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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this Form 10-K. In addition to historical data, this discussion contains forward-looking statements about our business, operations and financial performance based on current expectations that involve risks, uncertainties and assumptions. Our actual results may differ materially from those in this discussion as a result of various factors, including but not limited to those discussed in Part, 1. Item 1A, “Risk Factors” in this Form 10-K.

This section of this Form 10-K generally discusses 2020 and 2019 items and year-to-year comparisons between 2020 and 2019. Discussions of 2018 items and year-to-year comparisons between 2019 and 2018 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

Introduction

We are a commercial real estate finance company externally managed by TPG RE Finance Trust Management, L.P. and sponsored by TPG. We directly originate, acquire and manage commercial mortgage loans and other commercial real estate-related debt instruments in North America for our balance sheet. Our objective is to provide attractive risk-adjusted returns to our stockholders over time through cash distributions and capital appreciation. To meet our objective, we focus primarily on directly originating and selectively acquiring floating rate first mortgage loans that are secured by high quality commercial real estate properties undergoing some form of transition and value creation, such as retenanting, refurbishment or other form of repositioning. The collateral underlying our loans is located in primary and select secondary markets in the U.S. that we believe have attractive economic conditions and commercial real estate fundamentals. We operate our business as one segment.

As of December 31, 2020, our investment portfolio consisted of 56 first mortgage loans (or interests therein) and one mezzanine loan with total loan commitments of $4.9 billion, an aggregate unpaid principal balance of $4.5 billion, a weighted average credit spread of 3.2%, a weighted average all-in yield of 5.3%, a weighted average term to extended maturity (assuming all extension options have been exercised by borrowers) of 3.1 years, and a weighted average LTV of 65.9%. As of December 31, 2020, 100% of the loan commitments in our portfolio consisted of floating rate loans, of which 99.3% were first mortgage loans or, in one instance a first mortgage loan and contiguous mezzanine loan both owned by us, and 0.7% was a mezzanine loan. As of December 31, 2020, we had $423.5 million of unfunded loan commitments, our funding of which is subject to borrower satisfaction of certain milestones.

As of December 31, 2020, we had $99.2 million of real estate owned comprising 27 acres across two undeveloped commercially-zoned land parcels on the Las Vegas Strip (the “Property”) acquired pursuant to a negotiated deed-in-lieu of foreclosure. This Property is held for investment and reflected on our consolidated balance sheets at its estimate of fair value at the time of acquisition.

We have made an election to be taxed as a REIT for U.S. federal income tax purposes, commencing with our initial taxable year ended December 31, 2014. We have been organized and have operated in conformity with the requirements for qualification and taxation as a REIT under the Internal Revenue Code and we believe that our organization and current and intended manner of operation will enable us to continue to meet the requirements for qualification and taxation as a REIT. As a REIT, we generally are not subject to U.S. federal income tax on our REIT taxable income that we distribute currently to our stockholders. We operate our business in a manner that permits us to maintain an exclusion or exemption from registration under the Investment Company Act.

During the twelve months ended December 31, 2020, the novel coronavirus (“COVID-19”) pandemic caused significant disruptions to the U.S. and global economies. These disruptions contributed to significant and ongoing volatility, widening credit spreads and sharp declines in liquidity in the real estate securities and whole loan financing marketsat points during 2020. The pace of recovery following this disruption remains uncertain, as do the longer-term economic effects and shifts in behavior. As a result of the impact of COVID-19, many commercial real estate finance and financial services industry participants, including us, reduced new investment activity until the capital markets became more stable, the macroeconomic outlook became clearer, market liquidity improved, and transaction volumes increased. For most of 2020, we focused on actively managing portfolio credit, generating and recycling liquidity from existing assets, extending the maturities and further reducing the mark-to-market exposure of our

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liabilities and controlling corporate overhead as a percentage of our total assets and total revenues. Although market conditions remain uncertain due to COVID-19 and the slow rate of vaccination, the credit performance of our portfolio, loan repayments that have allowed us to retire certain borrowings and increase our liquidity, extended maturity dates for many of our secured credit agreements, and the introduction of a new secured credit agreement limiting mark-to-market risk relating to hotel loans in our portfolio, have positioned us to resume the origination of first mortgage transitional loans.For more information regarding the impact that COVID-19 has had and may have on our business in the future, see “Risk Factors.”

Our Manager

We are externally managed by our Manager, TPG RE Finance Trust Management, L.P., an affiliate of TPG. TPG manages investments across multiple asset classes, including private equity, real estate, energy, infrastructure, and hedge funds. Our Manager manages our investments and our day-to-day business and affairs in conformity with our investment guidelines and other policies that are approved and monitored by our board of directors. Our Manager is responsible for, among other matters, the selection, origination or purchase and sale of our portfolio investments, our financing activities and providing us with investment advisory services. Our Manager is also responsible for our day-to-day operations and performs (or causes to be performed) such services and activities relating to our investments and business and affairs as may be appropriate. Our investment decisions are approved by an investment committee of our Manager that is comprised of senior investment professionals of TPG, including senior investment professionals of TPG's real estate equity group and TPG’s executive committee. For a summary of certain terms of the management agreement between us and our Manager (the “Management Agreement”), see Note 11 to our Consolidated Financial Statements included in this Form 10-K.

Fourth Quarter 2020 Activity

Operating Results:

Investment Portfolio Activity:

Financing Activity:

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Full Year 2020Activity

Operating Results:

Investment Portfolio Activity:

Financing Activity:

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Liquidity:

Available Liquidity at December 31, 2020 of $342.6 million consisted of:

Financing Capacity at December 31, 2020 was comprised of:

Key Financial Measures and Indicators

As a commercial real estate finance company, we believe the key financial measures and indicators for our business are earnings per share, dividends declared percommon share, Distributable Earnings, and book value per share. For the three months ended December 31, 2020, we recorded diluted earnings per common share of $0.09, declared a cash dividend of $0.20 per common share, and a special cash dividend of $0.18 per common share attributable to our estimated 2020 REIT taxable income which was previously undistributed, and reported $0.15 per share of Distributable Earnings. For the year ended December 31, 2020, we recorded diluted loss per common share of $2.03, declared cash dividends of $1.21 per common share, and reported Distributable Earnings per share of $(1.39). In addition, our book value per common share as of December 31, 2020 was $16.50. As further described below, Distributable Earnings is a measure that is not prepared in accordance with GAAP. We use Distributable Earnings to evaluate our performance excluding the effects of certain transactions and GAAP adjustments that we believe are not necessarily indicative of our current loan activity and operations.

Earnings(loss) Per Common Share and Dividends Declared Per Common Share

The computation of diluted earnings (loss) per share is based on the weighted average number of participating securities outstanding plus the incremental shares that would be outstanding assuming exercise of warrants, which may be exercised on a net-settlement basis. The number of incremental shares is calculated by applying the treasury stock method. We exclude participating securities and warrants from the calculation of diluted earnings (loss) per share in periods of net losses since their effect would be anti-dilutive. For the three months ended December 31, 2020, we present diluted earnings per share because the average market price of our common stock during the three months ended December 31, 2020 was $9.47, which exceeds the strike price of $7.50 per common share for warrants currently outstanding.

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The following table sets forth the calculation of basic and diluted net income (loss) per share and dividends declared per share (in thousands, except share and per share data):

Three Months Ended Year Ended December 31,

Participating Securities' Share in Earnings (338 ) (832 ) (676 )

Deemed Dividends on Series B Preferred Shares (1,399 ) (3,189 ) —

Earnings (Loss) per Common Share, Basic(2) $ 0.09 $ (2.03 ) $ 1.73

Earnings (Loss) per Common Share, Diluted(2) $ 0.09 $ (2.03 ) $ 1.73

Dividends Declared per Common Share(2)(3) $ 0.38 $ 1.21 $ 1.72

Distributable Earnings

We use Distributable Earnings to evaluate our performance excluding the effects of certain transactions and GAAP adjustments we believe are not necessarily indicative of our current loan activity and operations. Distributable Earnings is a non-GAAP measure, which we define as GAAP net income (loss) attributable to our stockholders, including realized gains and losses not otherwise included in GAAP net income (loss), and excluding (i) non-cash equity compensation expense, (ii) depreciation and amortization, (iii) unrealized gains (losses), and (iv) certain non-cash items. Distributable Earnings may also be adjusted from time to time to exclude one-time events pursuant to changes in GAAP and certain other non-cash charges as determined by our Manager, subject to approval by a majority of our independent directors. The exclusion of depreciation and amortization from the calculation of Distributable Earnings only applies to debt investments related to real estate to the extent we foreclose upon the property or properties underlying such debt investments. Distributable Earnings is substantially the same as Core Earnings, as defined in our Management Agreement, for the year ended December 31, 2020.

We believe that Distributable Earnings provides meaningful information for our investors to consider in addition to our net income and cash flow from operating activities determined in accordance with GAAP. We made an election to be taxed as a REIT for U.S. federal income tax purposes, commencing with our initial taxable year ended December 31, 2014. We generally must distribute annually at least 90% of our net taxable income, subject to certain adjustments and excluding any net capital gain, in order for us to qualify as a REIT for U.S. federal income tax purposes. To the extent that we satisfy this distribution requirement but distribute less than 100% of our net taxable income, we will be subject to U.S. federal income tax on our undistributed taxable income. Dividends are one of the principal reasons investors invest our common stock and over time Distributable Earnings has been a useful indicator of our dividends per share.As such, Distributable Earnings is a measure considered by us in determining dividends.

In assessing the impact of the new credit loss accounting guidance on our Distributable Earnings, we determined that, consistent with our policy on credit loss measurement and our stakeholders’ view of realized loan losses, the credit loss provision or reversal as computed under Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses, should be included within unrealized gains, losses or other non-cash items as referenced above, but only to the extent that it exceeds any realized credit losses during the period. See Note 2 to our Consolidated Financial Statements included in this Form 10-K for details related to our accounting policy on credit loss measurement.Consistent with Accounting Standards Codification (“ASC”) 326, a loan will be charged off as a realized loss when it is deemed non-recoverable upon a realization event. This is generally at the time the loan

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receivable is settled, transferred or exchanged, or in the case of foreclosure, when the underlying property is sold, but non-recoverability may also be concluded by us if, in our determination, it is nearly certain that all amounts due will not be collected. The realized loss shall equal the difference between the cash received, or expected to be received, and the book value of the asset. This policy is reflective of our economics as it relates to the ultimate realization of the loan.

Distributable Earnings does not represent net income or cash generated from operating activities and should not be considered as an alternative to GAAP net income, or an indication of our GAAP cash flows from operations, a measure of our liquidity, or an indication of funds available for our cash needs. In addition, our methodology for 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.

The following tables provide a reconciliation of GAAP net income (loss) attributable to common stockholders to Distributable Earnings (in thousands, except share and per share data):

Three Months Ended Year Ended December 31,

Participating Securities' Share in Earnings (338 ) (832 ) $ (676 )

Deemed Dividends on Series B Preferred Shares (1,399 ) (3,189 ) $ -

Book Value Per Common Share

The following table sets forth the calculation of our book value per share (in thousands, except share and per share data):

Total Stockholders’ Equity and Temporary Equity $ 1,466,451 $ 1,503,954

Series B Preferred Stock (199,551 ) —

Series A Preferred Stock (125 ) (125 )

Book Value per Common Share $ 16.50 $ 19.78

(1) Includes shares of common and Class A common stock.

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Portfolio Overview

Our investment portfolio includes our portfolio of floating rate mortgage loans and real estate owned. At December 31, 2020, our balance sheet loan portfolio was comprised of 57 loans totaling $4.9 billion of commitments with an unpaid principal balance of $4.5 billion, as compared to 65 loans with $5.6 billion of commitments and an unpaid principal balance $5.0 billion at December 31, 2019.

As of December 31, 2020, we owned real estate with a carrying value of $99.2 million comprising 27 acres across two undeveloped commercially-zoned land parcels on the Las Vegas Strip acquired pursuant to a negotiated deed-in-lieu of foreclosure. This Property is held for investment and reflected on our consolidated balance sheets at its estimate of fair value at the time of acquisition.

