Overview
We are a specialty finance company primarily engaged in directly originating and investing in commercial real estate (“CRE”) loans and related investments. We are externally managed by ACREM, a subsidiary of Ares Management Corporation (NYSE: ARES) (“Ares Management”), a publicly traded, leading global alternative investment manager, pursuant to the terms of the amended and restated management agreement dated July 26, 2022, between us and our Manager (the “Management Agreement”). From the commencement of our operations in late 2011, we have been primarily focused on directly originating and managing a diversified portfolio of CRE debt-related investments for our own account.
We were formed and commenced operations in late 2011. We are a Maryland corporation and completed our initial public offering in May 2012. We have elected and qualified to be taxed as a REIT for United States federal income tax purposes under the Internal Revenue Code of 1986, as amended (the “Code”), commencing with our taxable year ended December 31, 2012. We generally will not be subject to United States federal income taxes on our REIT taxable income as long as we annually distribute to stockholders an amount at least equal to our REIT taxable income prior to the deduction for dividends paid and comply with various other requirements as a REIT. We also operate our business in a manner that is intended to permit us to maintain our exemption from registration under the 1940 Act.
Developments During the Second Quarter of 2026:
•We closed a $25.0 million senior mortgage loan as part of a co-investment on a multifamily property located in Tennessee.
•We closed a $69.7 million senior mortgage loan as part of a co-investment on a portfolio of self storage properties located in various states.
•We closed a $35.0 million senior mortgage loan as part of a co-investment on a hotel property located in California.
•We sold a $68.5 million portion of a $143.5 million senior mortgage loan as part of a co-investment on a retail property located in California. At the time of the sale, the outstanding principal balance of the portion of the loan that was sold was $61.4 million, which was classified as held for sale in our consolidated balance sheets. The portion of the loan was sold at fair value, which was equal to our carrying amount, and no gain or loss was recognized on the sale. We continue to hold the remaining $75.0 million portion of the senior mortgage loan, which had an outstanding principal balance of $67.3 million as of June 30, 2026 and is classified as held for investment.
Trends Affecting Our Business
During the second quarter of 2026, the U.S. economy continued to expand, supported by continued consumer spending with moderating expectations for U.S. gross domestic product growth and low levels of unemployment amidst heightened geopolitical tensions. During this time, the commercial real estate market exhibited stable to moderating conditions. Specifically, individual property transaction volumes slowed in the second quarter while broad market indices demonstrated flat to increasing commercial real estate values.
Aiding valuations, new construction starts remained near or at 10-year lows across multifamily, industrial, retail and office property types and lending markets remained supportive given increased activity from capital markets and banks. During the quarter, the Federal Reserve held interest rates steady and restated its commitment towards its inflation goals, which may result in future monetary policy actions. There is no certainty that there will be a change in interest rates or of the magnitude or pace of potential changes.
Rising operating costs, such as property insurance and raw material costs for property development and improvements, placed pressure on cash flow performance across many real estate property types. Although certain markets are showing a recovery, office properties nationally continue to experience challenges driven by remote work and elevated costs to operate, improve or repurpose these office properties. These factors have largely resulted in lower demand for office space and have driven elevated levels of vacancy rates and default rates. Offsetting some of these challenges, there has been a significant decline in new commercial real estate development that began in 2023 and has continued benefitting existing in-demand property types. Ultimately, this lack of new future inventory may result in a shortage of contemporary, in-demand properties in the years to come, furthering the disparity between supply and demand dynamics. In addition, there is a significant amount of unspent capital targeting commercial real estate properties that could support values and elevate transaction activities.
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Uncertainty around U.S. economic and foreign policies, international relations and their potential impact to the U.S. economy has increased risk. Should the risks from these factors become more acute, the commercial real estate market we service may be adversely impacted.
Factors Impacting Our Operating Results
The results of our operations are affected by a number of factors and primarily depend on, among other things, the level of our net interest income, the market value of our assets, including the real estate collateralizing our investments, and the supply of, and demand for, commercial mortgage loans, CRE debt and other financial assets in the marketplace. Our net interest income, which reflects the amortization of origination fees and direct costs, is recognized based on the contractual rate and the outstanding principal balance of the loans we originate. Interest rates vary according to the type of investment, conditions in the financial markets, creditworthiness of our borrowers, competition and other factors, none of which can be predicted with any certainty. Our operating results are also impacted by credit losses in excess of initial anticipations or unanticipated credit events experienced by borrowers.
