may reasonably request and (iii) be entitled to participate in (but not control) the defense of any such action, with its own counsel and at its own expense. In addition, if the Indemnitor assumes such defense, the Indemnitor may settle any such claim without the prior consent of the Indemnitee if such settlement involves the full release of the Indemnitee and does not impose any non-monetary remedies and conditions on the Indemnitee without the Indemnitee’s prior written consent, which shall not be unreasonably withheld, delayed or conditioned.
Section 16. No Joint Venture. Nothing in this Agreement shall be construed to make the Company, on the one hand, and the Manager or an Affiliate of the Manager (other than the Company), on the other hand, partners or joint venturers or impose any liability as such on either of them.
Section 17. Term; Termination.
(a) Unless this Agreement is terminated in accordance with its terms, this Agreement shall automatically renew for a 1-year term each anniversary of the 10-year anniversary of the date of this Agreement (the “Term”).
(b) Notwithstanding any other provision of this Agreement to the contrary, upon the expiration of the Term and upon one hundred eighty (180) days’ prior written notice to the Manager (the “Termination Notice”), the Company may, without cause, in connection with the expiration of the Term or termination pursuant to Section 17(c)(z), decline to renew this Agreement (any such nonrenewal, a “Termination Without Cause”), in each case, upon the affirmative vote of at least two-thirds (2/3) of the Independent Directors that (1) there has been unsatisfactory performance by the Manager that is materially detrimental to the Company and its Subsidiaries taken as a whole or (2) the Base Management Fee and Incentive Fee payable to the Manager are not fair. In the event of a Termination Without Cause, the Company shall pay the Manager the Termination Fee before or on the last day of the Term (the “Effective Termination Date”). The Company may terminate this Agreement for cause pursuant to Section 17(c) hereof even after a Termination Notice and, in such case, no Termination Fee shall be payable. If the reason for nonrenewal specified in the Company’s Termination Notice is that at least two-thirds (2/3) of the Independent Directors have determined that the Base Management Fee or the Incentive Fee payable to the Manager is unfair, the Company shall not have the foregoing nonrenewal right in the event the Manager agrees that it will continue to perform its duties hereunder during the automatic renewal Term that would commence upon the expiration of the then current Term at a fee that at least two-thirds (2/3) of Independent Directors determine to be fair; provided, however, the Manager shall have the right to renegotiate the Base Management Fee and/or the Incentive Fee, by delivering to the Company, not less than 120 days prior to the pending Effective Termination Date, written notice (a “Notice of Proposal to Negotiate”) of its intention to renegotiate the Base Management Fee and/or the Incentive Fee. Thereupon, the Company and the Manager shall endeavor to negotiate the Base Management Fee and/or the Incentive Fee in good faith. Provided that the Company and the Manager agree to a revised Base Management Fee, Incentive Fee or other compensation structure within sixty (60) days following the Company’s receipt of the Notice of Proposal to Negotiate, the Termination Notice from the Company shall be deemed of no force and effect, and this Agreement shall continue in full force and effect
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on the terms stated herein, except that the Base Management Fee, the Incentive Fee or other compensation structure shall be the revised Base Management Fee, Incentive Fee or other compensation structure as then agreed upon by the Company and the Manager. The Company and the Manager agree to execute and deliver an amendment to this Agreement setting forth such revised Base Management Fee, Incentive Fee, or other compensation structure promptly upon reaching an agreement regarding same. In the event that the Company and the Manager are unable to agree to a revised Base Management Fee, Incentive Fee, or other compensation structure during such sixty (60) day period, this Agreement shall terminate on the Effective Termination Date and the Company shall be obligated to pay the Manager the Termination Fee upon the Effective Termination Date.
(c) the Company may terminate this Agreement:
(x) at any time and with immediate effect (and without payment of any Termination Fee) upon written notice delivered to the Manager, if one of the following events has occurred:
(i) the Manager or any of its Affiliates materially breaches any provision of this Agreement and such breach shall continue for a period of 30 days after the earlier of (A) the Manager becoming aware of such breach, or (B) written notice specifying such breach being delivered to the Manager, provided that if the Manager is proceeding with all reasonable diligence to cure the breach and can reasonably be expected to complete such cure within the ensuing 15 days, such 30 day period shall be extended to 45 days;
(ii) the Manager or any of its Affiliates engages in any act of fraud, misappropriation of funds, or embezzlement against the Company, any Subsidiary or otherwise;
(iii) there is an event of any gross negligence on the part of the Manager or any of its Affiliates in the performance of the duties of the Manager under this Agreement;
(iv) the Manager willfully defaults on any of its obligations under this Agreement;
(v) there is a commencement of any proceeding relating to the Manager’s Bankruptcy or insolvency, including an order for relief in an involuntary bankruptcy case or the Manager authorizing or filing a voluntary bankruptcy petition,
(vi) the Manager is convicted (including a plea of nolo contendere) of a felony; or
(vii) there is a dissolution of the Manager.
(y) effective upon 30 days’ prior written notice of termination from the Company to the Manager, without payment of any Termination Fee, if an Anti-Corruption Event occurs; provided, however, that to the extent an Anti-Corruption Event is reasonably susceptible to being cured, this clause (y) shall only be applicable in the event that the Manager fails to take commercially reasonable steps to cure the conditions that gave rise to such Anti-Corruption Event within 30 days.
(z) effective upon written notice from the Company to the Manager not less than 180 days prior to an anniversary of this Agreement and subject to Section 17(b), beginning after the 10-year anniversary.
(d) The Manager may terminate this Agreement (i) effective upon sixty (60) days’ prior written notice of termination to the Company in the event that the Company shall default in the performance or observance of any material term, condition or covenant contained in this Agreement and such default shall continue for a period of thirty (30) days after written notice thereof specifying such default and requesting that the same be remedied in such thirty (30) day period (or forty-five (45) days after written notice of such breach if the Company takes steps to cure such breach within thirty (30) days of the written notice) or (ii) effective upon written notice from the Manager to the Company not less than 180 days prior to an anniversary of this Agreement, beginning after the 10-year anniversary. The Company is required to pay to the Manager the Termination Fee if the termination of this Agreement is made pursuant to Section 17(d)(i).
(e) Unless the Company determines that qualification for taxation as a REIT under the U.S. federal income tax laws is no longer desirable, the Company may terminate this Agreement effective upon thirty (30) days’ prior written notice of termination from the Company to the Manager in the event that (x)(i) there is a determination by a court of competent jurisdiction, in a non-appealable binding order, or the Internal Revenue Service, in a closing agreement
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made under Section 7121 of the Code, that a provision of this Agreement has caused or will cause the Company to fail to satisfy a requirement for qualification as a REIT or (ii) a nationally recognized law or accounting firm provides advice to the Company that a provision of this Agreement has caused or could cause the Company to fail to satisfy a requirement for qualification as a REIT and (y) within 30 days of such determination or advice, the Manager has not agreed to amend or modify this Agreement in a manner that would allow the Company to qualify as a REIT.
(f) In recognition of the level of the upfront effort required by the Manager to structure and acquire the Investments and the commitment of resources by the Manager, in the event that this Agreement is terminated in accordance with the provisions of Section 17(b) or 17(d) of this Agreement, the Company shall pay to the Manager, on the date on which such termination is effective, a termination fee (the “Termination Fee”) equal to three (3) times the sum of (i) the average annual Base Management Fee, and (ii) the average annual Incentive Fee, in each case during the 24-month period immediately preceding the date of such termination, calculated as of the end of the most recently completed fiscal quarter prior to the date of termination. The obligation of the Company to pay the Termination Fee shall survive the termination of this Agreement.
Section 18. Assignment.
(a) Except as set forth in Section 18(b) of this Agreement, this Agreement shall terminate automatically, without payment of the Termination Fee, in the event of its assignment in whole or in part by the Manager, unless such assignment is approved by a majority of the Independent Directors. Any such permitted assignment shall bind the assignee under this Agreement in the same manner as the Manager is bound, and the Manager shall be liable to the Company for all errors or omissions of the assignee under any such assignment. In addition, the assignee shall execute and deliver to the Company a counterpart of this Agreement naming such assignee as Manager. This Agreement shall not be assigned by the Company without the prior written consent of the Manager, except in the case of assignment by the Company to another REIT or other organization which is a successor (by merger, consolidation, purchase of assets, or similar transaction) to the Company, in which case such successor organization shall be bound under this Agreement and by the terms of such assignment in the same manner as the Company is bound under this Agreement.
(b) Notwithstanding any provision of this Agreement, the Manager may subcontract any or all of its responsibilities under Section 2(c) of this Agreement to any of its Affiliates in accordance with the terms of this Agreement applicable to any such subcontract provided that the Manager remains liable for such Affiliate’s performance, and the Company hereby consents to any such subcontracting. In addition, provided that the Manager provides prior written notice to the Company for informational purposes only, nothing contained in this Agreement shall preclude any pledge, hypothecation or other transfer of any amounts payable to the Manager under this Agreement.
(c) Without limiting the foregoing provisions of this Section 18, this Agreement may not be “assigned” (as that term is defined under the Advisers Act) without the prior consent of the Company.
Section 19. Action Upon Termination. From and after the effective date of termination of this Agreement pursuant to Section 17 of this Agreement, the Manager shall not be entitled to compensation for further services under this Agreement, but shall be paid all compensation accruing to the date of termination and, if terminated pursuant to Section 17(b) or 17(d) of this Agreement, the applicable Termination Fee (if any). Upon such termination, the Manager shall forthwith:
(a) after deducting any accrued compensation and reimbursement for its Expenses to which it is then entitled, pay over to the Company all money collected and held for the account of the Company pursuant to this Agreement;
(b) deliver to the Board of Directors a full accounting, including a statement showing all payments collected by it and a statement of all money held by it, covering the period following the date of the last accounting furnished to the Board of Directors with respect to the Company;
(c) deliver to the Board of Directors all property and documents of the Company then in the custody of the Manager; and
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(d) cooperate (at the Manager’s sole cost and expense) with the transition of its duties hereunder to any new manager or management team engaged by the Company or any of its Affiliates for a reasonable transition period after the termination.
Section 20. Delivery of Form ADV. The Company acknowledges that it has received a copy of Part 2 of MRECS’s Form ADV, as amended, either prior to or at the time of execution of this Agreement.
Section 21. Notices. Unless expressly provided otherwise in this Agreement, all notices, requests, demands and other communications required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given, made and received when delivered against receipt or upon actual receipt of (i) personal delivery, (ii) delivery by reputable overnight courier, (iii) delivery by facsimile transmission with telephonic confirmation, or (iv) delivery by registered or certified mail, postage prepaid, return receipt requested, addressed as set forth below:
(a) If to the Company:
Claros Mortgage Trust, Inc.
60 Columbus Circle, 20th Floor
New York, New York 10023
Attention: General Counsel
(b) If to the Manager:
Claros REIT Management LP
60 Columbus Circle, 20th Floor
New York, New York 10023
Attention: General Counsel
(c) In each case with a copy to:
Latham & Watkins LLP
650 Town Center Drive, 20th Floor
Costa Mesa, California 92626
Attention: William J. Cernius, Esq.
Either party may alter the address to which communications or copies are to be sent by giving notice of such change of address in conformity with the provisions of this Section 21 for the giving of notice.
Section 22. Right to Offset. Each party shall have a mutual right of offset against the other with respect to amounts payable by one to the other. In the event either party exercises its offset rights, such party shall promptly provide the other party with documentation supporting the decision to exercise such offset rights.
Section 23. Binding Nature of Agreement; Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors and permitted assigns as provided in this Agreement.
Section 24. Allocation of Costs; Payment as Agent. From time to time the Manager, at the request of the Company, may perform services contemplated by this Agreement to or for the benefit of one or more Subsidiaries, including Subsidiaries that constitute taxable REIT subsidiaries of the Company within the meaning of Section 856(l) of the Code. In such case, notwithstanding anything to the contrary contained in this Agreement, the Company and the applicable Subsidiaries may, in their sole discretion, reasonably allocate the costs associated with the payment of any Base Management Fees, Incentive Fees, Expenses or other amounts owing under this Agreement among the Company and the applicable Subsidiaries, and to the extent any amounts so allocated to a Subsidiary are paid to Manager or any other Person by the Company, such payments shall be made on behalf of and in the capacity as agent of the applicable Subsidiary.
Section 25. Entire Agreement. This Agreement contains the entire agreement and understanding among the parties hereto with respect to the subject matter of this Agreement, and supersedes all prior and contemporaneous agreements,
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understandings, inducements and conditions, express or implied, oral or written, of any nature whatsoever with respect to the subject matter of this Agreement. The express terms of this Agreement control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms of this Agreement.
Section 26. Amendment. This Agreement may not be modified, amended or supplemented other than by an agreement in writing signed by the parties hereto.
Section 27. GOVERNING LAW; JURISDICTION. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES TO THE CONTRARY. EACH OF THE PARTIES HERETO IRREVOCABLY (A) CONSENTS TO SUBMIT TO THE EXCLUSIVE JURISDICTION OF ANY NEW YORK STATE COURT OR FEDERAL COURT OF THE UNITED STATES OF AMERICA SITTING IN NEW YORK CITY, AND ANY APPELLATE COURT FROM ANY THEREOF, (B) WAIVES ANY OBJECTION TO THE LAYING OF VENUE OF ANY ACTION, SUIT OR PROCEEDING BROUGHT IN SUCH COURT, (C) WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION, SUIT OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM, AND (D) AGREES THAT SERVICE OF PROCESS OR OF ANY OTHER PAPERS UPON SUCH PARTY BY PERSONAL DELIVERY AT THE ADDRESS TO WHICH NOTICES ARE REQUIRED TO BE SENT TO SUCH PARTY UNDER SECTION 21 OF THIS AGREEMENT SHALL BE DEEMED GOOD, PROPER AND EFFECTIVE SERVICE UPON SUCH PARTY.
Section 28. No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of any party hereto, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. No waiver of any provision hereunder shall be effective unless it is in writing and is signed by the party asserted to have granted such waiver.
Section 29. Counterparts. This Agreement may be executed in any number of counterparts (including by facsimile transmission or electronic mail in portable document format), each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. This Agreement shall become binding when one or more counterparts of this Agreement, individually or taken together, shall bear the signatures of all of the parties reflected hereon as the signatories.
Section 30. Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
Section 31. Interpretation and Rules of Construction. In this Agreement, except to the extent otherwise provided or that the context otherwise requires: (a) words used in this Agreement, regardless of the number and gender specifically used, shall be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine or neuter, as the context requires; (b) when a reference is made in this Agreement to an Article, Section, Exhibit or Schedule, such reference is to an Article or Section of, or an Exhibit or Schedule to, this Agreement unless otherwise indicated; (c) the titles and headings of this Agreement are for reference purposes only and do not affect in any way the meaning or interpretation of this Agreement; (d) whenever the words “include,” “includes” or “including” are used in this Agreement, they are deemed to be followed by the words “without limitation”; (e) the words “hereof,” “herein” and “hereunder” and words of similar import, when used in this Agreement, refer to this Agreement as a whole and not to any particular provision of this Agreement, unless otherwise specified; (f) all terms defined in this Agreement have the defined meanings when used in any certificate or other document made or delivered pursuant hereto, unless otherwise defined therein; (g) the definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms; (h) references to a Person are also to its successors and permitted assigns; (i) references to dollars or $ shall, unless otherwise stated herein, be to the legal currency of the United States; and (j)
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whenever the words “day” or “days” are used in this Agreement, they are deemed to refer to calendar days unless expressly stated to be Business Days.
(SIGNATURE PAGE FOLLOWS)
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.
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J. Michael McGillis |
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CLAROS MORTGAGE TRUST, INC. |
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/s/ J. Michael McGillis |
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J. Michael McGillis |
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Authorized Signatory |
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EXHIBIT A
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No investment shall be made that could reasonably be expected to cause the Company to fail to qualify as a REIT for U.S. federal income tax purposes. |
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No investment shall be made that could reasonably be expected to cause the Company to register as an investment company under the Investment Company Act.
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The Manager shall seek to invest the capital of the Company primarily in senior and subordinate loans on transitional commercial real estate assets located in major markets across the United States, and such other investment types as may be approved by the Company from time to time.
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Prior to the deployment of capital into investments, the Manager may cause the capital of the Company to be invested in any short-term investments in money market funds, bank accounts, overnight repurchase agreements with primary federal reserve bank dealers collateralized by direct U.S. government obligations and other instruments or investments reasonably determined by the Manager to be of high quality.
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Exhibit 10.5
EXECUTION VERSION
AMENDED AND RESTATED MASTER REPURCHASE AND
SECURITIES CONTRACT AGREEMENT
among
CMTG GS FINANCE LLC,
as Seller, GOLDMAN SACHS BANK USA,
as Administrative Agent, and
THE FINANCIAL INSTITUTIONS PARTY HERETO
as Buyers
Dated: March 7, 2022
LEGAL_US_E # 160815361.8
Page
ARTICLE 1. APPLICABILITY 1
ARTICLE 2. DEFINITIONS 2
ARTICLE 3. INITIATION; CONFIRMATION; TERMINATION; FEES 28
ARTICLE 4. MARGIN MAINTENANCE 37
ARTICLE 5. INCOME PAYMENTS AND PRINCIPAL PAYMENTS 38
ARTICLE 6. SECURITY INTEREST 39
ARTICLE 7. PAYMENT, TRANSFER AND CUSTODY 41
ARTICLE 8. SALE, TRANSFER, HYPOTHECATION OR PLEDGE OF PURCHASED
ASSETS 43
ARTICLE 9. REPRESENTATIONS AND WARRANTIES 43
ARTICLE 10. NEGATIVE COVENANTS OF SELLER 51
ARTICLE 11. AFFIRMATIVE COVENANTS OF SELLER 52
ARTICLE 12. SINGLE PURPOSE ENTITY 57
ARTICLE 13. EVENTS OF DEFAULT; REMEDIES 59
ARTICLE 14. INCREASED COSTS; TAXES 65
ARTICLE 15. SINGLE AGREEMENT 71
ARTICLE 16. RECORDING OF COMMUNICATIONS 71
ARTICLE 17. NOTICES AND OTHER COMMUNICATIONS 71
ARTICLE 18. ENTIRE AGREEMENT; SEVERABILITY 72
ARTICLE 19. NON ASSIGNABILITY 72
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LEGAL_US_E # 160815361.8
ARTICLE 20. GOVERNING LAW 73
ARTICLE 21. NO WAIVERS, ETC. 73
ARTICLE 22. USE OF EMPLOYEE PLAN ASSETS 73
ARTICLE 23. INTENT 74
ARTICLE 24. DISCLOSURE RELATING TO CERTAIN FEDERAL PROTECTIONS 75
ARTICLE 25. CONSENT TO JURISDICTION; WAIVERS 76
ARTICLE 26. NO RELIANCE 77
ARTICLE 27. INDEMNITY 77
ARTICLE 28. DUE DILIGENCE 78
ARTICLE 29. SERVICING 79
ARTICLE 30. ADMINISTRATIVE AGENT 80
ARTICLE 31. MISCELLANEOUS 83
ARTICLE 32. AMENDMENT AND RESTATEMENT 86
-ii-
LEGAL_US_E # 160815361.8
ANNEXES, EXHIBITS AND SCHEDULES
ANNEX I Names and Addresses for Communications among Parties SCHEDULE I Prohibited Transferees
SCHEDULE II Purchased Asset File
SCHEDULE III Buyers
EXHIBIT I Form of Confirmation Statement EXHIBIT II Authorized Representatives of Seller EXHIBIT III-A Monthly Reporting Package EXHIBIT III-B Quarterly Reporting Package EXHIBIT III-C Annual Reporting Package EXHIBIT IV Form of Power of Attorney
EXHIBIT V Representations and Warranties Regarding Individual Purchased Assets EXHIBIT VI Advance Procedures
EXHIBIT VII Form of Margin Deficit Notice EXHIBIT VIII Form of Tax Compliance Certificates
EXHIBIT IX Form of Covenant Compliance Certificate EXHIBIT X UCC Filing Jurisdictions
EXHIBIT XI Form of Servicer Notice
EXHIBIT XII Form of Release Letter
EXHIBIT XIII Reserved
EXHIBIT XIV Form of Custodial Delivery Certificate EXHIBIT XV Form of Bailee Letter
EXHIBIT XVI Reserved
EXHIBIT XVII Future Funding Advance Procedures
-iii-
LEGAL_US_E # 160815361.8
AMENDED AND RESTATED MASTER REPURCHASE AND SECURITIES CONTRACT AGREEMENT
THIS AMENDED AND RESTATED MASTER REPURCHASE AND SECURITIES CONTRACT
AGREEMENT (this “Agreement”), dated as of March 7, 2022, by and among GOLDMAN SACHS BANK USA, a New York state-chartered bank, as administrative agent (in such capacity, together with its permitted successors and assigns, the “Administrative Agent”) for GOLDMAN SACHS BANK USA, a New York state-chartered bank (“GSBUSA”), and such other financial institutions from time to time party hereto as buyers (GSBUSA, together with the entities listed on Schedule III hereto as of the date hereof, and such other financial institutions from time to time party hereto as buyers, and together with their respective successors and assigns, collectively “Buyers” and individually, each a “Buyer”), Buyers and CMTG GS FINANCE LLC, a Delaware limited liability company (“Seller”).
WHEREAS, GSBUSA and Seller are parties to that certain Master Repurchase and Securities Contract Agreement, dated as of May 31, 2017, as amended by that certain First Amendment to Master Repurchase and Securities Contract Agreement, dated as of May 29, 2018, as further amended by that certain Second Amendment to Master Repurchase and Securities Contract Agreement, dated as of August 31, 2018, as further amended by that certain Third Amendment to Master Repurchase and Securities Contract Agreement and First Amendment to Guarantee Agreement, dated as of March 12, 2019, as further amended by that certain Fourth Amendment to Master Repurchase and Securities Contract Agreement, dated as of May 1, 2019, as further amended by that certain Fifth Amendment to Master Repurchase and Securities Contract Agreement, dated as of October 30, 2019, as further amended by that certain Sixth Amendment to Master Repurchase and Securities Contract Agreement, dated as of April 15, 2020, as further amended by that certain Forbearance Agreement and Seventh Amendment to Master Repurchase and Securities Contract Agreement, dated as of June 11, 2020, as further amended by that certain Eighth Amendment to Master Repurchase and Securities Contract Agreement, dated as of May 27, 2021, and as further amended by that certain Ninth Amendment to Master Repurchase and Securities Contract Agreement and Second Amendment to Fee Letter, dated as of September 2, 2021 (collectively, the “Original Master Repurchase Agreement”);
WHEREAS, Administrative Agent, Buyers and Seller desire to amend and restate the Original Master Repurchase Agreement in its entirety upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the covenants set forth in this Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree that the Original Master Repurchase Agreement is hereby amended and restated in its entirety as follows:
ARTICLE 1.
APPLICABILITY
From time to time during the Availability Period the parties hereto may enter into transactions in which Seller and Administrative Agent, on behalf of Buyers, agree to the transfer from Seller to Administrative Agent, on behalf of Buyers, of all of its rights, title and interest in certain Eligible Assets (as defined herein) or other assets and, in each case, the other related Purchased Items (as defined herein) (collectively, the “Assets”) against the transfer of funds by Buyers to Seller, with a simultaneous agreement by Administrative Agent, on behalf of Buyers, to transfer back to Seller such Assets at a date certain or on demand, against the transfer of funds by Seller to Administrative Agent, on behalf of Buyers. Each such transaction shall be referred to herein as a “Transaction” and, unless otherwise agreed in writing, shall be governed by this Agreement, including any supplemental terms or conditions contained in any exhibits identified herein as applicable hereunder. Each individual transfer of an
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LEGAL_US_E # 160815361.8
Eligible Asset shall constitute a distinct Transaction. Notwithstanding any provision or agreement herein, at no time shall Administrative Agent, on behalf of Buyers, be obligated or committed to purchase or effect the transfer of any Eligible Asset from Seller to Administrative Agent, on behalf of Buyers. For the avoidance of doubt, upon receipt of the Repurchase Price in each Transaction, Administrative Agent, on behalf of Buyers, shall be obligated to return to Seller the same Purchased Assets Seller originally transferred to Administrative Agent, on behalf of Buyers, pursuant to such Transaction in accordance with the terms hereof.
ARTICLE 2. DEFINITIONS
“1934 Act” shall mean the Securities Exchange Act of 1934, as amended.
“Accelerated Repurchase Date” shall have the meaning set forth in Article 13(b)(i) of this Agreement.
“Acceptable Attorney” shall mean an attorney at law that has delivered at Seller’s request a Bailee Letter, with the exception of an attorney that is not satisfactory to Administrative Agent, on behalf of Buyers, as specified in a written notice from Administrative Agent to Seller.
“Accepted Servicing Practices” shall mean with respect to any applicable Purchased Asset, those mortgage loan servicing practices of prudent mortgage lending institutions that service mortgage loans of the same type as such Purchased Asset in the jurisdiction where the related underlying real estate directly or indirectly securing or supporting such Purchased Asset is located.
“Act of Insolvency” shall mean, with respect to any Person, (i) the filing of a petition by such Person, commencing, or authorizing the commencement of any case or proceeding under any bankruptcy, insolvency, reorganization, wind up, liquidation, dissolution or similar law relating to the protection of creditors (“Insolvency Law”), or suffering any such petition or proceeding to be commenced by another which is consented to, not timely contested or results in entry of an order for relief that, in the case of an action not initiated by or on behalf of or with the consent of Seller, is not dismissed or stayed within sixty
(60) days; (ii) the seeking or consenting to the appointment of a liquidator, receiver, trustee, custodian or similar official for such Person or any substantial part of the property of such Person; (iii) the appointment of a receiver, conservator, or manager for such Person by any governmental agency or authority having the jurisdiction to do so; (iv) the making of a general assignment for the benefit of creditors; (v) the admission by such Person of its inability to pay its debts or discharge its obligations as they become due or mature; (vi) that any Governmental Authority or agency or any person, agency or entity acting or purporting to act under Governmental Authority shall have taken any action to condemn, seize or appropriate, or to assume custody or control of, all or any substantial part of the property of such Person, or shall have taken any action to displace the management of such Person or to curtail its authority in the conduct of the business of such Person; (vii) the consent by such Person to the entry of an order for relief in an insolvency case under any Insolvency Law; or (viii) the taking of action by any such Person in furtherance of any of the foregoing.
“Additional Advance” shall have the meaning set forth in Article 3(k) of this Agreement.
“Administrative Agent” shall mean Goldman Sachs Bank USA, a New York state-chartered bank, in its capacity as administrative agent hereunder, together with its permitted successors and assigns.
“Advance Rate” shall mean, with respect to each Transaction, the initial Advance Rate selected by Administrative Agent, on behalf of Buyers, for such Transaction on a case by case basis in its sole
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LEGAL_US_E # 160815361.8
discretion as shown in the related Confirmation, as may be adjusted for any Future Funding Advance as set forth herein and reflected in any amended and restated Confirmation, which in any case shall not exceed the Maximum Advance Rate, unless otherwise agreed to by Administrative Agent, on behalf of Buyers, and Seller.
“Affiliate” shall mean, when used with respect to any specified Person, any other Person directly or indirectly Controlling, Controlled by, or under common Control with, such Person.
“Agreement” shall mean this Amended and Restated Master Repurchase and Securities Contract Agreement, dated as of the date hereof, by and among Seller, Administrative Agent and Buyers as such agreement may be amended, restated, modified or supplemented from time to time.
“Amortization Period” shall have the meaning specified in Article 3(m)(i).
“Amortization Period Additional Percentage” shall have the meaning set forth in the Fee Letter, which definition is incorporated herein by reference.
“Amortization Period Beginning Balance” shall mean the aggregate outstanding Purchase Prices of all Purchased Assets on the Availability Period Expiration Date.
“Amortization Period Conditions” shall have the meaning specified in Article 3(m)(i).
“Amortization Period Expiration Date” shall have the meaning specified in Article 3(m)(i).
“Amortization Period Fee” shall have the meaning set forth in the Fee Letter, which definition is incorporated herein by reference.
“Amortization Period Purchased Assets” shall mean those Purchased Assets that will remain subject to the terms of this Agreement during the Amortization Period in accordance with Article 3(m)(i).
“Annual Reporting Package” shall mean the reporting package described on Exhibit III-C.
“Anti-Money Laundering Laws” shall have the meaning set forth in Article 9(b)(xxix) of this Agreement.
“Applicable Spread” shall mean:
“Appraisal” shall mean an appraisal of the related Underlying Mortgaged Property from an Independent Appraiser that is compliant with the Financial Institutions Reform, Recovery, and Enforcement Act and prepared by a third-party appraiser addressed to, or permitted to be relied upon by, Administrative Agent, on behalf of Buyers, and satisfactory to Administrative Agent.
“Assets” shall have the meaning set forth in Article 1 of this Agreement.
“Assignee” shall have the meaning set forth in Article 19(a) of this Agreement.
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LEGAL_US_E # 160815361.8
“Assignment of Leases” shall mean, with respect to any Purchased Asset that is a Senior Mortgage Loan, any assignment of leases, rents and profits or equivalent instrument, whether contained in the related Mortgage or executed separately, assigning to the holder or holders of such Mortgage all of the related Mortgagor’s interest in the leases, rents and profits derived from the ownership, operation, leasing or disposition of all or a portion of the related Underlying Mortgaged Property as security for repayment of such Purchased Asset.
“Availability Period” shall mean the period commencing on the Closing Date and expiring on the Availability Period Expiration Date.
“Availability Period Expiration Date” shall mean May 31, 2022, as the same may be extended in accordance with Article 3(i)(ii) of this Agreement.
“Availability Period Renewal Conditions” shall have the meaning set forth in Article 3(i) of this Agreement.
“Bailee Letter” shall mean a letter substantially in the form as Exhibit XV from an Acceptable Attorney or a Title Company or another Person acceptable to Administrative Agent, on behalf of Buyers, in its sole discretion, in form and substance acceptable to Administrative Agent, on behalf of Buyers, in its sole discretion, wherein such Acceptable Attorney, Title Company or other Person described above in possession of a Purchased Asset File (i) acknowledges receipt of such Purchased Asset File, (ii) confirms that such Acceptable Attorney, Title Company or other Person acceptable to Administrative Agent, on behalf of Buyers, is holding the same as bailee or agent on behalf of Administrative Agent, on behalf of Buyers, under such letter and (iii) agrees that such Acceptable Attorney, Title Company or other Person described above shall deliver such Purchased Asset File to the Custodian, or as otherwise directed by Administrative Agent, on behalf of Buyers, by not later than the third (3rd) Business Day following the Purchase Date for the related Purchased Asset.
“Bankruptcy Code” shall mean Title 11 of the United States Code (11 U.S.C. § 101, et. seq.), as amended, modified or replaced from time to time.
“Benchmark” shall mean, initially, either (x) LIBOR (provided, that LIBOR shall only be permitted as a Benchmark for Purchased Assets with Purchase Dates on or prior to December 31, 2021 (any such asset a “LIBOR Purchased Asset”), after which the Benchmark shall be Term SOFR) or (y) Term SOFR, in each case as set forth in the applicable Confirmation for the subject Purchased Asset; provided, that on or prior to the date that is the Benchmark Replacement Date for LIBOR, the Benchmark for all LIBOR Purchased Assets shall be converted to Term SOFR; provided, further that at the election of Administrative Agent, in its sole discretion, the Benchmark for any Future Funding Advance for a LIBOR Purchased Asset shall be Term SOFR; provided, further that if a Benchmark Transition Event and its related Benchmark Replacement Date have occurred with respect to Term SOFR or the then-current Benchmark, then “Benchmark” means the applicable Benchmark Replacement (for purposes of clarity, for all LIBOR Purchased Assets, the Benchmark Replacement shall be deemed to be Term SOFR).
“Benchmark Floor” shall mean the greater of (x) zero percent (0%) and (y) the floor indicated in the Confirmation for any Purchased Asset.
“Benchmark Interim Unavailability Period” shall mean any Pricing Rate Period for which Administrative Agent, on behalf of Buyers, determines that (a) adequate and reasonable means do not exist for ascertaining the then-current Benchmark, unless and until a Benchmark Replacement has been implemented with respect thereto pursuant to Section 14(a), or (b) it is unlawful to use the then-current Benchmark to determine the applicable Price Differential.
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“Benchmark Replacement” shall mean, with respect to any Benchmark Transition Event, the
sum of:
provided that, in no event shall the Benchmark Replacement for any Pricing Rate Period be deemed to be less than the Benchmark Floor.
“Benchmark Replacement Adjustment” shall mean, with respect to any Unadjusted Benchmark Replacement, the spread adjustment or method for calculating or determining such spread adjustment (which may be a positive or negative value or zero) that has been selected by Administrative Agent, on behalf of Buyers, giving due consideration to (a) any selection or recommendation of a spread adjustment or method for calculating or determining such spread adjustment by the Relevant Governmental Body or (b) any evolving or then-prevailing market convention for determining a spread adjustment, or method for calculating or determining such spread adjustment, for the replacement of the then-current Benchmark with the applicable Unadjusted Benchmark Replacement for U.S. dollar-denominated commercial real estate repurchase facilities and/or floating rate commercial mortgage loans at such time.
“Benchmark Replacement Conforming Changes” shall mean, with respect to either the use or administration of LIBOR, Term SOFR or any Benchmark Replacement, any technical, administrative or operational changes (including changes to the definition of “Pricing Rate Period”, “Pricing Rate Determination Date” and “Remittance Date”, timing and frequency of determining rates and making payments of Price Differential, preceding and succeeding business day conventions and other administrative matters) that Administrative Agent, on behalf of Buyers, determines may be appropriate or necessary to reflect the adoption and implementation of such Benchmark Replacement and to permit the administration thereof by Administrative Agent in a manner substantially consistent with market practice for U.S. dollar-denominated commercial real estate repurchase facilities and/or floating rate commercial mortgage loans (or, if Administrative Agent decides that adoption of any portion of such market practice is not administratively feasible or if Administrative Agent determines that no market practice for the administration of the Benchmark Replacement exists, in such other manner of administration as Administrative Agent decides is reasonably necessary in connection with the administration of this Agreement).
“Benchmark Replacement Date” shall mean the earliest to occur of the following events with respect to the then-current Benchmark, or each Purchased Asset, as applicable:
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“Benchmark Transition Event” shall mean the occurrence of one or more of the following events with respect to the then-current Benchmark for each Purchased Asset, as applicable:
“Breakage Costs” shall have the meaning set forth thereto in Article 14(f).
“Business Day” shall mean a day other than (i) a Saturday or Sunday, or (ii) a day in which the New York Stock Exchange or banks in the State of New York are authorized or obligated by law or executive order to be closed. Notwithstanding the foregoing sentence, when used with respect to the determination of LIBOR, “Business Day” shall only be a day on which commercial banks are open for international business (including dealings in U.S. Dollar deposits) in London, England.
“Buyer” and “Buyers” shall mean (i) Goldman Sachs Bank USA, a New York state-chartered bank, in its capacity as buyer hereunder, together with its permitted successors and assigns and (ii) such other financial institutions from time to time party hereto and their respective successors and assigns.
“Buyer’s LTV” shall mean, on any date, with respect to any Purchased Asset, the quotient (expressed as a percentage) of (i) the then outstanding Purchase Price of such Purchased Asset divided by
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“Capital Stock” shall mean any and all shares, interests, or other equivalents (however designated) of capital stock of a corporation, any and all equivalent equity ownership interests in a Person which is not a corporation, including, without limitation, any and all member or other equivalent interests in any limited liability company, any and all partner or other equivalent interests in any partnership or limited partnership, and any and all warrants or options to purchase any of the foregoing.
“Capitalized Lease Obligations” shall mean obligations under a lease that are required to be capitalized for financial reporting purposes in accordance with GAAP. The amount of a Capitalized Lease Obligation is the capitalized amount of such obligation as would be required to be reflected on the balance sheet prepared in accordance with GAAP of the applicable Person as of the applicable date.
“Cause” shall mean, with respect to an Independent Director, (a) acts or omissions by such Independent Director that constitute willful disregard of, or bad faith or gross negligence with respect to, the Independent Director’s duties with respect to Seller’s obligations under this Agreement, (b) such Independent Director has engaged in or has been charged with, or has been convicted of, fraud or other acts constituting a crime under any law applicable to such Independent Director, (c) such Independent Director is unable to perform his or her duties as Independent Director due to death, disability or incapacity, or (d) such Independent Director no longer meets the definition of Independent Director, as that term is defined in this Article 2.
“Change of Control” shall mean the occurrence of any of the following events:
(2) Michael McGillis, (3) Kevin Cullinan and (4) Priyanka Garg;
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Guarantor in the ordinary course of business; provided that if Guarantor’s management is “internalized”, whether by acquisition of, or merger or other combination with, Claros Manager, or otherwise, such internalization shall not be deemed to be a “transfer” subject to this subsection (i);
For the avoidance of doubt, neither a Public Listing nor a Public Sale of Guarantor shall be deemed a Change of Control.
“Claros Management Agreement” shall mean that certain Amended and Restated Management Agreement dated as of July 8, 2016, by and between Claros Mortgage Trust, Inc. and Claros Manager.
“Claros Manager” shall mean Claros REIT Management LP, a Delaware limited partnership, together with its successors and assigns.
“Closing Date” shall mean the date of this Agreement.
“Co-Buyer Agreement” shall mean, collectively, (i) any co-buyer agreements entered into among Administrative Agent and one or more Buyers in connection with the Transactions and the Transaction Documents and (ii) any participation agreements entered into among Administrative Agent, one or more Buyers and any Participants in connection with the Transactions and the Transaction Documents, as each may be amended, modified and/or restated from time to time.
“Code” shall mean the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and rulings issued thereunder.
“Collection Period” shall mean (i) with respect to the first Remittance Date, the period beginning on and including the Closing Date and continuing to and including the calendar day immediately preceding such Remittance Date, and (ii) with respect to each subsequent Remittance Date, the period beginning on and including the immediately preceding Remittance Date and continuing to and including the calendar day immediately preceding the following Remittance Date.
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“Concentration Limit” shall mean, the following amounts or maximum percentage concentration limits based, where applicable, in each case, as of any date of determination, on the aggregate Purchase Price or individual Purchase Price for the applicable Purchased Asset(s), as the case may be, as a percentage of the Maximum Facility Amount:
$10,000,000.00 or greater than $100,000,000.00.
“Confirmation” shall mean a written confirmation in the form of Exhibit I, duly completed, executed and delivered by Administrative Agent, on behalf of Buyers, and Seller.
“Connection Income Taxes” shall mean Other Connection Taxes that are imposed on or measured by net income (however denominated) or that are franchise Taxes or branch profits Taxes.
“Control” shall mean, with respect to any Person, the possession of the direct or indirect power to direct or cause the direction of the management or policies of such Person, whether through the ability to exercise voting power, by contract or otherwise. “Control”, “Controlling”, “Controlled” and “under common Control” shall have correlative meanings.
“Covenant Compliance Certificate” shall mean a properly completed and executed Covenant Compliance Certificate in form and substance of the certificate attached hereto as Exhibit IX.
“Custodial Agreement” shall mean the Amended and Restated Custodial Agreement, dated as of the date hereof, by and among the Custodian, Seller and Administrative Agent, on behalf of Buyers, as amended, modified and/or restated from time to time.
“Custodial Delivery Certificate” shall mean the form executed by Seller in order to deliver the Purchased Asset Schedule and the Purchased Asset File to Administrative Agent, on behalf of Buyers, or its designee (including the Custodian) pursuant to Article 7 of this Agreement, a form of which is attached hereto as Exhibit XIV.
“Custodian” shall mean Wells Fargo Bank, N.A., or any successor Custodian appointed by Administrative Agent, on behalf of Buyers, and reasonably acceptable to Seller, or appointed by Administrative Agent, on behalf of Buyers, in its sole discretion during the continuance of an Event of Default.
“Delivery Failure” shall have the meaning set forth in the Bailee Letter.
“Depository” shall mean JPMorgan Chase Bank, N.A., or any successor Depository appointed by Administrative Agent, on behalf of Buyers, in its sole discretion and reasonably acceptable to Seller, or
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appointed by Administrative Agent, on behalf of Buyers, in its sole discretion during the continuance of an Event of Default.
“Depository Account” shall mean a segregated account, in the name of Seller, in trust for Administrative Agent, on behalf of Buyers, established at Depository in accordance with this Agreement, and which is subject to the Depository Agreement.
“Depository Agreement” shall mean that certain Amended and Restated Deposit Account Control Agreement, dated as of the date hereof, among Administrative Agent, on behalf of Buyers, Seller and Depository, as amended, modified and/or restated from time to time.
“Draw Fee” shall have the meaning set forth in the Fee Letter, which definition is incorporated herein by reference.
“Due Diligence Package” shall have the meaning set forth in Exhibit VI to this Agreement.
“Early Repurchase Date” shall have the meaning set forth in Article 3(f)(i) of this Agreement.
“Electronic Signature” shall have the meaning specified in Article 31(b) of this Agreement.
“Eligible Assets” shall mean any of the following types of assets or loans (a) that are acceptable to Administrative Agent, on behalf of Buyers, in its sole discretion (determined as of the relevant Purchase Date), (b) with respect to which as of the related Purchase Date the representations and warranties set forth in this Agreement (including the exhibits hereto) are true and correct in all respects except to the extent disclosed in a Requested Exceptions Report approved by Administrative Agent, on behalf of Buyers, and (c) where the Underlying Mortgaged Property consists of mixed-use, multi-family, office, retail, industrial, hospitality or warehouse properties or such other types of properties that Administrative Agent, on behalf of Buyers, may agree to in its sole discretion that are located in the United States of America, its territories or possessions (or elsewhere, in the sole discretion of Administrative Agent, on behalf of Buyers):
Notwithstanding anything to the contrary contained in this Agreement, the following shall not be Eligible Assets for purposes of this Agreement: (i) non-performing loans; (ii) any Asset, where payment of the Purchase Price with respect thereto would cause the aggregate of all Purchase Prices to exceed the Maximum Facility Amount; (iii) loans for which, the applicable Appraisal is not dated within one hundred eighty (180) calendar days of the proposed Purchase Date (or such other time period as approved by Administrative Agent, on behalf of Buyers, in Administrative Agent’s sole discretion); (iv) loans in which the related loan agreement or other documents and/or instruments evidencing such loans contain restrictions on assignment by the lender; (v) Assets that, upon becoming a Purchased Asset, would cause the Purchase Price of the applicable Purchased Asset or the aggregate Purchase Price of the applicable Purchased Assets to violate the Concentration Limit; (vi) construction loans or land loans (provided, that, loans allowing for advances relating to tenant improvement buildouts or renovations may be permitted);
(vii) Assets that, upon becoming a Purchased Asset, have a Mortgaged Property LTV greater than seventy-five percent (75%); and (viii) Assets that are not secured by cash-flowing Underlying Mortgaged
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Properties, provided that Administrative Agent, on behalf of Buyers, may consider an Asset that is secured by a non cash-flowing Underlying Mortgaged Property in its sole discretion on a case-by-case basis.
“Environmental Law” shall mean any federal, state, foreign or local statute, law, rule, regulation, ordinance, code, guideline, written policy and rule of common law now or hereafter in effect and in each case as amended, and any judicial or administrative interpretation thereof, including any judicial or administrative order, consent decree or judgment, relating to the environment, employee health and safety or hazardous materials, including, without limitation, CERCLA; RCRA; the Federal Water Pollution Control Act, 33 U.S.C. § 1251 et seq.; the Toxic Substances Control Act, 15 U.S.C. § 2601 et seq.; the Clean Air Act, 42 U.S.C. § 7401 et seq.; the Safe Drinking Water Act, 42 U.S.C. § 3803 et seq.; the Oil Pollution Act of 1990, 33 U.S.C. § 2701 et seq.; the Emergency Planning and the Community Right-to-Know Act of 1986, 42 U.S.C. § 11001 et seq.; the Hazardous Material Transportation Act, 49
U.S.C. § 1801 et seq. and the Occupational Safety and Health Act, 29 U.S.C. § 651 et seq.; and any state and local or foreign counterparts or equivalents, in each case as amended from time to time.
“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated thereunder. Article references to ERISA are to ERISA, as in effect at the date of this Agreement and, as of the relevant date, any subsequent provisions of ERISA, amendatory thereof, supplemental thereto or substituted therefor.
“ERISA Affiliate” shall mean any corporation or trade or business that is a member of any group of organizations (i) described in Article 414(b) or (c) of the Code of which Seller is a member and (ii) solely for purposes of potential liability under Article 302(c)(11) of ERISA and Article 412(c)(11) of the Code and the lien created under Article 302(f) of ERISA and Article 412(n) of the Code, described in Article 414(m) or (o) of the Code of which Seller is a member.
“Erroneous Payment” shall have the meaning set forth in Article 30(d)(i) of this Agreement.
“Event of Default” shall have the meaning set forth in Article 13 of this Agreement.
“Excluded Taxes” shall mean any of the following Taxes imposed on or with respect to any Recipient or any Transferee, or required to be withheld or deducted from a payment to any Recipient or Transferee, (a) Taxes imposed on or measured by net income (however denominated), franchise Taxes, and branch profits Taxes, in each case, (i) imposed as a result of any Recipient or Transferee being organized under the laws of or having its principal office, or its applicable lending office located in the jurisdiction imposing such Tax (or any political subdivision thereof) or (ii) that are Other Connection Taxes, (b) U.S. federal withholding Taxes imposed on amounts payable to or for the account of such Recipient or Transferee under this Agreement pursuant to a law in effect on the date on which (i) such Recipient or Transferee acquires an interest hereunder (other than pursuant to an assignment request by Seller under Article 14(m)) or (ii) such Recipient or Transferee changes its lending office, except in each case to the extent that, pursuant to Articles 14(g) and 14(j), amounts with respect to such Taxes were payable either to Recipient’s or Transferee’s assignor immediately before such Recipient or Transferee acquired an interest hereunder or to such Recipient or Transferee immediately before it changed its lending office, (c) Taxes attributable to such Recipient or Transferee’s failure to comply with Article 14(k) and (d) any U.S. federal withholding Taxes imposed under FATCA.
“Exit Fee” shall have the meaning set forth in the Fee Letter, which definition is incorporated herein by reference.
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“FATCA” shall mean Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof and any agreements entered into pursuant to Section 1471(b)(1) of the Code, and any fiscal or regulatory legislation, rules or official practices implementing any intergovernmental agreement in connection thereto.
“FATF” shall have the meaning set forth in the definition of “Prohibited Investor.”
“FDIA” shall have the meaning set forth in Article 23(c) of this Agreement.
“FDICIA” shall have the meaning set forth in Article 23(e) of this Agreement.
“Federal Funds Rate” shall mean, for any day, an interest rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations at approximately 10:00 a.m. (New York time) on such day or such transactions received by Administrative Agent from three (3) federal funds brokers of recognized standing selected by Administrative Agent in its sole discretion.
“Fee Letter” shall mean that certain Amended and Restated Fee Letter, dated as of the date hereof, between Administrative Agent, on behalf of Buyers, and Seller, as amended, modified and/or restated from time to time.
“Filings” shall have the meaning set forth in Article 6(c) of this Agreement.
“Financing Lease” shall mean any lease of property, real or personal, the obligations of the lessee in respect of which are required in accordance with GAAP to be capitalized on a balance sheet of the lessee.
“Force Majeure Event” shall mean any of the following: (a) there has occurred and is continuing an outbreak of significant hostilities or escalation thereof or other calamity or crisis the effect of which is that, in the reasonable judgment of Administrative Agent, it is impossible or commercially inadvisable to continue to enter into transactions in the repurchase (or “repo”) market or financing market with respect to assets similar to Eligible Assets, (b) a banking moratorium has been declared and is continuing under federal law, New York law or by federal or New York Governmental Authorities or other applicable authorities, (c) a general suspension of trading on nationally-recognized stock exchanges has occurred or (d) Administrative Agent, on behalf of Buyers, is and continues to be prohibited, as a result of any Requirement of Law, from entering into transactions similar to those contemplated under the Transaction Documents.
“Foreign Buyer” shall mean (a) if the Seller is a U.S. Person, a Buyer that is not a U.S. Person, and (b) if the Seller is not a U.S. Person, a Buyer that is resident or organized under the laws of a jurisdiction other than that in which the Seller is resident for tax purposes.
“Future Funding Advance” shall have the meaning set forth in Article 3(l) of this Agreement.
“Future Funding Due Diligence Package” shall have the meaning set forth in Exhibit XVI
hereto.
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“GAAP” shall mean United States generally accepted accounting principles consistently applied as in effect from time to time.
“Governmental Authority” shall mean any national or federal government, any state, regional, local or other political subdivision thereof with jurisdiction and any Person with jurisdiction exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to any such government or subdivision thereof (including any supra-national bodies such as the European Union or the European Central Bank).
“GSBUSA” shall mean Goldman Sachs Bank USA, a New York state-chartered bank, in its capacity as buyer hereunder, together with its permitted successors and assigns.
“Guarantee Agreement” shall mean the Amended and Restated Guarantee Agreement, dated as of the date hereof, from Guarantor in favor of Administrative Agent, on behalf of Buyers, and as amended, restated, supplemented or otherwise modified and in effect from time to time.
“Guarantor” shall mean Claros Mortgage Trust, Inc., a Maryland corporation.
“Income” shall mean, with respect to any Purchased Asset at any time, (a) any collections of principal, interest, dividends, receipts or other distributions or collections and (b) all net sale proceeds received by Seller or any Affiliate of Seller in connection with a sale or liquidation of such Purchased Asset.
“Indebtedness” shall mean, for any Person, (a) obligations created, issued or incurred by such Person for borrowed money (whether by loan, the issuance and sale of debt securities or the sale of property to another Person subject to an understanding or agreement, contingent or otherwise, to repurchase such property from such Person); (b) obligations of such Person to pay the deferred purchase or acquisition price of property or services, other than trade accounts payable (other than for borrowed money) arising, and accrued expenses incurred, in the ordinary course of business so long as such trade accounts payable are payable within sixty (60) calendar days of the date the respective goods are delivered or the respective services are rendered; (c) Indebtedness of others secured by a Lien on the property of such Person, whether or not the respective Indebtedness so secured has been assumed by such Person; (d) obligations (contingent or otherwise) of such Person in respect of letters of credit or similar instruments issued or accepted by banks and other financial institutions for account of such Person; (e) obligations of such Person under repurchase agreements, sale/buy-back agreements or like arrangements;
(f) Indebtedness of others guaranteed by such Person; (g) all obligations of such Person incurred in connection with the acquisition or carrying of fixed assets by such Person; (h) Indebtedness of general partnerships of which such Person is secondarily or contingently liable (other than by endorsement of instruments in the course of collection), whether by reason of any agreement to acquire such indebtedness to supply or advance sums or otherwise; (i) Capitalized Lease Obligations of such Person; (j) all net liabilities or obligations under any interest rate, interest rate swap, interest rate cap, interest rate floor, interest rate collar, or other hedging instrument or agreement; and (k) all obligations of such Person under Financing Leases.
“Indemnified Amounts” and “Indemnified Parties” shall have the meaning set forth in Article 27 of this Agreement.
“Indemnified Taxes” shall mean (a) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by or on account of any obligation of Seller under any Transaction Document and (b) to the extent not otherwise described in clause (a) of this definition, Other Taxes.
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“Independent Appraiser” shall mean an independent professional real estate appraiser who is a member in good standing of the American Appraisal Institute, and, if the state in which the subject Underlying Mortgaged Property is located certifies or licenses appraisers, is certified or licensed in such state, and in each such case, who has a minimum of five (5) years’ experience in the subject property type.
“Independent Director” shall mean an individual with at least three (3) years of employment experience serving as an independent director at the time of appointment who is provided by, and is in good standing with, CT Corporation, Corporation Service Company, National Registered Agents, Inc., Wilmington Trust Company, Stewart Management Company, Lord Securities Corporation or, if none of those companies is then providing professional independent directors or managers or is not acceptable to the Rating Agencies, another nationally recognized company reasonably approved by Administrative Agent, on behalf of Buyers, in each case that is not an Affiliate of Seller and that provides professional independent directors or managers and other corporate services in the ordinary course of its business, and which individual is duly appointed as a member of the board of directors or board of managers of Seller and is not, and has never been, and will not while serving as independent director or manager be:
A natural person who otherwise satisfies the foregoing definition other than subparagraph (a) by reason of being the independent director or manager of a single purpose bankruptcy remote entity in the direct chain of ownership of Seller shall not be disqualified from serving as an independent director or manager of Seller, provided that the fees that such individual earns from serving as independent directors or managers of such Affiliates in any given year constitute in the aggregate less than five percent (5%) of such individual’s annual income for that year.
“Investment Company Act” shall have the meaning set forth in Article 9(b)(xv) of this Agreement.
“IRS” shall mean the United States Internal Revenue Service.
“Knowledge” shall mean shall mean, as of any date of determination, collectively, (i) the actual knowledge after due inquiry of any Responsible Officer or employee of Seller or an Affiliate and (ii) all
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knowledge that is imputed to a Person under any statute, rule, regulation, ordinance, or official decree or order. “Known”, “Knowingly” or other variations of Knowledge shall have meanings correlative thereto.
“LIBOR” shall mean, with respect to each Pricing Rate Period, the rate determined by Administrative Agent, on behalf of Buyers, to be (i) the per annum rate for one (1) month deposits in U.S. dollars, which appears on the Reuters Screen LIBOR01 Page (or any successor thereto) as the London Interbank Offering Rate as of the Reference Time (rounded upwards, if necessary, to the nearest 1/1000 of 1%); (ii) if such rate does not appear on said Reuters Screen LIBOR01 Page, the arithmetic mean (rounded as aforesaid) of the offered quotations of rates obtained by Administrative Agent, on behalf of Buyers, from the Reference Banks for one (1) month deposits in U.S. dollars to prime banks in the London Interbank market as of approximately the Reference Time and in an amount that is representative for a single transaction in the relevant market at the relevant time; or (iii) if fewer than two (2) Reference Banks provide Administrative Agent with such quotations, the rate per annum which Administrative Agent determines to be the arithmetic mean (rounded as aforesaid) of the offered quotations of rates which major banks in New York, New York selected by Administrative Agent, on behalf of Buyers, are quoting at approximately 11:00 a.m., New York City time, on the Pricing Rate Determination Date for loans in U.S. dollars to leading European banks for a period equal to the applicable Pricing Rate Period in amounts of not less than $1,000,000.00; provided, that such selected banks shall be the same banks as selected for all of Administrative Agent’s other customers where LIBOR is to be applied, to the extent such banks are available. Administrative Agent’s determination of LIBOR shall be binding and conclusive on Seller absent manifest error. LIBOR may or may not be the lowest rate based upon the market for U.S. dollar deposits in the London Interbank Eurodollar Market at which Administrative Agent, on behalf of Buyers, prices loans on the date which LIBOR is determined by Administrative Agent as set forth above. Notwithstanding the foregoing, in no event will LIBOR be deemed to be less than: (A) with respect to Transactions where the Purchase Date was before May 27, 2021, thirty-five hundredths percent (0.35%) and (B) with respect to any Transaction where the Purchase Date is on or after May 27, 2021, the Benchmark Floor.
“LIBOR Purchased Asset” shall have the meaning set forth in the definition of “Benchmark”.
“LIBOR Rate” shall mean, as of any date of determination, a rate per annum determined in accordance with the following formula (rounded upward to the nearest 1/100th of 1%):
LIBOR
1 – Reserve Requirement
“Lien” shall mean any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge or other security interest or any preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement and any Financing Lease having substantially the same economic effect as any of the foregoing), and the filing of any financing statement under the UCC or comparable law of any jurisdiction in respect of any of the foregoing.
“Mandatory Early Repurchase Date” shall have the meaning set forth in Article 3(f)(ii).
“Mandatory Early Repurchase Event” shall mean, one or more of the following with respect to any Purchased Asset: (i) a monetary “event of default” under any Purchased Asset beyond any applicable notice and cure period; (ii) any material non-monetary event of default beyond any applicable cure periods under any Purchased Asset Documents; (iii) breach of any representation contained in Article 9(b)(x), as determined by Administrative Agent, on behalf of Buyers, in its sole reasonable discretion
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(except as disclosed in a Requested Exceptions Report and as approved by Administrative Agent in writing); (iv) an Act of Insolvency has occurred with respect to the related Mortgagor or guarantor under such Purchased Asset (subject to any typical grace and cure periods for “insolvency events” contained in the Purchased Asset Documents); (v) Seller’s failure to repurchase any Purchased Asset on the applicable Repurchase Date; (vi) Seller (or any of its Affiliates) shall fail to satisfy any of its material obligations under such Purchased Asset Documents beyond any applicable cure periods; (vii) any participant or co- lender under any related loan pari passu with or senior to such Purchased Asset or the Underlying Mortgaged Property shall be delinquent in the payment of amounts due under the related loan documents;
(viii) a voluntary or involuntary bankruptcy petition is filed with respect to any participant or co-lender under any related loan pari passu or senior to the related Purchased Asset or the Underlying Mortgaged Property (subject to typical grace and cure periods for “insolvency events”); (ix) failure to deliver the related Purchased Asset File to Custodian in accordance with the Custodial Agreement (subject to any Bailee Agreement approved by Administrative Agent, on behalf of Buyers, in accordance with the terms and provisions of this Agreement on the related Purchased Date); (x) the related Purchased Asset File or any portion thereof is subject to a continuing Delivery Failure or has been released from the possession of Custodian under the Custodial Agreement to anyone other than Administrative Agent, on behalf of Buyers, or any Affiliate of Administrative Agent, on behalf of Buyers, except in accordance with the terms of the Custodial Agreement; (xi) such Purchased Asset fails to qualify for “safe harbor” treatment as described in Article 23; or (xii) any significant decline, as determined by Administrative Agent, on behalf of Buyers, in its sole reasonable discretion, in the financial condition or credit quality of any sponsor with respect to such Purchased Asset.
“Margin Amount” shall mean, with respect to any Purchased Asset on any date, an amount equal to (a) the lesser of (i) the unpaid principal balance of such Purchased Asset and (ii) the Market Value of such Purchased Asset, multiplied by (b) the Advance Rate for such Purchased Asset.
“Margin Deficit” shall mean an amount determined by Administrative Agent, on behalf of Buyers, in its sole discretion, as follows, provided that the largest amount as calculated in accordance with clauses (i), (ii) and (iii) shall control:
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“Margin Deficit Event” shall mean the occurrence or existence of any of the following, as determined by Administrative Agent, on behalf of Buyers, in its sole discretion:
“Margin Deficit Notice” shall have the meaning set forth in Article 4(a).
“Market Disruption Event” shall mean either (a) any event or events shall have occurred in the determination of Administrative Agent resulting in the effective absence of a “repo market” or related “lending market” for purchasing (subject to repurchase) or financing debt obligations secured by commercial mortgage loans or securities or an event or events shall have occurred resulting in Administrative Agent or Buyers not being able to finance Eligible Assets through the “repo market” or “lending market” with traditional counterparties at rates which would have been reasonable prior to the occurrence of such event or events, or (b) any event or events shall have occurred resulting in the effective absence of a “securities market” for securities backed by Eligible Assets, including, but not limited to the “CMBS/CDO/CLO market”, or an event or events shall have occurred resulting in Administrative Agent, on behalf of Buyers, not being able to sell securities backed by Eligible Assets at prices which would have been reasonable prior to such event or events, in each case as determined by Administrative Agent.
“Market Value” shall mean, with respect to any Purchased Asset as of any relevant date, the market value of such Purchased Asset on such date, as determined by Administrative Agent in its sole discretion. The Market Value of each Purchased Asset may be determined by Administrative Agent on each Business Day during the term of this Agreement.
“Material Adverse Effect” shall mean a material adverse effect on (a) the property, business, operations, financial condition, credit quality or prospects of Seller, Pledgor, and/or Guarantor, taken as a whole (b) the ability of Seller, Pledgor or Guarantor to perform its obligations under any of the Transaction Documents, (c) the validity or enforceability of any of the Transaction Documents, (d) the rights and remedies of Buyers under any of the Transaction Documents, (e) the timely payment of any amounts payable under the Transaction Documents, or (f) the Market Value, rating (if applicable) or liquidity of all of the Purchased Assets in the aggregate.
“Materials of Environmental Concern” shall mean any toxic mold, any petroleum (including, without limitation, crude oil or any fraction thereof) or petroleum products (including, without limitation, gasoline) or any hazardous or toxic substances, materials or wastes, defined as such in or regulated under any Environmental Law, including, without limitation, asbestos, polychlorinated biphenyls, and urea- formaldehyde insulation.
“Maximum Advance Rate” shall mean, with respect to each Purchased Asset, seventy-five percent (75%) of the outstanding principal balance of such Purchased Asset.
“Maximum Buyer’s LTV” shall mean, with respect to each Purchased Asset, the sum of (a) the Buyer’s LTV for such Purchased Asset as of the related Purchase Date plus (b) five percent (5%).
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“Maximum Facility Amount” shall mean Seven Hundred Fifty Million Dollars ($750,000,000.00).
“Minimum Purchase Price Debt Yield” shall mean, as of each Purchase Date, an amount equal to the product of (i) ninety percent (90%) and (ii) the Purchase Date Purchase Price Debt Yield as of such applicable date.
“Monthly Reporting Package” shall mean the reporting package described on Exhibit III-A.
“Mortgage” shall mean a mortgage, deed of trust, deed to secure debt, charge or other instrument, creating a valid and enforceable first Lien on or a first priority ownership interest in an estate in fee simple or term of years in real property and the improvements thereon, securing evidence of indebtedness.
“Mortgage Note” shall mean a note or other evidence of indebtedness of a Mortgagor with respect to a Senior Mortgage Loan.
“Mortgaged Property LTV” shall mean, with respect to any Purchased Asset, the ratio of the aggregate outstanding principal balance of such Purchased Asset (which shall include such Purchased Asset and all debt senior to or pari passu with such Purchased Asset) secured, directly or indirectly, by the related Underlying Mortgaged Property, to the aggregate “as-is” market value of such Underlying Mortgaged Property as determined by Administrative Agent in its sole discretion.
“Mortgagor” shall mean the obligor on a Mortgage Note and the grantor of the related Mortgage.
“Multiemployer Plan” shall mean a multiemployer plan defined as such in Article 3(37) of ERISA to which contributions have been, or were required to have been, made by Seller or any ERISA Affiliate and that is covered by Title IV of ERISA.
“New Asset” shall mean an Eligible Asset that Seller proposes to be included as a Purchased Item which Eligible Asset has not yet become a Purchased Asset.
“OFAC” shall have the meaning specified in the definition of “Prohibited Investor”.
“Original Master Repurchase Agreement” shall have the meaning specified in recitals hereof.
“Originated Asset” shall mean any Eligible Asset originated by an Affiliate of Seller.
“Other Connection Taxes” shall mean, with respect to any Recipient and any Transferee, Taxes imposed as a result of a present or former connection between such Recipient or Transferee and the jurisdiction imposing such Tax (other than connections arising from such Recipient or Transferee having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced any Transaction Document, or sold or assigned an interest in any Transaction Document).
“Other Taxes” shall mean all present or future stamp, court or documentary, intangible, recording, filing or similar Taxes that arise from any payment made under, from the execution, delivery, performance, enforcement or registration of, from the receipt or perfection of a security interest under, or otherwise with respect to, any Transaction Document, except for (i) any such Taxes or Other Connection Taxes imposed with respect to an assignment, transfer or sale of participation or other interest in or with
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respect to the Transaction Documents (other than an assignment made pursuant to Article 14(m)), and (ii) for the avoidance of doubt, any Excluded Taxes.
“Participant Register” shall have the meaning set forth in Article 19(c) of this Agreement.
“Participants” shall have the meaning set forth in Article 19(a) of this Agreement.
“Payment Notice” shall have the meaning set forth in Article 30(d)(ii) of this Agreement.
“Permitted Encumbrances” shall mean, with respect to each Purchased Asset, (a) any lien or security interest created by this Agreement and the other Transaction Documents, (b) all liens, encumbrances and other matters disclosed in the applicable Title Policy, (c) liens, if any, for Taxes imposed by an Governmental Authority not yet due or delinquent, (d) leases, equipment leases, or other similar instruments entered into in accordance with the Purchased Asset Documents, (e) mechanics’ liens, materialmen’s liens and other recorded encumbrances which are being contested in accordance with the Purchased Asset Documents, bonded over, escrowed for or insured against by the applicable Title Policy.
“Permitted Holders” shall mean, with respect to Guarantor, any Person owning Capital Stock in Guarantor (i) as of the Closing Date, (ii) that is managed by Claros Manager or (iii) that has been approved in writing by Administrative Agent, on behalf of Buyers, in Administrative Agent’s sole and absolute discretion, prior to the date of such Person’s acquisition of such Capital Stock in Guarantor.
“Person” shall mean an individual, corporation, limited liability company, business trust, partnership, joint tenant or tenant in common, trust, joint stock company, joint venture, unincorporated organization, or any other entity of whatever nature, or a Governmental Authority.
“Plan” shall mean an employee pension benefit plan (within the meaning of Section 3(2) of ERISA) established or maintained by Seller or any ERISA Affiliate during the five year period ended prior to the date of this Agreement or to which Seller or any ERISA Affiliate makes, is obligated to make or has, within the five year period ended prior to the date of this Agreement, been required to make contributions and that is covered by Title IV of ERISA or Article 302 of ERISA or Article 412 of the Code, other than a Multiemployer Plan.
“Plan Asset Regulations” shall mean the regulations promulgated at 29 C.F.R. Section 2510.3- 101, as modified by Section 3(42) of ERISA.
“Plan Party” shall have the meaning set forth in Article 22(a) of this Agreement.
“Pledge and Security Agreement” shall mean that certain Amended and Restated Pledge and Security Agreement, dated as of the date hereof, by Pledgor in favor of Administrative Agent, on behalf of Buyers, as the same may be amended, restated, supplemented, replaced or otherwise modified from time to time, pledging all of Pledgor’s interest in the Capital Stock of Seller to Administrative Agent, on behalf of Buyers.
“Pledgor” shall mean CMTG GS Finance Holdco LLC, a Delaware limited liability company.
“Potential Event of Default” shall mean any condition or event that, after notice or lapse of time, would constitute an Event of Default.
“Pre-Existing Asset” shall mean any Eligible Asset that is not an Originated Asset.
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“Pre-Purchase Due Diligence” shall have the meaning set forth in Article 3(b) hereof.
“Pre-Purchase Legal Expenses” shall mean all of the reasonable and necessary out of pocket legal fees, costs and expenses incurred by Administrative Agent, on behalf of Buyers, in connection with the Pre-Purchase Due Diligence associated with Administrative Agent’s, on behalf of Buyers, decision as to whether or not to enter into a particular Transaction.
“Prescribed Laws” shall mean, collectively, (a) the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Public Law 107- 56) (the “USA Patriot Act”), (b) Executive Order 13224 on Terrorist Financing, effective September 24, 2001, and relating to Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism, (c) the International Emergency Economic Power Act, 50
U.S.C. §1701 et. seq., (d) the Bank Secrecy Act (31 U.S.C. Sections 5311 et seq.) as amended and (e) all other Requirements of Law relating to money laundering or terrorism, including without limitation, the USA Patriot Act and all regulations and executive orders promulgated with respect to money laundering or terrorism, including, without limitation, those promulgated by the Office of Foreign Assets Control of the United States Department of the Treasury.
“Price Differential” shall mean, with respect to any Purchased Asset as of any date, the aggregate amount obtained by daily application of the applicable Pricing Rate for such Purchased Asset to the outstanding Purchase Price of such Purchased Asset on a 360-day-per-year basis for the actual number of days during each Pricing Rate Period commencing on (and including) the Purchase Date for such Purchased Asset and ending on (but excluding) the date of determination (reduced by any amount of such Price Differential previously paid by Seller to Administrative Agent, on behalf of Buyers, with respect to such Purchased Asset).
“Pricing Rate” shall mean for any Pricing Rate Period and any Transaction:
(ii) the relevant Applicable Spread, in each case, for the applicable Pricing Rate Period for the related Purchased Asset; and
The Pricing Rate, in any such case, shall be subject to adjustment and/or conversion as provided in the Transaction Documents (including, without limitation as provided in Article 14) or the related Confirmation.
“Pricing Rate Determination Date” shall mean with respect to any Transaction, (i) with respect to the first Pricing Rate Period, the related Purchase Date for such Purchased Asset and (ii) with respect to any subsequent Pricing Rate Period, (a) if the Benchmark is LIBOR, the second (2nd) Business Day preceding the first day of such Pricing Rate Period and (b) if the Benchmark is not LIBOR, the day that is two (2) U.S. Government Securities Business Days prior to the first day of such Pricing Rate Period.
“Pricing Rate Period” shall mean, with respect to any Transaction and any Remittance Date (a) in the case of the first Pricing Rate Period, the period commencing on and including the Purchase Date for such Transaction and ending on and excluding the following Remittance Date, and (b) in the case of any subsequent Pricing Rate Period, the period commencing on and including the immediately preceding Remittance Date and ending on and excluding such Remittance Date; provided, however, that in no event
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shall any Pricing Rate Period for a Purchased Asset end subsequent to the Repurchase Date for such Purchased Asset.
“Primary Servicer” shall mean Wells Fargo Bank, N.A., or any other primary servicer approved by, or in the case of a termination of Primary Servicer pursuant to Article 29(c), appointed by Administrative Agent, on behalf of Buyers, in each case in Administrative Agent’s sole discretion.
“Primary Servicing Agreement” shall mean the Servicing Agreement by and between Seller and Primary Servicer dated as of May 31, 2017 and, if any other Primary Servicer is approved by Administrative Agent in its sole discretion, any servicing agreement with such other Primary Servicer in respect of the Purchased Assets, which agreement is approved by Administrative Agent in its sole discretion.
“Prime Rate” shall mean the “prime rate” published in the “Money Rates” section of The Wall Street Journal. If The Wall Street Journal ceases to publish the “prime rate,” then Administrative Agent shall select an equivalent publication that publishes such “prime rate,” and if such “prime rate” is no longer generally published or is limited, regulated or administered by a governmental or quasi- governmental body, then Administrative Agent shall reasonably select a comparable interest rate index. Notwithstanding the foregoing, in no event shall the Prime Rate be deemed to be less than the Benchmark Floor.
“Prime Rate Applicable Spread” shall mean, if the Pricing Rate has converted to the Prime Rate pursuant to Article 14(a) of this Agreement, an amount equal to the difference (expressed as a number of basis points) between (a) Term SOFR (or the then-applicable Benchmark) plus the Applicable Spread on the date Term SOFR (or the then-applicable Benchmark) was last applicable to the outstanding Transactions prior to such conversion and (b) the Prime Rate on the date that Term SOFR (or the then- applicable Benchmark) was last applicable to the outstanding Transactions prior to such conversion.
“Principal Payment” shall mean, with respect to any Purchased Asset, any scheduled or unscheduled payment or prepayment of principal received in respect thereof (including net sale proceeds or casualty or condemnation proceeds to the extent that such proceeds are not required under the related Purchased Asset Documents to be reserved, escrowed, readvanced or applied for the benefit of the Mortgagor or the related Underlying Mortgaged Property).
“Prohibited Investor” shall mean (1) a Person whose name appears on the list of Specially Designated Nationals and Blocked Persons by the Office of Foreign Asset Control (“OFAC”), (2) any Person whose name appears on any list of terrorists, terrorist organizations or narcotics traffickers maintained pursuant to and of the Rules and Regulations of OFAC that Administrative Agent has notified Seller in writing is now included in such list, (3) any Person whose name appears on any list similar to those described in clauses (1) and (2) of this definition maintained by the United States Department of State, the United States Department of Commerce or any other government authority or pursuant to any Executive Order of the President of the United States that Administrative Agent has notified Seller in writing is now included on such list, (4) any foreign shell bank, and (5) any person or entity resident in or whose subscription funds are transferred from or through an account in a jurisdiction that has been designated as a non-cooperative with international anti-money laundering principles or procedures by an intergovernmental group or organization, such as the Financial Action Task Force on Money Laundering (“FATF”), of which the U.S. is a member and with which designation the U.S. representative to the group or organization continues to concur. See http://www.fatf-gati.org for FATF’s list of Non-Cooperative Countries and Territories.
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“Prohibited Transferee” shall mean any of the Persons listed on Schedule I attached to this Agreement.
“Properties” shall have the meaning set forth in Article 9(xxv) of this Agreement.
“Public Listing” shall mean the listing of the direct or indirect legal or beneficial interests of Guarantor on a nationally or internationally recognized securities exchange or quoted on a nationally or internationally recognized automated quotation system.
“Public Sale” shall mean the transfer (but not a pledge), in one or a series of transactions, including by way of merger, through which any direct or indirect owner of a legal or beneficial interest in Guarantor (including a transferee of such interests) becomes, or is merged with or into, a Public Vehicle.
“Public Vehicle” shall mean a Person whose securities are listed and traded (or to be listed contemporaneously with a Public Listing) on a nationally or internationally recognized securities exchange or quoted on a nationally or internationally recognized automated quotation system.
“Purchase Agreement” shall mean any purchase agreement between Seller and any Transferor pursuant to which Seller purchased or acquired an Asset that is subsequently sold to Administrative Agent, on behalf of Buyers, hereunder.
“Purchase Date” shall mean, with respect to any Purchased Asset, the date on which Administrative Agent, on behalf of Buyers, purchases such Purchased Asset from Seller hereunder.
“Purchase Date Purchase Price Debt Yield” shall mean as of any date of determination, with respect to any Purchased Asset the Purchase Price Debt Yield of each Purchased Asset as of the Purchase Date of each such Purchased Asset and each anniversary of the Purchase Date, as set forth in each related Confirmation.
“Purchase Price” shall mean, with respect to any Purchased Asset, the price at which such Purchased Asset is transferred by Seller to Administrative Agent, on behalf of Buyers, on the applicable Purchase Date, adjusted after the Purchase Date as set forth below. The Purchase Price as of the Purchase Date for any Purchased Asset shall be an amount (expressed in dollars) equal to the product obtained by multiplying (i) the lesser of (A) Market Value of such Purchased Asset or (B) the par amount of such Purchased Asset by (ii) the Advance Rate for such Purchased Asset, as set forth on the related Confirmation. The Purchase Price of any Purchased Asset shall be (a) decreased by (x) any amount of Margin Deficit transferred by Seller to Administrative Agent, on behalf of Buyers, pursuant to Article 4(a) and applied to the Purchase Price of such Purchased Asset, (y) the portion of any Principal Payments on such Purchased Asset that are applied pursuant to Article 5 hereof to reduce such Purchase Price and
(z) any other amounts paid to Administrative Agent, on behalf of Buyers, by Seller to reduce such Purchase Price and (b) increased by any Future Funding Advance or by any other amounts disbursed by Administrative Agent, on behalf of Buyers, to Seller or to the related borrower on behalf of Seller with respect to such Purchased Asset to the related borrower on behalf of Seller with respect to such Purchased Asset.
“Purchase Price Debt Yield” shall mean, on any date with respect to any Purchased Asset, a fraction (expressed as a percentage) (A) the numerator of which is the Underwritten Net Operating Income of the Underlying Mortgaged Property related to such Purchased Asset, as determined by Administrative Agent, on behalf of Buyers, in its sole discretion, and (B) the denominator of which is the Purchase Price of such Purchased Asset on such date.
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“Purchased Asset” shall mean (i) with respect to any Transaction, the Eligible Asset sold by Seller to Administrative Agent, on behalf of Buyers, in such Transaction and (ii) with respect to the Transactions in general, all Eligible Assets sold by Seller to Administrative Agent, on behalf of Buyers (other than Purchased Assets that have been repurchased by Seller).
“Purchased Asset Documents” shall mean, with respect to a Purchased Asset, the documents specified in Schedule II.
“Purchased Asset File” shall mean, with respect to a Purchased Asset, the Purchased Asset Documents, together with any additional documents and information required to be delivered to Administrative Agent, on behalf of Buyers, or its designee (including the Custodian) pursuant to this Agreement.
“Purchased Asset Schedule” shall mean a schedule of Purchased Assets attached to each Trust Receipt and Custodial Delivery Certificate delivered in accordance with the Custodial Agreement.
“Purchased Items” shall have the meaning set forth in Article 6(a) of this Agreement.
“Quarterly Reporting Package” shall mean the reporting package described on Exhibit III-B.
“Recipient” means (a) Administrative Agent or (b) any Buyer, as applicable.
“Reference Banks” shall mean any money center banks selected by Administrative Agent, on behalf of Buyers, which are engaged in transactions in Eurodollar deposits in the international Eurocurrency market with an established place of business in London.
“Reference Time” shall mean, with respect to any Pricing Rate Period, if the Benchmark is LIBOR, 11:00 a.m. (London time) on the second Business Day preceding the first day of such Pricing Rate Period.
“Register” shall have the meaning set forth in Article 19(b) of this Agreement.
“Release Letter” shall mean a letter substantially in the form of Exhibit XII hereto (or such other form as may be acceptable to Administrative Agent).
“Relevant Governmental Body” shall mean the Federal Reserve Board and/or the Federal Reserve Bank of New York, or a committee officially endorsed or convened by the Federal Reserve Board and/or the Federal Reserve Bank of New York or any successor thereto.
“Remittance Date” shall mean the fifteenth (15th) calendar day of each calendar month, or the immediately succeeding Business Day, if such calendar day shall not be a Business Day, or such other day as is mutually agreed to by Seller and Administrative Agent, on behalf of Buyers.
“Renewal Option” shall have the meaning set forth in Article 3(i)(ii) of this Agreement.
“Renewal Period” shall have the meaning set forth in Article 3(i)(i) of this Agreement.
“Renewal Period Fee” shall have the meaning set forth in the Fee Letter, which definition is incorporated herein by reference.
“Repurchase Date” shall mean:
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“Repurchase Obligations” shall have the meaning set forth thereto in Article 6(a).
“Repurchase Price” shall mean, with respect to any Purchased Asset as of any Repurchase Date or any date on which the Repurchase Price is required to be determined hereunder, the price at which such Purchased Asset is to be transferred from Administrative Agent, on behalf of Buyers, to Seller; such price will be determined in each case as the sum of the (i) outstanding Purchase Price of such Purchased Asset;
(ii) the accreted and unpaid Price Differential with respect to such Purchased Asset as of the date of such determination; (iii) any other amounts due and owing by Seller to Buyers and their respective Affiliates pursuant to the terms of this Agreement with respect to such Purchased Asset as of such date; and (iv) if such Repurchase Date is not a Remittance Date, any Breakage Costs payable in connection with such repurchase other than with respect to the determination of a Margin Deficit.
“Requested Exceptions Report” shall have the meaning set forth thereto in Article 3(c)(vii).
“Requirement of Law” shall mean any law, treaty, rule, regulation, code, directive, policy, order or requirement or determination of an arbitrator or a court or other Governmental Authority whether now or hereafter enacted or in effect.
“Reserve Requirement” shall mean, with respect to any Pricing Rate Period, the aggregate (without duplication) of the rates (expressed as a decimal fraction) of reserve requirements in effect during such Pricing Rate Period (including, without limitation, basic, supplemental, marginal and emergency reserves under any regulations of the Board of Governors of the Federal Reserve System or other Governmental Authority having jurisdiction with respect thereto) dealing with reserve requirements prescribed for Eurocurrency funding (currently referred to as “Eurocurrency Liabilities” in Regulation D of such Board of Governors) maintained by Buyers.
“Responsible Officer” shall mean any executive officer of Seller or Guarantor, as the context may require.
“Revocable Option” shall have the meaning set forth in Article 7(d).
“Sanctions” shall have the meaning set forth in Article 9(b)(xxvii).
“SEC” shall have the meaning set forth in Article 24(a) of this Agreement.
“Seller” shall mean the entity identified as “Seller” in the Recitals hereto and such other sellers as may be approved by Administrative Agent, on behalf of Buyers, in its sole discretion from time to time.
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“Senior Mortgage Loans” shall mean whole, performing senior floating rate mortgage loans secured by first liens on commercial or multi-family properties.
“Servicing Agreement” shall have the meaning set forth in Article 29(b).
“Servicing Records” shall have the meaning set forth in Article 29(b).
“Servicing Rights” shall mean contractual, possessory or other rights of any Person to administer, service or subservice any Purchased Assets (or to possess any Servicing Records relating thereto), including: (i) the rights to service the Purchased Assets; (ii) the right to receive compensation (whether direct or indirect) for such servicing, including the right to receive and retain the related servicing fee and all other fees with respect to such Purchased Assets; and (iii) all rights, powers and privileges incidental to the foregoing, together with all Servicing Records relating thereto.
“Servicing Tape” shall have the meaning specified in Exhibit III-B hereto.
“Significant Modification” shall mean (a) any extension, material amendment, waiver, termination, rescission, cancellation, release, subordination or other modification to the material terms of, or any collateral, guaranty or indemnity for, any Purchased Asset or Purchased Asset Document (including, without limitation, any provision related to the amount or timing of any scheduled payment of interest or principal, the validity, perfection or priority of any security interest, or the release of any collateral or obligor (except in accordance with the underlying Purchased Asset Documents)), (b) any sale, transfer, disposition or any similar action with respect to any collateral for any Purchased Asset (except to the extent required under the Purchased Asset Documents) or (c) the foreclosure or exercise of any material right or remedy by the holder of any Purchased Asset or Purchased Asset Document.
“SIPA” shall have the meaning set forth in Article 24(a) of this Agreement.
“Single Purpose Entity” shall mean any corporation, limited partnership or limited liability company that, since the date of its formation and at all times on and after the date hereof, has complied with and shall at all times comply with the provisions of Article 12 of this Agreement.
“Subsidiary” shall mean, as to any Person, a corporation, partnership or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise qualified, all references to a “Subsidiary” or to “Subsidiaries” in this Agreement shall refer to a Subsidiary or Subsidiaries of Seller and/or Guarantor.
“Table Funded Purchased Asset” shall mean a Purchased Asset which is sold to Administrative Agent, on behalf of Buyers, simultaneously with the origination or acquisition thereof, which origination or acquisition is financed with the Purchase Price, pursuant to Seller’s request, paid directly to a Title Company or other settlement agent, in each case, approved by Administrative Agent, on behalf of Buyers, for disbursement in connection with such origination or acquisition. A Purchased Asset shall cease to be a Table Funded Purchased Asset after Custodian has delivered a Trust Receipt to Administrative Agent certifying its receipt of the Purchased Asset File therefor.
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“Taxes” shall mean all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.
“Term SOFR” shall mean, for each Pricing Rate Period, the forward-looking term rate for a one- month period that is based on the secured overnight financing rate of the Federal Reserve Bank of New York (or its successor), as published by the Term SOFR Administrator on the applicable Pricing Rate Determination Date; provided, that if, as of 5:00 p.m. (New York City time) on any Pricing Rate Determination Date, such rate has not been published by the Term SOFR Administrator and a Benchmark Replacement Date with respect to Term SOFR has not occurred, then Term SOFR will be determined as of the first preceding U.S. Government Securities Business Day for which such rate was published by the Term SOFR Administrator, so long as such first preceding U.S. Government Securities Business Day is not more than three (3) U.S. Government Securities Business Days prior to such Pricing Rate Determination Date and if such Term SOFR for a one-month period was last published by the Term SOFR Administrator more than three (3) U.S. Government Securities Business Days prior to such Pricing Rate Determination Date then a Benchmark Interim Unavailability Period with respect to Term SOFR will be deemed to have occurred. Notwithstanding the foregoing, in no event will Term SOFR be deemed to be less than the Benchmark Floor.
“Term SOFR Administrator” shall mean CME Group Benchmark Administration Limited (CBA) (or a successor administrator of Term SOFR as determined by Administrative Agent, on behalf of Buyers, in its reasonable discretion).
“Title Company” shall mean a nationally-recognized title insurance company acceptable to Administrative Agent, on behalf of Buyers.
“Title Policy” shall mean an American Land Title Association (ALTA) lender’s title insurance policy or a comparable form of lender’s title insurance policy (or escrow instructions binding on the Title Company and irrevocably obligating the Title Company to issue such title insurance policy, a title policy commitment or pro-forma “marked up” at the closing of the related Purchased Asset and countersigned by the Title Company or its authorized agent) as adopted in the applicable jurisdiction.
“Transaction” shall mean a Transaction, as specified in Article 1 of this Agreement.
“Transaction Documents” shall mean, collectively, this Agreement, any applicable Schedules, Exhibits and Annexes to this Agreement, the Guarantee Agreement, the Custodial Agreement, the Servicing Agreement, the Depository Agreement, the Pledge and Security Agreement, the Fee Letter, all Confirmations and assignment documentation executed pursuant to this Agreement in connection with specific Transactions, each of the foregoing as may be amended, restated, supplemented or modified from time-to-time.
“Transfer” shall mean, with respect to any Person, any sale or other whole or partial conveyance of all or any portion of such Person’s assets, or any direct or indirect interest therein to a third party (other than in connection with the transfer of a Purchased Asset to Administrative Agent, on behalf of Buyers, in accordance herewith), including the granting of any purchase options, rights of first refusal, rights of first offer or similar rights in respect of any portion of such assets or the subjecting of any portion of such assets to restrictions on transfer.
“Transferee” shall have the meaning set forth in Article 19(a) hereof.
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“Transferor” shall mean the seller of an Asset under a Purchase Agreement that is not an Affiliate of Seller.
“Trust Receipt” shall mean a trust receipt issued by Custodian, or, in the case of a Table Funded Purchased Asset, Bailee, to Administrative Agent, on behalf of Buyers, substantially in the form required under the Custodial Agreement or the Bailee Agreement.
“UCC” shall have the meaning specified in Article 6(c) of this Agreement.
“Unadjusted Benchmark Replacement” shall have the meaning set forth in the definition of “Benchmark Replacement”.
“Underlying Mortgaged Property” shall mean the real property securing the related Purchased
Asset.
“Underwriting Issues” shall mean, with respect to any Purchased Asset as to which Seller intends to request a Transaction, all information known by Seller that, based on the making of reasonable inquiries and the exercise of reasonable care and diligence under the circumstances, would be considered a materially “negative” factor (either separately or in the aggregate with other information), or a defect in loan documentation or closing deliveries (such as any absence of any Purchased Asset Document(s)), to a reasonable institutional mortgage buyer in determining whether to originate or acquire the Purchased Asset in question.
“Underwritten Net Operating Income” shall mean, on any date with respect to any one or more Purchased Assets, the actual net operating income from the Underlying Mortgaged Property or Underlying Mortgaged Properties securing such Purchased Asset or Purchased Assets with respect to the prior twelve (12) months, as determined in accordance with the Purchased Asset Documents, certified by the underlying obligor and approved by Administrative Agent, on behalf of Buyers, in its good faith discretion.
“Unintended Recipient” shall have the meaning set forth in Article 30(d)(i) of this Agreement.
“USA Patriot Act” shall have the meaning ascribed to such term in the definition of “Prescribed
Laws”.
“U.S. Government Securities Business Day” shall mean any day except for (i) a Saturday, (ii) a Sunday or (iii) a day on which the Securities Industry and Financial Markets Association, or any successor thereto, recommends that the fixed income departments of its members be closed for the entire day for purposes of trading in United States government securities.
“U.S. Person” means any Person that is a “United States person” as defined in Section 7701(a)(30) of the Code.
“U.S. Tax Compliance Certificate” shall have the meaning set forth in Article 14(k)(B)(3) of this Agreement.
“VCOC” shall mean a “venture capital operating company” within the meaning of Section 2510.3-101(d) of the Plan Asset Regulations.
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“Voting Stock” shall mean, with respect to any specified “person” (as that term is used in Section 13(d)(3) of the 1934 Act) as of any date, the Capital Stock of that person that is at the time entitled to vote generally in the election of the board of directors of that person.
All references to articles, schedules and exhibits are to articles, schedules and exhibits in or to this Agreement unless otherwise specified. The words “hereof,” “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles. References to “good faith” in this Agreement shall mean “honesty in fact in the conduct or transaction concerned”.
ARTICLE 3.
INITIATION; CONFIRMATION; TERMINATION; FEES
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(10) Business Days prior to the requested Purchase Date for the Transaction, Administrative Agent, on behalf of Buyers, shall approve an Eligible Asset in accordance with Exhibit VI hereto, which approval shall be revocable in Administrative Agent’s sole discretion prior to Administrative Agent’s execution and delivery of the Confirmation on the Purchase Date. On the Purchase Date for the Transaction, which shall occur upon Administrative Agent’s and Seller’s execution of a Confirmation with respect to an Eligible Asset, the Eligible Assets shall be transferred to Administrative Agent, on behalf of Buyers, against the transfer of the Purchase Price to an account of Seller. Upon the approval by Administrative Agent, on behalf of Buyers, of a particular proposed Transaction, Administrative Agent shall deliver to Seller a signed copy of the related Confirmation described in clause (v) below, on or before the scheduled Purchase Date of the underlying proposed Transaction, which shall serve as evidence that all conditions relating to the Proposed Transactions (as set forth in Article 3(a) or 3(c) or Exhibit VI, or elsewhere, as applicable) have been satisfied or waived by Administrative Agent, on behalf of Buyers.
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licensing requirements which may impact Buyers, and such review shall be satisfactory to Administrative Agent in its sole discretion and Administrative Agent, on behalf of Buyers, has consented in writing to the Eligible Asset becoming a Purchased Asset;
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on such Business Day; or (ii) a Bailee Letter from an Acceptable Attorney identifying the applicable Release Letter being held on behalf of Administrative Agent, on behalf of Buyers;
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Agreement (including, without limitation, Article 14(f) of this Agreement) with respect to such Purchased Asset against transfer to Seller or its agent of the Purchased Assets,
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behalf of Buyers, shall not be obligated to transfer any Purchased Assets to Seller until payment in full to Administrative Agent, on behalf of Buyers, of all amounts due hereunder.
(3) Business Days prior notice with respect to any reduction in outstanding Purchase Price occurring on any date that is not a Remittance Date. In connection with any such reduction of outstanding Purchase Price pursuant to this Article 3(j), Administrative Agent, on behalf of Buyers, and Seller shall modify the
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existing Confirmation for the Transaction to set forth the new Advance Rate and outstanding Purchase Price for such Purchased Asset. Any transfer of cash made pursuant to this Article 3(j) shall be in an amount equal to or greater than $1,000,000.
(ii) On the date of the Additional Advance, which shall occur following the final approval of the Additional Advance that all conditions set forth in this Article 3(k) have been satisfied, Buyers shall transfer cash to Seller as provided in this Article 3(k) (and in accordance with the wire instructions provided by Seller in such request). Upon approval by Administrative Agent, on behalf of Buyers, of a particular Additional Advance pursuant to this Article 3(k), Administrative Agent, on behalf of Buyers, and Seller shall modify the existing Confirmation for the applicable Transaction to set forth the new Advance Rate, outstanding Purchase Price and Buyer’s LTV for such Purchased Asset and any other modifications to the terms set forth on the existing Confirmation.
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(y) two (2) years (such period, the “Amortization Period”) from the date of the Availability Period Expiration Date (such date, the “Amortization Period Expiration Date”). For purposes of this Article 3(m)(i), the “Amortization Period Conditions” shall be deemed to have been satisfied if:
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ARTICLE 4.
MARGIN MAINTENANCE
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ARTICLE 5.
INCOME PAYMENTS AND PRINCIPAL PAYMENTS
If, on any Remittance Date, the amounts deposited in the Depository Account shall be insufficient to make the payments required under (i) through (iii) above of this Article 5(b), and Seller does not otherwise make such payments on such Remittance Date, the same shall constitute an Event of Default hereunder.
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ARTICLE 6.
SECURITY INTEREST
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Deposit Account and all amounts and property from time to time on deposit therein and all replacements, substitutions or distributions on or proceeds, payments and profits of, and records and files relating to, the Deposit Account.
ARTICLE 7.
PAYMENT, TRANSFER AND CUSTODY
(ii) Seller hereby sells, transfers, conveys and assigns to Administrative Agent, on behalf of Buyers, on a servicing-released basis all of Seller’s right, title and interest in and to such Purchased Asset, together with all related Servicing Rights. Subject to this Agreement, Seller may sell to Administrative Agent, on behalf of Buyers, repurchase from Administrative Agent, on behalf of Buyers, and re-sell Eligible Assets to Administrative Agent, on behalf of Buyers, but may not substitute other Eligible Assets for Purchased Assets.
(A) not later than 1:00 p.m. (New York time) on the Business Day prior to the related Purchase Date, deliver and release to Custodian (with a copy to Administrative Agent), the Purchased Asset Documents together with any other documentation in respect of such Purchased Asset requested by Administrative Agent, on behalf of Buyers, in Administrative Agent’s sole discretion, and (B) on the Purchase Date, cause Custodian to deliver a Trust Receipt confirming receipt of such Purchased Asset Documents; and
provided that if Seller cannot deliver, or cause to be delivered, any of the original Purchased Asset Documents required to be delivered as originals (excluding the Mortgage Note, and the Assignment of Mortgage, originals of which must be delivered at the time required under the provisions above), Seller shall deliver a photocopy thereof and an officer’s certificate of Seller certifying that such copy represents a true and correct copy of the original and shall use commercially reasonable efforts to obtain and deliver such original document within one hundred eighty (180) days after the related Purchase Date (or such longer period after the related Purchase Date to which Administrative Agent, on behalf of Buyers, may consent in its sole discretion, so long as Seller is, as certified in writing to Administrative Agent not less frequently than monthly, using its best efforts to obtain the original). After the expiration of such commercially reasonable efforts period, Seller shall deliver to Administrative Agent a certification that states, despite
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Seller’s commercially reasonable efforts, Seller was unable to obtain such original document, and thereafter Seller shall have no further obligation to deliver the related original document.
(vii) take such other steps as may be necessary or desirable to enforce Administrative Agent’s, on behalf of Buyers, rights against, under or with respect to such Purchased Assets and the related Purchased Asset Files and the Servicing Records. Administrative Agent, on behalf of Buyers, shall deposit the Purchased Asset Files representing the Purchased Assets, or direct that the Purchased Asset Files be deposited directly, with the Custodian, and the Purchased Asset Files shall be maintained in accordance with the Custodial Agreement. If a Purchased Asset File is not delivered to Administrative Agent, on behalf of Buyers, or its designee (including the Custodian), such Purchased Asset File shall be held in trust by Seller or its designee for the benefit of Administrative Agent, on behalf of Buyers, as the owner thereof. Seller or its designee shall maintain a copy of the Purchased Asset File and the originals of the Purchased Asset File not delivered to Administrative Agent, on behalf of Buyers, or its designee. The possession of the Purchased Asset File by Seller or its designee is at the will of Administrative Agent, on behalf of Buyers, for the sole purpose of servicing the related Purchased Asset, and such retention and possession by Seller or its designee is in a custodial capacity only. The books and records (including, without limitation, any computer records or tapes) of Seller or its designee shall be marked appropriately to reflect clearly the sale of the related Purchased Asset to Administrative Agent, on behalf of Buyers. Seller or its designee (including the Custodian) shall release its custody of the Purchased Asset File only in accordance with written instructions from Administrative Agent, on behalf of Buyers, unless such release is required as incidental to the servicing of the Purchased Assets, is in connection with a repurchase of any Purchased Asset by Seller or as otherwise required by law or set forth in the Custodial Agreement.
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regard to Seller’s instructions (including, but not limited to, if an Act of Insolvency shall occur with respect to Seller, to the extent Seller controls or is entitled to control selection of any servicer, Administrative Agent, on behalf of Buyers, may transfer any or all of such servicing to an entity satisfactory to Administrative Agent).
ARTICLE 8.
SALE, TRANSFER, HYPOTHECATION OR PLEDGE OF PURCHASED ASSETS
ARTICLE 9.
REPRESENTATIONS AND WARRANTIES
(i) it is duly authorized to execute and deliver this Agreement, to enter into Transactions contemplated hereunder and to perform its obligations hereunder and has taken all necessary action to authorize such execution, delivery and performance, (ii) it will engage in such Transactions as principal (or, if agreed in writing, in the form of an annex hereto or otherwise, in advance of any Transaction by the other party hereto, as agent for a disclosed principal), (iii) the person signing this Agreement on its behalf is duly authorized to do so on its behalf (or on behalf of any such disclosed principal), (iv) it has obtained all authorizations of any Governmental Authority required in connection with this Agreement and the Transactions hereunder and such authorizations are in full force and effect and (v) the execution, delivery and performance of this Agreement and the Transactions hereunder will not violate any Requirement of Law applicable to it or its organizational documents or any agreement by which it is bound or by which any of its assets are affected. On the Purchase Date for any Transaction for the purchase of any Purchased Assets by Administrative Agent, on behalf of Buyers, from Seller and any Transaction hereunder and at all times while this Agreement and any Transaction thereunder is in effect, Administrative Agent, Buyers and Seller shall each be deemed to repeat all the foregoing representations made by it.
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thereunder that at all times while this Agreement and any Transaction thereunder is in effect, unless otherwise stated herein:
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Administrative Agent, on behalf of Buyers, of such Mortgage Note, or Administrative Agent, on behalf of Buyers, shall have a valid and fully perfected first priority security interest in all right, title and interest of Seller in the Purchased Items described therein.
X attached hereto, the security interests granted hereunder in that portion of the Purchased Items which can be perfected by filing under the UCC will constitute fully perfected security interests under the UCC in all right, title and interest of Seller in, to and under such Purchased Items.
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Exceptions Report, Seller or its designee is in possession of a complete, true and accurate Purchased Asset File with respect to each Purchased Asset, except for such documents the originals of which have been delivered to the Custodian.
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U.S.C. § 375(b) or in regulations promulgated pursuant thereto) of Administrative Agent or any Buyer, of a bank holding company of which Administrative Agent or Buyers is a Subsidiary, or of any Subsidiary, of a bank holding company of which Administrative Agent or any Buyer is a
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Subsidiary, of any bank at which Administrative Agent or any Buyer maintains a correspondent account or of any lender which maintains a correspondent account with Administrative Agent or any Buyer.
(iii) is not deemed to hold “plan assets” within the meaning of the Plan Asset Regulations that are subject to ERISA; and (c) assuming that no portion of the Purchased Assets are funded by Buyers with “plan assets” within the meaning of the Plan Asset Regulations, none of the transactions contemplated by the Transaction Documents will constitute a nonexempt prohibited transaction (as such term is defined in Section 4975 of the Code or Section 406 of ERISA) that could subject the Administrative Agent or any Buyer to any tax or penalty imposed under Section 4975 of the Code or Section 502(i) of ERISA.
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ARTICLE 10.
NEGATIVE COVENANTS OF SELLER
On and as of the date hereof and each Purchase Date and until this Agreement is no longer in force with respect to any Transaction, Seller shall not without the prior written consent of Administrative Agent, on behalf of Buyers:
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ARTICLE 11.
AFFIRMATIVE COVENANTS OF SELLER
On and as of the date hereof and each Purchase Date and until this Agreement is no longer in force with respect to any Transaction:
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operation of its business related thereto upon reasonable prior written notice from Administrative Agent, any Buyer or their respective designated representative, at such reasonable times and with reasonable frequency not to exceed twice per calendar year unless a Potential Event of Default or Event of Default has occurred and is continuing, and to make copies of extracts of any and all thereof, subject to the terms of any confidentiality agreement between such Buyer and/or Administrative Agent and Seller and applicable law, and if no such confidentiality agreement then exists between such Buyer and/or Administrative Agent and Seller, Administrative Agent, such Buyer and Seller shall act in accordance with customary market standards regarding confidentiality and applicable law. Administrative Agent and any Buyer shall act in a commercially reasonable manner in requesting and conducting any inspection relating to the conduct and operation of Seller’s business. So long as no Potential Event of Default or Event of Default has occurred and is continuing, any such inspection shall be at the applicable Buyer’s cost and expense.
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included in such Quarterly Reporting Package shall be deemed to have been delivered on the date such items are made publicly available on the SEC website;
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not yet due and payable and (B) any such Taxes that are being appropriately contested in good faith by appropriate proceedings diligently conducted and with respect to which adequate reserves have been provided in accordance with GAAP; provided that such contest operates to suspend collection of the contested Tax and enforcement of a Lien.
(ii) examine, copy (at Buyers’ expense) and make extracts from its books and records, to inspect any of its Properties, and (iii) discuss Seller’s business and affairs with its Responsible Officers.
Section 3(a)(vii) hereof no later than ten (10) Business Days after the Closing Date.
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instrument or chattel paper, the same shall be immediately delivered to Administrative Agent or to Custodian on behalf of Buyers, together with endorsements required by Administrative Agent, on behalf of Buyers.
(B) with respect to Seller, Pledgor and Guarantor, a violation of any Requirement of Law or other event or circumstance that could reasonably be expected to have a Material Adverse Effect;
$10,000,000 with respect to Guarantor, (C) individually or in the aggregate, if adversely determined, could reasonably be likely to have a Material Adverse Effect, (D) requires filing with
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the SEC in accordance with the 1934 Act and any rules thereunder or (E) raises any lender licensee issues with respect to any Purchased Asset;
ARTICLE 12.
SINGLE PURPOSE ENTITY
Seller hereby represents and warrants to Administrative Agent and Buyers and covenants with Administrative Agent and Buyers that, on and as of the date of this Agreement and each Purchase Date and at all times while this Agreement and any Transaction hereunder is in effect or any Repurchase Obligations remain outstanding:
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ARTICLE 13.
EVENTS OF DEFAULT; REMEDIES
Date;
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$10,000,000, with respect to Guarantor; or (B) any other material contract to which Seller or Guarantor is a party which default (1) involves the failure to pay a matured obligation or (2) permits the acceleration of the maturity of obligations by any other party to or beneficiary of such contract if the aggregate amount of such obligations is $250,000, with respect to Seller or
$10,000,000, with respect to Guarantor;
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(3) Business Days after notice thereof from Administrative Agent, on behalf of Buyers, to Seller or after Seller otherwise has Knowledge thereof, or (B) if a Transaction is recharacterized as a secured financing, and the Transaction Documents with respect to any Transaction shall for any reason cease to create and maintain a valid first priority security interest in favor of Administrative Agent, on behalf of Buyers, in any of the Purchased Assets and such condition is not cured by Seller within three (3) Business Days after notice thereof from Administrative Agent, on behalf of Buyers, to Seller or after Seller otherwise has Knowledge thereof;
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Pledgor’s Knowledge of such default; provided, further however, that if Pledgor shall have made any such representation with knowledge that it was materially incorrect or untrue at the time made, such misrepresentation shall constitute an Event of Default;
(5) Business Days after the earlier of (1) notice thereof to Seller to Administrative Agent, on behalf of Buyers, or (2) Seller’s Knowledge thereof; provided, however, that with respect to clause (B) only, if such default is susceptible of cure but cannot reasonably be cured within such five (5) Business Day period and if Seller has diligently and expeditiously proceeded to cure the same, such five (5) Business Day period shall be extended for such time as is reasonably necessary for Seller, in the exercise of due diligence, to cure such default, and in no event shall such cure period exceed thirty (30) days from the earlier of Seller’s receipt of Administrative Agent’s, on behalf of Buyers, notice of such default or Seller’s Knowledge of such default;
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Purchase Price for such Transaction (decreased by (I) any amounts actually remitted to Administrative Agent, on behalf of Buyers, by the Depository or Seller from time to time pursuant to Article 5 of this Agreement and applied to such Repurchase Price, and (II) any amounts applied to the Repurchase Price pursuant to Article 13(b)(iii) of this Agreement); and
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offset any mutual debt and claim), in equity, and under any other agreement between any Buyer and Seller or among Administrative Agent, Buyers and Seller. Without limiting the generality of the foregoing, Administrative Agent and/or Buyers shall be entitled to set off the proceeds of the liquidation of the Purchased Assets against all of Seller’s obligations to Administrative Agent or Buyers under this Agreement, without prejudice to Administrative Agent’s and/or Buyers’ right to recover any deficiency.
ARTICLE 14.
INCREASED COSTS; TAXES
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determination with respect to a rate or adjustment or of the occurrence or non-occurrence of an event, circumstance or date and any decision to take or refrain from taking any action or any selection, will be conclusive and binding absent manifest error and may be made in its sole discretion and without consent from Seller.
and the result of any of the foregoing is to increase the cost to Administrative Agent or any Buyer, by an amount that Administrative Agent, on behalf of Buyers, deems, in the exercise of its reasonable business judgment, to be material, of entering into, continuing or maintaining Transactions or to reduce any amount receivable under the Transaction Documents in respect thereof; then, in any such case, Seller shall promptly pay Administrative Agent, on behalf of Buyers, upon its demand, any additional amounts necessary to compensate Administrative Agent and/or such Buyer for such increased cost or reduced amount receivable; provided, however, that any such determination by Administrative Agent, on behalf of Buyers, and imposition of such increased costs shall be applied to all sellers under similar repurchase facilities with Administrative Agent. Such notification as to the calculation of any additional amounts payable pursuant to this subsection shall be submitted by Administrative Agent, on behalf of Buyers, to Seller and shall be prima facie evidence of such additional amounts. This covenant shall survive the termination of this Agreement and the repurchase by Seller of any or all of the Purchased Assets.
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Buyer or Transferee receives an amount equal to the sum it would have received had no such deduction or withholding been made.
Without limiting the generality of the foregoing:
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(and from time to time thereafter upon the reasonable request of Seller), whichever of the following is applicable:
U.S. federal withholding Tax pursuant to the “business profits” or “other income” article of such tax treaty;
(y) executed originals of IRS Form W-8BEN or IRS Form W-8BEN-E; or
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1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by Seller as may be necessary for Seller to comply with its obligations under FATCA and to determine that such Buyer or Transferee has complied with such Buyer’s or Transferee's obligations under FATCA or to determine the amount to deduct and withhold from such payment. Solely for purposes of this clause (D), “FACTA” shall include any amendments made to FATCA after the date of this Agreement.
Each Buyer and each Assignee agrees that if any form or certification it previously delivered expires or becomes obsolete or inaccurate in any respect, it shall update such form or certification, provide such successor form or promptly notify Seller in writing of its legal inability to do so.
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ARTICLE 15.
SINGLE AGREEMENT
Administrative Agent, on behalf of Buyers, and Seller acknowledge that, and have entered hereinto and will enter into each Transaction hereunder in consideration of, and in reliance upon, the fact that, all Transactions hereunder constitute a single business and contractual relationship and have been made in consideration of each other. Accordingly, each of Administrative Agent, on behalf of Buyers, and Seller agrees (i) to perform all of its obligations in respect of each Transaction hereunder, and that a default in the performance of any such obligations shall constitute a default by it in respect of all Transactions hereunder, (ii) that each of them shall be entitled to set off claims and apply property held by them in respect of any Transaction against obligations owing to them in respect of any other Transactions hereunder and (iii) that payments, deliveries and other transfers made by either of them in respect of any Transaction shall be deemed to have been made in consideration of payments, deliveries and other transfers in respect of any other Transactions hereunder, and the obligations to make any such payments, deliveries and other transfers may be applied against each other and netted.
ARTICLE 16.
RECORDING OF COMMUNICATIONS
EACH OF ADMINISTRATIVE AGENT, BUYERS AND SELLER SHALL HAVE THE RIGHT (BUT NOT THE OBLIGATION) FROM TIME TO TIME TO MAKE OR CAUSE TO BE MADE TAPE RECORDINGS OF COMMUNICATIONS BETWEEN ITS EMPLOYEES, IF ANY, AND THOSE OF THE OTHER PARTY WITH RESPECT TO TRANSACTIONS. EACH OF ADMINISTRATIVE AGENT, BUYERS AND SELLER HEREBY CONSENTS TO THE ADMISSIBILITY OF SUCH TAPE RECORDINGS IN ANY COURT, ARBITRATION, OR OTHER PROCEEDINGS, AND AGREES THAT A DULY AUTHENTICATED TRANSCRIPT OF SUCH A TAPE RECORDING SHALL BE DEEMED TO BE A WRITING CONCLUSIVELY EVIDENCING THE PARTIES’ AGREEMENT.
ARTICLE 17.
NOTICES AND OTHER COMMUNICATIONS
Unless otherwise provided in this Agreement, all notices, consents, approvals and requests required or permitted hereunder shall be given in writing and shall be effective for all purposes if hand delivered or sent by (a) hand delivery, with proof of delivery, (b) certified or registered United States mail, postage prepaid, (c) expedited prepaid delivery service, either commercial or United States Postal Service, with proof of delivery or (d) by telecopier (with answerback acknowledged) provided that such telecopied notice must also be delivered by one of the means set forth above. A notice shall be deemed to have been given: (w) in the case of hand delivery, at the time of delivery, (x) in the case of registered or certified mail, when delivered or the first attempted delivery on a Business Day, (y) in the case of expedited prepaid delivery upon the first attempted delivery on a Business Day or (z) in the case of telecopier, upon receipt of answerback confirmation, provided that such telecopied notice was also delivered as required in this Article 17. A party receiving a notice that does not comply with the technical requirements for notice under this Article 17 may elect to waive in writing any deficiencies and treat the notice as having been properly given.
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ARTICLE 18.
ENTIRE AGREEMENT; SEVERABILITY
This Agreement shall supersede any existing agreements between the parties containing general terms and conditions for repurchase transactions. Each provision and agreement herein shall be treated as separate and independent from any other provision or agreement herein and shall be enforceable notwithstanding the unenforceability of any such other provision or agreement.
ARTICLE 19.
NON ASSIGNABILITY
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any Participant or any information relating to a Participant's ownership rights in the Transactions, Purchased Assets or any other interests under this Agreement) to any Person except to the extent (i) disclosing the portion of the Participant Register relating to a Participant with respect to which a claim for additional amounts is made under Articles 14(a), 14(b), 14(c), 14(d) or 14(f), or (ii) otherwise to the extent such disclosure is reasonably expected to be necessary to establish that such ownership rights in the Transactions or any other interests under this Agreement are in registered form under Section 5f.103-1(c) of the United States Treasury Regulations. The entries in the Participant Register shall be conclusive absent manifest error, and Administrative Agent shall treat each Person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement notwithstanding any notice to the contrary. For the avoidance of doubt, no sale, assignment, transfer or participation pursuant to this Article 19 shall be effective unless and until reflected in the Register or Participant Register, as applicable.
ARTICLE 20.
GOVERNING LAW
THIS AGREEMENT AND ANY CLAIM, CONTROVERSY OR DISPUTE ARISING UNDER OR RELATED TO THIS AGREEMENT, THE RELATIONSHIP OF THE PARTIES TO THIS AGREEMENT, AND/OR THE INTERPRETATION AND ENFORCEMENT OF THE RIGHTS AND DUTIES OF THE PARTIES TO THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS AND DECISIONS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE CHOICE OF LAW RULES THEREOF. THE PARTIES HERETO INTEND THAT THE PROVISIONS OF SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW SHALL APPLY TO THIS AGREEMENT.
ARTICLE 21.
NO WAIVERS, ETC.
No express or implied waiver of any Event of Default by either party shall constitute a waiver of any other Event of Default and no exercise of any remedy hereunder by any party shall constitute a waiver of its right to exercise any other remedy hereunder. No modification or waiver of any provision of this Agreement and no consent by any party to a departure here from shall be effective unless and until such shall be in writing and duly executed by both of the parties hereto. Without limitation of any of the foregoing, the failure to give a notice pursuant to Articles 4(a) or 4(b) hereof will not constitute a waiver of any right to do so at a later date.
ARTICLE 22.
USE OF EMPLOYEE PLAN ASSETS
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ARTICLE 23.
INTENT
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any rules, orders or policy statements thereunder (except insofar as the type of assets subject to such Transaction would render such definition inapplicable).
ARTICLE 24.
DISCLOSURE RELATING TO CERTAIN FEDERAL PROTECTIONS
The parties acknowledge that they have been advised that:
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ARTICLE 25.
CONSENT TO JURISDICTION; WAIVERS
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ARTICLE 26. NO RELIANCE
Each of Administrative Agent, Buyers and Seller hereby acknowledges, represents and warrants to the other that, in connection with the negotiation of, the entering into, and the performance under, the Transaction Documents and each Transaction thereunder:
ARTICLE 27. INDEMNITY
Seller hereby agrees to indemnify Administrative Agent, each Buyers and each of their respective officers, directors and employees (collectively, “Indemnified Parties”) from and against any and all actual out-of-pocket liabilities, obligations, losses, damages, penalties, actions, judgments, suits, fees, costs, expenses (including, without limitation, attorneys’ fees and disbursements) or disbursements (all of the foregoing, collectively “Indemnified Amounts”) that may at any time (including, without limitation, such time as this Agreement shall no longer be in effect and the Transactions shall have been repaid in full) be imposed on, incurred and paid by or asserted against any Indemnified Party in any way whatsoever arising out of, or in connection with, or relating to the Transaction Documents including this Agreement or any Transactions hereunder or any action taken or omitted to be taken by any Indemnified Party under or in connection with any of the foregoing; provided, that Seller shall not be liable for liabilities, obligations, losses, damages, penalties, actions, judgments, suits, fees, costs, expenses or disbursements resulting from the gross negligence or willful misconduct of any Indemnified Party. Without limiting the generality of the foregoing, Seller agrees to hold Administrative Agent and Buyers harmless from and indemnify Administrative Agent and Buyers against all Indemnified Amounts with respect to all Purchased Assets relating to, or arising out of, any violation or alleged violation of any Environmental Law, rule or regulation or any consumer credit laws, including, without limitation, ERISA, the Truth in Lending Act and/or the Real Estate Settlement Procedures Act; provided, that Seller
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shall not be liable for liabilities, obligations, losses, damages, penalties, actions, judgments, suits, fees, costs, expenses or disbursements resulting from the gross negligence or willful misconduct of any Indemnified Party. In any suit, proceeding or action brought by Administrative Agent and/or Buyers in connection with any Purchased Asset for any sum owing thereunder, or to enforce any provisions of any Purchased Asset, Seller will save, indemnify and hold Administrative Agent and Buyers harmless from and against all actual out-of-pocket expense (including, without limitation, reasonable attorneys’ fees and disbursements), loss or damage suffered by reason of any defense, set off, counterclaim, recoupment or reduction or liability whatsoever of the account debtor or obligor thereunder, arising out of a breach by Seller of any obligation thereunder or arising out of any other agreement, indebtedness or liability at any time owing to or in favor of such account debtor or obligor or its successors from Seller. Seller also agrees to reimburse Administrative Agent, as and when billed by Administrative Agent, for all Administrative Agent’s reasonable out-of-pocket costs and expenses incurred in connection with Administrative Agent;s, on behalf of Buyers, due diligence reviews with respect to the Purchased Assets (including, without limitation, those incurred pursuant to Article 28 and Article 3 (including, without limitation, all Pre-Purchase Legal Expenses, even if the underlying prospective Transaction for which they were incurred does not take place for any reason) and the enforcement or the preservation of Administrative Agent’s and Buyers’ rights under this Agreement, any Transaction Documents or Transaction contemplated hereby, including, without limitation, the reasonable fees and disbursements of its counsel. Seller hereby acknowledges that the obligation of Seller hereunder is a recourse obligation of Seller. This Article 27 shall not apply with respect to Taxes other than any Taxes that represent liabilities, obligations, Indemnified Amounts, penalties, actions, judgments, suits, fees, costs or expenses.
ARTICLE 28.
DUE DILIGENCE
Seller acknowledges that Administrative Agent, on behalf of Buyers, has the right to perform continuing due diligence reviews with respect to the Purchased Assets, for purposes of verifying compliance with the representations, warranties and specifications made hereunder, or otherwise, and Seller agrees that upon reasonable prior notice to Seller, Administrative Agent, on behalf of Buyers, or its authorized representatives will be permitted during normal business hours to examine, inspect, and make copies and extracts of, the Purchased Asset Files, Servicing Records and any and all documents, records, agreements, instruments or information relating to such Purchased Assets in the possession or under the control of Seller, Primary Servicer and any other servicer or sub-servicer and/or the Custodian. Seller agrees to reimburse Administrative Agent, on behalf of Buyers, for any and all reasonable out of pocket costs and expenses incurred by Administrative Agent, on behalf of Buyers, with respect to continuing due diligence on the Purchased Assets, which shall be paid by Seller to Administrative Agent within thirty
(30) calendar days after receipt of an invoice therefor. Seller also shall make available to Administrative Agent, on behalf of Buyers, a knowledgeable financial or accounting officer for the purpose of answering questions respecting the Purchased Asset Files and the Purchased Assets. Without limiting the generality of the foregoing, Seller acknowledges that Administrative Agent, on behalf of Buyers, may enter into Transactions with Seller based solely upon the information provided by Seller to Administrative Agent, on behalf of Buyers, and the representations, warranties and covenants contained herein, and that Administrative Agent, on behalf of Buyers, at its option, has the right at any time to conduct a partial or complete due diligence review on some or all of the Purchased Assets; provided, that prior to the occurrence and continuance of a Potential Event of Default or an Event of Default, notwithstanding anything in this Agreement to the contrary, Administrative Agent, on behalf of Buyers, shall not contact any Mortgagor of an Eligible Asset with respect to a proposed Transaction or a Purchased Asset, any related sponsor or other obligor, any related tenant or any other loan party, without Seller’s prior consent. Administrative Agent or any Buyer may underwrite such Purchased Assets itself or engage a third party underwriter to perform such underwriting. Seller agrees to cooperate with Administrative Agent, on
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behalf of Buyers, and any third party underwriter in connection with such underwriting, including, but not limited to, providing Administrative Agent, on behalf of Buyers, and any third party underwriter with access to any and all documents, records, agreements, instruments or information relating to such Purchased Assets in the possession, or under the control, of Seller. Upon a written demand therefor by Administrative Agent, on behalf of Buyers, to Seller, Seller further agrees that Seller shall promptly (but in no event later than ten (10) Business Days after such a demand) reimburse Administrative Agent, on behalf of Buyers, for any and all attorneys’ fees, costs and expenses incurred by Administrative Agent, on behalf of Buyers, in connection with continuing due diligence on Eligible Assets and Purchased Assets.
ARTICLE 29. SERVICING
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shall take no action with regard to such Purchased Asset other than as specifically directed by Administrative Agent, on behalf of Buyers.
ARTICLE 30.
ADMINISTRATIVE AGENT
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doctrine. A notice of Administrative Agent to any Unintended Recipient under this Section 30(d)(i) shall be conclusive, absent manifest error.
(C) that such Unintended Recipient otherwise becomes aware was transmitted, or received, in error or by mistake (in whole or in part) or such funds are otherwise inconsistent with such recipient’s expectations, then in each case, an error shall be presumed to have been made and such funds shall be presumed to be an Erroneous Payment and such Buyer shall be deemed to be an Unintended Recipient absent written confirmation from Administrative Agent to the contrary. To the extent permitted by applicable law, such Unintended Recipient shall not assert any right or claim to the Erroneous Payment, and hereby waives, any claim, counterclaim, defense or right of set-off or recoupment with respect to any demand, claim or counterclaim by Administrative Agent for the return of any Erroneous Payments received, including without limitation waiver of any defense based on “discharge for value” or any similar doctrine. Each Buyer agrees that, in each such case, it shall promptly (and, in all events, within one (1) Business Day of its knowledge (or deemed knowledge) of such error) notify Administrative Agent of such occurrence and, upon demand from Administrative Agent, it shall promptly, but in all events no later than one (1) Business Day thereafter, return to Administrative Agent the amount of any such funds (or portion thereof) as to which such a demand was made in same day funds, together with interest thereon in respect of each day from and including the date such Erroneous Payment (or portion thereof) was received by such Unintended Recipient to the date such amount is repaid to Administrative Agent in same day funds at the greater of the Federal Funds Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation from time to time in effect.
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ARTICLE 31.
MISCELLANEOUS
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document format (.pdf) or otherwise, and each such executed facsimile, .pdf, or other electronic record shall be considered an original executed counterpart for purposes of this Agreement and any Transaction Document. Each party to this Agreement (a) agrees that it will be bound by its own Electronic Signature (as such term is defined immediately below), (b) accepts the Electronic Signature of each other party to this Agreement and any Transaction Document, and (c) agrees that such Electronic Signatures shall be the legal equivalent of manual signatures. The term “Electronic Signature” means (i) the signing party’s manual signature on a signature page, converted by the signing party (or its agent) to facsimile or digital form (such as a .pdf file) and received from the customary email address or customary facsimile number of the signing party (or its counsel or representative), or other mutually agreed-upon authenticated source; or (ii) the signing party’s digital signature executed using a mutually agreed-upon digital signature service provider and digital signature process. The words “execution,” “executed”, “signed,” “signature,” and words of like import in this paragraph shall, for the avoidance of doubt, be deemed to include Electronic Signatures and the use and keeping of records in electronic form, each of which shall have the same legal effect, validity and enforceability as manually executed signatures and the use of paper records and paper- based recordkeeping systems, as the case may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, state laws based on the Uniform Electronic Transactions Act, or any other state law.
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also upon any and all deposits (general or specified) and credits of Seller at any time existing. Administrative Agent, on behalf of Buyers, and its Affiliates are hereby authorized at any time and from time to time upon the occurrence and during the continuance of an Event of Default, without notice to Seller, any such notice being expressly waived, to offset, appropriate, apply and enforce such right of offset against any and all items hereinabove referred to against any amounts owing to Administrative Agent, Buyers or their respective Affiliates by Seller under the Transaction Documents, irrespective of whether Administrative Agent, Buyers or their respective Affiliates shall have made any demand hereunder and although such amounts, or any of them, shall be contingent or unmatured and regardless of any other collateral securing such amounts. Seller shall be deemed directly indebted to Administrative Agent, Buyers or their respective Affiliates in the full amount of all amounts owing to Administrative Agent, Buyers or their respective Affiliates by Seller under the Transaction Documents, and Administrative Agent, Buyers or their respective and its Affiliates shall be entitled to exercise the rights of offset provided for above. ANY AND ALL RIGHTS TO REQUIRE ADMINISTRATIVE AGENT, BUYERS OR THEIR RESPECTIVE AFFILIATES TO EXERCISE THEIR RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL OR PURCHASED ITEMS THAT SECURE THE AMOUNTS OWING TO ADMINISTRATIVE AGENT, BUYERS OR THEIR RESPECTIVE AFFILIATES BY SELLER UNDER THE TRANSACTION DOCUMENTS, PRIOR TO EXERCISING THEIR RIGHT OF OFFSET WITH RESPECT TO SUCH MONIES, SECURITIES, COLLATERAL, DEPOSITS, CREDITS OR OTHER PROPERTY OF SELLER ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED BY SELLER.
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ARTICLE 32.
AMENDMENT AND RESTATEMENT
The terms and provisions of the Original Master Repurchase Agreement shall be amended and restated in their entirety by the terms and provisions of this Agreement. This Agreement is not intended to, and shall not, effect a novation of any of the obligations of the parties to the Original Master Repurchase Agreement, but merely an amendment and restatement of the terms governing such obligations. Each reference to the Original Master Repurchase Agreement in any other document, instrument or agreement shall mean and be a reference to this Agreement, and this Agreement shall supersede the Original Master Repurchase Agreement in all respects.
[REMAINDER OF PAGE LEFT BLANK]
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IN WITNESS WHEREOF, the parties have executed this Agreement as a deed as of the date first above written.
ADMINISTRATIVE AGENT:
GOLDMAN SACHS BANK USA, a New York state- chartered bank
By: /s/Prachi Bansal
Name: Prachi Bansal
Title: Authorized Person
[Signatures continue on the following pages]
Signature Page to Amended and Restated Master Repurchase and Securities Contract Agreement
BUYER:
GOLDMAN SACHS BANK USA, a New York state- chartered bank
By: /s/Prachi Bansal
Name: Prachi Bansal
Title: Authorized Person
[Signatures continue on the following pages]
Signature Page to Amended and Restated Master Repurchase and Securities Contract Agreement
SELLER:
CMTG GS FINANCE LLC, a Delaware limited liability company
By: /s/Priyanka Garg
Name: Priyanka Garg
Title: Authorized Signatory
Signature Page to Amended and Restated Master Repurchase and Securities Contract Agreement
ANNEXES, EXHIBITS AND SCHEDULES
ANNEX I Names and Addresses for Communications among Parties SCHEDULE I Prohibited Transferees
SCHEDULE II Purchased Asset File
SCHEDULE III Buyers
EXHIBIT I Form of Confirmation Statement EXHIBIT II Authorized Representatives of Seller EXHIBIT III-A Monthly Reporting Package EXHIBIT III-B Quarterly Reporting Package EXHIBIT III-C Annual Reporting Package EXHIBIT IV Form of Power of Attorney
EXHIBIT V Representations and Warranties Regarding Individual Purchased Assets EXHIBIT VI Advance Procedures
EXHIBIT VII Form of Margin Deficit Notice EXHIBIT VIII Form of Tax Compliance Certificates
EXHIBIT IX Form of Covenant Compliance Certificate EXHIBIT X UCC Filing Jurisdictions
EXHIBIT XI Form of Servicer Notice
EXHIBIT XII Form of Release Letter
EXHIBIT XIII Reserved
EXHIBIT XIV Form of Custodial Delivery Certificate EXHIBIT XV Form of Bailee Letter
EXHIBIT XVI Reserved
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ANNEX I
NAMES AND ADDRESSES FOR COMMUNICATIONS AMONG PARTIES
Seller:
CMTG GS Finance LLC
c/o Mack Real Estate Credit Strategies 60 Columbus Circle, 20th Floor
New York, New York 10023 Attention: Michael McGillis Telephone: (212) 484-0033
Email: mmcgillis@mackregroup.com With copies to:
c/o Mack Real Estate Group
60 Columbus Circle, 20th Floor New York, New York 10023 Attention: General Counsel Email: legal@mackregroup.com
and:
Sidley Austin LLP 787 Seventh Avenue New York, NY 10019
Attention: Brian Krisberg Telephone: 212-839-8735 Email: bkrisberg@sidley.com
Administrative Agent:
GOLDMAN SACHS BANK USA
200 West Street
New York, New York 10282 Attention: Mr. Jeffrey Dawkins Telephone: (212) 902-6852
Telecopy: (212) 977-4870
Email: jeffrey.dawkins@gs.com
Email: gs-refgwarehouse@ny.email.gs.com Email: gs-crewarehouse-am@ny.email.gs.com Email: gs-warehouse-ops@ny.email.gs.com Email: gs-refglegal@gs.com
With copies to:
Paul Hastings LLP 200 Park Avenue
New York, New York 10166 Attention: Lisa A. Chaney, Esq. Telephone: (212) 318-6773
Facsimile: (212) 230-7793
Email: lisachaney@paulhastings.com
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SCHEDULE I
PROHIBITED TRANSFEREES
The following entities and their Affiliates and managed funds, including each of their respective successors and assigns:
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SCHEDULE II
Purchased asset File
With respect to each Purchased Asset, the following documents, as applicable:
without recourse” and signed in the name of the last endorsee (the “Last Endorsee”) by an authorized Person of the Last Endorsee (in the event that the Purchased Asset was acquired by the Last Endorsee in a merger, the signature must be in the following form: “[Last Endorsee], successor by merger to [name of predecessor]”; in the event that the Purchased Asset was acquired or originated by the Last Endorsee while doing business under another name, the signature must be in the following form: “[Last Endorsee], [formerly known] or [doing business] as [previous name]”) or a lost note affidavit in a form reasonably approved by Administrative Agent, on behalf of Buyers, with a copy of the applicable Mortgage Note attached thereto.
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SCHEDULE III
BUYERS
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EXHIBIT I
CONFIRMATION STATEMENT GOLDMAN SACHS BANK USA
Ladies and Gentlemen:
Seller is pleased to deliver our written CONFIRMATION of our agreement to enter into the Transaction pursuant to which Administrative Agent, on behalf of Buyers, shall purchase from us the Purchased Assets identified on the attached Schedule 1 pursuant to the Amended and Restated Master Repurchase and Securities Contract Agreement, dated as of March 7, 2022 (the “Master Repurchase and Securities Contract Agreement”), among GOLDMAN SACHS BANK USA, a New York state- chartered bank, as administrative agent (in such capacity, together with its permitted successors and assigns, the “Administrative Agent”) for GOLDMAN SACHS BANK USA, a New York state-chartered bank (in such capacity, and together with such other financial institutions from time to time party thereto and their respective successors and assigns, collectively “Buyers” and individually, each a “Buyer”), Buyers and CMTG GS FINANCE LLC, a Delaware limited liability company (“Seller”), on the following terms. Capitalized terms used herein without definition have the meanings given in the Master Repurchase and Securities Contract Agreement.
Purchase Date: , 202
Purchased Assets: [ Name]: As identified on attached Schedule 1 Principal Amount of Purchased
Asset as of Purchase Date: [$ ]
Available Future Funding as of Purchase Date:
Fully-funded Principal Amount of Purchased Asset:
Repurchase Date:
Advance Rate:
Purchase Price: [$ ]
Change in Purchase Price: [$ ]
Pricing Rate: [LIBOR Rate plus %] / [Term SOFR plus %] Governing Agreements: As identified on attached Schedule 1
Draw Fee:
Requested Wire Amount (net of Draw Fee):
Requested Fund Date:
As-Is Value of Underlying Mortgaged Property:
Buyer’s LTV:
Maximum Buyer’s LTV:
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Purchase Date Purchase Price Debt Yield:
Wire Amount:
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See Schedule 2
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Type of Funding: [Table/Non-table]
Wiring Instructions: See Schedule 3
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Name and address for communications:
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Administrative Agent:
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GOLDMAN SACHS BANK USA
200 West Street
New York, New York 10282 Attention: Mr. Jeffrey Dawkins Telephone: (212) 902-6852
Telecopy: (212) 977-4870
Email: jeffrey.dawkins@gs.com
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Email: gs-refgwarehouse@ny.email.gs.com Email: gs-crewarehouse-am@ny.email.gs.com Email: gs-warehouse-ops@ny.email.gs.com Email: gs-refglegal@gs.com
With copies to:
Paul Hastings LLP 200 Park Avenue
New York, New York 10166 Attention: Lisa A. Chaney, Esq. Telephone: (212) 318-6773
Facsimile: (212) 230-7793
Email: lisachaney@paulhastings.com Seller: CMTG GS FINANCE LLC
c/o Mack Real Estate Credit Strategies 60 Columbus Circle, 20th Floor
New York, New York 10023 Attention: Michael McGillis Telephone: (212) 484-0033
Email: mmcgillis@mackregroup.com
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With copies to:
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c/o Mack Real Estate Group
60 Columbus Circle, 20th Floor New York, New York 10023 Attention: General Counsel Email: legal@mackregroup.com
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and to: Sidley Austin LLP
787 Seventh Avenue New York, NY 10019
Attention: Brian Krisberg
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Telephone: 212-839-8735 Email: bkrisberg@sidley.com
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CMTG GS FINANCE LLC, a Delaware limited liability company
By: Name:
Title:
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AGREED AND ACKNOWLEDGED:
GOLDMAN SACHS BANK USA,
a New York state-chartered bank
By: Name:
Title:
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Schedule 1 to Confirmation Statement
Purchased Asset: [Asset Type] dated as of [ ] in the original principal amount of $[ ], made by [ ] to [ ] under and pursuant to that certain [loan agreement]/[applicable document] (the “Governing Agreement”).
Aggregate Principal Amount: $[ ] [(plus up to $[ ] of future advances under Section [ ] of the Governing Agreement). Buyers’ obligation to fund any future advances is contingent on (a) Seller’s satisfaction of the conditions captained in Article 3(l) of the Master Repurchase and Securities Contract Agreement and
(b) a bringdown by Seller of all representations and warranties made on the date hereof with regard to the Purchased Asset pursuant to Article 9 of the Master Repurchase and Securities Contract Agreement.]
Representations: Seller acknowledges and agrees that upon funding by Buyers of the Purchase Price for the Purchased Asset [and, in connection with any subsequent funding of the Advance Rate of a future advance under the Purchased Asset, (i)] Seller shall be deemed to have confirmed that all of the representations and warranties set forth in Article 9 of the Master Repurchase and Securities Contract Agreement are true and correct as of the Purchase Date with respect to all Purchased Assets [or the applicable funding date, as the case may be,], except such representations and warranties which by their terms speak as of a specified date and except as set forth in the Requested Exception Report attached as Schedule 4 hereto or in the Requested Exception Report delivered with respect to any other Purchased Asset [and (ii) with respect to the funding of a Future Funding Advance, Seller shall be deemed to have represented and warranted that all of the conditions to funding of such advance set forth in Section [ ] of the Governing Agreement have been satisfied (and no conditions have been waived, except as has been previously disclosed by Seller to Buyers in writing)].
Fixed/Floating: [Floating]
Coupon: [ ]%
Term of Loan including Extension Options: [ ],[ ]
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Amortization (e.g., IO, full amortization, etc.): [ ]-year amortization[, with [ ]-month IO.]
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Schedule 2 to Confirmation Statement
[to be attached]
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Schedule 3 to Confirmation Statement
Wiring Instructions [to be attached]
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Schedule 4 to Confirmation Statement
Requested Exceptions Report [to be attached]
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EXHIBIT II
AUTHORIZED REPRESENTATIVES OF SELLER
Name |
|
Specimen Signature |
|
Priyanka Garg |
|
|
|
J. Michael McGillis |
|
|
|
J.D Siegel |
|
|
|
EXHIBIT III-A
MONTHLY REPORTING PACKAGE
The Monthly Reporting Package shall include, inter alia, the following:
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EXHIBIT III-B
QUARTERLY REPORTING PACKAGE
The Quarterly Reporting Package shall include, inter alia, the following:
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EXHIBIT III-C
ANNUAL REPORTING PACKAGE
The Annual Reporting Package shall include, inter alia, the following:
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EXHIBIT IV
FORM OF POWER OF ATTORNEY
Know All Men by These Presents, that CMTG GS FINANCE LLC, a Delaware limited liability company (“Seller”), does hereby appoint GOLDMAN SACHS BANK USA, a New York state-chartered bank, as administrative agent on behalf of Buyers (in such capacity, together with its permitted successors and assigns “Administrative Agent”), its attorney in fact to act in Seller’s name, place and stead in any way that Seller could do, if an Event of Default has occurred and is continuing, with respect to (i) the completion of any endorsements of documents or instruments relating to the Purchased Assets, including without limitation, any transfer documents related thereto and any written notices to underlying obligors to effectuate a legal transfer of the Purchased Assets, (ii) the recordation of any instruments relating to such Purchased Assets, (iii) the preparation and filing, in form and substance satisfactory to Administrative Agent, of such financing statements, continuation statements, and other uniform commercial code forms, as Administrative Agent may from time to time, reasonably consider necessary to create, perfect, and preserve Administrative Agent’s, on behalf of Buyers, security interest in the Purchased Assets, and (iv) the enforcement of Seller’s rights under the Purchased Assets purchased by Administrative Agent, on behalf of Buyers, pursuant to the Amended and Restated Master Repurchase and Securities Contract Agreement, dated as of March 7, 2022 (the “Master Repurchase and Securities Contract Agreement”), among Administrative Agent, GOLDMAN SACHS BANK USA, a New York state-chartered bank (in such capacity, and together with such other financial institutions from time to time party thereto and their respective successors and assigns, collectively “Buyers” and individually, each a “Buyer”) and Seller, and to take such other steps as may be necessary or desirable to enforce the rights of Administrative Agent, on behalf of Buyers, against such Purchased Assets, the related Purchased Asset Files and the Servicing Records to the extent that Seller is permitted by law to act through an agent.
TO INDUCE ANY THIRD PARTY TO ACT HEREUNDER, SELLER HEREBY AGREES THAT ANY THIRD PARTY RECEIVING A DULY EXECUTED COPY OR FACSIMILE OF THIS INSTRUMENT MAY ACT HEREUNDER, AND THAT REVOCATION OR TERMINATION HEREOF SHALL BE INEFFECTIVE AS TO SUCH THIRD PARTY UNLESS AND UNTIL ACTUAL NOTICE OR KNOWLEDGE OR SUCH REVOCATION OR TERMINATION SHALL HAVE BEEN RECEIVED BY SUCH THIRD PARTY, AND SELLER ON ITS OWN BEHALF AND ON BEHALF OF SELLER’S ASSIGNS, HEREBY AGREES TO INDEMNIFY AND HOLD HARMLESS ANY SUCH THIRD PARTY FROM AND AGAINST ANY AND ALL CLAIMS THAT MAY ARISE AGAINST SUCH THIRD PARTY BY REASON OF SUCH THIRD PARTY HAVING RELIED ON THE PROVISIONS OF THIS INSTRUMENT.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK PURSUANT TO SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW.
IN WITNESS WHEREOF, Seller has caused this Power of Attorney to be executed as a deed this 7th day of March, 2022.
[SIGNATURES ON THE FOLLOWING PAGE]
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CMTG GS FINANCE LLC, a Delaware limited liability company
By: Name:
Title:
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EXHIBIT V
REPRESENTATIONS AND WARRANTIES REGARDING THE PURCHASED ASSETS
With respect to each Purchased Asset and the related Underlying Mortgaged Property or Underlying Mortgaged Properties, on the related Purchase Date and at all times while this Agreement and any Transaction contemplated hereunder is in effect, Seller shall be deemed to make the following representations and warranties to Administrative Agent, on behalf of Buyers, as of such date; provided, however, that, with respect to any Purchased Asset, such representations and warranties shall be deemed to be modified by any Exception Report delivered by Seller to Administrative Agent, on behalf of Buyers, prior to the issuance of a Confirmation with respect thereto.
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realization against the Underlying Mortgaged Property of the principal benefits of the security intended to be provided thereby, including realization by judicial or, if applicable, non-judicial foreclosure subject to the limitations set forth in the Standard Qualifications.
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interest in rents or other personal property to the extent that possession or control of such items or actions other than the filing of UCC-1 financing statements are required in order to effect such perfection. Each UCC-1 financing statement, if any, filed with respect to personal property constituting a part of the related Underlying Mortgaged Property and each UCC-2 or UCC-3 assignment, if any, of such financing statement to Seller was in suitable form for filing in the filing office in which such financing statement was filed.
(ii) and (iii) above.
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related Purchased Asset Documents, (d) such guarantor’s ability to perform under the related guaranty, (e) the use, operation or value of the Underlying Mortgaged Property, (f) the principal benefit of the security intended to be provided by the Purchased Asset Documents, (g) the current ability of the Underlying Mortgaged Property to generate net cash flow sufficient to service such Purchased Asset or (h) the current principal use of the Underlying Mortgaged Property.