Loan Portfolio

During the three months ended December 31, 2020, we did not originate any loans. Loan fundings included $62.5 million of deferred fundings related to previously originated loan commitments. Proceeds from loan repayments during the three months ended December 31, 2020 totaled $365.1 million. Loan extinguishment represents extinguishment of a $112.0 million first mortgage loan by its conversion to real estate owned through a deed-in-lieu of foreclosure. We generated interest income of $62.0 million and incurred interest expense of $21.5 million, which resulted in net interest income of $40.5 million.

For the year ended December 31, 2020, we originated six loans with a total loan commitment amount of $526.3 million, of which $431.9 million was funded at origination. These originations include one mortgage loan, with an initial unpaid principal balance of $78.4 million, which involved the assumption and simultaneous assignment of an existing first mortgage loan by the third-party purchaser of the property securing the loan. This amendment is not considered a TDR under GAAP. The transaction was treated under GAAP as a new loan origination and extinguishment of the then-existing loan. Other loan fundings included $237.9 million of deferred fundings related to previously originated loan commitments. Proceeds from loan repayments totaled $885.6 million due primarily to the repayment in full of 13 loans totaling $852.8 million of unpaid principal balance. Loan extinguishment represents extinguishment of a $112.0 million first mortgage loan by its conversion to real estate owned through a deed-in-lieu of foreclosure. Loan sales during the year ended December 31, 2020 were $145.7 million. We generated interest income of $283.7 million and incurred interest expense of $107.2 million, which resulted in net interest income of $176.4 million. See Note 3 to our Consolidated Financial Statements included in this Form 10-K for details.

The following table details our loan activity by unpaid principal balance for the three months and year ended December 31, 2020 (dollars in thousands):

Three Months Ended Year Ended

Loan originations and acquisitions — initial funding(1) $ — $ 431,932

(2) Additional fundings made under existing loan commitments.

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The following table provides selected statistics for our loan portfolio as of December 31, 2020 (dollars in thousands):

Balance Sheet Portfolio Total Loan Portfolio

Number of loans 57 58

Weighted average credit spread(4) 3.2 % 3.2 %

Weighted average all-in yield(4) 5.3 % 5.3 %

Weighted average term to extended maturity (in years)(5) 3.1 3.1

Weighted average LTV(6) 65.9 % 65.9 %

Real Estate Owned

In December 2020, we acquired two undeveloped commercially-zoned land parcels on the Las Vegas Strip comprising 27 acres (the “Property”) pursuant to a negotiated deed-in-lieu of foreclosure. This Property previously served as collateral for a first mortgage loan receivable held for investment with an unpaid principal balance of $112.0 million, an independently-assessed credit loss reserve of $12.8 million as of September 30, 2020, and net carrying value of $99.2 million. On October 9, 2020, the first mortgage loan reached final maturity without repayment or satisfaction of extension conditions, which triggered a maturity default. On December 31, 2020, we took ownership of the Property, extinguished the first mortgage loan receivable, and realized a loss of $12.8 million, equal to the previously recorded specific CECL reserve on the first mortgage loan. At December 31, 2020, this Property is considered held for investment and reflected on our consolidated balance sheets at its estimated fair value,

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net of estimated selling costs, of $99.2 million. Our estimate of the Property’s fair value was determined using a discounted cash flow model and Level 3 inputs, which include estimates of parcel-specific cash flows over a specific holding period, at a discount rate that ranges between 8.0% - 17.5% based on the risk profile of estimated cash flows associated with each respective parcel, and estimated capitalization rate of 6.25%, where applicable. These inputs are based on the highest and best use for each parcel, estimated future values for the parcels based on extensive discussions with local brokers, investors and other market participants, the estimated holding period for the parcels, and discount rates that reflect estimated investor return requirements for the risks associated with the expected use of each sub-parcel.We obtained from a third party a $50.0 million first mortgage loan secured by the Property, which is classified as Mortgage Loan Payable on our consolidated balance sheets. See Note 7 to our Consolidated Financial Statements included in this Form 10-K for details of the Mortgage Loan Payable.

CRE Debt Securities

We have invested and may invest in the future in CRE debt securities investments as part of our investment strategy. As of December 31, 2020, we did not own any CRE debt securities. Refer to Note 4 to our Consolidated Financial Statements included in this Form 10-K for details on CRE debt securities.

Asset Management

We actively manage the assets in our portfolio from closing to final repayment. We are party to an agreement with SitusAMC, one of the largest commercial mortgage loan servicers, pursuant to which SitusAMC provides us with dedicated asset management employees for performing asset management services pursuant to our proprietary guidelines. Following the closing of an investment, this dedicated asset management team rigorously monitors the investment under our Manager’s oversight, with an emphasis on ongoing financial, legal and quantitative analyses. Through the final repayment of an investment, 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.

Our Manager reviews our entire loan portfolio 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. See Note 2 to our Consolidated Financial Statements included in this Form 10-K for a discussion regarding the risk rating system that we use in connection with our portfolio. The following table allocates the amortized cost of our loan portfolio as of December 31, 2020 and December 31, 2019 based on our internal risk ratings (dollars in thousands):

Risk Rating Amortized Cost Number of Loans Amortized Cost Number of Loans

1 $ — — $ — —

For the period ended December 31, 2020 and December 31, 2019, the weighted average risk rating of our total loan exposure based on amortized cost was 3.1 and 2.9, respectively.The increase in the risk rating was primarily the result of hospitality loans that were downgraded to a “4” during the first quarter of 2020, which are properties particularly negatively impacted by the COVID-19 pandemic, or to a “5” due to default. For changes in risk ratings during each of the four quarters of 2020, refer to Note 3 to the Consolidated Financial Statementsincluded in this Form 10-K.

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Allowance for Credit Losses

Our initial CECL reserve of $19.6 million due to the application of the CECL methodology in the first quarter of 2020 (as described in Note 2 to the Consolidated Financial Statements included in this Form 10-K) over performing loans on which we had previously not carried an allowance for credit losses is reflected as a direct charge to retained earnings on our Consolidated Statements of Changes in Equity. During the twelve months ended December 31, 2020, we recorded an increase of $43.2 million in the allowance for credit losses, including realized losses of $12.8 million on the extinguishment of a loan and its conversion to real estate owned, and $13.8 million on the sale of a loan, bringing the total CECL reserve to $62.8 million as of December 31, 2020. For the twelve months ended December 31, 2020, our estimate of expected credit losses increased due to recessionary macroeconomic assumptions employed in determining our model-based CECL reserve, and an increase due to an independently-assessed loan in the fourth quarter of 2020, offset by a decline in total loan commitments and unpaid principal balance due to loan repayments and sales. Additionally, the average risk ratings of our loans increased from 2.9 as of December 31, 2019 to 3.1 as of December 31, 2020, as described above. The impact of reduced economic activity due to the COVID-19 pandemic has caused reduced activity in certain sectors of the capital markets, which may slow the pace of loan repayments, and will likely impact commercial property values and valuation inputs. While the ultimate impact is uncertain, we have made certain forward-looking adjustments to the inputs of our calculation of the allowance for credit losses to reflect uncertain economic expectations.

We placed one loan secured by a retail property on non-accrual status due to a borrower default in December 2020. Subsequent to December 31, 2020, the borrower made the interest payment from funds available, however, we elected to place the loan on non-accrual status from December 2020, in accordance with our non-accrual policy. The amortized cost of the loan was $31.1 million and $30.6 million as of December 31, 2020 and December 31, 2019, respectively. On December 31, 2020, we determined that this first mortgage loan met the CECL framework’s criteria for individual assessment. Accordingly, we utilized the estimated fair value of the collateral on December 31, 2020 to estimate a loan loss reserve of $10.0 million as of that date, which is included in the CECL reserve. As of December 31, 2020, this loan was current with respect to scheduled payments. There were no loans on non-accrual status as of December 31, 2019.

We expect that over the near, intermediate, and perhaps long term, the economic and market disruptions caused by COVID-19 will adversely impact or continue to adversely impact the financial condition of some of our borrowers. There is no assurance that the number of borrowers who become delinquent or default on their loans will not increase. We have entered into loan modification agreements with several borrowers that permit borrowers to defer payment of some or all of the interest on their loans generally for a period of up to six months, and/or the repurposing of certain cash reserve balances within the loan structure for use in paying interest or operating expenses. In exchange, borrowers and sponsors are required to make partial principal repayments and/or provide us additional cash for payment of interest, operating expenses, and replenishment of capital reserves in amounts and combinations acceptable to us. In addition, certain of our borrowers have not and may not meet required conditions to extend the maturities of their loans and may require accommodations to provide additional time for property operations to recover in order to facilitate a refinance of their loans or a sale of the property.

During the twelve months ended December 31, 2020, we executed 17 loan modifications with borrowers which includes short-term modifications such as payment deferrals, fee and extension test waivers and extensions of repayment terms. Eleven loan modifications expired during the twelve months ended December 31, 2020, with one renewed on revised terms in the fourth quarter of 2020. The aggregate unpaid principal balance for all loans modified during the twelve months ended December 31, 2020, excluding three loans that were repaid, was $1.0 billion. As of December 31, 2020, six modifications are outstanding with an aggregate unpaid principal balance of $548.4 million. Total PIK interest of $0.8 million and $4.7 million was deferred and added to the outstanding loan principal during the three and twelve months ended December 31, 2020, respectively. None of the loan modifications executed during the year trigger the requirements for accounting as TDRs. Eight of the modifications met the safe-harbor conditions of the “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus” issued by banking regulators in consultation with FASB. All of the modified loans during the year and outstanding as of December 31, 2020, are performing, except for one which is on non-accrual status as of December 31, 2020. See Note 3 to our Consolidated Financial Statements included in this Form 10-K for details of these modifications.

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We continue to work with our borrowers to address the challenging circumstances caused by COVID-19 while protecting the credit attributes of our loans. However, we cannot assure you that these efforts will be successful, and we may experience payment delinquencies, defaults, foreclosures, or losses.

Investment Portfolio Financing

Our portfolio financing arrangements during the years ended December 31, 2020 and December 31, 2019 included collateralized loan obligations, secured credit agreements, a mortgage loan payable (only as of December 31, 2020), and an asset-specific financing arrangement (only as of December 31, 2019). We had one outstanding non-consolidated senior interest at December 31, 2020 and 2019, with a total loan commitment of $132.0 million.

The following table details our portfolio financing arrangements at December 31, 2020 and December 31, 2019 (dollars in thousands):

Portfolio Financing Outstanding Principal Balance

Mortgage loan payable 50,000 —

Secured revolving credit facility — 145,637

Asset-specific financing — 77,000

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Non-mark-to-market financing sources accounted for 63.5% of our total loan portfolio financing arrangements at December 31, 2020. The remaining 36.5% of our loan portfolio financing arrangements, whicharecomprised primarily of our secured credit facilities, are subject only to credit and spread marks. The following table summarizes our loan portfolio financing as of December 31, 2020(dollars in thousands):

Secured Credit Facilities

Collateralized Loan Agreements:

Non-Consolidated Senior Interests None 132,000 —

Percentage of Total 63.5 % 36.5 %

Secured Credit Facilities

As of December 31, 2020, aggregate borrowings outstanding under our secured credit facilities totaled $1.5 billion, which was entirely related to our mortgage loan investments. As of December 31, 2020, the weighted average interest rate was LIBOR plus 2.16% per annum, and the weighted average advance rate was 69.3%. As of December 31, 2020, outstanding borrowings under these facilities for our mortgage loan investments had a weighted average term to extended maturity of 2.6 years (assuming we exercise all extension options and term out provisions available to us). These secured credit agreements are 25% recourse to Holdco.

On October 30, 2020, we closed, with a single institutional counterparty, a secured credit facility with a commitment amount and unpaid principal balance of $249.5 million. The credit facility is secured by seven first mortgage loans, or participation interests therein. The new credit facility has a committed term of three years through October 30, 2023, a credit spread of 4.50%, a LIBOR floor of 0.25%, and contains no mark-to-market provisions that would trigger margin calls for two years from closing.