Stock Repurchase Program
On July 30, 2025, our board of directors extended the Repurchase Program of up to $50.0 million, which was expected to be in effect until July 31, 2026, or until the approved dollar amount had been used to repurchase shares. On July 28, 2026, our board of directors further extended the Repurchase Program of up to $50.0 million, which is expected to be in effect until July 31, 2027, or until the approved dollar amount has been used to repurchase shares. Pursuant to the Repurchase Program, we may repurchase shares of our common stock in amounts, at prices and at such times as we deem appropriate, subject to market conditions and other considerations, including all applicable legal requirements. Repurchases may include purchases on the open market or privately negotiated transactions, under Rule 10b5-1 trading plans, under accelerated share repurchase programs, in tender offers and otherwise. The Repurchase Program does not obligate us to acquire any particular amount of shares of our common stock and may be modified or suspended at any time at our discretion. During the three and six months ended June 30, 2026, we did not repurchase any shares through the Repurchase Program.
Loans Held for Investment Portfolio
As of June 30, 2026, our portfolio included 38 loans held for investment, excluding 197 loans that were repaid, sold, converted to real estate owned or written-off since inception. As of June 30, 2026, the aggregate originated commitment under these loans at closing was approximately $2.0 billion and outstanding principal was $1.8 billion. During the six months ended June 30, 2026, we funded approximately $339.6 million of outstanding principal and received repayments of $110.7 million of outstanding principal. As of June 30, 2026, 89.2% of our loans have SOFR floors, with a weighted average floor of 1.71%, calculated based on loans with SOFR floors. References to SOFR or “S” are to 30-day SOFR (unless otherwise specifically stated).
Other than as set forth in Note 3 to our consolidated financial statements included in this quarterly report on Form 10-Q, as of June 30, 2026, all loans held for investment were paying in accordance with their contractual terms.
Our loans held for investment are accounted for at amortized cost. The following table summarizes our loans held for investment as of June 30, 2026 ($ in thousands):
As of June 30, 2026
Carrying Value (1) Outstanding Principal (1) Weighted Average Unleveraged Effective Yield Weighted Average Remaining Life (Years) (4)
Senior mortgage loans $ 1,729,417 $ 1,818,946 5.8 % (2) 7.2 % (3) 1.4
Subordinated debt and preferred equity investments 19,418 21,223 2.7 % (2) 6.6 % (3) 0.8
Total loans held for investment portfolio $ 1,748,835 $ 1,840,169 5.7 % (2) 7.2 % (3) 1.4
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(1)The difference between the Carrying Value and the Outstanding Principal amount of the loans held for investment consists of unamortized purchase discounts, deferred loan fees and origination costs and cost-recovery proceeds.
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(2)Unleveraged Effective Yield is the compounded effective rate of return that would be earned over the life of the investment based on the contractual interest rate (adjusted for any deferred loan fees, costs, premiums or discounts) and assumes no dispositions, early prepayments or defaults. The total Weighted Average Unleveraged Effective Yield is calculated based on the average of Unleveraged Effective Yield of all loans held by us as of June 30, 2026 as weighted by the outstanding principal balance of each loan.
(3)Unleveraged Effective Yield is the compounded effective rate of return that would be earned over the life of the investment based on the contractual interest rate (adjusted for any deferred loan fees, costs, premiums or discounts) and assumes no dispositions, early prepayments or defaults. The total Weighted Average Unleveraged Effective Yield is calculated based on the average of Unleveraged Effective Yield of all interest accruing loans held by us as of June 30, 2026 as weighted by the total outstanding principal balance of each interest accruing loan (excludes loans on non-accrual status as of June 30, 2026).
(4)Remaining Life is based on contractual maturity date and does not include contractual extension options not yet exercised.
Critical Accounting Estimates
Our consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”), which require management to make estimates and assumptions that affect reported amounts. These estimates and assumptions are based on historical experience and other factors management believes to be reasonable. Actual results may differ from those estimates and assumptions. For a description of our critical accounting estimates, please see Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2025 Annual Report on Form 10-K.
RECENT DEVELOPMENTS
Our board of directors declared a regular cash dividend of $0.15 per common share for the third quarter of 2026. The third quarter 2026 dividend will be payable on October 15, 2026 to common stockholders of record as of September 30, 2026.
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RESULTS OF OPERATIONS
The following table sets forth a summary of our consolidated results of operations for the three and six months ended June 30, 2026 and 2025 ($ in thousands):
f For the Three Months Ended June 30, For the Six Months Ended June 30,
2026 2025 2026 2025
Total revenue $ 14,356 $ 12,565 $ 27,816 $ 27,513
Total expenses (8,970) (10,750) (17,527) (21,412)
(Provision for) reversal of current expected credit losses, net (865) 20,150 (12,003) 25,490
Realized losses on loans — (33,000) (3,340) (33,000)
Income (loss) before income taxes 4,521 (11,035) (5,054) (1,409)
Income tax expense (benefit), including excise tax 138 — 169 281
Net income (loss) attributable to common stockholders $ 4,383 $ (11,035) $ (5,223) $ (1,690)
The following tables set forth select details of our consolidated results of operations for the three and six months ended June 30, 2026 and 2025 ($ in thousands):
Net Interest Margin
For the Three Months Ended June 30, For the Six Months Ended June 30,
2026 2025 2026 2025
Interest income $ 27,754 $ 23,117 $ 52,660 $ 50,597
Interest expense (19,182) (16,101) (36,543) (34,290)
Net interest margin $ 8,572 $ 7,016 $ 16,117 $ 16,307
For the three months ended June 30, 2026 and 2025, net interest margin was approximately $8.6 million and $7.0 million, respectively. For the three months ended June 30, 2026 and 2025, interest income of $27.8 million and $23.1 million, respectively, was generated by weighted average earning assets of $1.9 billion and $1.4 billion, respectively, offset by $19.2 million and $16.1 million, respectively, of interest expense, unused fees and amortization of deferred loan costs. The weighted average borrowings under the Secured Funding Agreements, the Secured Term Loan and securitization debt, as applicable, for the three months ended June 30, 2026 and 2025 were $1.3 billion and $0.9 billion, respectively. The increase in net interest margin for the three months ended June 30, 2026 compared to the three months ended June 30, 2025 is primarily due to an increase in the weighted average earning assets for the three months ended June 30, 2026 as compared to the three months ended June 30, 2025.
For the six months ended June 30, 2026 and 2025, net interest margin was approximately $16.1 million and $16.3 million, respectively. For the six months ended June 30, 2026 and 2025, interest income of $52.7 million and $50.6 million, respectively, was generated by weighted average earning assets of $1.8 billion and $1.5 billion, respectively, offset by $36.5 million and $34.3 million, respectively, of interest expense, unused fees and amortization of deferred loan costs. The weighted average borrowings under the Secured Funding Agreements, the Secured Term Loan and securitization debt, as applicable, for the six months ended June 30, 2026 and 2025 were $1.2 billion and $1.0 billion, respectively. The decrease in net interest margin for the six months ended June 30, 2026 compared to the six months ended June 30, 2025 is primarily due to a decrease in SOFR rates on our loans held for investment and a decrease in the weighted average interest-bearing cash and cash equivalents balances held for the six months ended June 30, 2026 as compared to the six months ended June 30, 2025.
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Revenue From Real Estate Owned
On September 19, 2024, we acquired legal title to a multi-building office property located in North Carolina through a deed in lieu of foreclosure. Prior to September 19, 2024, the office property collateralized a $68.6 million senior mortgage loan that we held that was in maturity default due to the failure of the borrower to repay the outstanding principal balance of the loan by the May 2024 maturity date. In conjunction with the deed in lieu of foreclosure, we derecognized the $68.6 million senior mortgage loan and recognized the office property as real estate owned. Revenues from this property consist primarily of rental revenue from operating leases. For the three and six months ended June 30, 2026, revenue from real estate owned related to this property was $2.6 million and $5.3 million, respectively. For the three and six months ended June 30, 2025, revenue from real estate owned related to this property was $2.3 million and $4.7 million, respectively. The increase in revenue from real estate owned related to this property for both the three and six months ended June 30, 2026 compared to the three and six months ended June 30, 2025 is primarily due to an increase in rental revenue from new operating leases.
On September 8, 2023, we acquired legal title to a mixed-use property located in Florida through a consensual foreclosure. Prior to September 8, 2023, the mixed-use property collateralized an $82.9 million senior mortgage loan that we held that was in maturity default due to the failure of the borrower to repay the outstanding principal balance of the loan by the February 2023 maturity date. In conjunction with the consensual foreclosure, we derecognized the $82.9 million senior mortgage loan and recognized the mixed-use property as real estate owned. Revenues from this property consist primarily of rental revenue from operating leases. For the three and six months ended June 30, 2026, revenue from real estate owned related to this property was $3.2 million and $6.4 million, respectively. For the three and six months ended June 30, 2025, revenue from real estate owned related to this property was $3.3 million and $6.5 million, respectively.
Operating Expenses
For the Three Months Ended June 30, For the Six Months Ended June 30,
2026 2025 2026 2025
Management and incentive fees to affiliate $ 2,394 $ 2,430 $ 4,794 $ 4,997
Professional fees 699 673 1,519 1,550
General and administrative expenses 1,723 1,995 3,140 3,715
General and administrative expenses reimbursed to affiliate 853 1,024 1,639 2,027
Expenses from real estate owned 3,301 4,628 6,435 9,123
Total expenses $ 8,970 $ 10,750 $ 17,527 $ 21,412
See the Related Party Expenses, Other Expenses and Expenses from Real Estate Owned discussions below for the cause of the changes in operating expenses for the three and six months ended June 30, 2026 compared to the three and six months ended June 30, 2025, respectively.
Related Party Expenses
For the three months ended June 30, 2026, related party expenses included $2.4 million in management fees due to our Manager pursuant to the Management Agreement. No incentive fees were incurred for the three months ended June 30, 2026. For the three months ended June 30, 2026, related party expenses also included $0.9 million for our share of allocable general and administrative expenses for which we were required to reimburse our Manager pursuant to the Management Agreement. For the three months ended June 30, 2025, related party expenses included $2.4 million in management fees due to our Manager pursuant to the Management Agreement. No incentive fees were incurred for the three months ended June 30, 2025. For the three months ended June 30, 2025, related party expenses also included $1.0 million for our share of allocable general and administrative expenses for which we were required to reimburse our Manager pursuant to the Management Agreement. Management fees were relatively consistent for both the three months ended June 30, 2026 and 2025. The decrease in allocable general and administrative expenses due to our Manager for the three months ended June 30, 2026 compared to the three months ended June 30, 2025 relates to changes in the mix of employees of our Manager that allocated time to us.
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For the six months ended June 30, 2026, related party expenses included $4.8 million in management fees due to our Manager pursuant to the Management Agreement. No incentive fees were incurred for the six months ended June 30, 2026. For the six months ended June 30, 2026, related party expenses also included $1.6 million for our share of allocable general and administrative expenses for which we were required to reimburse our Manager pursuant to the Management Agreement. For the six months ended June 30, 2025, related party expenses included $5.0 million in management fees due to our Manager pursuant to the Management Agreement. No incentive fees were incurred for the six months ended June 30, 2025. For the six months ended June 30, 2025, related party expenses also included $2.0 million for our share of allocable general and administrative expenses for which we were required to reimburse our Manager pursuant to the Management Agreement. The decrease in management fees for the six months ended June 30, 2026 compared to the six months ended June 30, 2025 primarily relates to a decrease in our weighted average stockholders’ equity for the six months ended June 30, 2026 as a result of realized losses on loans. The decrease in allocable general and administrative expenses due to our Manager for the six months ended June 30, 2026 compared to the six months ended June 30, 2025 relates to changes in the mix of employees of our Manager that allocated time to us.
Other Expenses
For both the three months ended June 30, 2026 and 2025, professional fees were $0.7 million. For the three months ended June 30, 2026 and 2025, general and administrative expenses were $1.7 million and $2.0 million, respectively. The decrease in general and administrative expenses for the three months ended June 30, 2026 compared to the three months ended June 30, 2025 primarily relates to a decrease in stock-based compensation expense due to a reduction in the weighted average grant date fair value for restricted stock and restricted stock unit awards granted after June 30, 2025 and a reduction in various operating expenses for the three months ended June 30, 2026.
For the six months ended June 30, 2026 and 2025, professional fees were $1.5 million and $1.6 million, respectively, which was relatively consistent for both periods. For the six months ended June 30, 2026 and 2025, general and administrative expenses were $3.1 million and $3.7 million, respectively. The decrease in general and administrative expenses for the six months ended June 30, 2026 compared to the six months ended June 30, 2025 primarily relates to a decrease in stock-based compensation expense due to a reduction in the weighted average grant date fair value for restricted stock and restricted stock unit awards granted after June 30, 2025 and a reduction in various operating expenses for the six months ended June 30, 2026.
Expenses From Real Estate Owned
For the three and six months ended June 30, 2026 and 2025, expenses from real estate owned were comprised of the following ($ in thousands):
For the Three Months Ended June 30, For the Six Months Ended June 30,
2026 2025 2026 2025
Mixed-use property operating expenses $ 1,130 $ 1,069 $ 2,343 $ 2,296
Office property operating expenses 1,298 1,322 2,307 2,417
Depreciation and amortization expense 873 2,237 1,785 4,410
Expenses from real estate owned $ 3,301 $ 4,628 $ 6,435 $ 9,123
For both the three months ended June 30, 2026 and 2025, mixed-use property operating expenses were $1.1 million. For both the six months ended June 30, 2026 and 2025, mixed-use property operating expenses were $2.3 million. Mixed-use property operating expenses consisted primarily of expenses incurred in the day-to-day operation of our mixed-use property, including common area maintenance costs, property taxes and insurance. Common area maintenance costs include items such as maintenance and repairs, utilities, janitorial services, security and property management fees.
For both the three months ended June 30, 2026 and 2025, office property operating expenses were $1.3 million. For the six months ended June 30, 2026 and 2025, office property operating expenses were $2.3 million and $2.4 million, respectively. Office property operating expenses consisted primarily of expenses incurred in the day-to-day operation of our multi-building office property, including common area maintenance costs, property taxes and insurance. Common area maintenance costs include items such as maintenance and repairs, utilities, janitorial services, security and property management fees.
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For the three and six months ended June 30, 2026, depreciation and amortization expense was $0.9 million and $1.8 million, respectively, and relates primarily to our mixed-use property acquired on September 8, 2023. For the three and six months ended June 30, 2026, no depreciation or amortization expense was incurred for our multi-building office property acquired on September 19, 2024 as the multi-building office property was classified as real estate owned held for sale. For the three and six months ended June 30, 2025, depreciation and amortization expense was $2.2 million and $4.4 million, respectively, and related primarily to our mixed-use property acquired on September 8, 2023 and our multi-building office property acquired on September 19, 2024.
(Provision for) Reversal of Current Expected Credit Losses, Net
For the three months ended June 30, 2026 and 2025, the net (provision for) reversal of current expected credit losses was $(0.9) million and $20.2 million, respectively. For the three months ended June 30, 2026, the net provision for current expected credit losses is primarily due to changes in loan- and collateral-specific attributes, new loan closings and a relative decline in the near-term macroeconomic forecasts during the three months ended June 30, 2026. These factors were partially offset by shorter average remaining loan term and other changes in loan- and collateral-specific attributes during the three months ended June 30, 2026. For the three months ended June 30, 2025, the net reversal of current expected credit losses was primarily due to a realized loss on an office (life sciences) loan, resulting in a reversal of the associated CECL Reserve, shorter average remaining loan term, loan repayments and other loan- and collateral-specific attributes during the three months ended June 30, 2025. These factors were partially offset by a relative decline in the near-term macroeconomic forecasts, including higher tariffs, high inflation and interest rates, and other loan- and collateral-specific attributes during the three months ended June 30, 2025.
For the six months ended June 30, 2026 and 2025, the net (provision for) reversal of current expected credit losses was $(12.0) million and $25.5 million, respectively. For the six months ended June 30, 2026, the net provision for current expected credit losses is primarily due to changes in loan- and collateral-specific attributes and new loan closings during the six months ended June 30, 2026. These factors were partially offset by a realized loss on a multifamily loan, resulting in a reversal of the associated CECL Reserve, shorter average remaining loan term, loan repayments and other changes in loan- and collateral-specific attributes during the six months ended June 30, 2026. For the six months ended June 30, 2025, the net reversal of current expected credit losses was primarily due to a realized loss on an office (life sciences) loan, resulting in a reversal of the associated CECL Reserve, shorter average remaining loan term, loan repayments and other loan- and collateral-specific attributes during the six months ended June 30, 2025. These factors were partially offset by a relative decline in the near-term macroeconomic forecasts, including higher tariffs, high inflation and interest rates, and other loan- and collateral-specific attributes during the six months ended June 30, 2025.
The CECL Reserve takes into consideration our estimates relating to the impact of macroeconomic conditions on CRE properties and is not specific to any loan losses or impairments on our loans held for investment, unless we determine that a specifically identifiable reserve is warranted for a select asset. Additionally, the CECL Reserve is not an indicator of what we expect our CECL Reserve would have been absent the current and potential future impacts of macroeconomic conditions.
Realized Losses on Loans
In June 2025, we received a discounted payoff on a senior mortgage loan with outstanding principal of $51.5 million, which was collateralized by an office (life sciences) property located in Massachusetts. The discounted payoff was received in conjunction with the sale of the office (life sciences) property by the borrower. For both the three and six months ended June 30, 2025, we recognized a realized loss of $33.0 million in our consolidated statements of operations upon the payoff of the senior mortgage loan as the Carrying Value exceeded the net proceeds from the payoff of the loan.
In March 2026, we received a discounted payoff on a senior mortgage loan with outstanding principal of $28.2 million, which was collateralized by a multifamily property located in Pennsylvania. The discounted payoff was received in conjunction with the sale of the multifamily property by the borrower. For the six months ended June 30, 2026, we recognized a realized loss of $3.3 million in our consolidated statements of operations upon the payoff of the senior mortgage loan as the Carrying Value exceeded the net proceeds from the payoff of the loan.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain our assets and operations, make distributions to our stockholders, repurchase shares and other general business needs. We use significant cash to purchase our target investments, make principal and interest payments on our borrowings, make distributions to our stockholders and fund our operations.
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Our primary sources of cash generally consist of unused borrowing capacity under our Secured Funding Agreements, payments of principal and interest we receive on our portfolio of assets, cash generated from our operating activities and the net proceeds of future equity offerings, if any.
We expect our primary sources of cash to continue to be sufficient to fund our operating activities and cash commitments for investing and financing activities for at least the next 12 months and thereafter for the foreseeable future. As a result of the commercial real estate environment during 2025 and 2026, certain borrowers have been unable to make interest and principal payments timely, including at the maturity date of the borrower’s loan. We assess our CECL Reserve and increase it or decrease it from time to time, as necessary, to reflect this risk. Our Secured Funding Agreements contain margin call provisions following the occurrence of certain mortgage loan credit events. If we are unable to make the required payment or if we fail to meet or satisfy any of the covenants in our Financing Agreements, we would be in default under these agreements, and our lenders could elect to declare outstanding amounts due and payable, terminate their commitments, require the posting of additional collateral, including cash to satisfy margin calls, and enforce their interests against existing collateral. For example, certain of our Financing Agreements contain (i) negative covenants that limit, among other things, our ability to repurchase our common stock, make distributions to our stockholders, employ leverage beyond certain amounts, sell assets, engage in mergers or consolidations, grant liens, and enter into transactions with affiliates (including amending the Management Agreement in a material respect) and (ii) operating and financial covenants, including those requiring us to maintain a certain tangible net worth, asset coverage ratio, total net leverage ratio and loan concentration. We are also subject to cross-default and acceleration rights with respect to our Financing Agreements. If we experience borrower default as a result of macroeconomic conditions or otherwise, we may not be able to negotiate modifications to our borrowings with our lenders or receive financing from our Secured Funding Agreements with respect to our commitments to fund our loans held for investment in the future. See “Summary of Financing Agreements” below for a description of our Financing Agreements.
Subject to maintaining our qualification as a REIT and our exemption from registration under the 1940 Act, we expect that our primary sources of liquidity will be financing, to the extent available to us, through credit, secured funding and other lending facilities, other sources of private financing, including warehouse and repurchase facilities, and public or private offerings of our equity or debt securities. Macroeconomic conditions may impair our ability to access the financing and capital markets. Furthermore, we have sold, and may continue to sell certain of our mortgage loans, or interests therein, in order to manage liquidity needs. Subject to maintaining our qualification as a REIT, we may also change our dividend practice, including by reducing the amount of, or temporarily suspending, our future dividends or making dividends that are payable in cash and shares of our common stock for some period of time. We may also continue or discontinue share repurchases under the Repurchase Program.
Ares Management or one of its investment vehicles may originate mortgage loans. We have had and may continue to have the opportunity to purchase such loans that are determined by our Manager in good faith to be appropriate for us, depending on our available liquidity. Ares Management or one of its investment vehicles may also acquire mortgage loans from us.
We have commitments to fund various senior mortgage loans, as well as subordinated debt and preferred equity investments in our portfolio. Other than as set forth in this quarterly report on Form 10-Q, we do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured investment vehicles, special purpose entities or variable interest entities, established to facilitate off-balance sheet arrangements or other contractually narrow or limited purposes. Further, we have not guaranteed any obligations of unconsolidated entities or entered into any commitment or intend to provide additional funding to any such entities.
As of July 30, 2026, we had approximately $105 million in liquidity including $16 million of cash and $89 million of availability under our Secured Funding Agreements.
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Cash Flows
The following table sets forth changes in cash, cash equivalents and restricted cash for the six months ended June 30, 2026 and 2025 ($ in thousands):
For the Six Months Ended June 30,
2026 2025
Net income (loss) $ (5,223) $ (1,690)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities 12,161 14,580
Net cash provided by (used in) operating activities 6,938 12,890
Net cash provided by (used in) investing activities (211,278) 324,998
Net cash provided by (used in) financing activities 195,758 (310,047)
Change in cash, cash equivalents and restricted cash $ (8,582) $ 27,841
During the six months ended June 30, 2026 and 2025, cash, cash equivalents and restricted cash increased (decreased) by $(8.6) million and $27.8 million, respectively.
Operating Activities
For the six months ended June 30, 2026 and 2025, net cash provided by operating activities totaled $6.9 million and $12.9 million, respectively. For the six months ended June 30, 2026, adjustments to net income (loss) related to operating activities primarily included the net provision for current expected credit losses of $12.0 million, accretion of discounts, deferred loan origination fees and costs of $2.6 million, amortization of deferred financing costs of $2.4 million, realized losses on loans of $3.3 million and change in other assets of $7.7 million. For the six months ended June 30, 2025, adjustments to net income (loss) related to operating activities primarily included the net reversal of current expected credit losses of $25.5 million, accretion of discounts, deferred loan origination fees and costs of $2.0 million, amortization of deferred financing costs of $2.4 million and realized losses on loans of $33.0 million.
Investing Activities
For the six months ended June 30, 2026, net cash used in investing activities totaled $211.3 million and was primarily related to cash used for the origination and funding of loans held for investment exceeding cash received from principal collections and cost-recovery proceeds on loans held for investment. For the six months ended June 30, 2025, net cash provided by investing activities totaled $325.0 million and was primarily related to cash received from principal collections and cost-recovery proceeds on loans held for investment exceeding the cash used for the origination and funding of loans held for investment.
Financing Activities
For the six months ended June 30, 2026, net cash provided by financing activities totaled $195.8 million and was primarily related to proceeds from our Secured Funding Agreements of $430.6 million partially offset by repayments of our Secured Funding Agreements of $115.7 million, repayments of debt of consolidated VIEs of $99.9 million and dividends paid of $16.9 million. For the six months ended June 30, 2025, net cash used in financing activities totaled $310.0 million and was primarily related to repayments of our Secured Funding Agreements of $61.4 million, repayments of debt of consolidated VIEs of $318.4 million, repayments of our Secured Term Loan of $20.0 million and dividends paid of $22.3 million, partially offset by proceeds from our Secured Funding Agreements of $114.8 million.
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Summary of Financing Agreements
The sources of financing, as applicable in a given period, under our Financing Agreements are described in the following table ($ in thousands):
As of
June 30, 2026 December 31, 2025
Total Commitment Outstanding Balance Interest Rate Maturity Date Total Commitment Outstanding Balance Interest Rate Maturity Date
Secured Funding Agreements:
Wells Fargo Facility $ 600,000 $ 562,962 SOFR+1.35 to 3.75% February 10, 2028 (1) $ 600,000 $ 438,911 SOFR+1.40 to 3.75% February 10, 2028 (1)
Citibank Facility 425,000 340,195 SOFR+1.50 to 3.00% January 13, 2027 (2) 325,000 269,265 SOFR+1.50 to 3.00% January 13, 2027 (2)
CNB Facility 75,000 — SOFR+3.25% December 31, 2026 (3) 75,000 — SOFR+3.25% March 10, 2026 (3)
Morgan Stanley Facility 350,000 269,870 SOFR+1.55 to 3.50% July 16, 2029 (4) 150,000 150,000 SOFR+1.75 to 3.50% July 16, 2026 (4)
Subtotal $ 1,450,000 $ 1,173,027 $ 1,150,000 $ 858,176
Secured Term Loan $ 90,000 $ 90,000 5.75% November 12, 2026 (5) $ 90,000 $ 90,000 5.25% November 12, 2026 (5)
Total $ 1,540,000 $ 1,263,027 $ 1,240,000 $ 948,176
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(1)The maturity date of the master repurchase funding facility with Wells Fargo Bank, National Association (the “Wells Fargo Facility”) is subject to two 12-month extensions, each of which may be exercised at our option provided that certain conditions are met and applicable extension fees are paid.
(2)The maturity date of the master repurchase facility with Citibank, N.A. (the “Citibank Facility”) is subject to two 12-month extensions, each of which may be exercised at our option provided that certain conditions are met and applicable extension fees are paid. In March 2026, we exercised each of our two $50.0 million accordion options on the Citibank Facility to increase the maximum commitment from $325.0 million to $425.0 million with payment of an upsize fee.
(3)In March 2026, we amended the secured revolving funding facility with City National Bank (the “CNB Facility”) to, among other things, extend the maturity date to December 31, 2026. The interest rate on advances under the CNB Facility is a per annum rate equal to the sum of, at our option, either (a) a SOFR-based rate plus 3.25% or (b) a base rate plus 2.25%, in each case, subject to an interest rate floor. The amount immediately available under the CNB Facility at any given time can fluctuate based on the fair value of the collateral in the borrowing base that secures the CNB Facility. As of June 30, 2026, there was $51.6 million of immediate availability under the CNB Facility based on the fair value of the collateral in the borrowing base at such time. The amount immediately available under the CNB Facility may be increased to up to $75.0 million by the pledge of additional collateral into the borrowing base in accordance with the CNB Facility agreement.
(4)In January 2026, we exercised our $100.0 million accordion option on the master repurchase and securities contract with Morgan Stanley (the “Morgan Stanley Facility”) to increase the maximum commitment from $150.0 million to $250.0 million with payment of an upsize fee. Subsequently, in March 2026, we amended the Morgan Stanley Facility to, among other things, (1) increase the maximum commitment from $250.0 million to $350.0 million and include an accordion provision such that the maximum commitment may be increased to up to $400.0 million at our option, subject to the satisfaction of certain conditions, including payment of an upsize fee and (2) extend the initial maturity date to July 16, 2029, subject to one 12-month extension, which may be exercised at our option provided that certain conditions are met and the applicable extension fee is paid.
(5)The maturity date of the Credit and Guaranty Agreement with the lenders referred to therein and Cortland Capital Market Services LLC, as administrative agent and collateral agent for the lenders (the “Secured Term Loan”) is November 12, 2026. Advances under the Secured Term Loan are set to the following fixed rates: (i) 4.50% per annum until May 1, 2025 and (ii) after May 1, 2025 through November 12, 2026, the interest rate increases 0.25% every three months.
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Our Financing Agreements contain various affirmative and negative covenants, including negative pledges, and provisions related to events of default that are normal and customary for similar financing agreements. As of June 30, 2026, we were in compliance with all financial covenants of each respective Financing Agreement. We may be required to fund commitments on our loans held for investment in the future and we may not receive funding from our Secured Funding Agreements with respect to these commitments. See Note 6 to our consolidated financial statements included in this quarterly report on Form 10-Q for more information on our Financing Agreements.
Securitizations
On January 20, 2026, we exercised our redemption option under the FL4 CLO Securitization, and in connection therewith, exchanged our remaining FL4 Notes and preferred equity in the FL4 Issuer for the remaining mortgage loans and real estate owned held by the FL4 Issuer and all of the FL4 Notes held by third parties were repaid in full at par. Therefore, as of June 30, 2026, there were no FL4 Notes outstanding.
Leverage Policies
We intend to use prudent amounts of leverage to increase potential returns to our stockholders. To that end, subject to maintaining our qualification as a REIT and our exemption from registration under the 1940 Act, we intend to continue to use borrowings to fund the origination or acquisition of our target investments. Given current macroeconomic conditions and our focus on first or senior mortgages, we currently expect that such leverage would not exceed, on a debt-to-equity basis, a 4.5-to-1 ratio. Our charter and bylaws do not restrict the amount of leverage that we may use. The amount of leverage we deploy for particular investments in our target investments depends upon our Manager’s assessment of a variety of factors, which includes, among others, our liquidity position, the anticipated liquidity and price volatility of the assets in our loans held for investment portfolio, the potential for losses and extension risk in our portfolio, the gap between the duration of our assets and liabilities, including hedges, the availability and cost of financing the assets, our opinion of the creditworthiness of our financing counterparties, the impact of the macroeconomic environment on the United States economy generally or in specific geographic regions and commercial mortgage markets, our outlook for the level and volatility of interest rates, the slope of the yield curve, the credit quality of our assets, the collateral underlying our assets, and our outlook for asset spreads relative to the SOFR curve or another alternative interest index rate commonly used for floating rate loans.
Dividends
We elected to be taxed as a REIT for United States federal income tax purposes and, as such, anticipate annually distributing to our stockholders at least 90% of our REIT taxable income, prior to the deduction for dividends paid. If we distribute less than 100% of our REIT taxable income in any tax year (taking into account any distributions made in a subsequent tax year under Sections 857(b)(9) or 858 of the Code), we will pay tax at regular corporate rates on that undistributed portion. Furthermore, if we distribute less than the sum of (1) 85% of our ordinary income for the calendar year, (2) 95% of our capital gain net income for the calendar year and (3) any undistributed shortfall from our prior calendar year (the “Required Distribution”) to our stockholders during any calendar year (including any distributions declared by the last day of the calendar year but paid in the subsequent year), then we are required to pay non-deductible excise tax equal to 4% of any shortfall between the Required Distribution and the amount that was actually distributed. Any of these taxes would decrease cash available for distribution to our stockholders. The 90% distribution requirement does not require the distribution of net capital gains. However, if we elect to retain any of our net capital gain for any tax year, we must notify our stockholders and pay tax at regular corporate rates on the retained net capital gain. The stockholders must include their proportionate share of the retained net capital gain in their taxable income for the tax year, receive a credit for their share of the tax paid by such REIT, and are deemed to have paid the REIT’s tax on their proportionate share of the retained capital gain. Furthermore, such retained capital gain may be subject to the nondeductible 4% excise tax. If we determine that our estimated current year taxable income (including net capital gain) will be in excess of estimated dividend distributions (including capital gains dividends) for the current year from such income, we accrue excise tax on a portion of the estimated excess taxable income as such taxable income is earned.
Before we make any distributions, whether for United States federal income tax purposes or otherwise, we must first meet both our operating and debt service requirements under our Financing Agreements. If our cash available for distribution is less than our REIT taxable income, we could be required to sell assets or borrow funds to make cash distributions or we may elect to make a portion of the Required Distribution in the form of a taxable stock distribution or distribution of debt securities.
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