Each related Underlying Mortgaged Property is also covered, and required to be covered pursuant to the related Loan Documents, by business interruption or rental loss insurance which (subject to a customary deductible) (i) covers a period of not less than 12 months (or with respect to each Purchased Asset on a single asset with a principal balance of $50 million or more, 18 months);
(ii) for a Purchased Asset with a principal balance of $50 million or more, contains a 180 day “extended period of indemnity”; and (iii) covers the actual loss sustained during restoration.
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If any material part of the improvements, exclusive of a parking lot, located on a Underlying Mortgaged Property is in an area identified in the Federal Register by the Federal Emergency Management Agency as having special flood hazards, the related Mortgagor is required to maintain insurance in the maximum amount available under the National Flood Insurance Program, plus such additional excess flood coverage in an amount as is generally required by prudent institutional commercial mortgage lenders originating mortgage loans for securitization.
If windstorm and/or windstorm related perils and/or “named storms” are excluded from the primary property damage insurance policy, the Underlying Mortgaged Property is insured by a separate windstorm insurance policy issued by an insurer meeting the Insurance Rating Requirements or endorsement covering damage from windstorm and/or windstorm related perils and/or named storms in an amount at least equal to 100% of the full insurable value on a replacement cost basis of the improvements and personalty and fixtures included in the related Underlying Mortgaged Property by an insurer meeting the Insurance Rating Requirement.
The Underlying Mortgaged Property is covered, and required to be covered pursuant to the related Purchased Asset Documents, by a commercial general liability insurance policy issued by an insurer meeting the Insurance Rating Requirements including coverage for property damage, contractual damage and personal injury (including bodily injury and death) in amounts as are generally required by a prudent institutional commercial mortgage lender for loans originated for securitization, and in any event not less than $1 million per occurrence and $2 million in the aggregate.
An architectural or engineering consultant has performed an analysis of each of the Mortgaged Properties located in seismic zones 3 or 4 in order to evaluate the structural and seismic condition of such property, for the sole purpose of assessing either the scenario expected limit (the “SEL”) or the probable maximum loss (the “PML”) for the Underlying Mortgaged Property in the event of an earthquake. In such instance, the SEL or PML, as applicable, was based on a 475-year return period, an exposure period of 50 years and a 10% probability of exceedance. If the resulting report concluded that the SEL or PML, as applicable, would exceed 20% of the amount of the replacement costs of the improvements, earthquake insurance on such Underlying Mortgaged Property was obtained by an insurer rated at least “A:VII” by A.M. Best Company, Inc. or “A3” (or the equivalent) from Moody’s or “A-” by Standard & Poor’s in an amount not less than 150% of the SEL or PML, as applicable.
The Purchased Asset Documents require insurance proceeds in respect of a property loss to be applied either (a) to the repair or restoration of all or part of the related Underlying Mortgaged Property, with respect to all property losses in excess of 5% of the then outstanding principal amount of the related Purchased Asset, the lender (or a trustee appointed by it) having the right to hold and disburse such proceeds as the repair or restoration progresses, or (b) to the reduction of the outstanding principal balance of such Purchased Asset together with any accrued interest thereon.
All premiums on all insurance policies referred to in this Paragraph (17) required to be paid as of the Purchase Date have been paid, and such insurance policies name the lender under the Purchased Asset and its successors and assigns as a loss payee under a mortgagee endorsement clause or, in the case of the general liability insurance policy, as named or additional insured. Such insurance policies will inure to the benefit of Administrative Agent, on behalf of Buyers. Each related Purchased Asset obligates the related Mortgagor to maintain all such insurance and, at such Mortgagor’s failure to do so, authorizes the lender to maintain such insurance at the Mortgagor’s cost and expense and to charge such Mortgagor for related premiums and other
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related expenses, including reasonable attorney’s fees. All such insurance policies (other than commercial liability policies) require at least 10 days’ prior notice to the lender of termination or cancellation arising because of nonpayment of a premium and at least 30 days prior notice to the lender of termination or cancellation (or such lesser period, not less than 10 days, as may be required by applicable law) arising for any reason other than non-payment of a premium and no such notice has been received by Seller.
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the Purchased Asset was originated at least equal to 80% of the adjusted issue price of the Purchased Asset on such date or (B) at the Purchase Date at least equal to 80% of the adjusted issue price of the Purchased Asset on such date, provided that, for purposes hereof, the fair market value of the real property interest must first be reduced by (1) the amount of any lien on the real property interest that is senior to the Purchased Asset and (2) a proportionate amount of any lien that is in parity with the Purchased Asset; or (ii) substantially all of the proceeds of such Purchased Asset were used to acquire, improve or protect the real property which served as the only security for such Purchased Asset (other than a recourse feature or other third-party credit enhancement within the meaning of Treasury Regulations Section 1.860G-2(a)(1)(ii)). If the Purchased Asset was “significantly modified” prior to the Purchase Date so as to result in a taxable exchange under Section 1001 of the Code, it either (i) was modified as a result of the default or reasonably foreseeable default of such Purchased Asset or (ii) satisfies the provisions of either clause (b)(i)(A) above (substituting the date of the last such modification for the date the Purchased Asset was originated) or clause (b)(i)(B), including the proviso thereto. Any prepayment premium and yield maintenance charges applicable to the Purchased Asset constitute “customary prepayment penalties” within the meaning of Treasury Regulations Section 1.860G- 1(b)(2). All terms used in this Paragraph (21) shall have the same meanings as set forth in the related Treasury Regulations.
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repair to the full extent necessary to maintain the use or structure immediately prior to the casualty would not materially and adversely affect the use or operation of the Underlying Mortgaged Property, (ii) are insured by the Title Policy or other insurance policy, (iii) are insured by law and ordinance insurance coverage in amounts customarily required by prudent commercial mortgage lenders for loans originated for securitization that provides coverage for additional costs to rebuild and/or repair the property to current Zoning Regulations or (iv) would not have a material adverse effect on the Purchased Asset. The terms of the Purchased Asset Documents require the Mortgagor to comply in all material respects with all applicable governmental regulations, zoning and building laws.
(i) acts of fraud or intentional material misrepresentation, (ii) misappropriation of rents (following an event of default), insurance proceeds or condemnation awards, (iii) intentional material physical waste of the Underlying Mortgaged Property, (iv) intentional misconduct and (v) any breach of the environmental covenants contained in the related Loan Documents, and (b) the Purchased Asset shall become full recourse to the related Mortgagor and a guarantor (which is a natural person or persons, or an entity distinct from the Mortgagor (but may be affiliated with Mortgagor) that has assets other than equity in the related Underlying Mortgaged Property that are not de minimis), upon any of the following events: (i) if any petition for bankruptcy, insolvency, dissolution or liquidation pursuant to federal bankruptcy law, or nay similar federal or state law, shall be filed, consented to, or acquiesced in by the Mortgagor, (ii) Mortgagor and/or its principals shall have colluded with other creditors to cause an involuntary bankruptcy filing with respect to the Mortgagor or (iii) upon the transfer of either the Underlying Mortgaged Property or equity interests in Mortgagor made in violation of the Purchased Asset Documents.
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will not have a material adverse effect on the underwritten value of the Underlying Mortgaged Property and which were not afforded any material value in the appraisal obtained at the origination of the Purchased Asset and are not necessary for physical access to the Underlying Mortgaged Property or compliance with zoning requirements, or (d) as required pursuant to an order of condemnation. With respect to any partial release under the preceding clause (a) or (d), either: (i) such release of collateral (A) would not constitute a “significant modification” of the subject Purchased Asset within the meaning of Treasury Regulations Section 1.860G-2(b)(2) and
(B) would not cause the subject Purchased Asset to fail to be a “qualified mortgage” within the meaning of Section 860G(a)(3)(A) of the Code; or (ii) the mortgagee or servicer can, in accordance with the related Purchased Asset Documents, condition such release of collateral on the related Mortgagor’s delivery of an opinion of tax counsel to the effect specified in the immediately preceding clause (i). For purposes of the preceding clause (i), if the fair market value of the real property constituting such Underlying Mortgaged Property after the release is not equal to at least 80% of the principal balance of the Purchased Asset outstanding after the release, the Mortgagor is required to make a payment of principal in an amount not less than the amount required by the provisions governing a “real estate mortgage investment conduit” as defined in Section 860D of the Code (the “REMIC Provisions”).
In the event of a taking of any portion of a Underlying Mortgaged Property by a State or any political subdivision or authority thereof, whether by legal proceeding or by agreement, the Mortgagor can be required to pay down the principal balance of the Purchased Asset in an amount not less than the amount required by the REMIC Provisions and, to such extent, awards are not required to be applied to the restoration of the Underlying Mortgaged Property or to be released to the Mortgagor, if, immediately after the release of such portion of the Underlying Mortgaged Property from the lien of the Mortgage (but taking into account the planned restoration) the fair market value of the real property constituting the remaining Underlying Mortgaged Property is not equal to at least 80% of the remaining principal balance of the Purchased Asset.
No such Purchased Asset that is secured by more than one Underlying Mortgaged Property or that is cross-collateralized with another Purchased Asset permits the release of cross- collateralization of the related Mortgaged Properties, other than in compliance with the REMIC Provisions.
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interruption policy (issued by an insurer meeting the Insurance Rating Requirements) does not specifically exclude Acts of Terrorism, as defined in TRIA, from coverage, or if such coverage is excluded, it is covered by a separate terrorism insurance policy. With respect to each Purchased Asset, the related Purchased Asset Documents do not expressly waive or prohibit the mortgagee from requiring coverage for Acts of Terrorism, as defined in the TRIA, or damages related thereto except to the extent that any right to require such coverage may be limited by commercial availability on commercially reasonable terms; provided, however, that if the TRIA or a similar or subsequent statute is not in effect, then, provided that terrorism insurance is commercially available, the Mortgagor under each Purchased Asset is required to carry terrorism insurance, but in such event the Mortgagor shall not be required to spend on terrorism insurance coverage more than two times the amount of the insurance premium that is payable in respect of the property and business interruption/rental loss insurance required under the related Purchased Asset Documents (without giving effect to the cost of terrorism and earthquake components of such casualty and business interruption/rental loss insurance) at the time of the origination of the Purchased Asset, and if the cost of terrorism insurance exceeds such amount, the borrower is required to purchase the maximum amount of terrorism insurance available with funds equal to such amount.
(vii) to the extent set forth in any Exception Report, by reason of any mezzanine debt that existed at the origination of the related Purchased Asset, or future permitted mezzanine debt in each case as set forth in any Exception Report or (b) the related Underlying Mortgaged Property is encumbered with a subordinate lien or security interest against the related Underlying Mortgaged Property, other than any Permitted Encumbrances. The Mortgage or other Purchased Asset Documents provide that to the extent any rating agency fees are incurred in connection with the review of and consent to any transfer or encumbrance, the Mortgagor is responsible for such payment along with all other reasonable fees and expenses incurred by the Mortgagee relative to such transfer or encumbrance. For purposes of the foregoing representation, “Control” means the power to direct the management and policies of an entity, directly or indirectly, whether through the ownership of voting securities or other beneficial interests, by contract or otherwise.
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and the organizational documents of the Mortgagor with respect to each Purchased Asset with a principal amount on the Purchase Date of $5 million or more provide that the borrower is a Single-Purpose Entity, and each Purchased Asset with a principal amount on the Purchase Date of
$20 million or more has a counsel’s opinion regarding non-consolidation of the Mortgagor. For purposes of this Paragraph (32), a “Single-Purpose Entity” shall mean an entity, other than an individual, whose organizational documents provide substantially to the effect that it was formed or organized solely for the purpose of owning and operating one or more of the Mortgaged Properties securing the Purchased Assets and prohibit it from engaging in any business unrelated to such Underlying Mortgaged Property or Properties, and whose organizational documents further provide, or which entity represented in the related Purchased Asset Documents, substantially to the effect that it does not have any assets other than those related to its interest in and operation of such Underlying Mortgaged Property or Properties, or any indebtedness other than as permitted by the related Mortgage(s) or the other related Purchased Asset Documents, that it has its own books and records and accounts separate and apart from those of any other person, and that it holds itself out as a legal entity, separate and apart from any other person or entity.
With respect to any Purchased Asset where the Purchased Asset is secured by a leasehold estate under a Ground Lease in whole or in part, and the related Mortgage does not also encumber the related lessor’s fee interest in such Underlying Mortgaged Property, based upon the terms of the Ground Lease and any estoppel or other agreement received from the ground lessor in favor of Seller, its successors and assigns, Seller represents and warrants that:
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specifically pertains to or arises out of an exception scheduled to any other representation and warranty made by Seller in any Exception Report. No person other than the holder of such Purchased Asset may declare any event of default under the Purchased Asset or accelerate any indebtedness under the Purchased Asset Documents.
Seller has obtained an organizational chart or other description of each Mortgagor which identifies all beneficial controlling owners of the Mortgagor (i.e., managing members, general partners or similar controlling person for such Mortgagor) (the “Controlling Owner”) and all owners that hold a 20% or greater direct ownership share (the “Major Sponsors”). Seller (a) required questionnaires to be completed by each Controlling Owner and guarantor or performed other processes designed to elicit information from each Controlling Owner and guarantor regarding such Controlling Owner’s or guarantor’s prior history regarding any bankruptcies or other insolvencies, any felony convictions, and (b) performed or caused to be performed searches of the public records or services such as Lexis/Nexis, or a similar service designed to elicit information about each Controlling Owner, Major Sponsor and guarantor regarding such Controlling Owner’s, Major Sponsor’s or guarantor’s prior history regarding any bankruptcies or other insolvencies, any felony convictions, and provided, however, that manual public records searches were limited to the last 10 years (clauses (a) and (b) collectively, the “Sponsor Diligence”). Based solely on the Sponsor Diligence, to the knowledge of Seller, no Major Sponsor or guarantor (i) was in a state or federal bankruptcy or insolvency proceeding, (ii) had a prior record of having been in a state of federal bankruptcy or insolvency, or (iii) had been convicted of a felony.
A Phase I environmental site assessment (or update of a previous Phase I and or Phase II site assessment) and, with respect to certain Purchased Assets, a Phase II environmental site assessment (collectively, an “ESA”) meeting ASTM requirements was conducted by a reputable environmental consultant in connection with such Purchased Asset within 12 months prior to its origination date (or an update of a previous ESA was prepared), and such ESA either (i) did not identify the existence of recognized “environmental conditions” as such term is defined in ASTM E1527-05 or its successor (the “Environmental Conditions”) at the related Underlying Mortgaged
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Property or the need for further investigation with respect to any Environmental Condition that was identified, or (ii) if the existence of an Environmental Condition or need for further investigation was indicated in any such ESA, then at least one of the following statements is true:
(A) an amount reasonably estimated by a reputable environmental consultant to be sufficient to cover the estimated cost to cure any material noncompliance with applicable environmental laws or the Environmental Condition has been escrowed by the related Mortgagor and is held or controlled by the related lender; (B) if the only Environmental Condition relates to the presence of asbestos-containing materials, radon in indoor air, lead based paint or lead in drinking water, and the only recommended action in the ESA is the institution of such a plan, an operations or maintenance plan has been required to be instituted by the related Mortgagor that can reasonably be expected to mitigate the identified risk; (C) the Environmental Condition identified in the related environmental report was remediated or abated in all material respects prior to the date hereof, and, if and as appropriate, a no further action or closure letter was obtained from the applicable governmental regulatory authority (or the Environmental Condition affecting the related Underlying Mortgaged Property was otherwise listed by such governmental authority as “closed” or a reputable environmental consultant has concluded that no further action is required); (D) a secured creditor environmental policy or a pollution legal liability insurance policy that covers liability for the Environmental Condition was obtained from an insurer rated no less than “A-“ (or the equivalent) by Moody’s, Standard & Poor’s and/or Fitch, Inc.; (E) a party not related to the Mortgagor was identified as the responsible party for such Environmental Condition and such responsible party has financial resources reasonably estimated to be adequate to address the situation; or (F) a party related to the Mortgagor having financial resources reasonably estimated to be adequate to address the situation is required to take action. To Seller’s knowledge, except as set forth in the ESA, there is no Environmental Condition (as such term is defined in ASTM E1527-05 or its successor) at the related Underlying Mortgaged Property.
In the case of each Purchased Asset with respect to which there is an environmental insurance policy (the “Environmental Insurance Policy”), (i) such Environmental Insurance has been issued by the issuer set forth in the related Exception Report (the “Policy Issuer”) and is effective as of the Purchase Date, (ii) as of origination and to Seller’s knowledge as of the Purchase Date the Environmental Insurance Policy is in full force and effect, there is no deductible and Seller is a named insured under such policy, (iii) (A) a property condition or engineering report was prepared, if the related Underlying Mortgaged Property was constructed prior to 1985, with respect to asbestos-containing materials (“ACM”) and, if the related Underlying Mortgaged Property is a multifamily property, with respect to radon gas (“RG”) and lead-based paint (“LBP”), and (B) if such report disclosed the existence of a material and adverse LBP, ACM or RG environmental condition or circumstance affecting the related Underlying Mortgaged Property, the related Mortgagor (1) was required to remediate the identified condition prior to closing the Purchased Asset or provide additional security or establish with the mortgagee a reserve in an amount deemed to be sufficient by Seller, for the remediation of the problem, and/or
(2) agreed in the Purchased Asset Documents to establish an operations and maintenance plan after the closing of the Purchased Asset that should reasonably be expected to mitigate the environmental risk related to the identified LBP, ACM or RG condition, (iv) on the effective date of the Environmental Insurance Policy, Seller as originator had no knowledge of any material and adverse environmental condition or circumstance affecting the Underlying Mortgaged Property (other than the existence of LBP, ACM or RG) that was not disclosed to the Policy Issuer in one or more of the following: (A) the application for insurance, (B) a Mortgagor questionnaire that was provided to the Policy Issuer, or (C) an engineering or other report provided to the Policy Issuer, and (v) the premium of any Environmental Insurance Policy has been paid through the maturity of the policy’s term and the term of such policy extends at least five years beyond the maturity of the Purchased Asset.
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origination of the Purchased Asset for purposes of the Prescribed Laws, including with respect to the legitimacy of the applicable Mortgagor and the origin of the assets used by the said Mortgagor to purchase the property in question, and maintains, and will maintain, sufficient information to identify the applicable Mortgagor for purposes of the Prescribed Laws.
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EXHIBIT VI
ADVANCE PROCEDURES
A. With respect to each Eligible Asset:
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Asset, if applicable, of types, in amounts, with insurers and otherwise in compliance with the terms, provisions and conditions set forth in the Purchased Asset Documents, in each case satisfactory to Administrative Agent.
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EXHIBIT VII
FORM OF MARGIN DEFICIT NOTICE
[DATE]
VIA ELECTRONIC TRANSMISSION
CMTG GS FINANCE LLC
[ ]
[ ]
[ ] Attention: [ ]
Re: Amended and Restated Master Repurchase and Securities Contract Agreement, dated as of March 7, 2022 (as amended, restated, supplemented, or otherwise modified and in effect from time to time, the “Master Repurchase and Securities Contract Agreement”; capitalized terms used but not otherwise defined herein shall have the meanings assigned thereto in the Master Repurchase and Securities Contract Agreement) by and among GOLDMAN SACHS BANK USA, a New York state-chartered bank, as administrative agent (in such capacity, together with its permitted successors and assigns, the “Administrative Agent”) for GOLDMAN SACHS BANK USA, a New York state- chartered bank (in such capacity, and together with such other financial institutions from time to time party thereto and their respective successors and assigns, collectively “Buyers” and individually, each a “Buyer”), Buyers and CMTG GS FINANCE LLC, a Delaware limited liability company (“Seller”).
Pursuant to Article 4(a) of the Master Repurchase and Securities Contract Agreement, Administrative Agent hereby notifies Seller of the existence of a Margin Deficit as of the date hereof as follows:
Purchase Price for certain Purchased Asset: $
MARGIN DEFICIT: $
Accrued Price Differential from [ ] to [ ]: $
TOTAL WIRE DUE: $
SELLER IS REQUIRED TO CURE THE MARGIN DEFICIT SPECIFIED ABOVE IN ACCORDANCE WITH THE MASTER REPURCHASE AND SECURITIES CONTRACT AGREEMENT AND WITHIN THE TIME PERIOD SPECIFIED ARTICLE 4(a) THEREOF.
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X-1
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GOLDMAN SACHS BANK USA, a New York
state-chartered bank
By: Name:
Title:
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X-2
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EXHIBIT VIII
EXHIBIT VIII-A FORM OF
U.S. TAX COMPLIANCE CERTIFICATE
(For Foreign Assignees That Are Not Partnerships For U.S. Federal Income Tax Purposes)
Reference is hereby made to Article 14(k) of the Amended and Restated Master Repurchase and Securities Contract Agreement, dated as of March 7, 2022 (the “Master Repurchase and Securities Contract Agreement”), by and among GOLDMAN SACHS BANK USA, a New York state-chartered bank, as Administrative Agent, GOLDMAN SACHS BANK USA, a New York state-chartered bank and such other financial institutions from time to time party thereto, as Buyers, and CMTG GS FINANCE LLC, a Delaware limited liability company, as Seller. Capitalized terms used and not otherwise defined herein shall have the respective meanings assigned to such terms in the Master Repurchase and Securities Contract Agreement.
The undersigned hereby certifies that (i) it is the sole record and beneficial owner of the ownership interest in the Transaction(s) in respect of which it is providing this certificate, (ii) it is not a bank within the meaning of Section 881(c)(3)(A) of the Code, (iii) it is not a ten percent shareholder of the applicable Seller(s) within the meaning of Section 871(h)(3)(B) of the Code and (iv) it is not a controlled foreign corporation related to the applicable Seller(s) as described in Section 881(c)(3)(C) of the Code.
The undersigned has furnished the applicable Seller(s) with a correct, complete, and accurate executed IRS Form W-8BEN or W-8BEN-E. By executing this certificate, the undersigned agrees that
(1) if the information provided on this certificate changes, the undersigned shall promptly so inform the applicable Seller(s), and (2) the undersigned shall have at all times furnished the applicable Seller(s) with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.
[NAME OF ASSIGNEE]
By: Name:
Title:
Date: , 202[ ]
X-3
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EXHIBIT VIII-B
FORM OF
U.S. TAX COMPLIANCE CERTIFICATE
(For Foreign Participants That Are Not Partnerships For U.S. Federal Income Tax Purposes)
Reference is hereby made to Article 14(k) of the Amended and Restated Master Repurchase and Securities Contract Agreement, dated as of March 7, 2022 (the “Master Repurchase and Securities Contract Agreement”), by and by and among GOLDMAN SACHS BANK USA, a New York state- chartered bank, as Administrative Agent, GOLDMAN SACHS BANK USA, a New York state-chartered bank and such other financial institutions from time to time party thereto, as Buyers, and CMTG GS FINANCE LLC, a Delaware limited liability company, as Seller. Capitalized terms used and not otherwise defined herein shall have the respective meanings assigned to such terms in the Master Repurchase and Securities Contract Agreement.
The undersigned hereby certifies that (i) it is the sole record and beneficial owner of the ownership interest in the Transaction(s) in respect of which it is providing this certificate, (ii) it is not a bank within the meaning of Section 881(c)(3)(A) of the Code, (iii) it is not a ten percent shareholder of the applicable Seller(s) within the meaning of Section 871(h)(3)(B) of the Code, and (iv) it is not a controlled foreign corporation related to the applicable Seller(s) as described in Section 881(c)(3)(C) of the Code.
The undersigned has furnished the applicable Buyer or Assignee with a correct, complete, and accurate executed IRS Form W-8BEN or W-8BEN-E. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate changes, the undersigned shall promptly so inform such Buyer or Assignee in writing, and (2) the undersigned shall have at all times furnished such Buyer or Assignee with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.
[NAME OF PARTICIPANT]
By: Name:
Title:
Date: , 202[ ]
X-4
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EXHIBIT VIII-C
FORM OF
U.S. TAX COMPLIANCE CERTIFICATE
(For Foreign Participants That Are Partnerships For U.S. Federal Income Tax Purposes)
Reference is hereby made to Article 14(k) of the Amended and Restated Master Repurchase and Securities Contract Agreement, dated as of March 7, 2022 (the “Master Repurchase and Securities Agreement”), by and by and among GOLDMAN SACHS BANK USA, a New York state-chartered bank, as Administrative Agent, GOLDMAN SACHS BANK USA, a New York state-chartered bank and such other financial institutions from time to time party thereto, as Buyers, and CMTG GS FINANCE LLC, a Delaware limited liability company, as Seller. Capitalized terms used and not otherwise defined herein shall have the respective meanings assigned to such terms in the Master Repurchase and Securities Contract Agreement.
The undersigned hereby certifies that (i) it is the sole record owner of the ownership interest in the Transaction(s) in respect of which it is providing this certificate, (ii) its direct or indirect partners/members are the sole beneficial owners of such interest, (iii) with respect such interest, neither the undersigned nor any of its direct or indirect partners/members is a bank extending credit pursuant to a loan agreement entered into in the ordinary course of its trade or business within the meaning of Section 881(c)(3)(A) of the Code, (iv) none of its direct or indirect partners/members is a ten percent shareholder of the applicable Seller(s) within the meaning of Section 871(h)(3)(B) of the Code and (v) none of its direct or indirect partners/members is a controlled foreign corporation related to the applicable Seller(s) as described in Section 881(c)(3)(C) of the Code.
The undersigned has furnished the Administrative Agent, on behalf of the applicable Buyer, or Assignee with a correct, complete, and accurate executed IRS Form W-8IMY accompanied by one of the following forms from each of its partners/members that is claiming the portfolio interest exemption: (i) an IRS Form W-8BEN or W-8BEN-E or (ii) an IRS Form W-8IMY accompanied by an IRS Form W- 8BEN or W-8BEN-E from each of such partner’s/member’s beneficial owners that is claiming the portfolio interest exemption. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate changes, the undersigned shall promptly so inform Administrative Agent, on behalf of such Buyer, or Assignee and (2) the undersigned shall have at all times furnished Administrative Agent, on behalf of the such Buyer, or Assignee with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.
[NAME OF PARTICIPANT]
By: Name:
Title:
Date: , 202[ ]
X-5
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EXHIBIT VIII-D
FORM OF
U.S. TAX COMPLIANCE CERTIFICATE
(For Foreign Assignees That Are Partnerships For U.S. Federal Income Tax Purposes)
Reference is hereby made to Article 14(k) of the Amended and Restated Master Repurchase and Securities Contract Agreement, dated as of March 7, 2022 (the “Master Repurchase and Securities Agreement”), by and by and among GOLDMAN SACHS BANK USA, a New York state-chartered bank, as Administrative Agent, GOLDMAN SACHS BANK USA, a New York state-chartered bank and such other financial institutions from time to time party thereto, as Buyers, and CMTG GS FINANCE LLC, a Delaware limited liability company, as Seller. Capitalized terms used and not otherwise defined herein shall have the respective meanings assigned to such terms in the Master Repurchase and Securities Contract Agreement.
The undersigned hereby certifies that (i) it is the sole record owner of the ownership interest in the Transaction(s) in respect of which it is providing this certificate, (ii) its direct or indirect partners/members are the sole beneficial owners of such interest, (iii) with respect to such interest, neither the undersigned nor any of its direct or indirect partners/members is a bank extending credit pursuant to a loan agreement entered into in the ordinary course of its trade or business within the meaning of Section 881(c)(3)(A) of the Code, (iv) none of its direct or indirect partners/members is a ten percent shareholder of the applicable Seller(s) within the meaning of Section 871(h)(3)(B) of the Code and (v) none of its direct or indirect partners/members is a controlled foreign corporation related to the applicable Seller(s) as described in Section 881(c)(3)(C) of the Code.
The undersigned has furnished the applicable Seller(s) with a correct, complete, and accurate executed IRS Form W-8IMY accompanied by one of the following forms from each of its partners/members that is claiming the portfolio interest exemption: (i) an IRS Form W-8BEN or W- 8BEN-E or (ii) an IRS Form W-8IMY accompanied by an IRS Form W-8BEN or W-8BEN-E from each of such partner’s/member’s beneficial owners that is claiming the portfolio interest exemption. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate changes, the undersigned shall promptly so inform the applicable Seller(s), and (2) the undersigned shall have at all times furnished the applicable Seller(s) with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.
[NAME OF ASSIGNEE]
By: Name:
Title:
Date: , 202[ ]
X-6
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EXHIBIT IX
FORM OF COVENANT COMPLIANCE CERTIFICATE
[ ] [ ], 202[ ]
GOLDMAN SACHS BANK USA
200 West Street
New York, New York 10282 Attention: Mr. Jeffrey Dawkins
This Covenant Compliance Certificate is furnished pursuant to that certain Amended and Restated Master Repurchase and Securities Contract Agreement, dated as of March 7, 2022 by and among GOLDMAN SACHS BANK USA, a New York state-chartered bank, as administrative agent (in such capacity, together with its permitted successors and assigns, the “Administrative Agent”) for GOLDMAN SACHS BANK USA, a New York state-chartered bank (in such capacity, and together with such other financial institutions from time to time party thereto and their respective successors and assigns, collectively “Buyers” and individually, each a “Buyer”), Buyers and CMTG GS FINANCE LLC, a Delaware limited liability company (“Seller”) (as amended, restated, supplemented, or otherwise modified and in effect from time to time, the “Master Repurchase and Securities Contract Agreement”). Unless otherwise defined herein, capitalized terms used in this Covenant Compliance Certificate have the respective meanings ascribed thereto in the Master Repurchase and Securities Contract Agreement.
THE UNDERSIGNED HEREBY CERTIFIES THAT:
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To the extent that Financial Statements are being delivered in connection with this Covenant Compliance Certificate, Seller hereby makes the following representations and warranties: (i) it is in compliance with all of the terms and conditions of the Master Repurchase and Securities Contract Agreement and (ii) it has no claim or offset against Administrative Agent and/or any Buyer under the Transaction Documents.
To the best of my knowledge, Seller has, during the period since the delivery of the immediately preceding Covenant Compliance Certificate, observed or performed all of its covenants and other agreements in all material respects, and satisfied in all material respects every condition, contained in the Master Repurchase and Securities Contract Agreement and the related documents to be observed, performed or satisfied by it, and I have no knowledge of the occurrence during such period, or present existence, of any condition or event which constitutes an Event of Default or Potential Event of Default (including after giving effect to any pending Transactions requested to be entered into), except as set forth below.
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Described below are the exceptions, if any, to the foregoing paragraphs, listing, in detail, the nature of the condition or event, the period during which it has existed and the action which Guarantor or Seller has taken, is taking, or proposes to take with respect to each such condition or event:
The foregoing certifications, together with the financial statements, updates, reports, materials, calculations and other information set forth in any exhibit or other attachment hereto, or otherwise covered by this Covenant Compliance Certificate, are made and delivered this [ ] day of [ ], 202[ ].
CMTG GS FINANCE LLC,
a Delaware limited liability company
By: Name:
Title:
CLAROS MORTGAGE TRUST, INC.,
a Maryland corporation
By: Name:
Title:
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EXHIBIT X
UCC FILING JURISDICTIONS
Delaware
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EXHIBIT XI
FORM OF SERVICER NOTICE
[DATE]
[SERVICER] [ADDRESS]
Attention:
Re: Amended and Restated Master Repurchase and Securities Contract Agreement, dated as of March 7, 2022, by and among GOLDMAN SACHS BANK USA, a New York state-chartered bank, as administrative agent (in such capacity, together with its permitted successors and assigns, the “Administrative Agent”) for GOLDMAN SACHS BANK USA, a New York state-chartered bank (in such capacity, and together with such other financial institutions from time to time party thereto and their respective successors and assigns, collectively “Buyers” and individually, each a “Buyer”), Buyers and CMTG GS FINANCE LLC, a Delaware limited liability company (“Seller”) (as amended, restated, supplemented, or otherwise modified and in effect from time to time, the “Master Repurchase and Securities Contract Agreement”); (capitalized terms used but not otherwise defined herein shall have the meanings assigned thereto in the Master Repurchase and Securities Contract Agreement).
Ladies and Gentlemen:
[ ] (the “Servicer”) is servicing certain mortgage assets sold by Seller to Administrative Agent, on behalf of Buyers, pursuant to the Master Repurchase and Securities Contract Agreement (the “Purchased Assets”) pursuant to a servicing agreement dated as of [ ] between Servicer and Seller (the “Servicing Agreement”). Servicer is hereby notified that, pursuant to the Master Repurchase and Securities Contract Agreement, Seller has sold the Purchased Assets to Administrative Agent, on behalf of Buyers, on a servicing-released basis, and has granted a security interest to Administrative Agent, on behalf of Buyers, in the Purchased Assets.
In accordance with Seller’s requirements under the Master Repurchase and Securities Contract Agreement, Seller hereby notifies and instructs Servicer, and Servicer hereby agrees that Servicer shall
(a) segregate all amounts collected on account of the Purchased Assets, (b) hold the Purchased Assets in trust for Administrative Agent, on behalf of Buyers, (c) immediately following the receipt thereof by Servicer, deposit all collections of income to the Collection Account at [ ], ABA # [
], Account # [ ] and (d) in accordance with the terms of the Servicing Agreement, remit all such income (net of any deductions permitted under Section [ ] of the Servicing Agreement), to the Depository Account at [ ], ABA # [ ], Account # [ ]. Upon receipt of a notice of Event of Default under the Master Repurchase and Securities Contract Agreement from Administrative Agent, on behalf of Buyers, Servicer shall only follow the instructions of Administrative Agent with respect to the Purchased Assets, and shall deliver to Administrative Agent any information with respect to the Purchased Assets reasonably requested by Administrative Agent.
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Servicer hereby agrees that, notwithstanding any provision to the contrary in the Servicing Agreement or in any other agreement which exists between Servicer and Seller in respect of any Purchased Asset, (i) Servicer is servicing the Purchased Assets for the joint benefit of Seller and Administrative Agent, on behalf of Buyers, (ii) Administrative Agent, on behalf of Buyers, is expressly intended to be a third-party beneficiary under the Servicing Agreement, and (iii) Administrative Agent, on behalf of Buyers, may, at any time after the occurrence and during the continuance of an Event of Default under the Master Repurchase and Securities Contract Agreement, terminate the Servicing Agreement and any other such agreement immediately upon the delivery of written notice thereof to Servicer and/or in any event transfer servicing to Administrative Agent’s, on behalf of Buyers, designee, at no cost or expense to Administrative Agent, it being agreed that Seller will pay any and all fees required to terminate the Servicing Agreement and any other such agreement and to effectuate the transfer of servicing to the designee of Administrative Agent in accordance with this Servicer Notice.
Notwithstanding any contrary information or direction which may be delivered to Servicer by Seller, Servicer may conclusively rely on any information, direction or notice of an Event of Default under the Master Repurchase and Securities Contract Agreement delivered by Administrative Agent, and, so long as an Event of Default under the Master Repurchase and Securities Contract Agreement exists at such time, Seller shall indemnify and hold Servicer harmless for any and all claims asserted against Servicer for any actions taken in good faith by Servicer in connection with the delivery of such information, direction or notice of any such Event of Default.
No provision of this letter or any Servicing Agreement may be amended, countermanded or otherwise modified without the prior written consent of Administrative Agent. Administrative Agent, on behalf of Buyers, is an intended third party beneficiary of this letter.
Please acknowledge receipt and your agreement to the terms of this instruction letter by signing in the signature block below and forwarding an executed copy to Administrative Agent promptly upon receipt. Any notices to Administrative Agent should be delivered to the following address: [ ].
Very truly yours,
GOLDMAN SACHS BANK USA, a New York
state-chartered bank
By: Name:
Title:
[SIGNATURES CONTINUE ON THE FOLLOWING PAGE]
LEGAL_US_E # 160815361.8
ACKNOWLEDGED AND AGREED TO:
CMTG GS FINANCE LLC,
a Delaware limited liability company
By: Name:
Title:
LEGAL_US_E # 160815361.8
EXHIBIT XII
FORM OF RELEASE LETTER
[Date]
GOLDMAN SACHS BANK USA
200 West Street
New York, New York 10282 Attention: Mr. Jeffrey Dawkins
Re: Amended and Restated Master Repurchase and Securities Contract Agreement, dated as of March 7, 2022 by and among GOLDMAN SACHS BANK USA, a New York state-chartered bank, as administrative agent (in such capacity, together with its permitted successors and assigns, the “Administrative Agent”) for GOLDMAN SACHS BANK USA, a New York state-chartered bank (in such capacity, and together with such other financial institutions from time to time party thereto and their respective successors and assigns, collectively “Buyers” and individually, each a “Buyer”), Buyers and CMTG GS FINANCE LLC, a Delaware limited liability company (“Seller”) (as amended, restated, supplemented, or otherwise modified and in effect from time to time, the “Master Repurchase and Securities Contract Agreement”); (capitalized terms used but not otherwise defined herein shall have the meanings assigned thereto in the Master Repurchase and Securities Contract Agreement).
Ladies and Gentlemen:
With respect to the Purchased Assets described in the attached Schedule A (the “Purchased Assets”) (a) we hereby certify to you that the Purchased Assets are not subject to a lien of any third party, and (b) we hereby release all right, interest or claim of any kind other than any rights under the Master Repurchase and Securities Contract Agreement with respect to such Purchased Assets, such release to be effective automatically without further action by any party upon payment by Administrative Agent, on behalf of Buyers, of the amount of the Purchase Price contemplated under the Master Repurchase and Securities Contract Agreement (calculated in accordance with the terms thereof) in accordance with the wiring instructions set forth in the Master Repurchase and Securities Contract Agreement.
Very truly yours,
CMTG GS FINANCE LLC, a Delaware limited liability company
By: Name:
Title:
LEGAL_US_E # 160815361.8
Schedule A
[List of Purchased Asset Documents]
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EXHIBIT XIII
RESERVED
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EXHIBIT XIV
FORM OF CUSTODIAL DELIVERY CERTIFICATE
On this of , 202 , CMTG GS FINANCE LLC, a Delaware limited liability company (“Seller”) under that certain Amended and Restated Master Repurchase and Securities Contract Agreement, dated as of March 7, 2022 (the “Repurchase Agreement”) among GOLDMAN SACHS BANK USA, a New York state-chartered bank, as administrative agent (in such capacity, together with its permitted successors and assigns, the “Administrative Agent”) for GOLDMAN SACHS BANK USA, a New York state-chartered bank (in such capacity, and together with such other financial institutions from time to time party thereto and their respective successors and assigns, collectively “Buyers” and individually, each a “Buyer”), Buyers and Seller, does hereby deliver to [ ] (“Custodian”), as custodian under that certain Amended and Restated Custodial Agreement, dated as of [ ] (the “Custodial Agreement”), among Administrative Agent, Custodian and Seller, the Purchased Asset Files with respect to the Purchased Assets to be purchased by Administrative Agent, on behalf of Buyers, pursuant to the Repurchase Agreement, which Purchased Assets are listed on the Purchased Asset Schedule attached hereto and which Purchased Assets shall be subject to the terms of the Custodial Agreement on the date hereof.
With respect to the Purchased Asset Files delivered hereby, for the purposes of issuing the Trust Receipt, the Custodian shall review the Purchased Asset Files to ascertain delivery of the documents listed in Section [ ] to the Custodial Agreement.
Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Custodial Agreement.
IN WITNESS WHEREOF, Seller has caused its name to be signed hereto by its officer thereunto duly authorized as of the day and year first above written.
CMTG GS FINANCE LLC, a Delaware limited liability company
By: Name:
Title:
LEGAL_US_E # 160815361.8
Purchased Asset Schedule to Custodial Delivery Certificate
Purchased Assets
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FORM OF BAILEE LETTER
LEGAL_US_E # 160815361.8
EXHIBIT XV
, 202
LEGAL_US_E # 160815361.8
Ladies and Gentlemen:
Reference is made to that certain Amended and Restated Master Repurchase and Securities Contract Agreement, dated as of March 7, 2022 (as amended, restated, supplemented, or otherwise modified and in effect from time to time, the “Master Repurchase and Securities Contract Agreement”; capitalized terms used but not otherwise defined herein shall have the meanings assigned thereto in the Master Repurchase and Securities Contract Agreement) by and among by and among GOLDMAN SACHS BANK USA, a New York state-chartered bank, as administrative agent (in such capacity, together with its permitted successors and assigns, the “Administrative Agent”) for GOLDMAN SACHS BANK USA, a New York state-chartered bank (in such capacity, and together with such other financial institutions from time to time party thereto and their respective successors and assigns, collectively “Buyers” and individually, each a “Buyer”), Buyers and CMTG GS FINANCE LLC, a Delaware limited liability company (“Seller”). In consideration of the mutual promises set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller, Administrative Agent, on behalf of Buyers, and [ ] (the “Bailee”) hereby agree as follows:
] (the “Custodian”) on or prior to the Funding Date by electronic mail (a) in the name of Administrative Agent, on behalf of Buyers, an initial trust receipt and certification in the form of Attachment 2 attached hereto (the “Bailee’s Trust Receipt and Certification”) which Bailee’s Trust Receipt and Certification shall state that the Bailee has received the documents comprising the Purchased Asset File as set forth in the Custodial Delivery Certificate.
LEGAL_US_E # 160815361.8
Electronic Authorization, the Bailee shall release the Purchased Asset Files to Seller in accordance with Seller’s instructions.
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[SIGNATURES COMMENCE ON FOLLOWING PAGE]
LEGAL_US_E # 160815361.8
Very truly yours,
CMTG GS FINANCE LLC, a Delaware limited liability company, as Seller
By:
Name:
Title:
ACCEPTED AND AGREED:
[ ], as Bailee
By: Name:
Title:
ACCEPTED AND AGREED:
GOLDMAN SACHS BANK USA,
a New York state-chartered bank, as Administrative Agent,
By: Name:
Title:
LEGAL_US_E # 160815361.8
Schedule A
[List of Purchased Asset Documents]
LEGAL_US_E # 160815361.8
Attachment 1
CUSTODIAL IDENTIFICATION CERTIFICATE
On this [ ] day of [ ], 202[_], [TBD SELLER] (“Seller”), under that certain Bailee Agreement of even date herewith (the “Bailee Agreement”), among Seller, [ ] (the “Bailee”), and GOLDMAN SACHS BANK USA, a New York state-chartered bank, as Administrative Agent, does hereby instruct the Bailee to hold, in its capacity as Bailee, the Purchased Asset Files with respect to the Purchased Assets listed on Exhibit A hereto, which Purchased Assets shall be subject to the terms of the Bailee Agreement as of the date hereof.
Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Bailee Agreement.
IN WITNESS WHEREOF, Seller has caused this Identification Certificate to be executed and delivered by its duly authorized officer as of the day and year first above written.
CMTG GS FINANCE LLC, a Delaware limited liability company
By: Name:
Title:
-2-
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Exhibit A to Attachment 1 PURCHASED ASSET SCHEDULE
-3-
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Attachment 2
FORM OF BAILEE’S TRUST RECEIPT AND CERTIFICATION
[ ], 202
GOLDMAN SACHS BANK USA
[*]
[*]
[*]
Re: Bailee Letter, dated as of [ ] (the “Bailee Letter”) among CMTG GS FINANCE LLC, a Delaware limited liability company (“Seller”), GOLDMAN SACHS BANK USA, a New York state-chartered bank, as administrative agent (the “Administrative Agent”) and [ ] (the “Bailee”)
Ladies and Gentlemen:
In accordance with the provisions of Paragraph (c) of the above-referenced Bailee Letter, the undersigned, as the Bailee, hereby certifies that as to each Purchased Asset described in the Purchased Asset Schedule (Exhibit A to Attachment 1), a copy of which is attached hereto, it has reviewed the Purchased Asset File (Exhibit B to Attachment 1) and has determined that (i) all documents listed in the Purchased Asset File are in its possession and (ii) such documents have been reviewed by it and appear regular on their face and relate to such Purchased Asset.
The Bailee hereby confirms that it is holding each such Purchased Asset File as agent and bailee for the exclusive use and benefit of Administrative Agent, on behalf of Buyers, pursuant to the terms of the Bailee Letter.
All initially capitalized terms used herein shall have the meanings ascribed to them in the above-referenced Bailee Letter.
[ ], BAILEE
By: Name:
Title:
cc: [Custodian]
-4-
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EXHIBIT XVI
RESERVED
-5-
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EXHIBIT XVII
FUTURE FUNDING ADVANCE PROCEDURES
-6-
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Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Richard J. Mack, certify that:
Date: August 2, 2022 |
|
/s/ Richard J. Mack |
|
|
Richard J. Mack Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Jai Agarwal, certify that:
Date: August 2, 2022 |
|
/s/ Jai Agarwal |
|
|
Jai Agarwal Chief Financial Officer (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The following certification is being furnished solely to accompany the Quarterly Report on Form 10-Q of Claros Mortgage Trust, Inc. for the quarter ended June 30, 2022, pursuant to 18 U.S.C. § 1350 and in accordance with SEC Release No. 33-8238. This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall it be incorporated by reference in any filing of Claros Mortgage Trust, Inc. under the Securities Act of 1933, as amended, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
Certification of Principal Executive Officer
I, Richard J. Mack, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report on Form 10-Q of Claros Mortgage Trust, Inc. for the quarter ended June 30, 2022, fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended, and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of Claros Mortgage Trust, Inc.
Date: August 2, 2022 |
|
/s/ Richard J. Mack |
|
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Richard J. Mack Chief Executive Officer (Principal Executive Officer) |
A signed original of this written statement required by Section 906 has been provided to Claros Mortgage Trust, Inc. and will be retained by Claros Mortgage Trust, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The following certification is being furnished solely to accompany the Quarterly Report on Form 10-Q of Claros Mortgage Trust, Inc. for the quarter ended June 30, 2022, pursuant to 18 U.S.C. § 1350 and in accordance with SEC Release No. 33-8238. This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall it be incorporated by reference in any filing of Claros Mortgage Trust, Inc. under the Securities Act of 1933, as amended, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
Certification of Principal Financial Officer
I, Jai Agarwal, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report on Form 10-Q of Claros Mortgage Trust, Inc. for the quarter ended June 30, 2022, fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended, and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of Claros Mortgage Trust, Inc.
Date: August 2, 2022 |
|
/s/ Jai Agarwal |
|
|
Jai Agarwal Chief Financial Officer (Principal Financial Officer) |
A signed original of this written statement required by Section 906 has been provided to Claros Mortgage Trust, Inc. and will be retained by Claros Mortgage Trust, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.