During the twelve months ended December 31, 2020, we:

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The following tables detail our secured credit facilities as of December 31, 2020 (dollars in thousands):

The maximum and average month end balances for our secured credit facilities during the year ended December 31, 2020 are as follows (dollars in thousands):

Carrying Value Maximum Month End Balance Average Month End Balance

Subtotal / Averages - CRE Debt Securities(1) $ — $ 692,798 $ 223,940

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We separate our secured credit facilities into two categories: secured credit facilities secured by our loan assets; and secured credit facilities secured by our CRE debt securities. At December 31, 2020, we no longer had any secured credit facilities secured by CRE debt securities.

Once we identify an asset and the asset is approved by the secured credit facility lender to serve as collateral (which lender’s approval is in its sole discretion), we and the lender may enter into a transaction whereby the lender advances to us a percentage of the value of the asset, which is referred to as the “advance rate.” In the case of borrowings under our repurchase facilities, this advance serves as the purchase price at which the lender acquires the loan asset from us with an obligation of ours to repurchase the asset from the lender for an amount equal to the purchase price for the transaction plus a price differential, which is calculated based on an interest rate. Advance rates are subject to negotiation between us and our secured credit facility lenders. In connection only with our former secured credit facilities secured by CRE debt securities, advance rates could be reduced or increased upon the maturity of the applicable contract.

For each transaction, we and the lender agree to a trade confirmation which sets forth, among other things, the purchase price if a repurchase facility, the maximum advance rate, the interest rate and the market value of the asset. For transactions under our secured credit agreements secured by our loan assets, the trade confirmation may also set forth any future funding obligations which are contemplated with respect to the specific transaction and/or the underlying loan asset. For loan assets which involve future funding obligations of ours, the transaction may provide for the lender to fund portions (for example, pro rata per the maximum advance rate of the related transaction) of such future funding obligations. The trade confirmation can also set forth loan-specific margin maintenance provisions, described below.

Generally, our secured credit facilities allow for revolving balances, which allow us to voluntarily repay balances and draw again on existing available credit. The primary obligor on each secured credit facility is a separate special purpose subsidiary of ours which is restricted from conducting activity other than activity related to the utilization of its secured credit facility and the loans or loan interests that are originated or acquired by such subsidiary. As additional credit support, our holding company subsidiary, Holdco, provides certain guarantees of the obligations of its subsidiaries. The amount of Holdco’s potential liability under these guarantees depends upon whether the guarantee relates to a secured credit facility secured by loans or by CRE debt securities:

Each of the secured credit facilities have “margin maintenance” provisions, which are designed to allow the lender to maintain a certain margin of credit enhancement and/or against the assets which serve as collateral. The lender’s margin amount is typically based on a percentage of the market value of the asset and/or mortgaged property collateral; however, certain secured credit agreements may also involve margin maintenance based on maintenance of a minimum debt yield with respect to the cash flow from the underlying real estate collateral. In certain cases, margin maintenance provisions can relate to minimum debt yields for pledged collateral considered as a whole, or limits on concentration of loan exposure measured by property type or loan type.

The margin maintenance provisions differ in some respects, depending upon whether the provisions are contained in secured credit facilities secured by loans or by CRE debt securities:

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The maturity dates for each of our secured credit agreements are set forth in tables that appear earlier in this section. Our secured credit agreements secured by loans generally have terms of between one and three years, but may be extended if we satisfy certain performance-based conditions. Our secured credit facilities secured by CRE debt securities generally had terms between one month and three months, and the lenders under these agreements generally had the right not to renew, or to do so only on a shorter term. In the normal course of business, we maintain discussions with our lenders to extend or amend any financing facilities related to our loans which contain near-term expirations.

At December 31, 2020, the weighted average haircut (which is equal to one minus the advance rate percentage against collateral for our secured credit facilities taken as a whole) was 30.7% as compared to 19.4% at December 31, 2019. The year-over-year increase in our weighted average haircut was due primarily to two factors: first, the repayment in full and subsequent termination by us of all of our secured credit agreements for CRE debt securities: and, second, our voluntary deleveraging repayments of $157.7 million made on May 28, 2020. The haircut for our secured credit agreements is dependent on the collateral used (loans or CRE debt securities) for the secured credit agreements. At December 31, 2020 and December 31, 2019, the following table presents the weighted average haircut on our secured credit agreements by collateral type:

Year Ended December 31,

CRE Debt Securities N/A 13.9 %

The secured credit facilities also include cash management features which generally require that income from collateral loan assets be deposited in a lender-controlled account and be distributed in accordance with a specified waterfall of payments designed to keep facility-related obligations current before such income is disbursed for our own account. The cash management features generally require the trapping of cash in such controlled account if an uncured default remains outstanding. Furthermore, some secured credit agreements may require an accelerated principal amortization schedule if the secured credit agreement is in its final extended term.

Notwithstanding that a loan asset may be subject to a financing arrangement and serve as collateral under a secured credit facility, we retain the right to administer and service the loan and interact directly with the underlying obligors and sponsors of our loan assets so long as there is no default under the secured credit agreement and so long as we do not engage in certain material modifications (including amendments, waivers, exercises of remedies, or releases of obligors and collateral, among other things) of the loan assets without the lender’s prior consent.

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Collateralized Loan Obligations

As of December 31, 2020, we had two collateralized loan obligations, TRTX 2019-FL3 and TRTX 2018-FL2, totaling $1.8 billion, financing 31 existing first mortgage loan investments totaling $2.2 billion, providing efficient cost, non-mark-to-market, non-recourse financing for 52.6% of our loan portfolio borrowings. The collateralized loan obligations bear a weighted average interest rate of LIBOR plus 1.4%, have a weighted average advance rate of 82.3%, and include a reinvestment feature that allows us to contribute existing or newly originated loan investments in exchange for proceeds from loan repayments held in the collateralized loan obligations. During the twelve months ended December 31, 2020, we reinvested $618.8 million of cash in TRTX 2018-FL2 and TRTX 2019-FL3 generated by loan payments. The reinvestment period for TRTX 2018-FL2 ended on December 11, 2020, and the reinvestment period for TRTX 2019-FL3 will end on October 11, 2021.

Mortgage Loan Payable

We are, through a special purpose entity, a borrower under a $50.0 million mortgage loan secured by a first deed of trust against two undeveloped commercially-zoned land parcels on the Las Vegas Strip comprising 27 acres (the “Property”) pursuant to a negotiated deed-in-lieu of foreclosure. Refer to Note 5 to our Consolidated Financial Statements included in this Form 10-K for additional information. The first mortgage loan was provided by an institutional lender, has an initial maturity date of December 15, 2021, and an option to extend the maturity for 12 months subject to the satisfaction of customary extension conditions, including (i) the purchase of a new interest rate cap for the extension term, (ii) replenishment of the interest reserve with an amount equal to 12 months of debt service, (iii) payment of a 0.25% extension fee on the outstanding principal balance, and (iv) no event of default. The first mortgage loan permits partial releases of collateral in exchange for payment of a minimum release price equal to the greater of 100% of net sales proceeds (after reasonable transaction expenses) or 115% of the allocated loan amount. The loan bears interest at a rate of LIBOR plus 4.50% subject to a LIBOR interest rate floor and cap of 0.50%. We have posted cash of $2.4 million to pre-fund interest payments due under the note during its initial term.

Secured Revolving Credit Agreement

Previously, we were a party to a secured revolving credit agreement with Citibank, N.A. with maximum borrowing capacity of $160.0 million, subject to borrowing base availability and certain other conditions. We used this facility to finance originations or acquisitions of eligible loans on an interim basis until permanent financing was arranged. The facility had an initial maturity date of July 12, 2020 and an interest rate per annum equal to one-month LIBOR or the applicable base rate plus a margin of 2.25%. The initial advance rate on borrowings under the secured revolving credit agreement with respect to individual pledged assets could range up to 70% and decline thereafter during the maximum borrowing term of 90 days, after which borrowings against each asset-specific borrowing required repayment. This facility was 100% recourse to Holdco. We allowed this credit facility to expire by its terms on July 12, 2020. At December 31, 2020, we had no balance outstanding under the facility.

Asset-Specific Financings

As of December 31, 2020, we did not have any asset-specific financing arrangements to finance certain of our lending activities. On April 2, 2019, we entered into an asset-specific financing with an institutional lender that was secured by one first mortgage loan held for investment. The asset-specific financing did not provide for additional advances. The initial maturity of this agreement was October 9, 2020. On October 9, 2020, the first mortgage loan reached final maturity without repayment or satisfaction of extension conditions, which triggered a maturity default. On December 31, 2020, we took ownership of the Property pursuant to a negotiated deed-in-lieu of foreclosure and retired the asset-specific financing arrangement.

Non-Consolidated Senior Interests

In certain instances, we create structural leverage through the co-origination or non-recourse syndication of a senior loan interest to a third party. In either case, the senior mortgage loan (i.e., the non-consolidated senior interest) is not included on our consolidated balance sheets. When we create structural leverage through the co-origination or non-recourse syndication of a senior loan interest to a third party, we retain on our balance sheet a mezzanine loan.

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As of December 31, 2020, we retained a mezzanine loan investment with a total commitment of $35.0 million, an unpaid principal balance of $32.5 million and an interest rate of LIBOR plus 10.3%.

The following table presents our non-consolidated senior interests outstanding as of December 31, 2020 (dollars in thousands):

Financial Covenants for Outstanding Borrowings

Our financial covenants and guarantees for outstanding borrowings related to our secured credit agreements require Holdco to maintain compliance with the following financial covenants (among others), which were revised on May 28, 2020 as follows:

Financial Covenant Current Prior to May 28, 2020

The amendments as of May 28, 2020 revise the definition of tangible net worth such that the baseline amount for testing is reset as of April 1, 2020 to $1.1 billion plus 75% of future equity issuances after April 1, 2020. The definition of equity for purposes of calculating the debt-to-equity covenant was revised to include: common equity; preferred equity; and an adjustment equal to the sum of the Current Expected Credit Loss reserve, write-downs, impairments or realized losses recorded against the value of any assets of Holdco or its subsidiaries from and after April 1, 2020; provided, however, that the equity adjustment may not exceed the amount of (a) Holdco’s total equity less (b) the product of Holdco’s total indebtedness multiplied by 25%.

We were in compliance with all financial covenants for our secured credit agreements, secured revolving credit agreement, and asset-specific financings to the extent of outstanding balances as of December 31, 2020.

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For aslong as the Series B Preferred Stock is outstanding, we are required to maintain a debt to equity ratio not greater than 3.0 to 1.0. For the purpose of determining this ratio, the aggregate liquidation preference of the outstanding shares of Series B Preferred Stock is excluded from the calculation of our total indebtedness and oursubsidiaries and is included in the calculation of total equity. We were in compliance with the financial covenant relating to the Series B Preferred Stock as of December 31, 2020.

If we fail to meet or satisfy any of the covenants in our financing arrangements and are unable to obtain a waiver or other suitable relief from the lenders, we would be in default under these agreements, which could result in a cross-default or cross-acceleration under other financing arrangements, and our lenders could elect to declare outstanding amounts due and payable (or such amounts may automatically become due and payable), terminate their commitments, require the posting of additional collateral and enforce their respective interests against existing collateral. A default also could limit significantly our financing alternatives, which could cause us to curtail our investment activities or dispose of assets when we otherwise would not choose to do so. Further, this could make it difficult for us to satisfy the requirements necessary to maintain our qualification as a REIT for U.S. federal income tax purposes. There can be no assurance that we will remain in compliance with these covenants in the future. For more information regarding the impact that COVID-19 may have on our ability to comply with these covenants, see “Risk Factors.”

Debt-to-Equity Ratio and Total Leverage Ratio

The following table presents our debt-to-equity ratio and total leverage ratio:

Floating Rate Portfolio

Our business model seeks to minimize our exposure to changing interest rates by match-indexing our assets using the same, or similar, benchmark indices, typically LIBOR. Accordingly, rising interest rates will generally increase our net interest income, while declining interest rates will generally decrease our net interest income, subject to the beneficial impact of LIBOR floors in our mortgage loan investment portfolio. As of December 31, 2020, 100.0% of our loans by unpaid principal balance earned a floating rate of interest and were financed with liabilities that require interest payments based on floating rates, which resulted in approximately $1.2 billion of net floating rate exposure, subject to the impact of interest rate floors on all our floating rate loans and 11.7% of our liabilities. We had no fixed rate loans outstanding as of December 31, 2020.

