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Variable Interest Entities and Collateralized Loan Obligations (Tables)

6 Months Ended

Jun. 30, 2023

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Summary of Variable Interest Entities Assets and Liabilities

The following table outlines the total assets and liabilities within the Sub-REIT (dollars in thousands):


	June 30, 2023		December 31, 2022
Assets
Cash and cash equivalents	$	32,251	$	28,011
Collateralized loan obligation proceeds held at trustee(1)	194,059		297,168
Accounts receivable from servicer/trustee(2)	83,462		156,633
Accrued interest receivable	2,736		5,584
Loans held for investment, net(3)	2,474,839		2,779,978
Total assets	$	2,787,347	$	3,267,374
Liabilities
Accrued interest payable	$	6,103	$	6,106
Accrued expenses	399		761
Collateralized loan obligations, net(4)	2,136,382		2,452,212
Payable to affiliates	—		8,175
Total liabilities	$	2,142,884	$	2,467,254

________________________________

(1)Includes $194.1 million of cash available to acquire eligible assets related to TRTX 2022-FL5 as of June 30, 2023. Includes $72.5 million and $224.7 million of cash available to acquire eligible assets related to TRTX 2022-FL5 and TRTX 2021-FL4, respectively, as of December 31, 2022.

(2)Includes $12.7 million, $61.4 million, and $9.1 million of cash proceeds related to loan repayments related to TRTX 2022-FL5, TRTX 2021-FL4, and TRTX 2019-FL3, respectively, held by the Company's loan servicer as of June 30, 2023, which were remitted to the Company during the subsequent remittance cycle. Includes $155.2 million of cash proceeds related to loan repayments related to TRTX 2019-FL3 held by the Company's loan servicer as of December 31, 2022, which were remitted to the Company during the subsequent remittance cycle.

(3)Includes three loans held for investment with an unpaid principal balance of $3.2 million and $2.9 million as of June 30, 2023 and December 31, 2022, respectively.

(4)Net of $6.6 million and $9.0 million of unamortized deferred financing costs as of June 30, 2023 and December 31, 2022, respectively.

Schedule of Borrowings and Corresponding Collateral

The following tables detail the loan collateral and borrowings under the Company's CRE CLOs (dollars in thousands):


	June 30, 2023
CRE CLOs	Count	Benchmark interest rate	Outstanding principal balance		Carrying value(1)		Wtd. avg. spread(2)		Wtd. avg. maturity(3)
TRTX 2019-FL3
Collateral loan investments	9	Term SOFR(4)	$	477,957	$	387,154	3.35	%	1.1
Financing provided	1	Term SOFR(4)	287,256		287,256		2.05	%	11.3
TRTX 2021-FL4
Collateral loan investments	18	Term SOFR(5)	1,161,152		1,038,119		3.42	%	2.6
Financing provided	1	Term SOFR	948,652		945,811		1.75	%	14.7
TRTX 2022-FL5
Collateral loan investments	16	Term SOFR(6)	1,075,000		1,046,393		3.51	%	3.1
Financing provided	1	Compounded SOFR(6)	907,031		903,315		2.02	%	15.6
Total
Collateral loan investments(7)	43	Term SOFR	$	2,714,109	$	2,471,666	3.45	%	2.4 years
Financing provided(8)	3	Term SOFR/Compounded SOFR	$	2,142,939	$	2,136,382	1.90	%	14.6 years

________________________________

(1)Includes loan amounts held in the Company's CRE CLOs and excludes other loans held for investment, net of $3.2 million held within the Sub-REIT.

(2)Weighted average spread excludes the amortization of loan fees and deferred financing costs.

(3)Loan term represents weighted-average final maturity, assuming extension options are exercised by the borrower. Repayments of CRE CLO notes are dependent on timing of related loan repayments post-reinvestment period. The term of the CRE CLO notes represents the rated final distribution date.

(4)On October 1, 2021, the benchmark index interest rate for borrowings under TRTX 2019-FL3 was converted from Compounded SOFR to Term SOFR by the designated transaction representative under the FL3 indenture. The Company exercised its right to convert the mortgage assets' benchmark interest rate from LIBOR to Term SOFR to eliminate the difference between benchmark rates used for the assets and liabilities of the CRE CLO. As of June 30, 2023, the TRTX 2019-FL3 mortgage assets are indexed to Term SOFR with the exception of two participations totaling $111.4 million which are indexed to LIBOR.

(5)On May 15, 2023, the benchmark index interest rate for borrowings under TRTX 2021-FL4 was converted from LIBOR to Term SOFR by the designated transaction representative under the FL4 indenture. The Company exercised its right to convert the mortgage assets' benchmark interest rate from LIBOR to Term SOFR to eliminate the difference between benchmark rates used for the assets and liabilities of the CRE CLO.

(6)The Company will convert the interest rate benchmark from Compounded SOFR to Term SOFR once 50% of the underlying mortgage loans are converted to Term SOFR. As of June 30, 2023, all of the TRTX 2019-FL5 mortgage assets are indexed to Term SOFR with the exception of one participation totaling $21.6 million which is indexed to LIBOR. Based on the terms of the CLO indenture, it is anticipated that this conversion will occur on September 12, 2023.

(7)Collateral loan investment assets of FL3, FL4 and FL5 represent 10.5%, 25.4% and 23.5% of the aggregate unpaid principal balance of the Company's loans held for investment portfolio as of June 30, 2023.

(8)During the three months ended June 30, 2023, the Company recognized interest expense of $39.2 million, which includes $1.2 million of deferred financing cost amortization and is reflected within the Company's consolidated statements of income and comprehensive income. During the six months ended June 30, 2023, the Company recognized interest expense of $76.8 million, which includes $2.3 million of deferred financing cost amortization and is reflected within the Company's consolidated statements of income and comprehensive income.


	December 31, 2022
CRE CLOs	Count	Benchmark interest rate	Outstanding principal balance		Carrying value		Wtd. avg. spread(1)		Wtd. avg. maturity(2)
TRTX 2019-FL3
Collateral loan investments	10	LIBOR	$	707,456	$	508,507	3.16	%	1.4
Financing provided	1	Term SOFR(4)	516,639		516,639		1.72	%	11.8
TRTX 2021-FL4
Collateral loan investments	23	LIBOR(5)	1,250,000		1,210,550		3.08	%	2.7
Financing provided	1	LIBOR	1,037,500		1,033,264		1.60	%	15.2
TRTX 2022-FL5
Collateral loan investments	18	LIBOR(6)	1,075,000		1,058,004		3.31	%	3.4
Financing provided	1	Compounded SOFR	907,031		902,309		2.02	%	16.1
Total
Collateral loan investments(7)	51	LIBOR	$	3,032,456	$	2,777,061	3.19	%	2.7 years
Financing provided(8)	3	Term SOFR/LIBOR/Compounded SOFR	$	2,461,170	$	2,452,212	1.78	%	14.8 years

________________________________

(1)Includes loan amounts held in the Company's CRE CLOs and excludes other loans held for investment, net of $2.9 million held within the Sub-REIT.

(2)Weighted average spread excludes the amortization of loan fees and deferred financing costs.

(4)On October 1, 2021, the benchmark index interest rate for borrowings under TRTX 2019-FL3 was converted from Compounded SOFR to Term SOFR by the designated transaction representative under the FL3 indenture. The Company has the right to convert the mortgage assets' benchmark interest rate from LIBOR to Term SOFR to eliminate the difference between benchmark rates used for the assets and liabilities of the CRE CLO.

(5)As of December 31, 2022, the TRTX 2021-FL4 mortgage assets are indexed to LIBOR, with the exception of four participation interests totaling $118.9 million which are indexed to Term SOFR. The Company has the right to convert the mortgage assets' benchmark interest rate from LIBOR to Term SOFR to eliminate the difference between benchmark rates used for the assets and liabilities of the CRE CLO.

(6)As of December 31, 2022, the TRTX 2022-FL5 mortgage assets are indexed to LIBOR, with the exception of two participation interests totaling $178.5 million which are indexed to Term SOFR. The Company has the right to convert the mortgage assets benchmark interest rate from LIBOR to Term SOFR. This conversion will initiate the transition of the liabilities to Term SOFR once 50% of the underlying mortgage loans are converted to Term SOFR to eliminate the difference between benchmark rates used for the assets and liabilities of the CRE CLO.

(7)Collateral loan investment assets of FL3, FL4, and FL5 represent 14.1%, 25.0%, and 21.5% of the aggregate unpaid principal balance of the Company's loans held for investment portfolio as of December 31, 2022.

(8)During the three months ended June 30, 2022, the Company recognized interest expense of $18.2 million, which includes $1.9 million of deferred financing cost amortization and is reflected within the Company's consolidated statements of income and comprehensive income. During the six months ended June 30, 2022, the Company recognized interest expense of $32.5 million, which includes $4.1 million of deferred financing cost amortization and is reflected within the Company's consolidated statements of income and comprehensive income.

The following table summarizes the Company's investment portfolio financing (dollars in thousands):


	Outstanding principal balance
	June 30, 2023		December 31, 2022
Collateralized loan obligations(1)	$	2,142,939	$	2,461,170
Secured credit agreements	1,039,185		1,108,386
Asset-specific financing arrangements	492,563		565,376
Secured revolving credit facility	—		44,279
Mortgage loan payable	31,200		—
Total	$	3,705,887	$	4,179,211

________________________________

(1)See Note 5 for additional information regarding the Company's collateralized loan obligations.