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Our liabilities are generally index-matched to each loan investment asset, resulting in a net exposure to movements in benchmark rates that vary based on the relative proportion of floating rate assets and liabilities. The following table details our loan portfolio’s net floating rate exposure as of December 31, 2020 and December 31, 2019 (dollars in thousands):

Year Ended December 31,

With the cessation of LIBOR expected to occur effective January 1, 2022, we continue to evaluate the documentation and control processes associated with our assets and liabilities to manage the transition away from LIBOR to an alternative rate endorsed by the Alternative Reference Rates Committee of the Federal Reserve System. Although recent statements from regulators indicate the possibility of a longer period of transition, perhaps through June 2023, we continue to utilize required resources to revise our control and risk management systems to ensure there is no disruption to our day-to-day operations from the transition, when it does occur. We will continue to employ prudent risk management as it relates to the potential financial, operational and legal risks associated with the expected cessation of LIBOR, and to ensure that our assets and liabilities generally remain match-indexed following this event.

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Interest-Earning Assets and Interest-Bearing Liabilities

The following table presents the average balance of interest-earning assets and related interest-bearing liabilities, associated interest income and expense, and financing costs and the corresponding weighted average yields for the three months ended December 31, 2020 and September 30, 2020 (dollars in thousands):

Three Months Ended December 31, Three months ended September 30,

Core Interest-earning assets:

CRE debt securities(3) — 301 0.0 % — — 0.0 %

Interest-bearing liabilities:

Mortgage loan payable 16,667 — 0.0 % — — 0.0 %

Other Interest-earning assets:

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The following table presents the average balance of interest-earning assets and related interest-bearing liabilities, associated interest income and expense, and financing costs and the corresponding weighted average yields for the years ended December 31, 2020 and December 31, 2019 (dollars in thousands):

Year Ended December 31,

Core Interest-earning assets:

Interest-bearing liabilities:

Mortgage loan payable 16,667 — 0.0 % — — 0.0 %

Other Interest-earning assets:

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Our Results of Operations

Operating Results

The following table sets forth information regarding our consolidated results of operations (dollars in thousands, except per share data):

Year Ended December 31, Variance

INTEREST INCOME

OTHER REVENUE

OTHER EXPENSES

Incentive Management Fee — 7,146 (7,146 )

Income Tax (Expense) Income, net (305 ) (579 ) 274

Series A Preferred Stock Dividends (15 ) (15 ) -

Series B Cumulative Redeemable Preferred Stock Dividends (14,670 ) — (14,670 )

Basic and Diluted (Loss) Earnings per Common Share $ (2.03 ) $ 1.73 $ (3.76 )

Dividends Declared per Common Share $ 1.21 $ 1.72 $ (0.51 )

OTHER COMPREHENSIVE (LOSS) INCOME

Unrealized (Loss) Gain on CRE Debt Securities $ (1,051 ) $ 3,036 $ (4,087 )

Comparison of the Years Ended December 31, 2020 and 2019

Net Interest Income

Net interest income increased $11.5 million, to $176.4 million, during the year ended December 31, 2020 compared to the year ended December 31, 2019. The increase was due primarily to the benefit of LIBOR floors with a weighted average strike price of 1.66% and a reduction in interest expense for the year ended December 31, 2020 of $67.6 million as a result of a reduction in LIBOR, and the absence of LIBOR floors on 88.3% of our borrowings, both as compared to the year ended December 31, 2019.

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Other Revenue

Other revenue is comprised of interest income earned on certain cash collection accounts, and miscellaneous fee income. Other revenue decreased by $1.2 million during the year ended December 31, 2020 compared to the year ended December 31, 2019, primarily due to lower overnight interest earned for the year ended December 31, 2020 compared to the year ended December 31, 2019.

Other Expenses

Other expenses increased $0.5 million for the year ended December 31, 2020 compared to the year ended December 31, 2019. Significant changes in other expenses for the year ended December 31, 2020 include:

We incurred total non-recurring expenses caused by COVID-19 of $3.6 million during the year ended December 31, 2020, and none during the year ended December 31, 2019.

Securities Impairments

Securities impairment expense of $203.4 million for the year ended December 31, 2020 include losses on sales of CRE debt securities of $203.5 million, offset by a $0.1 million realized gain on sale of one position in connection with CRE debt securities owned at March 31, 2020. We had no such impairment expenses for the year ended December 31, 2019.

Credit Loss Expense

Credit loss expense for the year ended December 31, 2020 increased to $69.8 million due to a $43.2 million credit loss expense recorded in accordance with ASU 2016-13 for the year ended December 31, 2020, and realized losses of $12.8 million on the extinguishment of a loan and conversion to real estate owned, and $13.8 million on the sale of a loan. This increase reflects the macroeconomic impact of the COVID-19 pandemic on our loans, particularly those collateralized by hospitality assets, and a $10.0 million specific reserve on one first mortgage loan secured by a retail property.

Dividends Declared Per Common Share

During the year ended December 31, 2020, we declared cash dividends of $1.21 per common share, or $93.6 million. During the year ended December 31, 2019, we declared cash dividends of $1.72 per common share, or $128.4 million. The decrease in dividends declared was primarily due to a decrease in net income attributable to common shareholders of $281.2 million, offset by an increase in common shares outstanding of 0.8 million.

Unrealized (Loss) Gain on CRE Debt Securities

Other comprehensive (loss) income decreased $4.1 million during the year ended December 31, 2020 compared to the year ended December 31, 2019. The decrease is primarily related to the reversal of unrealized gains upon the sale of certain CRE debt securities.

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Liquidity and Capital Resources

Capitalization

We have capitalized our business to date through, among other things, the issuance and sale of shares of our common stock, issuance of preferred stock treated as temporary equity, issuance of common stock warrants, borrowings under secured credit agreements, collateralized loan obligations, asset-specific financings, a mortgage loan, and non-consolidated senior interests. As of December 31, 2020, we had outstanding 76.8 million shares of our common stock representing $1.3 billion of stockholders’ equity, $199.6 million of temporary equity and $3.4 billion of outstanding borrowings used to finance our operations.

See Notes 6 and 7 to our Consolidated Financial Statements included in this Form 10-K for additional details regarding our borrowings under secured credit agreements, collateralized loan obligations, and a mortgage loan payable. See Note 13 to our Consolidated Financial Statements included in this Form 10-K for additional details regarding our issuance of Series B Preferred Stock and Warrants to purchase Common Stock.

Sources of Liquidity

Our primary sources of liquidity include cash and cash equivalents, available borrowings under secured credit agreements and capacity in our collateralized loan obligations available for reinvestment, which are set forth in the following table (dollars in thousands):

Senior revolving credit facilities — 668

CLO liquidity available for reinvestment(1) 121 1,462

(1) Subject to collateral eligibility requirements.

Our existing loan portfolio provides us with liquidity as loans are repaid or sold, in whole or in part, of which some proceeds may be included in accounts receivable from our servicers until released and the proceeds from such repayments become available for us to reinvest. Due to severe dislocation in the capital markets caused by the COVID-19 pandemic, the volume of loan repayments is reduced in comparison to prior years. For the year ended December 31, 2020, loan repayments, measured by principal amount repaid, totaled $1.0 billion, and loan sales were $145.7 million. Loan repayments, measured by principal amount repaid, were $1.9 billion in 2019.

We continue to monitor the COVID-19 pandemic and its impact on our borrowers, their tenants, our lenders and the economy as a whole. The magnitude and duration of the COVID-19 pandemic, and its impact on our operations and liquidity, are uncertain and continue to evolve in the United States and globally. If the pandemic sustains its current trajectory, such impacts are expected to remain material. To the extent that our borrowers, their tenants, and our lenders continue to be impacted by the COVID-19 pandemic, or by the other risks disclosed in this Form 10-K, it would have a material adverse effect on our liquidity and capital resources.

Uses of Liquidity

In the past, our primary use of liquidity was the origination of first mortgage loans, the purchase of CRE CLO debt securities (discontinued in March 2020), interest and principal payments under our $3.4 billion of outstanding borrowings under secured credit agreements, collateralized loan obligations, secured revolving credit agreements, mortgage loan payable (beginning in December 2020), asset-specific financings, $423.5 million of unfunded loan commitments, dividend distributions to our preferred and common stockholders, and operating expenses.

As described above, each of our secured credit facilities has “margin maintenance” provisions, which are designed to allow the lender to maintain a certain margin of credit enhancement against the assets which serve as collateral. On May 28, 2020, we made voluntary deleveraging payments totaling $157.7 million to seven of our secured credit facility lenders that provide financing secured by certain of our first mortgage loan investments, in

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exchange for their agreement to suspend margin calls through December 2020, subject to certain conditions. At the time these payments were made, no margin deficits existed, and no margin calls have been issued to us since.If market turbulence persists or resurges, we may be required to post cash collateral in connection with our secured credit agreements secured by our mortgage loan investments. For more information regarding the impact that COVID-19 has had on our liquidity and may have on our future liquidity, see “Risk Factors.”

Contractual Obligations and Commitments

Our contractual obligations and commitments as of December 31, 2020 were as follows (dollars in thousands):

Payment Timing

Total Obligation Less than 1 Year 1 to 3 Years 3 to 5 Years More than 5 Years

Mortgage loan payable - principal 50,000 — 50,000 — —

With respect to our debt obligations that are contractually due within the next five years, we plan to employ several strategies to meet these obligations, including: (i) exercising maturity date extension options that exist in our current financing arrangements; (ii) negotiating extensions of terms with our providers of credit; (iii) periodically accessing the public and private equity and debt capital markets to raise cash to fund new investments or the repayment of indebtedness; (iv) the issuance of additional structured finance vehicles, such as a collateralized loan obligations similar to TRTX 2019-FL3 or TRTX 2018-FL2, as a method of financing; (v) term loans with private lenders; (vi) selling loans to generate cash to repay our debt obligations; and/or (vii) applying repayments from underlying loans to satisfy the debt obligations which they secure. Although many of these avenues have been available to us in the past, we cannot offer any assurance that we will be able to access any or all of these alternatives as a result of the continuing market disruption caused by the COVID-19 pandemic.

We are required to pay our Manager a base management fee, an incentive fee, and reimbursements for certain expenses pursuant to our Management Agreement. The table above does not include the amounts payable to our Manager under our Management Agreement as they are not fixed and determinable. No incentive fee was earned by our Manager during the year ended December 31, 2020. See Note 11 to our Consolidated Financial Statements included in this Form 10-K for additional terms and details of the fees payable under our Management Agreement.

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As a REIT, we generally must distribute substantially all of our net taxable income to stockholders in the form of dividends to comply with the REIT provisions of the Internal Revenue Code. In 2017, the Internal Revenue Service issued a revenue procedure permitting “publicly offered” REITs to make elective stock dividends (i.e. dividends paid in a mixture of stock and cash), with at least 20% of the total distribution being paid in cash, to satisfy their REIT distribution requirements. Pursuant to this revenue procedure, we may elect to make future distributions of our taxable income in a mixture of stock and cash.

Our REIT taxable income does not necessarily equal our net income as calculated in accordance with GAAP or our Distributable Earnings as described above. See Note 10 to our Consolidated Financial Statements included in this Form 10-K for additional details

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Cash Flows

The following table provides a breakdown of the net change in our cash, cash equivalents, and restricted cash (dollars in thousands):

For the Years Ended December 31,

Cash flows provided by operating activities $ 132,085 $ 121,665

Cash flows provided by (used in) investing activities 964,585 (1,308,630 )

Cash flows (used in) provided by financing activities (856,668 ) 1,225,911

Net increase in cash, cash equivalents, and restricted cash $ 240,002 $ 38,946

Cash Flows from Operating Activities

During the year ended December 31, 2020, cash flows provided by operating activities totaled $132.1 million primarily related to net interest income.

Cash Flows from Investing Activities

During the year ended December 31, 2020 cash flows from investing activities totaled $964.6 million primarily due to repayments on loans held for investment of $819.8 million, sale of CRE debt securities totaling $766.4 million and proceeds from sale of loans of $131.9 million, offset by new loan originations of $351.7 million and purchases of CRE debt securities of $168.9 million and advances on loans of $233.0 million.

Cash Flows from Financing Activities

During the year ended December 31, 2020, cash flows used in financing activities totaled $856.7 million primarily due to payments on secured financing agreements of $2.3 billion and payment of dividends on our common stock, Series A and Series B Preferred Stock of $111.6 million, offset by additional proceeds from secured financing agreements of $1.3 billion, and the issuance of Series B Preferred Stock and Warrants of $225.0 million.

Entirely during the first quarter of the year ended December 31, 2020, we received margin call notices with respect to borrowings against our CRE CLO investment portfolio aggregating $170.9 million, which were satisfied with a combination of $89.8 million of cash on hand, cash proceeds from bond sales, and increases in market values prior to quarter-end. At March 31, 2020, unpaid margin calls totaled $19.0 million, which were satisfied in April through cash proceeds from bond sales and increases in market value. During the three months ended June 30, 2020, prior to making our voluntary deleveraging payments, we satisfied one margin call aggregating $20.0 million in connection with our secured credit agreements financing our loan investments by pledging a previously unencumbered loan investment.

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On May 28, 2020, we made voluntary deleveraging payments totaling $157.7 million to seven of our secured credit facility lenders that provide financing for certain of our first mortgage loan investments in exchange for their agreement to suspend margin calls through December 2020, subject to certain conditions. At the time these payments were made, no margin deficits existed, and no margin calls have been issued to us since. If market turbulence persists or resurges, we may be required to post cash collateral in connection with our secured credit agreements secured by our mortgage loan investments pledged under these borrowing arrangements.We maintain frequent dialogue with the lenders under our secured credit agreements regarding our management of their collateral assets in light of the impacts of the COVID-19 pandemic. For more information regarding the impact that COVID-19 has had on our liquidity and may have on our future liquidity, see “Risk Factors.”

Corporate Activities

Issuance of Series B Preferred Stock and Warrants to Purchase Common Stock

On May 28, 2020, we entered into an Investment Agreement with the Purchaser, an affiliate of Starwood Capital Group Global II, L.P., under which we agreed to issue and sell to the Purchaser up to 13 million shares of the our 11.0% Series B Preferred Stock, par value $0.001 per share (plus any additional such shares paid as dividends pursuant to the Articles Supplementary, the “Series B Preferred Stock”), and Warrants to purchase, in the aggregate, up to 15 million shares (subject to adjustment) of our Common Stock, for an aggregate cash purchase price of up to $325.0 million. Such purchases could occur in up to three tranches. The Investment Agreement contains market standard provisions regarding board representation, voting agreements, rights to information, and a standstill agreement and registration rights agreement regarding common stock acquired through the exercise of Warrants. The foregoing descriptions of the Investment Agreement and the various components are not complete and are qualified in their entirety by reference to the full text of the Investment Agreement, the Articles Supplementary, the Warrant Agreement, the Registration Rights Agreement and the Amendments, which are attached as exhibits to the our Current Report on Form 8-K filed with the SEC on May 29, 2020, and incorporated herein by reference.

On May 28, 2020, the Purchaser acquired the first tranche under the Investment Agreement, consisting of 9.0 million shares of Series B Preferred Stock and Warrants to purchase up to 12.0 million shares of Common Stock, for an aggregate price of $225.0 million. We retained an option to sell to the Purchaser the second and third tranches on or prior to December 31, 2020. Each of the second and third tranches consisted of 2.0 million shares of Series B Preferred Stock and Warrants to purchase up to 1.5 million shares of Common Stock, for an aggregate purchase price of $50.0 million per tranche. We allowed the option to issue additional shares of Series B Preferred Stock to expire unused.

None of the Warrants were exercised as of December 31, 2020.

Details of this issuance have been described in Note 13 to our Consolidated Financial Statements included in this Form 10-K.

Offering of Common Stock

On March 7, 2019, we and our Manager entered into an equity distribution agreement with each of Citigroup Global Markets Inc., J.P. Morgan Securities LLC, JMP Securities LLC, Wells Fargo Securities, LLC and TPG Capital BD, LLC (each a “Sales Agent” and, collectively, the “Sales Agents”) relating to the issuance and sale of shares of our common stock pursuant to a continuous offering program. In accordance with the terms of the equity distribution agreement, we may, at our discretion and from time to time, offer and sell shares of our common stock having an aggregate gross sales price of up to $125.0 million through the Sales Agents, each acting as our agent. The offering of shares of our common stock pursuant to the equity distribution agreement will terminate upon the earlier of (1) the sale of shares of our common stock subject to the equity distribution agreement having an aggregate gross sales price of $125.0 million and (2) the termination of the equity distribution agreement by the Sales Agents or us at any time as set forth in the equity distribution agreement. At December 31, 2020, cumulative gross proceeds issued under the equity distribution agreement totaled $50.9 million, leaving $74.1 million available for future issuance subject to the direction of management, and market conditions.

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Each Sales Agent will be entitled to commissions in an amount not to exceed 1.75% of the gross sales prices of shares of our common stock sold through it, as our agent. For thetwelve months ended December 31, 2020, we sold 0.6 million shares of common stock pursuant to the equity distribution agreement at a weighted average price per share of $20.53, generating gross proceeds of $12.9 million. We paid commissions totaling $0.2 million.

Refer to Note 13 to the Consolidated Financial Statements included in this Form 10-K for a discussion of our issuances of equity securities in recent years.

Dividends

Upon the approval of our Board of Directors, we accrue dividends. Dividends are paid first to the holders of our Series A preferred stock at the rate of 12.5% of the total $0.001 million liquidation preference per annum plus all accumulated and unpaid dividends thereon, then to holders of our Series B Preferred Stock at the rate of 11.0% per annum of the $25.00 per share liquidation preference, and then to the holders of our common stock. We intend to distribute each year substantially all our taxable income to our stockholders to comply with the REIT provisions of the Internal Revenue Code of 1986, as amended. The Board of Directors will determine whether to pay future dividends, entirely in cash, or in a combination of stock and cash based on facts and circumstances at the time such decisions are made.

On December 15, 2020, our Board of Directors declared a dividend for the fourth quarter of 2020 in the amount of $0.20 per share of common stock, or $15.5 million in the aggregate. On December 15, 2020, our Board of Directors also declared a special cash dividend of $0.18 per share of common stock, or $14.0 million in the aggregate, attributable to our estimated 2020 REIT taxable income which was previously undistributed. The fourth quarter regular and special dividend was paid on January 22, 2021 to holders of record of our common stock as of December 28, 2020.

On December 15, 2020, our Board of Directors declared a cash dividend for the fourth quarter of 2020 in the amount of $0.69 per share of Series B Preferred Stock, or $6.2 million in the aggregate, which was paid on December 31, 2020 to the holder of record of our Series B Preferred Stock as of December 15, 2020.

For the year ended December 31, 2020 and 2019, common stock and Class A common stock dividends in the amount of $93.6 million and $128.4 million, respectively, were declared and approved.

For the year ended December 31, 2020, Series B Preferred Stock dividends in the amount of $14.7 million were approved and paid.

As of December 31, 2020 and December 31, 2019, $29.5 million and $32.8 million, respectively, remain unpaid and are reflected in dividends payable on our consolidated balance sheets.

Income Taxes

We made an election to be taxed as a REIT for U.S. federal income tax purposes, commencing with our initial taxable year ended December 31, 2014. We generally must distribute annually at least 90% of our REIT taxable income, subject to certain adjustments and excluding any net capital gain, in order to qualify as a REIT for U.S. federal income tax purposes. 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 out to our stockholders in a calendar year is less than a minimum amount specified under U.S. federal tax laws.

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 U.S. federal, state and local income tax on our taxable income at regular corporate rates and we would not be able to qualify as a REIT for the subsequent four full taxable years. We believe we have complied with all REIT requirements since our initial taxable year.

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Critical Accounting Policies

The preparation of our consolidated financial statements in accordance with GAAP requires our management to make estimates and judgments that affect the reported amounts of assets and liabilities, interest income and other revenue recognition, allowance for loan losses, expense recognition, tax liability, future impairment of our investments, valuation of our investment portfolio and disclosure of contingent assets and liabilities, among other items. Our management bases these estimates and judgments about current, and for some estimates, future economic and market conditions and their effects on available information, historical experience and other assumptions that we believe are reasonable under the circumstances. However, these estimates, judgments and assumptions are often subjective and may be impacted negatively based on changing circumstances or changes in our analyses.

If conditions change from those expected, it is possible that our judgments, estimates and assumptions described below could change, which may result in a change in our interest income and other revenue recognition, allowance for loan losses, expense recognition, tax liability, future write-off of our investments, and valuation of our investment portfolio, among other effects. If actual amounts are ultimately different from those estimated, judged or assumed, revisions are included in the consolidated financial statements in the period in which the actual amounts become known. We believe our critical accounting policies could potentially produce materially different results if we were to change underlying estimates, judgments or assumptions.

During 2020, our Manager reviewed and evaluated our critical accounting policies and believes them to be appropriate. The following is a summary of our significant accounting policies that we believe are the most affected by our Manager’s judgments, estimates, and assumptions:

Revenue Recognition

Interest income on loans is accrued using the interest method based on the contractual terms of the loan, adjusted for expected or realized credit losses, if any. The objective of the interest method is to arrive at periodic interest income, including recognition of fees and costs, at a constant effective yield. Premiums, discounts, and origination fees are amortized or accreted into interest income over the lives of the loans using the interest method, or on a straight-line basis when it approximates the interest method. Extension and modification fees are accreted into income on a straight-line basis, when it approximates the interest method, over the related extension or modification period. Exit fees are accreted into income on a straight-line basis, when it approximates the interest method, over the lives of the loans to which they relate unless they can be waived by us or a co-lender in connection with a loan refinancing. Prepayment penalties from borrowers are recognized as interest income when received. Certain of our loan investments have in the past and may in the future provide for additional interest based on the borrower’s operating cash flow or appreciation of the underlying collateral. Such amounts are considered contingent interest and are reflected as interest income only upon certainty of collection. Certain of our loan investments have in the past, and may in the future, provide for the accrual of interest (in part, or in whole) instead of its current payment in cash, with the accrued interest (“PIK interest”) added to the unpaid principal balance of the loan. Such PIK interest is recognized currently as interest income unless we conclude eventual collection is unlikely, in which case a collection reserve is recorded or the PIK interest is written off.

We consider a loan to be non-performing and place the loan on non-accrual status when the full and timely collection of principal and interest is doubtful, generally when: (1) management determines the borrower is incapable of, or has ceased efforts toward, curing the cause of a default; (2) the loan becomes 90 days or more past due for principal and interest; or (3) the loan experiences a maturity default. All interest accrued but not received for loans placed on non-accrual status is subtracted from interest income at the time the loan is placed on non-accrual. Based on our judgment as to the collectability of principal, a loan on non-accrual status is either accounted for on a cash basis, where interest income is recognized only upon receipt of cash for principal and interest payments, or on a cost-recovery basis, where all cash receipts reduce the loan’s carrying value, and interest income is only recorded when such carrying value has been fully recovered.

As of December 31, 2020, one loan secured by a retail property was placed on non-accrual status due to a borrower default during the fourth quarter of 2020. The amortized cost of the loan was $31.1 million as of December 31, 2020. No loans were placed on non-accrual status as of December 31, 2019.

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Credit Losses

As discussed in Note 2 to the Consolidated Financial Statements included in this Form 10-K, we adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326) and subsequent amendments, which replaces the incurred loss methodology with an expected loss model known as the Current Expected Credit Loss ("CECL") model. CECL amends the previous credit loss model to reflect a reporting entity's current estimate of all expected credit losses, not only based on historical experience and current conditions, but also by including reasonable and supportable forecasts incorporating forward-looking information. The CECL model applies to our mortgage loan investment portfolio measured at amortized cost and unfunded loan commitments.