The following table details the Company's asset-specific financing arrangements (dollars in thousands):


	June 30, 2023
	Financing										Collateral
Asset-specific financing	Count	Commitment amount		Outstanding principal balance		Carrying value(1)		Wtd. avg. spread(2)		Wtd. avg. term(3)	Count	Outstanding principal balance		Amortized Cost		Wtd. avg. term
Axos Bank	2	$	100,915	$	100,915	$	100,265	4.4	%	0.7	2	$	189,905	$	189,671	0.7
BMO Facility	1	200,000		29,110		28,781		2.0	%	4.2	1	36,525		36,197		4.2
Institutional Lender 2	1	341,159		341,159		340,585		3.5	%	1.9	4	459,348		447,395		1.9
Customers Bank	1	23,250		21,379		20,950		2.5	%	1.9	1	28,799		28,575		1.9
Total / weighted average		$	665,324	$	492,563	$	490,581	3.6	%	1.8 years		$	714,577	$	701,838	1.7 years

_______________________

(1)Net of $2.0 million unamortized deferred financing costs.

(2)Collateral loan assets and related financings are indexed to Term SOFR under Axos Bank, the BMO Facility and Customers Bank. Under the Institutional Lender 2 arrangement, collateral loan assets are indexed to Term SOFR with the exception of one loan indexed to LIBOR and the financing provided is indexed to Term SOFR.

(3)Term under Axos Bank is based on the extended maturity date for the specific arrangement. Borrowings under the BMO Facility, the Institutional Lender 2 arrangement and Customers Bank are term-matched to the corresponding collateral loan asset. The weighted-average term assumes all extension options of the collateral loan assets are exercised by the borrower.

The following table details the Company's asset-specific financing arrangements (dollars in thousands):


	December 31, 2022
	Financing										Collateral
Asset-specific financing	Count	Commitment amount		Outstanding principal balance		Carrying value(1)		Wtd. avg. spread(2)		Wtd. avg. term(3)	Count	Outstanding principal balance		Amortized Cost		Wtd. avg. term
Axos Bank	2	$	105,152	$	105,152	$	104,504	4.4	%	1.3	2	$	198,603	$	198,246	1.2
BMO Facility	1	200,000		47,545		46,985		1.8	%	4.5	2	59,431		58,717		4.5
Institutional Lender 2	1	397,928		392,070		389,442		3.5	%	2.4	5	513,181		494,965		2.4
Customers Bank	1	23,250		20,609		20,086		2.5	%	2.4	1	28,505		28,232		2.4
Total / weighted average		$	726,330	$	565,376	$	561,017	3.5	%	2.4 years		$	799,720	$	780,160	2.3 years

_______________________

(1)Net of $4.4 million unamortized deferred financing costs.

(2)Collateral loan assets are indexed to either LIBOR or Term SOFR and related financings are indexed to Term SOFR under Axos Bank, the BMO Facility and Customers Bank. Under the Institutional Lender 2 arrangement, collateral loan assets are indexed to LIBOR and the financing provided is indexed to Term SOFR.

- Definition

Tabular disclosure of the significant judgments and assumptions made in determining whether a variable interest (as defined) held by the entity requires the variable interest entity (VIE) (as defined) to be consolidated and (or) disclose information about its involvement with the VIE, individually or in aggregate (as applicable); the nature of restrictions, if any, on the consolidated VIE's assets and on the settlement of its liabilities reported by an entity in its statement of financial position, including the carrying amounts of such assets and liabilities; the nature of, and changes in, the risks associated with involvement in the VIE; how involvement with the VIE affects the entity's financial position, financial performance, and cash flows; the lack of recourse if creditors (or beneficial interest holders) of the consolidated VIE have no recourse to the general credit of the primary beneficiary (if applicable); the terms of arrangements, giving consideration to both explicit arrangements and implicit variable interests, if any, that could require the entity to provide financial support to the VIE, including events or circumstances that could expose the entity to a loss; the methodology used by the entity for determining whether or not it is the primary beneficiary of the variable interest entity; the significant factors considered and judgments made in determining that the power to direct the activities of a VIE that most significantly impact the VIE's economic performance are shared (as defined); the carrying amounts and classification of assets and liabilities of the VIE included in the statement of financial position; the entity's maximum exposure to loss, if any, as a result of its involvement with the VIE, including how the maximum exposure is determined and significant sources of the entity's exposure to the VIE; a comparison of the carrying amounts of the assets and liabilities and the entity's maximum exposure to loss; information about any liquidity arrangements, guarantees, and (or) other commitments by third parties that may affect the fair value or risk of the entity's variable interest in the VIE; whether or not the entity has provided financial support or other support (explicitly or implicitly) to the VIE that it was not previously contractually required to provide or whether the entity intends to provide that support, including the type and amount of the support and the primary reasons for providing the support; and supplemental information the entity determines necessary to provide.

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