We license from Trepp, LLC historical loss information, incorporating loan performance data for over 100,000 commercial real estate loans dating back to 1998, in an analytical model to compute statistical credit loss factors (i.e., probability-of-default and loss-given-default). These statistical credit loss factors are utilized together with individual loan information to generate future expected cash flows which are used to estimate the allowance for credit losses. Such determination also incorporates significant assumptions and estimates regarding, among other things, prepayments, future fundings and economic forecasts.

Quarterly, we evaluate the risk of all loans and assign a risk rating based on a variety of factors, grouped as follows: (i) loan and credit structure, including the as-is LTV and structural features; (ii) quality and stability of real estate value and operating cash flow, including debt yield, property type, dynamics of the geography, property type and local market, physical condition, stability of cash flow, leasing velocity and quality and diversity of tenancy; (iii) performance against underwritten business plan; and (iv) quality, experience and financial condition of sponsor, borrower and guarantor(s). Based on a 5-point scale, our loans are rated “1” through “5,” from least risk to greatest risk, respectively, which ratings are defined as follows:

We generally assign a risk rating of “3” to all loan investments originated during the most recent quarter, except in the case of specific circumstances warranting an exception.

The amount of allowance for credit losses is influenced by the size of our loan portfolio, loan asset quality, risk rating, delinquency status, historic loss experience and macroeconomic and other conditions influencing loss expectations, such as reasonable and supportable forecasts of economic conditions. We employ two methods to estimate credit losses in its loan portfolio: a model-based approach utilized for substantially all of our loans; and an individually-assessed approach for loans that we conclude are ill-suited for use in the model-based approach, or are individually-assessed based on accounting guidance contained in the CECL framework. See Note 2 to the Consolidated Financial Statements in this Form 10-K for further discussion of our methodologies.

Significant judgment is required when estimating future credit losses; therefore, actual results over time could be materially different. As of December 31, 2020, we held $4.5 billion of loans measured at amortized cost with expected future funding commitments of $423.5 million. We recognized a net credit loss expense of $43.2 million during the twelve months ended December 31, 2020, and the related credit loss allowance was $62.8 million as of December 31, 2020.

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SeeNote 2to our Consolidated Financial Statements included in this Form 10-K for a listing and description of our significant accounting policies.

Subsequent Events

The following events occurred subsequent to the year ended December 31, 2020:

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Loan Portfolio Details

The following table provides details with respect to our loan portfolio on a loan-by-loan basis as of December 31, 2020 (dollars in millions, except loan per square foot/unit):

First Mortgage Loans(1)

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Mezzanine Loans:

(3) Represents unpaid principal balance net of unamortized costs.

99

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Interest Rate Risk

Our business model seeks to minimize our exposure to changing interest rates by matching duration of our assets and liabilities and match-indexing our assets using the same, or similar, benchmark indices, typically LIBOR. Accordingly, rising interest rates will generally increase our net interest income, while declining interest rates will generally decrease our net interest income, subject to the impact of interest rate floors embedded in substantially all of our loans. At December 31, 2020, the weighted average LIBOR floor for our loan portfolio was 1.66%. As of December 31, 2020, 100% of our loans by unpaid principal balance earned a floating rate of interest and were financed with liabilities that require interest payments based on floating rates. Approximately 88.3% of our liabilities do not contain LIBOR floors greater than zero.

The following table illustrates the impact on our interest income and interest expense, for the twelve-month period following December 31, 2020, of an immediate increase or decrease in the underlying benchmark interest rate of 25, 50 and 75 basis points on our existing floating rate mortgage loan portfolio and related liabilities (dollars in thousands):

Credit Risk

Our loans are also subject to credit risk. The performance and value of our loans and other investments depend upon the sponsors’ ability to operate the properties that serve as our collateral so that they produce cash flows adequate to pay interest and principal due to us. To monitor this risk, the asset management team reviews our portfolio and maintains regular contact with borrowers, co-lenders and local market experts to monitor the performance of the underlying 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 commercial real estate 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 and asset management processes.

Liquidity Risk

Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings including margin calls, fund and maintain investments, pay dividends to our stockholders and other general business needs. Our liquidity risk is principally associated with our financing of longer-maturity investments with shorter-term borrowings in the form of secured credit facilities. We are subject to “margin call” risk under our secured credit facilities. In the event that the value of our assets pledged as collateral suddenly decreases as a result of changes in credit spreads or interest rates, margin calls relating to our secured credit facilities could increase, causing an adverse change in our liquidity position. See “Management's Discussion and Analysis of Financial Condition and Results of Operations—Our Results of Operations—Liquidity and Capital Resources—Liquidity Needs” for information regarding margin calls that we funded during the quarter ended March 31, 2020 in connection with secured credit facilities used to finance our former investments in CRE debt securities. Additionally, if one or more of our secured credit facility counterparties chooses not to provide ongoing funding, we may be unable to replace the financing through other lenders on favorable terms or at all. As such, we provide no assurance that we will be able to roll over or replace our secured credit facilities as they mature from time to time in

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the future. Prior to making our voluntary deleveraging payments during the second quarter of 2020, we satisfied one margin call aggregating $20.0 million in connection with our secured credit facilitiesfinancing our loan investments by pledging a previously unencumbered loan investment. On May 28, 2020, we made voluntary deleveraging payments totaling $157.7 million to our sixsecured credit facilitieslenders and one secured credit facility lender in exchange for their agreement to suspend margin calls through December 2020, subject to certain conditions. At the time these payments were made, no margin deficits existed, and no margin calls have been issued to us since. If market turbulence persists, we may be required to post cash collateral in connection with our secured credit facilitiessecured by our mortgage loan investments upon or after the expiry of these agreements. We maintain frequent dialogue with the lenders under our secured credit facilitiesregarding our management of their collateral assets in light of the impacts of the COVID-19 pandemic. For more information regarding the impact that COVID-19 has had on our liquidity and may have on our future liquidity, see “Risk Factors.”

In some situations, we have in the past, and may in the future, be forced to sell assets to maintain adequate liquidity. Market disruptions may lead to a significant decline in transaction activity in all or a significant portion of the asset classes in which we invest and may at the same time lead to a significant contraction in short-term and long-term debt and equity funding sources. A decline in market liquidity of real estate-related investments, as well as a lack of availability of observable transaction data and inputs, may make it more difficult to sell assets or determine their fair values. As a result, we may be unable to sell investments, or only be able to sell investments at a price that may be materially different from the fair values presented. Also, in such conditions, there is no guarantee that our borrowing arrangements or other arrangements for obtaining leverage will continue to be available or, if available, will be available on terms and conditions acceptable to us.

Prepayment Risk

Prepayment risk is the risk that principal will be repaid at a different rate than anticipated, causing the return on certain investments to be less than expected. As we receive prepayments of principal on our assets, any premiums paid on such assets are amortized against interest income. In general, an increase in prepayment rates accelerates the amortization of purchase premiums, thereby reducing the interest income earned on the assets. Conversely, discounts on such assets are accreted into interest income. In general, an increase in prepayment rates accelerates the accretion of purchase discounts, thereby increasing the interest income earned on the assets.

Extension Risk

Our Manager computes the projected weighted average life of our assets based on assumptions regarding the rate at which the borrowers will prepay the mortgages or extend. If prepayment rates decrease in a rising interest rate environment or extension options are exercised, the life of our loan investments could extend beyond the term of the secured debt agreements. We expect that the economic and market disruptions caused by COVID-19 will lead to a decrease in prepayment rates and an increase in the number of our borrowers who exercise extension options. This could have a negative impact on our results of operations. In some situations, we may be forced to sell assets to maintain adequate liquidity, which could cause us to incur losses. For more information regarding the impact of COVID-19 on the financial condition of our borrowers, see “Risk Factors.”

Capital Market Risks

We are exposed to risks related to the equity capital markets and our related ability to raise capital through the issuance of our stock or other equity 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 credit facilities, collateralized loan obligations, secured revolving credit facilities, or other debt instruments or arrangements. As a REIT, we are required to distribute a significant portion of our taxable income annually, which constrains our ability to accumulate operating cash flow and therefore requires us to utilize debt or equity capital to finance our business. We seek to mitigate these risks by monitoring the debt and equity capital markets to inform our decisions on the amount, timing and terms of capital we raise.

During the twelve months ended December 31, 2020, the COVID-19 pandemic caused significant disruptions to the U.S. and global economies. These disruptions contributed to significant and ongoing volatility, widening credit spreads and sharp declines in liquidity in the real estate securities markets. This capital markets environment has led to an increased cost of funds and reduced the availability of efficient debt capital, factors which caused us to reduce our investment activity during the second, third and fourth quarters of 2020. We also anticipate that these

102

conditions will adversely impact the ability of certain commercial property owners to service their debt and refinance their loans as they mature. For more information, see “Risk Factors.”

Counterparty Risk

The nature of our business requires us to hold our cash and cash equivalents with, 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.

The nature of our loans and other investments also exposes us to the risk that our counterparties do not make required interest and principal payments on scheduled due dates. We seek to manage this risk through a comprehensive credit analysis prior to making an investment and rigorous monitoring of the underlying collateral during the term of our investments.

Non-Performance Risk

In addition to the risks related to fluctuations in cash flows and asset values associated with movements in interest rates, there is also the risk of non-performance on floating rate assets. In the case of a significant increase in interest rates, the additional debt service payments due from our borrowers may strain the operating cash flows of the collateral real estate assets and, potentially, contribute to non-performance or, in severe cases, default. This risk is partially mitigated by various factors we consider during our underwriting and loan structuring process, including but not limited to, requiring substantially all of our borrowers, to purchase an interest rate cap contract for the term of our loan.

Loan Portfolio Value

We may in the future originate loans that earn a fixed rate of interest on unpaid principal balance. The value of fixed rate loans is sensitive to changes in interest rates. We generally hold all of our loans to maturity, and do not expect to realize gains or losses on any fixed rate loan we may hold in the future, as a result of movements in market interest rates during future periods.

Real Estate Risk

The market values of commercial mortgage assets are subject to volatility and may be adversely affected by a number of factors, including, but not limited to, national, regional and local economic conditions (which may be adversely affected by industry slowdowns and other factors); local real estate conditions; changes or continued weakness in specific industry segments; construction quality, age and design; demographic factors; COVID-19 induced changes in how certain property types are used; and retroactive changes to building or similar codes. In addition, decreases in property values reduce the value of the collateral and the potential proceeds available to a borrower to repay the underlying loans, which could also cause us to suffer losses.

Currency Risk

We may in the future hold assets denominated in foreign currencies, which would expose us to foreign currency risk. As a result, a change in foreign currency exchange rates may have an adverse impact on the valuation of our assets, as well as our income and distributions. 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 on our common stock.

We intend to hedge any currency exposures in a prudent manner. However, our 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.

We may hedge foreign currency exposure on certain investments in the future by entering into a series of forwards to fix the U.S. dollar amount of foreign currency denominated cash flows (interest income, rental income

103

and principal payments) we expect to receive from any foreign currency denominated investments. Accordingly, the notional values and expiration dates of our foreign currency hedges would approximate the amounts and timing of future payments we expect to receive on the related investments.

Item 8. Financial Statements and Supplementary Data.

The financial statements required by this item and the reports of the independent accountants thereon appear on pages F-2 to F-52. See the accompanying Index to Consolidated Financial Statements and Schedule on page F-1.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

Disclosure Controls and Procedures. We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Exchange Act 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 President (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by Rules 13a-15(b) and 15d-15(b) under the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including our President (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2020. Based upon that evaluation, our President (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer) concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2020.

Changes in Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting (as such term as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management’s Report on Internal Control Over Financial Reporting. Management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed under the supervision of our President and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our consolidated financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America (“generally accepted accounting principles”).

Internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets of the company; provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of the company’s management and directors; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the Company’s financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

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Management conducted an assessment of the effectiveness of internal control over financial reporting as of December 31, 2020, based on the framework established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Based on this assessment, management has determined that the Company’s internal control over financial reporting as of December 31, 2020, was effective.

Deloitte & Touche LLP, an independent registered public accounting firm, has audited the Company’s financial statements included in this Annual Report on Form 10-K and issued its report on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020, which is included herein.

Item 9B. Other Information.

None.

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PART III

Item 10. Directors, Executive Officers and Corporate Governance.

The information required by this item is incorporated by reference to the Company’s definitive proxy statement to be filed not later than April 30, 2021 with the SEC pursuant to Regulation 14A under the Exchange Act.

Item 11. Executive Compensation.

The information required by this item is incorporated by reference to the Company’s definitive proxy statement to be filed not later than April 30, 2021 with the SEC pursuant to Regulation 14A under the Exchange Act.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information required by this item is incorporated by reference to the Company’s definitive proxy statement to be filed not later than April 30, 2021 with the SEC pursuant to Regulation 14A under the Exchange Act.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

The information required by this item is incorporated by reference to the Company’s definitive proxy statement to be filed not later than April 30, 2021 with the SEC pursuant to Regulation 14A under the Exchange Act.

Item 14. Principal Accountant Fees and Services.

The information required by this item is incorporated by reference to the Company’s definitive proxy statement to be filed not later than April 30, 2021 with the SEC pursuant to Regulation 14A under the Exchange Act.

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PART IV

Item 15. Exhibits and Financial Statement Schedules.

(a) (1) Financial Statements

(a) (2) Consolidated Financial Statement Schedules

(a) (3) Exhibits

107

Exhibit Index

Exhibit Number Description

3.2 Second Amended and Restated Bylaws of TPG RE Finance Trust, Inc.

4.2 Description of Securities of TPG RE Finance Trust, Inc.

108

Exhibit Number Description

109

Exhibit Number Description

110

Exhibit Number Description

111

Exhibit Number Description

21.1 Subsidiaries of TPG RE Finance Trust, Inc.

23.1 Consent of Deloitte & Touche LLP

112

Exhibit Number Description

101.SCH Inline XBRL Taxonomy Extension Schema Document

101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: February 24, 2021 TPG RE Finance Trust, Inc.

By: /s/ Matthew Coleman

Matthew Coleman

President

(Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.

Name Title Date

/s/ Avi Banyasz Chairman of the Board of Directors February 24, 2021

Avi Banyasz

/s/ Matthew Coleman President February 24, 2021

Matthew Coleman (Principal Executive Officer)

Robert Foley

/s/ Kelvin Davis Director February 24, 2021

Kelvin Davis

/s/ Michael Gillmore Director February 24, 2021

Michael Gillmore

/s/ Greta Guggenheim Director February 24, 2021

Greta Guggenheim

/s/ Wendy Silverstein Director February 24, 2021

Wendy Silverstein

/s/ Bradley Smith Director February 24, 2021

Bradley Smith

/s/ Gregory White Director February 24, 2021

Gregory White

/s/ Todd Schuster Director February 24, 2021

Todd Schuster

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE

Consolidated Balance Sheets as of December 31, 2020 and 2019 F-5

Notes to the Consolidated Financial Statements F-9

Schedule IV – Mortgage Loans on Real Estate S-1

F-1

Report of Independent Registered Public Accounting Firm

To the stockholders and the Board of Directors of TPG RE Finance Trust, Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of TPG RE Finance Trust, Inc. and subsidiaries (the "Company") as of December 31, 2020 and 2019, the related consolidated statements of income and comprehensive income, changes in equity and cash flows, for each of the three years in the period ended December 31, 2020, and the related notes and the schedule listed in the Index at Item 15(a) (collectively referred to as the "financial statements"). We also have audited the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

Change in Accounting Principle

As discussed in Note 2 to the financial statements, the Company has changed its method of accounting for credit losses in the year ended December 31, 2020 due to the adoption of FASB Accounting Standards Update ASU 2016-13, “Financial Instruments – Credit Losses – Measurement of Credit Losses on Financial Instruments (Topic 326)”.

Basis for Opinions

The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

F-2

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the Company’s Audit Committee that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments by us. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Loans Held for Investment and the Allowance for Credit Losses – Refer to Note 3 to the Financial Statements

Critical Audit Matter Description

The Company presents certain financial assets carried at amortized cost, such as Loans Held for Investment, at the net amount estimated to be collected after expected credit losses. The measurement of expected credit losses over the life of each financial asset is based on information about past events, including historical experience, current conditions, macroeconomic factors, and reasonable and supportable forecasts that affect the collectability of the reported amount. To estimate credit losses, the Company considers key credit quality indicators and utilizes a model-based approach for the majority of its financial assets and an individually-assessed approach for certain of its financial assets. As of December 31, 2020, the Company recorded an Allowance for Credit Losses of $62.8 million.

Given the significant amount of judgement required by management to estimate an Allowance for Credit Losses, we identified the Company’s Allowance for Credit Losses to be a critical audit matter. Auditing management’s Allowance for Credit Losses requires a high degree of auditor judgment and increased extent of effort.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the Company’s Allowance for Credit Losses included the following, among others:

F-3

/s/ Deloitte & Touche LLP

Dallas, Texas

February 24, 2021

We have served as the Company’s auditors since 2016.

F-4

TPG RE Finance Trust, Inc.

Consolidated Balance Sheets

(in thousands, except share and per share data)

ASSETS(1)

Restricted Cash — 484

Accounts Receivable from Servicer/Trustee 592 13,741

Allowance for Credit Losses (59,940 ) —

Real Estate Owned 99,200 —

LIABILITIES AND STOCKHOLDERS’ EQUITY(1)

Liabilities

Accrued Expenses and Other Liabilities 14,450 8,176

Mortgage Loan Payable (net of deferred financing costs of $853 and $0) 49,147 —

Commitments and Contingencies—See Note 15

Temporary Equity

Permanent Equity

Accumulated Other Comprehensive Income — 1,051

See accompanying notes to the Consolidated Financial Statements

F-5

TPG RE Finance Trust, Inc.

Consolidated Statements of Income (Loss)

and Comprehensive Income (Loss)

(in thousands, except share and per share data)

Year Ended December 31,

INTEREST INCOME

OTHER REVENUE

OTHER EXPENSES

Securities Impairments (203,397 ) — —

Credit Loss Expense (69,755 ) — —

Series A Preferred Stock Dividends (15 ) (15 ) (3 )

Series B Cumulative Redeemable Preferred Stock Dividends (14,670 ) — —

(Loss) Earnings per Common Share, Basic $ (2.03 ) $ 1.73 $ 1.70

(Loss) Earnings per Common Share, Diluted $ (2.03 ) $ 1.73 $ 1.70

Weighted Average Number of Common Shares Outstanding

OTHER COMPREHENSIVE (LOSS) INCOME

See accompanying notes to the Consolidated Financial Statements

F-6

TPG RE Finance Trust, Inc.

Consolidated Statements of Changes in Equity

(In thousands, except share data)

Permanent Equity Temporary Equity

Series A Preferred Stock Common Stock Class A Common Stock

Issuance of Class A Common Stock — — — — — — — — — — —

Redemption of Series A Preferred Stock (125 ) — — — — — (125 ) — — (125 ) —

Amortization of Share Based Compensation — — — — — — 665 — — 665 —

Other Comprehensive Income (Loss) — — — — — — — — (1,951 ) (1,951 ) —

Dividends on Preferred Stock — — — — — — — (3 ) — (3 ) —

Issuance of Class A Common Stock — — — — — — — — — — —

Issuance of SubREIT Preferred Stock 125 — — — — 125 — — 125 —

Transfer of Class A to Common Shares — — 6,648 — (6,648 ) — — — — — —

Amortization of Share Based Compensation — — — — — — 2,556 — — 2,556 —

Other Comprehensive Income (Loss) — — — — — — — — 3,036 3,036 —

Dividends on Preferred Stock — — — — — — — (15 ) — (15 ) —

Issuance of Warrants to Purchase Common Stock — — — — — 14,402 — — 14,402 —

Retirement of Common Stock — — (55,197 ) — — — — — — —

Amortization of Share-Based Compensation — — — — — — 5,768 — — 5,768 —

Other Comprehensive Loss — — — — — — — — (1,051 ) (1,051 ) —

Dividends on Preferred Stock — — — — — — — (14,689 ) — (14,689 ) —

See accompanying notes to the Consolidated Financial Statements

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TPG RE Finance Trust, Inc.

Consolidated Statements of Cash Flows

(In thousands)

Year Ended December 31,

Cash Flows from Operating Activities:

Capitalized Accrued Interest (4,701 ) — —

Credit Loss Expense 55,983 — —

Cash Flows Due to Changes in Operating Assets and Liabilities:

Cash Flows from Investing Activities:

Cash Flows from Financing Activities:

Payments on Collateralized Loan Obligations — (732,103 ) (13,800 )

Payments on Secured Credit Agreements - CRE Debt Securities (824,920 ) — —

Proceeds from Secured Credit Agreements - CRE Debt Securities 132,122 — —

Proceeds from Mortgage Loan Payable 50,000 — —

Payments to Repurchase Common Stock — (42 ) (8,842 )

Payments to Redeem Series A Preferred Stock — — (125 )

Proceeds from Issuance of Preferred Stock — 125 —

Proceeds from Issuance of Warrants to Purchase Common Stock 14,402 — —

Dividends Paid on Class A Common Stock (284 ) (1,964 ) (1,921 )

Dividends Paid on Series A Preferred Stock — (15 ) (3 )

Dividends Paid on Series B Cumulative Redeemable Preferred Stock (14,685 ) 0 0

Supplemental Disclosure of Cash Flow Information:

Supplemental Disclosure of Non-Cash Investing and Financing Activities:

Accrued Equity Issuance and Transaction Costs $ 3,000 $ — $ —

Change in Accrued Deferred Financing Costs $ 452 $ 5,411 $ 2,926

Accrued Common Stock Repurchase Costs $ — $ — $ 95

See accompanying notes to the Consolidated Financial Statements

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TPG RE Finance Trust, Inc.

Notes to the Consolidated Financial Statements

(1) Business and Organization

TPG RE Finance Trust, Inc. (together with its consolidated subsidiaries, “we”, “us”, “our”, or the “Company”) is organized as a holding company and conducts its operations primarily through TPG RE Finance Trust Holdco, LLC (“Holdco”), a Delaware limited liability company that is wholly owned by the Company, and Holdco’s direct and indirect subsidiaries. We conduct our operations as a real estate investment trust (“REIT”) for U.S. federal income tax purposes. We generally will not be subject to U.S. federal income taxes on our REIT taxable income to the extent that we annually distribute all of our REIT taxable income to stockholders and maintain our qualification as a REIT. We also operate our business in a manner that permits us to maintain an exclusion from registration under the Investment Company Act of 1940, as amended.

The Company’s principal business activity is to directly originate and acquire a diversified portfolio of commercial real estate related assets, consisting primarily of first mortgage loans and senior participation interests in first mortgage loans secured by institutional-quality properties in primary and select secondary markets in the United States. The Company has in the past invested in commercial real estate debt securities (“CRE debt securities”), primarily investment-grade commercial mortgage-backed securities (“CMBS”) and commercial real estate collateralized loan obligation securities (“CRE CLOs”).

(2) Summary of Significant Accounting Policies

Basis of Presentation

The consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The consolidated financial statements include the Company’s accounts, consolidated variable interest entities for which the Company is the primary beneficiary, and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated.

Risks and Uncertainties

The coronavirus pandemic (“COVID-19”) resulted in broad challenges globally, has contributed to significant volatility in financial markets and continues to adversely impact global commercial activity. The impact of the outbreak has evolved rapidly around the globe, with many countries taking drastic measures to limit the spread of the virus by instituting quarantines or lockdowns and imposing travel restrictions. Such actions have created significant disruptions to global supply chains, and adversely impacted several industries, including but not limited to, airlines, hospitality, retail and the broader real estate industry.

The major disruptions caused by COVID-19 halted economic activity in most of the United States resulting in a significant increase in unemployment claims and material fiscal stimulus expenditures by the federal government. COVID-19 has also resulted in a significant decline in the U.S. Gross Domestic Product.

COVID-19 has had a continued and prolonged adverse impact on economic and market conditions and triggered a period of global economic slowdown which has and could continue to have a material adverse effect on the Company’s results and financial condition. Many jurisdictions have re-opened with social distancing measures implemented to curtail the spread of COVID-19, and two vaccines have been approved for use in the United States. Nonetheless, the Company cannot predict the length of time that it will take for a meaningful economic recovery to take place. Additional surges in new cases of COVID-19 and mutated strains of the virus have caused additional quarantines and lockdowns, which could delay any economic recovery. The nationwide vaccination program is in its early stages, and its pace, scope and effectiveness remain uncertain. These factors could further materially and adversely affect the Company’s results and financial condition.

The full impact of COVID-19 on the real estate industry, the credit markets and consequently on the Company’s financial condition and results of operations is uncertain and cannot be predicted currently since it depends on several factors beyond the control of the Company including, but not limited to (i) the uncertainty surrounding the severity and duration of the outbreak, including possible recurrences and differing economic and social impacts of the outbreak in various regions of the United States, (ii) the effectiveness of the United States

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public health response, (iii) the pandemic’s impact on the U.S. and global economies, (iv) the timing, scope and effectiveness of additional governmental responses to the pandemic, (v) the timing and speed of economic recovery, including the availability of a treatment or vaccine for COVID-19, changes in how certain types of commercial property are used while maintaining social distancing and other techniques intended to control the impact of COVID-19, and (vi) the negative impact on the Company’s borrowers, real estate values and cost of capital.

Reclassifications

Certain amounts in the Company’s prior period consolidated financial statements have been reclassified to conform to the presentation of the Company’s current period consolidated financial statements. These reclassifications had no effect on the Company’s previously reported net income. These reclassifications include the separate presentation of stock compensation on the consolidated statements of income (loss) and comprehensive income (loss), and the disaggregation of proceeds and payments from secured credit agreements secured by loans and secured credit agreements secured by CRE debt securities on the consolidated statements of cash flows.

Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP requires estimates of assets, liabilities, revenues, expenses and disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Actual results could differ from management’s estimates, and such differences could be material. Significant estimates made in the consolidated financial statements include, but are not limited to, the adequacy of our allowance for credit lossesand the valuation inputs related thereto and the valuation of financial instruments. Actual amounts and values as of the balance sheet dates may be materially different than the amounts and values reported due to the inherent uncertainty in the estimation process and the limited availability of observable pricing inputs due to market dislocation resulting from the COVID-19 pandemic. Also, future amounts and values could differ materially from those estimates due to changes in values and circumstances after the balance sheet date and the limited availability of observable prices.

Principles of Consolidation

Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810—Consolidation (“ASC 810”) provides guidance on the identification of a variable interest entity (“VIE”) for which control is achieved through means other than voting rights) and the determination of which business enterprise, if any, should consolidate the VIE. An entity is considered a VIE if any of the following applies: (1) the equity investors (if any) lack one or more of the essential characteristics of a controlling financial interest; (2) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support; or (3) the equity investors have voting rights that are not proportionate to their economic interests and the activities of the entity involve or are conducted on behalf of an investor with a disproportionately small voting interest. The Company consolidates VIEs in which the Company is considered to be the primary beneficiary. The primary beneficiary is defined as the entity having both of the following characteristics: (1) the power to direct the activities that, when taken together, most significantly impact the VIE’s performance; and (2) the obligation to absorb losses and right to receive the returns from the VIE that would be significant to the VIE.

At each reporting date, the Company reconsiders its primary beneficiary conclusion to determine if its obligation to absorb losses of, or its rights to receive benefits from, the VIE could potentially be more than insignificant, and will consolidate or not consolidate accordingly (see Note 6 for details).

Revenue Recognition

Interest income on loans is accrued using the interest method based on the contractual terms of the loan, adjusted for expected or realized credit losses, if any. The objective of the interest method is to arrive at periodic interest income, including recognition of fees and costs, at a constant effective yield. Premiums, discounts, and origination fees are amortized or accreted into interest income over the lives of the loans using the interest method, or on a straight-line basis when it approximates the interest method. Extension and modification fees are accreted into income on a straight-line basis, when it approximates the interest method, over the related extension or modification period. Exit fees are accreted into income on a straight-line basis, when it approximates the interest method, over the lives of the loans to which they relate unless they can be waived by the Company or a co-lender in connection with a loan refinancing. Prepayment penalties from borrowers are recognized as interest income when

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received. Certain of the Company’s loan investments have in the past and may in the future provide for additional interest based on the borrower’s operating cash flow or appreciation of the underlying collateral. Such amounts are considered contingent interest and are reflected as interest income only upon certainty of collection. Certain of the Company’s loan investments have in the past, and may in the future, provide for the accrual of interest (in part, or in whole) instead of its current payment in cash, with the accrued interest (“PIK interest”) added to the unpaid principal balance of the loan. Such PIK interest is recognized currently as interest income unless the Company concludes eventual collection is unlikely, in which case a collection reserve is recorded or the PIK interest is written off.

All interest accrued but not received for loans placed on non-accrual status is subtracted from interest income at the time the loan is placed on non-accrual. Based on the Company’s judgment as to the collectability of principal, a loan on non-accrual status is either accounted for on a cash basis, where interest income is recognized only upon receipt of cash for principal and interest payments, or on a cost-recovery basis, where all cash receipts reduce the loan’s carrying value, and interest income is only recorded when such carrying value has been fully recovered.

Loans Held for Investment

Loans that the Company has the intent and ability to hold for the foreseeable future, or until maturity or repayment, are reported at their outstanding principal balances net of cumulative charge-offs, interest applied to principal (for loans accounted for using the cost recovery method), unamortized premiums, discounts, loan origination fees and costs. Loan origination fees and direct loan origination costs are deferred and recognized in interest income over the estimated life of the loans using the interest method, or on a straight-line basis when it approximates the interest method, adjusted for actual prepayments. Accrued but not yet collected interest is separately reported as accrued interest and fees receivable on the Company’s consolidated balance sheets.

When loans are designated as held for investment, the Company’s intent is to hold the loans for the foreseeable future or until maturity or repayment. If subsequent changes in real estate or capital markets occur, the Company may change its intent or its assessment of its ability to hold these loans. Once a determination has been made to sell such loans, they are immediately transferred to loans held for sale and carried at the lower of cost or fair value.

Non-Accrual Loans

Loans are placed on non-accrual status when the full and timely collection of principal and interest is doubtful, generally when management determines the borrower is incapable of, or has ceased efforts toward, curing the cause of a default; the loan becomes 90 days or more past due for principal and interest; or the loan experiences a maturity default. The Company considers an account past due when an obligor fails to pay substantially all (defined as 90%) of the scheduled contractual payments by the due date. In each case, the period of delinquency is based on the number of days payments are contractually past due. A loan may be returned to accrual status if all delinquent principal and interest payments are brought current, and collectability of the remaining principal and interest payments in accordance with the loan agreement is reasonably assured. Loans that in the judgment of the Company’s external manager, TPG RE Finance Trust Management, L.P., a Delaware limited partnership (the “Manager”), are adequately secured and in the process of collection are maintained on accrual status, even if they are 90 days or more past due.

Troubled Debt Restructurings

A loan is accounted for and reported as a troubled debt restructuring (“TDR”) when, for economic or legal reasons, the Company grants a concession to a borrower experiencing financial difficulty that it would not otherwise consider. The Company does not consider as a concession a restructuring that includes an insignificant delay in payment. A delay may be considered insignificant if the payments subject to the delay are insignificant relative to the unpaid principal balance of the loan or collateral value, and the contractual amount due, or the delay in timing of the restructured payment period, is insignificant relative to the frequency of payments, the debt’s original contractual maturity or original expected duration.

TDRs that are performing and on accrual status as of the date of the modification remain on accrual status. TDRs that are non-performing as of the date of modification usually remain on non-accrual status until the prospect

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of future payments in accordance with the modified loan agreement is reasonably assured, which is generally demonstrated when the borrower maintains compliance with the restructured terms for a predetermined period, generally six months. TDRs with temporary below-market concessions remain designated as a TDR regardless of the accrual or performance status until the loan is paid off. However, if the TDR loan has been modified in a subsequent restructure with market terms and the borrower is not currently experiencing financial difficulty, then the loan may be de-designated as a TDR.

Credit Losses

On January 1, 2020, the Company adopted Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326) and subsequent amendments, which replaced the incurred loss methodology with an expected loss model known as the Current Expected Credit Loss ("CECL") model. CECL amends the previous credit loss model to reflect a reporting entity's current estimate of all expected credit losses, not only based on historical experience and current conditions, but also by including reasonable and supportable forecasts incorporating forward-looking information. The measurement of expected credit losses under the CECL method is applicable to the Company’s mortgage loan investment portfolio measured at amortized cost and unfunded loan commitments. The guidance also requires a cumulative-effect adjustment to retained earnings as of the beginning of the reporting period of adoption. The Company adopted ASU 2016-13 and other related ASUs using the modified retrospective method for all mortgage loans measured at amortized cost and unfunded noncancelable loan commitments. Results for reporting periods beginning after January 1, 2020 are presented under ASU 2016-13 and other related ASUs while prior period amounts continue to be reported in accordance with previously applicable GAAP.

The following table presents the January 1, 2020 cumulative impact of the adoption of ASU 2016-13 on the indicated line items of the Company’s consolidated balance sheets as of January 1, 2020:

Pre-Adoption Cumulative Effect of Adopting ASU 2016-13 Post-Adoption

Assets:

Liabilities:

Equity:

Allowance for Credit Losses for Loans Held for Investment

The allowance for credit losses measured under the CECL accounting framework, represents an estimate of current expected losses for the Company’s existing portfolio of loans held for investment, and is presented as a valuation reserve on the Company’s consolidated balance sheets. Expected credit losses inherent in non-cancelable unfunded loan commitments are accounted for as separate liabilities included in accrued expenses and other liabilities on the consolidated balance sheets. The allowance for credit losses for loans held for investment, as reported in the Company’s consolidated balance sheets, is adjusted by a credit loss expense, which is reported in earnings in the consolidated statements of income (loss) and comprehensive income (loss) and reduced by the charge-off of loan amounts, net of recoveries and additions related to purchased credit-deteriorated (“PCD”) assets, if relevant. The allowance for credit losses includes a modeled component and an individually-assessed component. The Company has elected to not measure an allowance for credit losses on accrued interest receivables related to all of its loans held for investment because it writes off uncollectable accrued interest receivable in a timely manner pursuant to its non-accrual policy, described above.

The Company considers 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 and coverage ratio; the Company’s risk rating for the same and similar loans; and prior experience with the

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borrower and sponsor. This information is used to assess the financial and operating capability, experience and profitability of the sponsor/borrower. Ultimate repayment of the Company’s 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. The loans in the Company’s commercial mortgage loan portfolio are secured by collateral in the following property types: office; multifamily; hotel; mixed-use; condominium; and retail.

The Company’s loans are typically collateralized by real estate, or in the case of mezzanine loans, by a partnership interest or similar equity interest in an entity that owns real estate. As a result, the Company regularly evaluates on a loan-by-loan basis, typically quarterly, the extent and impact of any credit deterioration associated with the performance and/or value of the underlying collateral property, and the financial and operating capability of the borrower/sponsor. The Company also evaluates the financial strength of loan guarantors, if any, and the borrower’s competency in managing and operating the property or properties. In addition, the Company considers the overall economic environment, real estate sector, and geographic sub-market in which the borrower operates. 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.

Quarterly, the Company evaluates the risk of all loans and assigns a risk rating based on a variety of factors, grouped as follows: (i) loan and credit structure, including the as-is LTV structural features; (ii) quality and stability of real estate value and operating cash flow, including debt yield, property type, dynamics of the geography, property type and local market, physical condition, stability of cash flow, leasing velocity and quality and diversity of tenancy; (iii) performance against underwritten business plan; and (iv) quality, experience and financial condition of sponsor, borrower and guarantor(s). Based on a 5-point scale, the Company’s loans are rated “1” through “5,” from least risk to greatest risk, respectively, which ratings are defined as follows: