InPoint Commercial Real Estate Income, Inc. - Quarter Report: 2023 September (Form 10-Q)

10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-40833

INPOINT COMMERCIAL REAL ESTATE INCOME, INC.

(Exact name of registrant as specified in its charter)

Maryland

32-0506267

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

2901 Butterfield Road

Oak Brook, Illinois

60523

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (800) 826-8228

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

6.75% Series A Cumulative Redeemable Preferred Stock, par value $0.001

ICR PR A

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☒	Smaller Reporting Company	☒

Emerging Growth Company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 10, 2023, the Registrant had the following shares of common stock outstanding: 8,562,777 shares of Class P common stock, 290,345 shares of Class T common stock, 469,168 shares of Class I common stock, 745,887 shares of Class A common stock, 48,015 shares of Class D common stock and no shares of Class S common stock.

TABLE OF CONTENTS


PART I FINANCIAL INFORMATION
Item 1.	Financial Statements

	Consolidated Balance Sheets as of September 30, 2023 (unaudited) and December 31, 2022	2

	Unaudited Consolidated Statements of Operations for the three and nine months ended September 30, 2023 and 2022	3

	Unaudited Consolidated Statements of Changes in Stockholders’ Equity for the three months ended September 30, 2023 and 2022	4

	Unaudited Consolidated Statements of Changes in Stockholders’ Equity for the nine months ended September 30, 2023 and 2022	5

	Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022	6

	Notes to Consolidated Financial Statements (Unaudited)	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	47

Item 4.	Controls and Procedures	48

PART II OTHER INFORMATION

Item 1.	Legal Proceedings	48

Item 1A.	Risk Factors	48

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51

Item 3.	Defaults Upon Senior Securities	53

Item 4.	Mine Safety Disclosures	53

Item 5.	Other Information	53

Item 6.	Exhibits	54

Signatures		55

INPOINT COMMERCIAL REAL ESTATE INCOME, INC.

CONSOLIDATED BALANCE SHEETS

(Dollar amounts in thousands, except share data)


	September 30, 2023 (unaudited)			December 31, 2022
ASSETS
Cash and cash equivalents	$	53,667		$	29,408
Commercial mortgage loans:
Commercial mortgage loans at cost		769,865			845,866
Allowance for credit losses		(18,607	)		(3,588	)
Commercial mortgage loans at cost, net		751,258			842,278
Real estate owned, net of depreciation		—			31,215
Finance lease right of use asset, net of amortization		—			5,382
Deferred debt finance costs		1,033			872
Accrued interest receivable		3,210			3,121
Prepaid expenses and other assets		296			2,219
Total assets	$	809,464		$	914,495
LIABILITIES AND EQUITY
Liabilities:
Repurchase agreements	$	473,276		$	488,086
Credit facility payable		18,380			18,380
Loan participations sold, net		57,226			99,420
Finance lease liability		—			17,457
Due to related parties		2,133			2,197
Accrued interest payable		1,780			1,499
Distributions payable		1,050			1,047
Accrued expenses and other liabilities		1,669			7,852
Total liabilities		555,514			635,938

Commitments and contingencies (Note 8)

Stockholders’ Equity:
Preferred stock, $0.001 par value, 50,000,000 shares authorized:
6.75% Series A Cumulative Redeemable Preferred Stock, $0.001 par value, 4,025,000 shares authorized and 3,544,553 and 3,548,696 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively		4			4
Class P common stock, $0.001 par value, 500,000,000 shares authorized, 8,562,777 shares issued and outstanding as of September 30, 2023 and December 31, 2022		9			9
Class A common stock, $0.001 par value, 500,000,000 shares authorized, 745,887 and 743,183 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively		1			1
Class T common stock, $0.001 par value, 500,000,000 shares authorized, 290,345 and 286,341 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively		—			—
Class S common stock, $0.001 par value, 500,000,000 shares authorized, 0 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively		—			—
Class D common stock, $0.001 par value, 500,000,000 shares authorized, 48,015 and 47,888 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively		—			—
Class I common stock, $0.001 par value, 500,000,000 shares authorized, 469,168 and 452,667 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively		—			—
Additional paid in capital (net of offering costs of $30,435 and $30,427 as of September 30, 2023 and December 31, 2022, respectively)		339,618			339,470
Accumulated deficit		(85,682	)		(60,927	)
Total stockholders’ equity		253,950			278,557
Total liabilities and stockholders’ equity	$	809,464		$	914,495

The accompanying notes are an integral part of these consolidated financial statements

INPOINT COMMERCIAL REAL ESTATE INCOME, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, dollar amounts in thousands, except share data)


	Three months ended September 30,						Nine months ended September 30,
	2023			2022			2023			2022
Income:
Interest income	$	17,428		$	11,835		$	51,614		$	29,443
Less: Interest expense		(10,809	)		(6,151	)		(31,746	)		(12,512	)
Net interest income		6,619			5,684			19,868			16,931
Revenue from real estate		4,472			4,788			12,719			10,578
Total income		11,091			10,472			32,587			27,509
Operating expenses:
Advisory fee		821			916			2,563			2,797
Debt finance costs		579			451			1,457			1,222
Directors compensation		21			21			61			62
Professional service fees		106			266			483			749
Real estate operating expenses		3,625			4,204			11,535			11,204
Provision for asset impairment		—			—			6,934			—
Depreciation and amortization		—			276			514			835
Other expenses		415			362			1,243			1,025
Net operating expenses		5,567			6,496			24,790			17,894
Other income (loss):
Provision for credit losses		(738	)		—			(13,703	)		—
Gain on sale of real estate		206			—			206			—
Total other loss		(532	)		—			(13,497	)		—
Net income (loss) before income taxes		4,992			3,976			(5,700	)		9,615
Income tax provision		—			—			22			—
Net income (loss)		4,992			3,976			(5,722	)		9,615
Series A Preferred Stock dividends		(1,495	)		(1,518	)		(4,486	)		(4,556	)
Gain on repurchase and retirement of preferred stock		—			24			21			24
Net income (loss) attributable to common stockholders	$	3,497		$	2,482		$	(10,187	)	$	5,083
Net income (loss) attributable to common stockholders per share basic and diluted	$	0.35		$	0.24		$	(1.01	)	$	0.47
Weighted average number of shares of common stock
Basic		10,114,582			10,559,680			10,114,071			10,707,177
Diluted		10,116,388			10,560,589			10,114,071			10,708,778

The accompanying notes are an integral part of these consolidated financial statements

INPOINT COMMERCIAL REAL ESTATE INCOME, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited, dollar amounts in thousands)


For the Three Months Ended September 30, 2023	Par Value Preferred Stock		Par Value Common Stock
	Series A		Class P		Class A		Class T		Class S		Class D		Class I		Additional Paid in Capital			Accumulated Deficit			Total Stockholders’ Equity
Balance as of June 30, 2023	$	4	$	9	$	1	$	—	$	—	$	—	$	—	$	339,663		$	(86,030	)	$	253,647
Offering costs		—		—		—		—		—		—		—		(52	)		—			(52	)
Net income		—		—		—		—		—		—		—		—			4,992			4,992
Common stock distributions declared		—		—		—		—		—		—		—		—			(3,149	)		(3,149	)
Preferred stock distributions declared		—		—		—		—		—		—		—		—			(1,495	)		(1,495	)
Equity-based compensation		—		—		—		—		—		—		—		7			—			7
Balance at September 30, 2023	$	4	$	9	$	1	$	—	$	—	$	—	$	—	$	339,618		$	(85,682	)	$	253,950


For the Three Months Ended September 30, 2022	Par Value Preferred Stock		Par Value Common Stock
	Series A		Class P		Class A		Class T		Class S		Class D		Class I		Additional Paid in Capital			Accumulated Deficit			Total Stockholders’ Equity
Balance as of June 30, 2022	$	4	$	9	$	1	$	—	$	—	$	—	$	—	$	350,833		$	(56,333	)	$	294,514
Proceeds from issuance of common stock		—		—		—		—		—		—		—		1,057			—			1,057
Repurchase and retirement of preferred stock		—		—		—		—		—		—		—		(116	)		24			(92	)
Offering costs		—		—		—		—		—		—		—		(162	)		—			(162	)
Net income		—		—		—		—		—		—		—		—			3,976			3,976
Common stock distributions declared		—		—		—		—		—		—		—		—			(3,262	)		(3,262	)
Preferred stock distributions declared		—		—		—		—		—		—		—		—			(1,518	)		(1,518	)
Distribution reinvestment		—		—		—		—		—		—		—		169			—			169
Redemptions		—		—		—		—		—		—		—		(4,119	)		—			(4,119	)
Equity-based compensation		—		—		—		—		—		—		—		8			—			8
Balance at September 30, 2022	$	4	$	9	$	1	$	—	$	—	$	—	$	—	$	347,670		$	(57,113	)	$	290,571

The accompanying notes are an integral part of these consolidated financial statements

INPOINT COMMERCIAL REAL ESTATE INCOME, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited, dollar amounts in thousands)


For the Nine Months Ended September 30, 2023	Par Value Preferred Stock		Par Value Common Stock
	Series A		Class P		Class A		Class T		Class S		Class D		Class I		Additional Paid in Capital			Accumulated Deficit			Total Stockholders’ Equity
Balance as of December 31, 2022	$	4	$	9	$	1	$	—	$	—	$	—	$	—	$	339,470		$	(60,927	)	$	278,557
Cumulative effect of adoption of ASU 2016-13		—		—		—		—		—		—		—		—			(5,122	)		(5,122	)
Total stockholders' equity at beginning of period, as adjusted		4		9		1		—		—		—		—		339,470			(66,049	)		273,435
Proceeds from issuance of common stock		—		—		—		—		—		—		—		342			—			342
Repurchase and retirement of preferred stock		—		—		—		—		—		—		—		(104	)		21			(83	)
Offering costs		—		—		—		—		—		—		—		(197	)		—			(197	)
Net loss		—		—		—		—		—		—		—		—			(5,722	)		(5,722	)
Common stock distributions declared		—		—		—		—		—		—		—		—			(9,446	)		(9,446	)
Preferred stock distributions declared		—		—		—		—		—		—		—		—			(4,486	)		(4,486	)
Distribution reinvestment		—		—		—		—		—		—		—		85			—			85
Equity-based compensation		—		—		—		—		—		—		—		22			—			22
Balance at September 30, 2023	$	4	$	9	$	1	$	—	$	—	$	—	$	—	$	339,618		$	(85,682	)	$	253,950


For the Nine Months Ended September 30, 2022	Par Value Preferred Stock		Par Value Common Stock
	Series A		Class P		Class A		Class T		Class S		Class D		Class I		Additional Paid in Capital			Accumulated Deficit			Total Stockholders’ Equity
Balance as of December 31, 2021	$	4	$	9	$	1	$	—	$	—	$	—	$	—	$	359,406		$	(52,275	)	$	307,145
Proceeds from issuance of common stock		—		—		—		—		—		—		—		2,419			—			2,419
Repurchase and retirement of preferred stock		—		—		—		—		—		—		—		(116	)		24			(92	)
Offering costs		—		—		—		—		—		—		—		(862	)		—			(862	)
Net income		—		—		—		—		—		—		—		—			9,615			9,615
Common stock distributions declared		—		—		—		—		—		—		—		—			(9,921	)		(9,921	)
Preferred stock distributions declared		—		—		—		—		—		—		—		—			(4,556	)		(4,556	)
Distribution reinvestment		—		—		—		—		—		—		—		487			—			487
Redemptions		—		—		—		—		—		—		—		(13,687	)		—			(13,687	)
Equity-based compensation		—		—		—		—		—		—		—		23			—			23
Balance at September 30, 2022	$	4	$	9	$	1	$	—	$	—	$	—	$	—	$	347,670		$	(57,113	)	$	290,571

The accompanying notes are an integral part of these consolidated financial statements

INPOINT COMMERCIAL REAL ESTATE INCOME, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, dollar amounts in thousands)


	Nine months ended September 30,
	2023			2022
Cash flows from operating activities
Net (loss) income	$	(5,722	)	$	9,615
Adjustments to reconcile net (loss) income to cash provided by operations:
Gain on sale of real estate		(206	)		—
Provision for credit losses		13,703			—
Depreciation and amortization expense		514			835
Reduction in the carrying amount of the right-of-use asset		30			54
Provision for asset impairment		6,934			—
Amortization of equity-based compensation		22			23
Amortization of debt finance costs to operating expense		1,457			1,222
Amortization of debt finance costs to interest expense		3			92
Amortization of origination fees		(15	)		(210	)
Amortization of loan extension fees		(508	)		(182	)
Changes in assets and liabilities:
Accrued interest receivable		(89	)		(1,002	)
Accrued expenses and other liabilities		(6,506	)		3,021
Accrued interest payable		703			961
Due to related parties		84			(390	)
Prepaid expenses and other assets		1,922			(903	)
Net cash provided by operating activities		12,326			13,136
Cash flows from investing activities:
Origination of commercial loans		(18,661	)		(269,107	)
Loan extension fees received on commercial loans		440			330
Principal repayments of commercial loans		77,243			117,576
Proceeds from sale of real estate		11,942			—
Real estate capital expenditures		(496	)		(652	)
Net cash provided by (used in) investing activities		70,468			(151,853	)
Cash flows from financing activities:
Proceeds from issuance of common stock		342			2,419
Redemptions of common stock		—			(13,687	)
Repurchase of preferred stock		(82	)		(92	)
Payment of offering costs		(227	)		(864	)
Proceeds from repurchase agreements		359,951			239,611
Principal repayments of repurchase agreements		(374,764	)		(56,947	)
Principal repayments of credit facility		—			(14,350	)
Proceeds from sale of loan participations		435			2,538
Principal repayments of loan participations		(28,728	)		(15,360	)
Debt finance costs		(1,618	)		(706	)
Distributions paid to common stockholders		(9,358	)		(9,490	)
Distributions paid to preferred stockholders		(4,486	)		(4,556	)
Net cash (used in) provided by financing activities		(58,535	)		128,516
Net change in cash, cash equivalents and restricted cash		24,259			(10,201	)
Cash, cash equivalents and restricted cash at beginning of period		29,408			57,268
Cash, cash equivalents and restricted cash at end of period	$	53,667		$	47,067
Supplemental disclosure of cash flow information:
Amortization of deferred exit fees due to related party	$	(118	)	$	3
Interest paid	$	31,461		$	11,719
Accrued stockholder servicing fee due to related party	$	(29	)	$	(2	)
Distribution reinvestment	$	85		$	487

The accompanying notes are an integral part of these consolidated financial statements

InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

September 30, 2023

(Unaudited, dollar amounts in thousands, except share data)

Note 1 – Organization and Business Operations

InPoint Commercial Real Estate Income, Inc. (the “Company”) was incorporated in Maryland on September 13, 2016 to originate, acquire and manage a diversified portfolio of commercial real estate (“CRE”) investments primarily comprised of (i) CRE debt, including (a) primarily floating-rate first mortgage loans, and (b) subordinate mortgage and mezzanine loans, and participations in such loans and (ii) floating-rate CRE securities, such as commercial mortgage-backed securities (“CMBS”), senior unsecured debt of publicly traded real estate investment trusts (“REITs”). Substantially all of the Company’s business is conducted through InPoint REIT Operating Partnership, LP (the “Operating Partnership”), a Delaware limited partnership. The Company is the sole general partner and directly or indirectly holds all limited partner interests in the Operating Partnership. The Company has elected to be taxed as a REIT for U.S. federal income tax purposes.

The Company is externally managed by Inland InPoint Advisor, LLC (the “Advisor”), a Delaware limited liability company formed in August 2016 that is a wholly owned indirect subsidiary of Inland Real Estate Investment Corporation (“IREIC”), a member of The Inland Real Estate Group of Companies, Inc. The Advisor is responsible for coordinating the management of the day-to-day operations and originating, acquiring and managing the Company’s CRE investment portfolio, subject to the supervision of the Company’s board of directors (the “Board”). The Advisor performs its duties and responsibilities as the Company’s fiduciary pursuant to a second amended and restated advisory agreement dated July 1, 2021 among the Company, the Operating Partnership and the Advisor (the “Advisory Agreement”).

The Advisor has delegated certain of its duties to SPCRE InPoint Advisors, LLC (the “Sub-Advisor”), a Delaware limited liability company formed in September 2016 that is a wholly owned subsidiary of Sound Point CRE Management, LP, pursuant to a second amended and restated sub-advisory agreement between the Advisor and the Sub-Advisor dated July 1, 2021. Among other duties, the Sub-Advisor has the authority to identify, negotiate, acquire and originate the Company’s investments and provide portfolio management, disposition, property management and leasing services to the Company. Notwithstanding such delegation to the Sub-Advisor, the Advisor retains ultimate responsibility for the performance of all the matters entrusted to it under the Advisory Agreement, including those duties that the Advisor has not delegated to the Sub-Advisor, such as (i) valuation of the Company’s assets and calculation of the Company’s net asset value (“NAV”); (ii) management of the Company’s day-to-day operations; (iii) preparation of stockholder reports and communications and arrangement of the Company’s annual stockholder meeting; and (iv) monitoring the Company’s ongoing compliance with the REIT qualification requirements for U.S. federal income tax purposes.

On October 25, 2016, the Company commenced a private offering (the “Private Offering”) of up to $500,000 of shares of Class P common stock (“Class P shares”). The Company issued 10,258,094 Class P shares in the Private Offering, resulting in gross proceeds of $276,681 and terminated the Private Offering on June 28, 2019.

On March 22, 2019, the Company filed a registration statement on Form S-11 (File No. 333-230465) (the “2019 Registration Statement”) with the Securities and Exchange Commission (the “SEC”) to register up to $2,350,000 in shares of common stock (the “IPO”).

On May 3, 2019, the SEC declared effective the 2019 Registration Statement and the Company commenced the IPO. The purchase price per share for each class of common stock in the IPO (Class A, Class I, Class D, Class S and Class T) varied and generally equaled the prior month’s NAV per share, as determined monthly, plus applicable upfront selling commissions and dealer manager fees. Inland Securities Corporation (the “Dealer Manager”), an affiliate of the Advisor, served as the Company’s exclusive dealer manager for the IPO on a best efforts basis.

On March 24, 2020, the Board suspended (i) the sale of shares in the IPO, (ii) the operation of the share repurchase program (the “SRP”), (iii) the payment of distributions to the Company’s stockholders, and (iv) the operation of the distribution reinvestment plan (the “DRP”), effective as of April 6, 2020. In determining to take these actions, the Board considered various factors, including the impact of the COVID-19 pandemic on the economy, the inability to accurately calculate the Company’s NAV per share due to uncertainty, volatility and lack of liquidity in the market, the Company’s need for liquidity due to financing challenges related to additional collateral required by the banks that regularly finance the Company’s assets and these uncertain and rapidly changing economic conditions.

Though the Company did not calculate the NAV for the months of March through May 2020, the Advisor resumed calculating the NAV beginning as of June 30, 2020 following its determination that volatility in the market for the Company’s investments had declined and the U.S. economic outlook had improved. In August 2020, the Company resumed paying distributions monthly to stockholders of record for all classes of its common stock. On October 1, 2020, the SEC declared effective the Company’s post-effective amendment to the

InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

September 30, 2023

(Unaudited, dollar amounts in thousands, except share data)

2019 Registration Statement, thereby permitting the Company to resume offers and sales of shares of common stock in the IPO, including through the DRP.

On March 1, 2021, the SRP was reinstated for the Company’s stockholders requesting repurchase of shares as a result of the death or qualified disability of the holder, and on July 1, 2021, the SRP was reinstated for all stockholders. In accordance with the terms of the SRP that allow the Company to repurchase fewer shares than the maximum amount permitted under the SRP, the Company repurchased fewer shares than the maximum amount permitted for the months of July, August and September 2021 as directed by the Board. Beginning on October 1, 2021, the total amount of aggregate repurchases of shares was limited as set forth in the SRP (no more than 2% of the Company’s aggregate NAV per month as of the last day of the previous calendar month and no more than 5% of the Company’s aggregate NAV per calendar quarter with NAV measured as of the last day of the previous calendar quarter). If the SRP is reinstated again, the Company may repurchase fewer shares than these limits in any month, or none. Further, if reinstated, the Board may in the future modify, suspend or terminate the SRP if it deems such action to be in the Company’s best interest and the best interest of its stockholders.

On September 22, 2021, the Company completed an underwritten public offering of 3,500,000 shares of its 6.75% Series A Cumulative Redeemable Preferred Stock, par value $0.001 per share (the “Series A Preferred Stock”), with a liquidation preference of $25.00 per share (the “Preferred Stock Offering”). In addition, on October 15, 2021, Raymond James & Associates, Inc., as a representative of the underwriters, partially exercised their over-allotment option to purchase an additional 100,000 shares of Series A Preferred Stock. The Series A Preferred Stock were issued and sold pursuant to a registration statement on Form S-11 (File No. 333-258802) filed with the SEC. The Company received net proceeds in the Preferred Stock Offering of $86,310, after underwriter’s discount and issuance costs, and contributed the net proceeds to the Operating Partnership in exchange for an equivalent number of Series A units in the Operating Partnership (with economic terms that mirror those of the Series A Preferred Stock). For more information on the Preferred Stock Offering, see “Note 6 – Stockholders’ Equity.”

On April 28, 2022, the Company filed a registration statement on Form S-11 (File No. 333-264540) (the “2022 Registration Statement”) with the SEC to register up to $2,200,000 in shares of common stock, which was declared effective by the SEC on November 2, 2022 (the “Second Public Offering” and collectively with the IPO, the “Public Offerings”).

In light of the pace of fundraising in the Second Public Offering and the amount of monthly redemption requests pursuant to the SRP, which were in excess of such fundraising, on January 30, 2023, the Board approved, effective immediately, the suspension of the operation of the SRP. In connection with such suspension, the Board also approved the suspension of the sale of shares in the primary portion of the Second Public Offering (the “Primary Offering”), effective immediately, and the suspension of the sale of shares pursuant to the DRP, effective as of February 10, 2023. The Primary Offering, the SRP, and the DRP shall each remain suspended unless and until such time as the Board approves their resumption.

Please refer to “Note 15 – Subsequent Events” for updates to the Company’s business after September 30, 2023.

Note 2 – Summary of Significant Accounting Policies

Disclosures discussing all significant accounting policies are set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on March 30, 2023 (the “Annual Report”), under the heading “Note 2 – Summary of Significant Accounting Policies.” See below for discussion of changes to the Company’s significant accounting policies for the nine months ended September 30, 2023.

Basis of Accounting

The accompanying consolidated financial statements and related footnotes have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) and require management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of income and expenses during the reported periods. Actual results could differ from such estimates.

In the opinion of management, the accompanying unaudited consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation.

InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

September 30, 2023

(Unaudited, dollar amounts in thousands, except share data)

Cash, Cash Equivalents and Restricted Cash

Cash and cash equivalents include funds on deposit with financial institutions, including demand deposits with financial institutions with original maturities of three months or less. The account balance may exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance coverage limits and, as a result, there could be a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage limits. The Company believes that the risk will not be significant, as the Company does not anticipate the financial institutions’ non-performance.

Restricted cash represents cash the Company is required to hold in a segregated account as additional collateral on real estate securities repurchase agreements. As of September 30, 2023 and December 31, 2022, no restricted cash was held by the Company.

Accounting Pronouncements Recently Adopted

On January 1, 2023, the Company adopted Accounting Standards Update 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which requires companies to estimate a current expected credit loss (“CECL”) for the recognition of credit losses on financial instruments, including commercial mortgage loans, in their consolidated financial statements. The allowance for credit losses is adjusted each period for changes in expected credit losses. This replaces prior GAAP which required losses to be recognized as incurred. The Company adopted ASU 2016-13 using the modified retrospective method, therefore, the results for reporting periods prior to January 1, 2023 remain unadjusted and reported in accordance with previously applicable GAAP. In connection with the adoption of ASU 2016-13, the Company recorded a $5,122 increase to accumulated deficit with offsets on the consolidated balance sheet as noted below.

The following table illustrates the impact of adoption ASU 2016-13:


	January 1, 2023
	As Reported Under ASU 2016-13		As Reported Pre-Adoption		Impact of Adoption
Assets:
Allowance for credit losses	$	8,375	$	3,588	$	4,787
Liabilities:
Accrued expenses and other liabilities	$	8,187	$	7,852	$	335

Changes to Significant Accounting Policies

See Part IV, Item 15, “Note 2 – Summary of Significant Accounting Policies” in the Company's Annual Report for a description of its significant accounting Policies. Upon the adoption of ASU 2016-13 on January 1, 2023, the Company adjusted certain significant accounting policies as follows:

Commercial Mortgage Loans Held for Investment and Allowance for Credit Losses

Loans held-for-investment are anticipated to be held until maturity, and reported at cost, net of allowance for credit losses, any unamortized acquisition premiums or discounts, loan fees and origination costs, as applicable. In accordance with ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, or ASU 2016-13, the Company uses a probability-weighted analytical model to estimate and recognize an allowance for credit losses on loans held-for-investment and their related unfunded commitments. The Company employed quarterly updated macroeconomic forecasts, which reflect expectations for overall economic output, interest rates, values of real estate properties and other factors, geopolitical instability and the Federal Reserve monetary policy impact on the overall U.S. economy and commercial real estate markets generally. These estimates may change in future periods based on available future macroeconomic data and might result in a material change in the Company’s future estimates of expected credit losses for its loan portfolio.

The Company considers loan investments that are both (i) expected to be substantially repaid through the operation or sale of the underlying collateral, and (ii) for which the borrower is experiencing financial difficulty, to be “collateral-dependent” loans. With respect to loans for which the Company determines foreclosure of the collateral is probable, the Company measures the expected losses based on the difference between the fair value of the collateral and the amortized cost basis of the loan as of the measurement date. With respect to collateral-dependent loans for which the Company determines foreclosure is not probable, the Company applies a practical

InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

September 30, 2023

(Unaudited, dollar amounts in thousands, except share data)

expedient to estimate expected losses using the difference between the collateral’s fair value (less costs to sell the asset if repayment is expected through the sale of the collateral) and the amortized cost basis of the loan.

For loans assigned a risk rating of “5,” the Company has determined that the recovery of the loan’s principal is collateral-dependent. Accordingly, these loans are assessed individually, and the Company elected to apply a practical expedient in accordance with ASU 2016-13. While utilizing the practical expedient for collateral-dependent loans, the Company estimates the fair value of the loan’s underlying collateral using the discounted cash flow method of valuation, less the estimated cost to foreclose and sell the property when applicable. The estimation of the fair value of the collateral property also involves using various Level 3 unobservable inputs, which are inherently uncertain and subjective, and are in part developed based on discussions with various market participants and management’s best estimates, which may vary depending on the information available and market conditions as of the valuation date. Selecting the appropriate inputs and assumptions requires significant judgment and consideration of various factors that are specific to the underlying collateral property being assessed. The Company’s estimate of the fair value of the collateral property is sensitive to both the valuation methodology selected and inputs used in the analysis. As a result, the fair value of the collateral property used in determining the expected credit losses is subject to uncertainty and any actual losses, if incurred, could differ materially from the estimated provision for credit losses.

Interest income on loans held-for-investment is recognized at the loan coupon rate. Any premiums or discounts, loan fees, contractual exit fees and origination costs are amortized or accreted into interest income over the lives of the loans using the effective interest method. Generally, loans held-for-investment are placed on nonaccrual status when delinquent for more than 90 days or when determined not to be probable of full collection. Loans placed on nonaccrual status are assigned a risk rating of “5”. Interest income recognition is suspended when loans are placed on nonaccrual status. Interest accrued, but not collected, at the date loans are placed on nonaccrual is reversed and subsequently recognized only to the extent it is received in cash or until it qualifies for return to accrual status. However, when there is doubt regarding the ultimate collectability of loan principal, all cash received is applied to reduce the carrying value of such loans. For loans that are on a non-accrual status and financed by loan participations sold, interest income on the loan is only recognized to the extent of interest expense on the loan participation sold, with any net cash collected by the Company reducing the principal balance on the loan. Loans held-for-investment are restored to accrual status only when contractually current or the collection of future payments is reasonably assured. The Company may make exceptions to placing a loan on nonaccrual status if the loan has sufficient collateral value and is in the process of collection or has been modified.

The allowance for credit losses is recorded in accordance with ASU 2016-13, and is a valuation account that is deducted from the amortized cost basis of loans held-for-investment on the Company’s consolidated balance sheets. Changes to the allowance for credit losses are recognized through net income (loss) on the Company’s consolidated statements of operations. The allowance is based on relevant information about past events, including historical loss experience, current portfolio, market conditions and reasonable and supportable forecasts for the duration of each respective loan. All loans held-for-investment within the Company’s portfolio have some amount of expected loss to reflect the GAAP principal underlying the CECL model that all loans have some inherent risk of loss, regardless of credit quality, subordinate capital or other mitigating factors.

The Company’s loans typically include commitments to fund incremental proceeds to its borrowers over the life of the loan. Those future funding commitments are also subject to an allowance for credit losses. The allowance for credit losses related to future loan fundings is recorded as a component of "Accrued expenses and other liabilities" on the Company’s consolidated balance sheets, and not as an offset to the related loan balance. This allowance for credit losses is estimated using the same process outlined below for the Company’s outstanding loan balances, and changes in this component of the allowance for credit losses similarly flow through the Company’s consolidated statements of operations.

The allowance for credit losses is estimated on a quarterly basis and represents management’s estimates of current expected credit losses in the Company’s investment portfolio. Pools of loans with similar risk characteristics are collectively evaluated while loans that no longer share risk characteristics with loan pools are evaluated individually. Estimating an allowance for credit losses is inherently subjective, as it requires management to exercise significant judgment in establishing appropriate factors used to determine the allowance and a variety of subjective assumptions, including (i) determination of relevant historical loan loss data sets, (ii) the expected timing and amount of future loan fundings and repayments, (iii) the current credit quality of loans and operating performance of loan collateral and the Company’s expectations of performance, (iv) selecting the forecast for macroeconomic conditions and (v) determining the reasonable and supportable forecast period.

The Company generally estimates its allowance for credit losses by using a probability-weighted analytical model that considers the likelihood of default and loss-given-default for each individual loan. The analytical model incorporates a third-party licensed database

InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

September 30, 2023

(Unaudited, dollar amounts in thousands, except share data)

with historical loan losses dating back to 1965 for over 100,000 commercial real estate loans. The Company licenses certain macroeconomic financial forecasts from a third-party to inform its view of the potential future impact that broader macroeconomic conditions may have on the performance of the loans held-for-investment. These macroeconomic factors include unemployment rates, interest rates, price indices for commercial property and other factors. The Company may use one or more of these forecasts in the process of estimating its allowance for credit losses. Selection of these economic forecasts requires significant judgment about future events that, while based on the information available to the Company as of the balance sheet date, are ultimately unknowable with certainty, and the actual economic conditions impacting the Company’s portfolio could vary significantly from the estimates the Company made for the periods presented. Significant inputs to the Company’s estimate of the allowance for credit losses include the reasonable and supportable forecast period and loan specific factors such as debt service coverage ratio, or DSCR, loan-to-value ratio, or LTV, remaining contractual loan term, property type and others. In addition, the Company also considers relevant loan-specific qualitative factors to estimate its allowance for credit losses. In certain instances, for loans with unique risk characteristics, the Company may instead elect to employ different methods to estimate loan losses that also conform to ASU 2016-13 and related guidance.

Prior to January 1, 2023, the allowance for loan losses included an asset-specific component and included a general, formula-based component when the portfolio was determined to be of sufficient size to warrant such a reserve.

For the asset-specific component related to reserves for losses on individual impaired loans, the Company considered a loan to be impaired when, based upon current information and events, it believed that it was probable that the Company would be unable to collect all amounts due under the contractual terms of the loan agreement. This assessment was made on an individual loan basis each quarter based on such factors as payment status, borrower financial resources including ability to refinance, and collateral economics. A reserve was established for an impaired loan when the present value of payments expected to be received, observable market prices or the estimated fair value of the collateral was lower than the carrying value of that loan.

Valuations were performed or obtained at the time a loan was determined to be impaired and designated non-performing, and they were updated if circumstances indicate that a significant change in value had occurred. The Advisor generally used the income approach through internally developed valuation models to estimate the fair value of the collateral for such loans. In more limited cases, the Advisor obtained external “as is” appraisals for loan collateral, generally when third party participations existed.

General reserves were recorded when (i) available information as of each balance sheet date indicates that it was probable a loss had occurred in the portfolio and (ii) the amount of the loss could be reasonably estimated. The Company’s policy was to estimate loss rates based on actual losses experienced, if any, or based on historical realized losses experienced in the industry if the Company had not experienced any losses. Current collateral and economic conditions affecting the probability and severity of losses were taken into account when establishing the allowance for loan losses.

Note 3 – Commercial Mortgage Loans Held for Investment

The tables below show the Company’s commercial mortgage loans held for investment as of September 30, 2023 and December 31, 2022:

September 30, 2023


Loan Type (1)	Number of Loans		Principal Balance		Unamortized (fees)/costs, net		Allowance for credit losses			Carrying Value		Weighted Average Interest Rate (2)			Weighted Average Years to Maturity (3)
First mortgage loans		36	$	755,245	$	1,120	$	(18,538	)	$	737,827		8.7	%		1.0
Credit loans		2		13,500		—		(69	)		13,431		9.6	%		2.7
Total and average		38	$	768,745	$	1,120	$	(18,607	)	$	751,258		8.7	%		1.0

InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

September 30, 2023

(Unaudited, dollar amounts in thousands, except share data)

December 31, 2022


Loan Type (1)	Number of Loans		Principal Balance		Unamortized (fees)/costs, net		Allowance for credit losses			Carrying Value		Weighted Average Interest Rate (2)			Weighted Average Years to Maturity (3)
First mortgage loans		41	$	831,007	$	1,359	$	(3,588	)	$	828,778		7.7	%		1.4
Credit loans		2		13,500		—		—			13,500		9.6	%		3.4
Total and average		43	$	844,507	$	1,359	$	(3,588	)	$	842,278		7.8	%		1.4

(1)

First mortgage loans are first position mortgage loans and credit loans are mezzanine and subordinated loans.

(2)

Weighted average interest rate is based on the loan spreads plus the applicable indices as of the last interest reset date, which is typically the 15th of each month. On September 15, 2023, the SOFR rate reset to 5.33%. On December 15, 2022, the LIBOR and SOFR rates reset to 4.32% and 4.34%, respectively.

(3)

Weighted average years to maturity excludes allowable extensions on the loans.

For the nine months ended September 30, 2023, the activity in the Company’s commercial mortgage loans, held-for-investment portfolio was as follows:


	Commercial mortgage loans at cost			Allowance for credit losses			Carrying Value
Balance at Beginning of Year	$	845,866		$	(3,588	)	$	842,278
Adoption of ASU 2016-13		—			(4,787	)		(4,787	)
Balance at beginning of period after adoption		845,866			(8,375	)		837,491
Loan originations		18,661			—			18,661
Principal repayments		(77,243	)		—			(77,243	)
Sale of loan (1)		(17,433	)					(17,433	)
Amortization of loan origination and deferred exit fees		701			—			701
Origination fees and extension fees received on commercial loans		(687	)		—			(687	)
Provision for credit losses		—			(13,715	)		(13,715	)
Charge-offs (1)		—			3,483			3,483
Balance at End of Period	$	769,865		$	(18,607	)	$	751,258

(1)

The Company sold one loan during the third quarter of 2023. See Note 5 for further information.

Allowance for Credit Losses

The following table presents the activity in the Company's allowance for credit losses for the nine months ended September 30, 2023:


	Commercial Mortgage Loans			Unfunded Loan Commitments (1)			Total
Balance at beginning of period	$	(3,588	)	$	—		$	(3,588	)
Adoption of ASU 2016-13		(4,787	)		(335	)		(5,122	)
Balance at beginning of period after adoption		(8,375	)		(335	)		(8,710	)
Provision for credit losses		(13,715	)		12			(13,703	)
Charge-offs (2)		3,483			—			3,483
Ending allowance for credit losses	$	(18,607	)	$	(323	)	$	(18,930	)

(1)

The reserve for expected credit losses related to unfunded loan commitments is recorded in "accrued expenses and other liabilities" on the consolidated balance sheets following the adoption of ASU 2016-13 on January 1, 2023.

(2)

Relates to sale of a loan during the third quarter of 2023. See Note 5 for further information.

InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

September 30, 2023

(Unaudited, dollar amounts in thousands, except share data)

There was no activity for or balance in the allowance for credit losses during the nine months ended September 30, 2022.

During the nine months ended September 30, 2023, the Company increased the CECL reserve by $18,825 which included $5,122 from adoption of ASU 2016-13 and $13,703 in provision for loan losses and reduced the CECL reserve by $3,483 with the charge-off of one loan, bringing the total CECL reserve to $18,930. This CECL reserve reflects certain loans assessed for impairment in the Company's portfolio as well as reserves determined based on an analysis of macroeconomic conditions.

During the nine months ended September 30, 2023, the Company recorded a net increase of $9,121 in the asset-specific component of the CECL reserve. The increase was primarily due to three loans secured by office properties and one loan secured by a multifamily property. The Company observed a decline in the estimated fair value of the collateral since December 31, 2022 due to macroeconomic conditions making the value of the collateral less than the outstanding balances on these loans as of September 30, 2023. The increase in the reserve was partially offset by a decrease due to the charge-off of one loan for $3,483.

During the nine months ended September 30, 2022, under the Company's previous accounting policy prior to the adoption of ASU 2016-13, the Company determined that no loan losses were probable and, therefore, did not record an allowance for credit losses. For further information on the Company's newly adopted policy for the allowance for credit losses, see “Note 2 – Summary of Significant Accounting Policies” in this report. For further information on the Company’s previous policy, see “Note 2 – Summary of Significant Accounting Policies” in its Annual Report.

Credit Characteristics

As part of the Company’s process for monitoring the credit quality of its investments, it performs a quarterly asset review of the investment portfolio and assigns risk ratings to each of its loans and certain securities it may own, such as CMBS. Risk factors include payment status, lien position, borrower financial resources and investment in collateral, collateral type, project economics and geographic location, as well as national and regional economic factors. To determine the likelihood of loss, the loans are rated on a 5-point scale as follows:


Investment Grade	Investment Grade Definition
1	Investment exceeding fundamental performance expectations and/or capital gain expected. Trends and risk factors since time of investment are favorable.
2	Performing consistent with expectations and a full return of principal and interest expected. Trends and risk factors are neutral to favorable.
3	Performing investment requiring closer monitoring. Trends and risk factors show some deterioration. Collection of principal and interest is still expected.
4	Underperforming investment with the potential of some interest loss but still expecting a positive return on investment. Trends and risk factors are negative.
5	Underperforming investment with expected loss of interest and some principal.

All investments are assigned an initial risk rating of 2 at origination or acquisition.

As of September 30, 2023, 25 loans had a risk rating of 2, eight had a risk rating of 3, four had a risk rating of 4 and one had a risk rating of 5. As of December 31, 2022, 33 loans had a risk rating of 2, eight had a risk rating of 3, one had a risk rating of 4 and one had a risk rating of 5.

As of September 30, 2023, the Company had one senior multifamily loan located in Portland, OR with an outstanding balance of $29,550 and an unfunded commitment of $450 that had a risk rating of 5. The sponsor has experienced challenges increasing the residential occupancy and renting out the retail component of the property. During the three and nine months ended September 30, 2023, the Company recognized $533 and $1,727, respectively, in interest income related to this loan. The Company placed the loan on nonaccrual status in September 2023.

Note 4 – Repurchase Agreements and Credit Facilities

Commercial Mortgage Loans

On February 15, 2018, the Company, through a wholly owned subsidiary, entered into a master repurchase agreement (the “Atlas Repo Facility”) with Column Financial, Inc. as administrative agent for certain of its affiliates. As the Company’s business has grown, it has

InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

September 30, 2023

(Unaudited, dollar amounts in thousands, except share data)

increased the borrowing limit and extended the maturity. The most recent extension was in November 2022 for a twelve-month term and the maximum advance amount was set to $375,000. On February 8, 2023, Column Financial, Inc. and affiliated parties sold and assigned their interest in the Atlas Repo Facility to Atlas Securitized Products Investments 2, L.P. (“Atlas”) with no changes to the terms of the Atlas Repo Facility. Advances under the Atlas Repo Facility accrue interest at a per annum annual rate equal to the one-month term USD Secured Overnight Financing Rate (“SOFR”) plus 2.50% to 3.00% with a 0.15% to 0.25% floor. The Company paid off the outstanding balance on the Atlas Repo Facility in May 2023 and had no outstanding balance as of September 30, 2023. As there were no borrowings outstanding, the Company was not subject to any financial covenants.

On May 6, 2019, the Company, through a wholly owned subsidiary, entered into an uncommitted master repurchase agreement (the “JPM Repo Facility”) with JPMorgan Chase Bank, National Association ("JPM"). The JPM Repo Facility provides up to $150,000 in advances that the Company expects to use to finance the acquisition or origination of eligible loans and participation interests therein. Advances made prior to December 2021 under the JPM Repo Facility accrue interest at per annum rates equal to the sum of (i) the applicable one-month USD London Interbank Offered Rate (“LIBOR”) index rate plus (ii) a margin of between 1.75% to 2.50% with no floor, depending on the attributes of the purchased assets. Advances made subsequent to December 2021 under the JPM Repo Facility accrue interest at per annum rates equal to the sum of SOFR plus an agreed upon margin. As of September 30, 2023, all of the advances made under the JPM Repo Facility were indexed to SOFR and have margins between 1.85% and 2.85% with a floor between 0.00% to 2.00%. In May 2022, the maturity date of the JPM Repo Facility was extended to May 6, 2023. On May 5, 2023, the Company entered into an amendment that extended the maturity date to May 6, 2026, with the option to extend the maturity date further to May 6, 2028 subject to two optional one-year extensions. The amendment also increased the maximum facility amount to $526,076. The Company used the increased capacity to pay off the balance on the Atlas Repo Facility. The JPM Repo Facility is subject to certain financial covenants. One of the covenants requires that the ratio of earnings before interest, taxes, depreciation, and amortization (“EBITDA”) to Fixed Charges, defined as preferred dividends plus interest expense per the JPM Repo Facility agreement, should not fall below 150% on a trailing four quarter basis. The amendment on May 5, 2023 removed preferred dividends from the definition of Fixed Charges for purposes of this calculation on a prospective basis. The EBITDA to Fixed Charges ratio for the trailing four quarters was 154% and 135% as of September 30, 2023 and December 31, 2022, respectively. JPM agreed to waive this covenant as of December 31, 2022. As a result, the Company was in compliance with all financial covenant requirements as of September 30, 2023 and December 31, 2022.

On March 10, 2021, the Company, through a wholly owned subsidiary, entered into a loan and security agreement and a promissory note (collectively, the “WA Credit Facility”) with Western Alliance Bank (“Western Alliance”). The WA Credit Facility provides for loan advances up to the lesser of $75,000 or the borrowing base. The borrowing base consists of eligible assets pledged to and accepted by Western Alliance in its discretion up to the lower of (i) 60% to 70% of loan-to-unpaid balance or (ii) 45% to 50% of the loan-to-appraised value (depending on the property type underlying the asset, for both (i) and (ii)). Assets that would otherwise be eligible become ineligible after being pledged as part of the borrowing base for 36 months. Advances under the WA Credit Facility accrue interest at an annual rate equal to one-month LIBOR plus 3.25% with a floor of 0.75%. The initial maturity date of the WA Credit Facility was March 10, 2023. On March 9, 2023, the Company extended the maturity date of the WA Credit Facility to March 10, 2025, modified that loan advances are up to the lesser of $40,000 or the borrowing base, and changed the index rate from LIBOR to SOFR. In addition, the spread increased to 3.50% and the floor to 2.50%. The Company has an option to convert the loan made pursuant to the WA Credit Facility upon its maturity to a term loan with the same interest rate and floor and a maturity of two years in exchange for, among other things, a conversion fee of 0.25% of the outstanding amount at the time of conversion. The WA Credit Facility requires maintenance of an average unrestricted aggregate deposit account balance with Western Alliance of not less than $3,750. Failure to meet the minimum deposit balance will result in, among other things, the interest rate of the WA Credit Facility increasing by 0.50% per annum for each quarter in which the compensating balances are not maintained. The Company was in compliance with all financial covenant requirements as of September 30, 2023 and December 31, 2022.

The JPM Repo Facility, Atlas Repo Facility and WA Credit Facility (collectively, the “Facilities”) are used to finance eligible loans and each act in the manner of a revolving credit facility that can be repaid as the Company’s assets are paid off and re-drawn as advances against new assets.

InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

September 30, 2023

(Unaudited, dollar amounts in thousands, except share data)

The tables below show the Facilities as of September 30, 2023 and December 31, 2022:


September 30, 2023									Weighted Average
	Committed Financing		Amount Outstanding (1)		Accrued Interest Payable		Collateral Pledged		Interest Rate			Days to Maturity

Atlas Repo Facility	$	375,000	$	—	$	—	$	—		—			—
JPM Repo Facility		526,076		473,276		1,323		653,917		7.74	%		1,680
Total Repurchase Facilities — commercial mortgage loans		901,076		473,276		1,323		653,917		7.74	%		1,680
WA Credit Facility		40,000		18,380		76		29,797	9.33% (2)				527
	$	941,076	$	491,656	$	1,399	$	683,714		7.80	%		1,637


December 31, 2022									Weighted Average
	Committed Financing		Amount Outstanding (1)		Accrued Interest Payable		Collateral Pledged		Interest Rate			Days to Maturity
Atlas Repo Facility	$	375,000	$	356,097	$	882	$	494,962		6.89	%		679
JPM Repo Facility		150,000		131,992		305		181,972		6.40	%		492
Total Repurchase Facilities — commercial mortgage loans		525,000		488,089		1,187		676,934		6.76	%		628
WA Credit Facility		75,000		18,380		16		29,797		7.64	%		435
	$	600,000	$	506,469	$	1,203	$	706,731		6.79	%		621

(1)

Excludes zero and $3 of unamortized debt issuance costs at September 30, 2023 and December 31, 2022, respectively.

(2)

Includes 0.50% additional interest rate during the third quarter of 2023 as the minimum deposit balance was not met by the Company as of June 30, 2023.

Note 5 – Loan Participations Sold, Net

On November 15, 2021, the Company sold a non-recourse senior participation interest in nine first mortgage loans to a third party. Under the loan participation agreement, in the event of default by the underlying mortgagor, any amounts paid are first allocated to the third party before any amounts are allocated to the Company’s subordinate interest. The Company, as the directing participant in the loan participation agreement, is entitled to exercise, without the consent of the third party, each of the consent approval and control rights under the applicable underlying mortgage loan documents with a few exceptions. The Company requires the third party’s approval for any modification or amendment to the loan, a bankruptcy plan for an underlying mortgagor where the third party would incur an out-of-pocket loss, or any transfer of the underlying mortgaged property if the Company’s approval is required by the underlying mortgage documents. The Company remains the directing participant unless certain conditions are met related to losses on the property or if the mortgagor is an affiliate of the Company. In the former case, the Company may post cash or short-term U.S. government securities as collateral to retain the rights of the directing participant.

The third party, as the senior participation interest holder, receives interest and principal payments from the borrower until they receive the amounts to which they are entitled. All expenses or losses on the underlying mortgages are allocated first to the Company and then to the third party. If the underlying mortgage is in default, the Company will have the option to purchase the third party’s participation interest and remove it from the loan participation agreement.

The financing or transfer of a portion of a loan by the non-recourse sale of a senior interest in the loan through a participation agreement generally does not qualify as a sale under GAAP. Therefore, in this instance, the Company presents the whole loan as an asset and the loan participation sold as a liability on the consolidated balance sheet until the loan is repaid. The obligation to pay principal and interest on these liabilities is generally based on the performance of the related loan obligation. The gross presentation of loan participations sold does not impact stockholders’ equity or net income.

InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

September 30, 2023

(Unaudited, dollar amounts in thousands, except share data)

During the three months ended September 30, 2023, the Company sold a senior office loan located in Alexandria, VA that had a risk rating of 5 as of June 30, 2023. The loan originally had a senior participation sold under a loan participation agreement to a third party. The Company sold its interest in the loan to the participant counterparty to extinguish the debt. The Company had previously recorded an asset-specific CECL reserve of $3,483 for this loan which was charged-off against the CECL reserve. The loan was on nonaccrual status since March 2023, and the Company only recognized interest income in the amount due to the loan participant and any net cash collected was applied against the principal balance of the loan. During the three and nine months ended September 30, 2023, the Company recognized zero and $531 in interest income, respectively, and zero and $426 in interest expense, respectively, on this loan.

The following table details the Company’s loan participations sold as of September 30, 2023 and December 31, 2022:


	September 30, 2023
Loan Participations Sold	Count		Principal Balance		Book Value		Yield/Cost (1)	Guarantee (2)	Weighted Average Maximum Maturity
Total Loans		4	$	71,532	$	65,607	S+5.9%	n/a		0.48
Senior participations (3)		4	$	57,226	$	57,226	S+2.0%	n/a		0.48


	December 31, 2022
Loan Participations Sold	Count		Principal Balance		Book Value		Yield/Cost (1)	Guarantee (2)	Weighted Average Maximum Maturity
Total Loans		7	$	124,275	$	121,431	L+3.7%	n/a		1.22
Senior participations (3)		7	$	99,420	$	99,420	L+2.0%	n/a		1.22
____________

(1)

The yield/cost is the present value of all future principal and interest payments on the loan or participation interest and does not include any origination fees or deferred commitment fees.

(2)

As of September 30, 2023 and December 31, 2022, the loan participations sold were non-recourse to the Company.

(3)

During the nine months ended September 30, 2023 and 2022, the Company recorded $4,096 and $2,526 of interest expense related to loan participations sold, respectively.

Note 6 – Stockholders’ Equity

Preferred Stock Offering

On September 22, 2021, the Company issued and sold 3,500,000 shares of the Series A Preferred Stock at a public offering price of $25.00 per share. In addition, on October 15, 2021, Raymond James & Associates, Inc., as representative of the underwriters, partially exercised their over-allotment option and purchased an additional 100,000 shares of Series A Preferred Stock. The Series A Preferred Stock were issued and sold pursuant to a registration statement on Form S-11 (File No. 333-258802) filed with the SEC. The Company received net proceeds of $86,310, after underwriter’s discount and issuance costs, and contributed the net proceeds to the Operating Partnership in exchange for an equivalent number of Series A units in the Operating Partnership.

Dividends on the Series A Preferred Stock are cumulative and payable quarterly in arrears at a rate per annum equal to 6.75% per annum of the $25.00 liquidation preference (the “Initial Rate”). Subject to certain exceptions, upon a Change of Control that occurs on or prior to September 22, 2022 or upon a Downgrade Event (as such terms are defined in the Articles Supplementary designating the Series A Preferred Stock (the “Articles Supplementary”)) or where any shares of the Series A Preferred Stock remain outstanding after September 22, 2026, the Series A Preferred Stock will thereafter accrue cumulative cash dividends at a rate higher than the Initial Rate.

Subject to certain exceptions, beginning on September 22, 2022, upon the occurrence of a Change of Control, each holder of shares of Series A Preferred Stock will have the right to convert some or all of the Series A Preferred Stock held by such holder into a number of the Company’s shares of Class I common stock as provided for in the Articles Supplementary.

InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

September 30, 2023

(Unaudited, dollar amounts in thousands, except share data)

The Company may not redeem the Series A Preferred Stock prior to September 22, 2026, except in limited circumstances relating to maintaining the Company’s qualification as a REIT and in connection with a Change of Control. On and after September 22, 2026, the Company may, at its option, redeem the Series A Preferred Stock, in whole or from time-to-time in part, at a price of $25.00 per share of Series A Preferred Stock plus an amount equal to accrued and unpaid dividends (whether or not declared), if any. The Series A Preferred Stock has no maturity date and will remain outstanding indefinitely unless redeemed by the Company or converted by the holder pursuant to its terms (as set forth in the Articles Supplementary).

The Series A Preferred Stock is listed on the New York Stock Exchange under the symbol ICR PR A.

Series A Preferred Stock Repurchase Program

On August 11, 2022, the Board authorized and approved a share repurchase program (the “Series A Preferred Repurchase Program”) pursuant to which the Company was permitted to repurchase up to the lesser of 1,000,000 shares or $15,000 of the outstanding shares of the Company’s Series A Preferred Stock through December 31, 2022. On November 10, 2022, the Board approved to extend the Series A Preferred Repurchase Program through December 31, 2023. Under the Series A Preferred Repurchase Program, repurchases of shares of the Company’s Series A Preferred Stock were to be made at management’s discretion from time to time through open market purchases, privately-negotiated transactions, block purchases or otherwise in accordance with applicable federal securities laws. During the three and nine months ended September 30, 2023, the Company repurchased and retired zero shares and 4,143 shares, respectively, of Series A Preferred Stock resulting in a gain of zero and $21, respectively, from these repurchases. During the three and nine months ended September 30, 2022, the Company repurchased and retired 4,630 shares of Series A Preferred Stock resulting in a gain of $24 from these repurchases. On January 30, 2023, the Board approved the termination of the Series A Preferred Repurchase Program.

Share Activity for Common Stock and Preferred Stock

The following tables detail the change in the Company’s outstanding shares of all classes of common and preferred stock, including restricted common stock:


	Preferred Stock			Common Stock
Nine months ended September 30, 2023	Series A			Class P		Class A		Class T		Class S		Class D		Class I
Beginning balance		3,548,696			8,562,777		743,183		286,341		—		47,888		452,667
Issuance of shares		—			—		1,445		3,453		—		—		12,386
Distribution reinvestment		—			—		1,259		551		—		127		2,393
Issuance of restricted shares		—			—		—		—		—		—		1,722
Repurchase and retirement of preferred stock		(4,143	)		—		—		—		—		—		—
Ending balance		3,544,553			8,562,777		745,887		290,345		—		48,015		469,168


	Preferred Stock			Common Stock
Nine months ended September 30, 2022	Series A			Class P			Class A			Class T			Class S		Class D			Class I
Beginning balance		3,600,000			9,492,939			659,270			388,099			—		47,298			380,218
Issuance of shares		—			—			62,808			31,842			—		—			22,455
Distribution reinvestment		—			—			9,169			4,700			—		1,173			9,505
Redemptions		—			(636,308	)		(27,965	)		(16,272	)		—		(958	)		(9,191	)
Repurchase and retirement of preferred stock		(4,630	)		—			—			—			—		—			—
Ending balance		3,595,370			8,856,631			703,282			408,369			—		47,513			402,987

InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

September 30, 2023

(Unaudited, dollar amounts in thousands, except share data)

Distributions – Common Stock and Series A Preferred Stock

The table below presents the aggregate annualized and monthly distributions declared on common stock by record date for all classes of shares.


Record date	Aggregate annualized gross distribution declared per share		Aggregate monthly gross distribution declared per share
January 31, 2022	$	1.2500	$	0.1042
February 28, 2022	$	1.2500	$	0.1042
March 31, 2022	$	1.2500	$	0.1042
April 30, 2022	$	1.2500	$	0.1042
May 31, 2022	$	1.2500	$	0.1042
June 30, 2022	$	1.2500	$	0.1042
July 31, 2022	$	1.2500	$	0.1042
August 31, 2022	$	1.2500	$	0.1042
September 30, 2022	$	1.2500	$	0.1042
October 31, 2022	$	1.2500	$	0.1042
November 30, 2022	$	1.2500	$	0.1042
December 31, 2022	$	1.2500	$	0.1042
January 31, 2023	$	1.2500	$	0.1042
February 28, 2023	$	1.2500	$	0.1042
March 31, 2023	$	1.2500	$	0.1042
April 30, 2023	$	1.2500	$	0.1042
May 31, 2023	$	1.2500	$	0.1042
June 30, 2023	$	1.2500	$	0.1042
July 31, 2023	$	1.2500	$	0.1042
August 31, 2023	$	1.2500	$	0.1042
September 30, 2023	$	1.2500	$	0.1042

The gross distribution was reduced each month for Class D and Class T of the Company’s common stock for applicable class-specific stockholder servicing fees to arrive at a lower net distribution amount paid to those classes. For a description of the stockholder servicing fees applicable to Class D, Class S and Class T shares of the Company’s common stock, please see “Note 10 – Transactions with Related Parties” below. Since the IPO and through September 30, 2023, the Company has not issued any shares of Class S common stock.

The following table shows the monthly net distribution per share for shares of Class D and Class T common stock.


Record date	Monthly net distribution declared per share of Class D common stock		Monthly net distribution declared per share of Class T common stock
January 31, 2022	$	0.0999	$	0.0896
February 28, 2022	$	0.1003	$	0.0910
March 31, 2022	$	0.0999	$	0.0898
April 30, 2022	$	0.1001	$	0.0903
May 31, 2022	$	0.1000	$	0.0899
June 30, 2022	$	0.1001	$	0.0904
July 31, 2022	$	0.1000	$	0.0899
August 31, 2022	$	0.1000	$	0.0900
September 30, 2022	$	0.1001	$	0.0905
October 31, 2022	$	0.1000	$	0.0900
November 30, 2022	$	0.1002	$	0.0905
December 31, 2022	$	0.1000	$	0.0900
January 31, 2023	$	0.1000	$	0.0900
February 28, 2023	$	0.1004	$	0.0914
March 31,2023	$	0.1001	$	0.0903
April 30,2023	$	0.1002	$	0.0907
May 31, 2023	$	0.1001	$	0.0903
June 30, 2023	$	0.1004	$	0.0912
July 31, 2023	$	0.1005	$	0.0916
August 31, 2023	$	0.1005	$	0.0915
September 30, 2023	$	0.1006	$	0.0920

InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

September 30, 2023

(Unaudited, dollar amounts in thousands, except share data)

Series A Preferred Stock dividends are paid quarterly in arrears based on an annualized distribution rate of 6.75% of the $25.00 per share liquidation preference, or $1.6875 per share per annum.

The table below presents the aggregate and net distributions declared for each applicable class of common stock and preferred stock during the nine months ended September 30, 2023 and 2022. The table excludes distributions declared for any month for a class of shares of stock when there were no shares of that class outstanding on the applicable record date.


	Preferred Stock		Common Stock
Nine months ended September 30, 2023	Series A		Class P		Class A		Class T		Class S		Class D		Class I
Aggregate gross distributions declared per share	$	1.2656	$	0.9378	$	0.9378	$	0.9378	$	—	$	0.9378	$	0.9378
Stockholder servicing fee per share	N/A		N/A		N/A			0.1188		—		0.0350	N/A
Net distributions declared per share	$	1.2656	$	0.9378	$	0.9378	$	0.8190	$	—	$	0.9028	$	0.9378

	Preferred Stock		Common Stock
Nine months ended September 30, 2022	Series A		Class P		Class A		Class T		Class S		Class D		Class I
Aggregate gross distributions declared per share	$	1.2656	$	0.9378	$	0.9378	$	0.9378	$	—	$	0.9378	$	0.9378
Stockholder servicing fee per share	N/A		N/A		N/A			0.1264		—		0.0374	N/A
Net distributions declared per share	$	1.2656	$	0.9378	$	0.9378	$	0.8114	$	—	$	0.9004	$	0.9378

As of September 30, 2023 and December 31, 2022, distributions declared but not yet paid amounted to $1,050 and $1,047, respectively.

Note 7 – Net Income Per Share Attributable to Common Stockholders

Basic earnings per share attributable to common stockholders (“EPS”) is computed by dividing net income attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS is computed by dividing net income attributable to common stockholders by the common shares plus common share equivalents. The Company’s common share equivalents are unvested restricted shares. The Company excludes antidilutive restricted shares from the calculation of weighted-average shares for diluted earnings per share. There were zero antidilutive restricted shares for the three and nine months ended September 30, 2023. There were zero antidilutive restricted shares for the three and nine months ended September 30, 2022. For further information about the Company’s restricted shares, see “Note 11 – Equity-Based Compensation.”

The following table is a summary of the basic and diluted net income per share computation for the three and nine months ended September 30, 2023 and 2022:


	Three months ended September 30,				Nine months ended September 30,
	2023		2022		2023			2022
Net income attributable to common stockholders	$	3,497	$	2,482	$	(10,187	)	$	5,083
Weighted average shares outstanding, basic		10,114,582		10,559,680		10,114,071			10,707,177
Dilutive effect of restricted stock		1,806		909		—			1,601
Weighted average shares outstanding, diluted		10,116,388		10,560,589		10,114,071			10,708,778
Net income attributable to common stockholders per share, basic and diluted	$	0.35	$	0.24	$	(1.01	)	$	0.47

Note 8 – Commitments and Contingencies

In the ordinary course of business, the Company may become subject to litigation, claims and regulatory matters. The Company has no knowledge of material legal or regulatory proceedings pending or known to be contemplated against the Company at this time.

The Company has made a commitment to advance additional funds under certain of its CRE loans if the borrower meets certain conditions. As of September 30, 2023, the Company had 28 such loans with a total remaining future funding commitment of $35,555.

InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

September 30, 2023

(Unaudited, dollar amounts in thousands, except share data)

As of December 31, 2022, the Company had 33 such loans with a total remaining future funding commitment of $59,474. The Company advances future funds if the borrower meets certain requirements as specified in the individual loan agreements.

Note 9 – Segment Reporting

The Company has one reportable segment as defined by GAAP for the nine months ended September 30, 2023 and 2022.

Note 10 – Transactions with Related Parties

As of September 30, 2023, the Advisor had invested $1,000 in the Company through the purchase of 40,040 Class P shares. The purchase price per Class P share for the Advisor’s investment was equal to $25.00. The Advisor has agreed that, for so long as it or its affiliate is serving as the Company’s advisor, (i) it will not sell or transfer at least 8,000 of the Class P shares that it has purchased, accounting for $200 of its investment, to an unaffiliated third party and (ii) repurchase requests made for these Class P shares will only be accepted (a) on the last business day of a calendar quarter, (b) after all repurchase requests from all other stockholders for such quarter have been accepted and (c) to the extent that such repurchases do not cause total repurchases in the quarter in which they are being repurchased to exceed that quarter’s repurchase cap.

As of September 30, 2023, Sound Point Capital Management, LP (“Sound Point”), an affiliate of the Sub-Advisor, had invested $3,000 in the Company through the purchase of 120,000 Class P shares. The purchase price per Class P share for the Sub-Advisor’s investment was $25.00. Sound Point has agreed that, for so long as the Sub-Advisor or its affiliate is serving as the Company’s sub-advisor, repurchase requests made for these Class P shares will only be accepted (a) on the last business day of a calendar quarter, (b) after all repurchase requests from all other stockholders for such quarter have been accepted and (c) to the extent that such repurchases do not cause total repurchases in the quarter in which they are being repurchased to exceed that quarter’s repurchase cap.

The following table summarizes the Company’s related party transactions for the three and nine months ended September 30, 2023 and 2022 and the amount due to related parties at September 30, 2023 and December 31, 2022:


	Three months ended September 30,					Nine months ended September 30,				Payable as of September 30,		Payable as of December 31,
	2023		2022			2023		2022		2023		2022
Organization and offering expense reimbursement (1)	$	—	$	(7	)	$	—	$	—	$	—	$	—
Selling commissions and dealer manager fee (2)		—		42			4		96		—		—
Advisory fee (3)		821		916			2,563		2,797		273		296
Loan fees(4)		143		412			323		3,360		1,407		1,419
Accrued stockholder servicing fee (5)		—		3			4		35		453		482
Total	$	964	$	1,366		$	2,894	$	6,288	$	2,133	$	2,197

(1)

The Company reimburses the Advisor, the Sub-Advisor and their respective affiliates for costs and other expenses related to the Public Offerings, provided the Advisor has agreed to reimburse the Company to the extent that the organization and offering expenses that the Company incurs exceeds 15% of its gross proceeds from the Public Offerings.

(2)

For the Public Offerings, the Dealer Manager is entitled to receive (a) upfront selling commissions of up to 6.0%, and upfront dealer manager fees of up to 1.25%, of the transaction price of each Class A share sold in the primary offering, however such amounts may vary at certain participating broker-dealers provided that the sum will not exceed 7.25% of the transaction price; (b) upfront selling commissions of up to 3.0%, and upfront dealer manager fees of 0.5%, of the transaction price of each Class T share sold in the primary offering, however such amounts may vary at certain participating broker-dealers provided that the sum will not exceed 3.5% of the transaction price; and (c) upfront selling commissions of up to 3.5% of the transaction price of each Class S share sold in the primary offering. No upfront selling commissions or dealer manager fees are paid with respect to purchases of Class D shares, Class I shares or shares of any class sold pursuant to the DRP. All upfront selling commissions and dealer manager fees will be reallowed (paid) by the Dealer Manager to participating broker-dealers.

(3)

The Advisor is entitled to receive an advisory fee comprised of two separate components: (1) a fixed component payable monthly and (2) a performance component payable annually. The fixed component of the advisory fee is paid in an amount equal to 1/12th of 1.25% of the Company’s average NAV for each month, paid monthly in arrears. The performance component of the advisory

InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

September 30, 2023

(Unaudited, dollar amounts in thousands, except share data)

fee is calculated and paid annually, such that for any year in which the Company’s total return per share exceeds 7% per annum, the Advisor will receive 20% of the excess total return allocable to shares of the Company’s common stock; provided that in no event will the performance fee exceed 15% of the aggregate total return allocable to shares of the Company’s common stock for such year. In addition, if the NAV per share decreases below $25 for any class of shares during the measurement period, any subsequent increase in NAV per share to $25 (or such other adjusted number) will not be included in the calculation of the performance component with respect to that class. The Advisor pays fees to the Sub-Advisor for the services it delegates to the Sub-Advisor or may direct the Company to pay a portion of the fees otherwise payable to the Advisor directly to the Sub-Advisor.

(4)

The Company pays the Advisor all new loan origination and administrative fees related to CRE loans held for investment, to the extent that such fees are paid by the borrower. Pursuant to the Sub-Advisory Agreement, the Advisor generally will reallow a portion of loan fees and all administrative fees to the Sub-Advisor.

(5)

Subject to the Financial Industry Regulatory Authority, Inc. limitations on underwriting compensation, the Company pays the Dealer Manager selling commissions over time as stockholder servicing fees for ongoing services rendered to stockholders by participating broker-dealers or broker-dealers servicing stockholders’ accounts as follows: (a) for Class T shares only, 0.85% per annum of the NAV of the Class T shares; (b) for Class S shares only, 0.85% per annum of the aggregate NAV for the Class S shares; and (c) for Class D shares only, 0.25% per annum of the aggregate NAV for the Class D shares. The Company will cease paying the stockholder servicing fee with respect to any Class T share, Class S share or Class D share held in a stockholder’s account upon the occurrence of certain events. The Company accrues the full cost of the stockholder servicing fee as an offering cost at the time the Company sells Class T, Class S, and Class D shares. The Dealer Manager does not retain any of these fees, all of which are retained by, or reallowed (paid) to, participating broker-dealers and servicing broker-dealers for ongoing stockholder services performed by such broker-dealers.

Expense Limitation Agreement

Pursuant to an expense limitation agreement (the “Expense Limitation Agreement”) dated July 1, 2021, the Advisor and Sub-Advisor agree to waive reimbursement of or pay, on a quarterly basis, certain of the Company’s ordinary operating expenses for each class of shares to the extent necessary to ensure that the ordinary operating expenses do not exceed 1.5% of the average monthly net assets on an annualized basis (the “1.5% Expense Limit”). Amounts waived or paid by the Advisor or Sub-Advisor pursuant to the Expense Limitation Agreement are subject to conditional repayment on a quarterly basis by the Company during the three years following the quarter in which the expenses were incurred, but only to the extent such repayment does not cause the Company to exceed its then-current expenses limitation, if any, for such quarter. Any waiver or reimbursement by the Advisor or Sub-Advisor not repaid by the Company within the three-year period will be deemed permanently waived and not subject to repayment under the Expense Limitation Agreement. During the nine months ended September 30, 2023, the amounts of ordinary operating expenses either submitted for reimbursement by the Advisor and Sub-Advisor or incurred by the Company directly that were subject to the Expense Limitation Agreement did not exceed the 1.5% Expense Limit.

Separately from the limitation on ordinary operating expenses under the Expense Limitation Agreement, the Advisor and Sub-Advisor voluntarily chose not to seek reimbursement for certain expenses that they incurred or paid on behalf of the Company during the nine months ended September 30, 2023, and for which they may have been entitled to be reimbursed. The Advisory Agreement and Sub-Advisory Agreement provide that expenses will be submitted monthly to the Company for reimbursement, and the amount of expenses submitted for reimbursement in any particular month is not necessarily indicative of the total amount of expenses actually incurred by the Advisor and the Sub-Advisor in providing services to the Company and for which reimbursement could have been received by the Advisor or Sub-Advisor.

Revolving Credit Liquidity Letter Agreements

IREIC, the Company’s sponsor, and Sound Point have agreed under separate letter agreements dated July 20, 2021, and July 15, 2021, respectively, to make revolving credit loans to the Company in an aggregate principal amount outstanding at any one time not to exceed $5,000 and $15,000, respectively (the “IREIC-Sound Point Commitments”) from time to time until the Termination Date (defined below) of the letter agreements. These letter agreements are identical to each other in all material respects other than the commitment amounts. Use of the IREIC-Sound Point Commitments is limited to satisfying requirements to maintain cash or cash equivalents under the Company’s repurchase and other borrowing arrangements. The “Termination Date” is the earliest of (i) the Maturity Date (defined below) (ii) the first date on which the Company’s balance sheet equity is equal to or greater than $500,000, (iii) the date IREIC or one of its affiliates is no longer the Company’s advisor or Sound Point or one of its affiliates is no longer the Company’s sub-advisor and (iv) such earlier date on which the commitment will terminate as provided in the letter agreements, for example, because of an event of default. The “Maturity Date” is one year from the date of the agreement, and the Maturity Date will be automatically extended every year for an additional year, unless (a) the lender delivers notice of termination 60 days prior to an anniversary of the letter agreements

InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

September 30, 2023

(Unaudited, dollar amounts in thousands, except share data)

or (b) an Event of Default (defined below) has occurred and is continuing. Each revolving loan will bear interest at 6.00% per annum. Interest is payable in arrears when principal is paid or repaid and on the Termination Date. Each of the following constitutes an “Event of Default” under the letter agreements: (y) the Company fails to perform or observe any covenant or condition to be performed or observed under the letter agreement (including the obligation to repay a loan in full on the Termination Date) and such failure is not remedied within three business days of its receipt of notice thereof; or (z) the Company becomes insolvent or the subject of any bankruptcy proceeding.

Note 11 – Equity-Based Compensation

With each stock grant, the Company awards each of its three independent directors an equal number of restricted shares. The table below summarizes total stock grants made at each grant date as of September 30, 2023.


Grant Date	Class of common stock granted	Total number of shares granted		Grant Date Fair Value Per Share		Total Fair Value of Grant		Proportion of total shares that vest annually		Vesting Date Year 1	Vesting Date Year 2	Vesting Date Year 3
March 1, 2018	Class P		1,200	$	25.00	$	30		1/3	3/1/2019	3/1/2020	3/1/2021
January 7, 2019	Class P		1,200	$	25.00	$	30		1/3	1/7/2020	1/7/2021	1/7/2022
December 2, 2019	Class I		1,197	$	25.07	$	30		1/3	12/2/2020	12/2/2021	12/2/2022
December 1, 2020	Class I		1,393	$	21.54	$	30		1/3	12/1/2021	12/1/2022	12/1/2023
October 14, 2021	Class I		1,477	$	20.31	$	30		1/3	10/14/2022	10/14/2023	10/14/2024
October 3, 2022	Class I		1,534	$	19.55	$	30		1/3	10/3/2023	10/3/2024	10/3/2025
September 29, 2023	Class I		1,722	$	17.42	$	30		1/3	9/29/2024	9/29/2025	9/29/2026

Under the Company’s Independent Director Restricted Share Plan, restricted shares generally vest over a three-year vesting period from the date of the grant, subject to the specific terms of the grant. Restricted shares are included in common stock outstanding on the grant date. The grant-date value of the restricted shares is amortized over the vesting period representing the requisite service period. Compensation expense associated with the restricted shares issued to the independent directors was $7 and $22, in the aggregate, for the three and nine months ended September 30, 2023, respectively. Compensation expense associated with the restricted shares issued to the independent directors was $8 and $23, in the aggregate, for the three and nine months ended September 30, 2022, respectively. As of September 30, 2023, the Company had $62 of unrecognized compensation expense related to the unvested restricted shares, in the aggregate. The weighted average remaining period that compensation expense related to unvested restricted shares will be recognized is 1.19 years. The total fair value at the vesting date for restricted shares that vested during the nine months ended September 30, 2023 and 2022 was zero and $8, respectively.

A summary table of the status of the restricted shares is presented below:


	Restricted Shares		Weighted Average Grant Date Fair Value Per Share
Outstanding at December 31, 2022		2,983	$	20.11
Granted		1,722		17.42
Vested		—		—
Converted		—		—
Forfeited		—		—
Outstanding at September 30, 2023		4,705	$	19.13

InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

September 30, 2023

(Unaudited, dollar amounts in thousands, except share data)

Note 12 – Fair Value of Financial Instruments

GAAP requires the disclosure of fair value information about financial instruments, whether or not they are recognized at fair value in the consolidated balance sheets, for which it is practicable to estimate that value. The following table details the carrying amount and estimated fair value of the Company’s financial instruments at the dates below:


	September 30, 2023				December 31, 2022
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Financial assets
Cash and cash equivalents	$	53,667	$	53,667	$	29,408	$	29,408
Commercial mortgage loans, net		751,258		751,258		842,278		842,278
Total	$	804,925	$	804,925	$	871,686	$	871,686
Financial liabilities
Repurchase agreements — commercial mortgage loans	$	473,276	$	473,276	$	488,086	$	488,086
Credit facility payable		18,380		18,380		18,380		18,380
Loan participations — sold		57,226		57,226		99,420		99,420
Total	$	548,882	$	548,882	$	605,886	$	605,886

The following describes the Company’s methods for estimating the fair value for financial instruments:

•

The estimated fair values of restricted cash, cash and cash equivalents were based on the bank balance and was a Level 1 fair value measurement.

•

The estimated fair value of commercial mortgage loans, net is a Level 3 fair value measurement. During the second quarter of 2022, the Company changed the method for calculating the fair value of the commercial mortgage loan portfolio. Since the loans have a short duration to maturity (1.0 years), are not delinquent or impaired (except for one loan impaired as of September 30, 2023 and one loan impaired as of December 31, 2022) and are expected to return to par, the Advisor determined the amortized cost is the best estimate of fair value for all loans except for the impaired loan. For the impaired loan, the estimated fair value also includes the reduction from the allowance for credit losses.

•

The estimated fair values of the repurchase agreements – commercial mortgage loans, credit facility payable and loan participations sold are Level 3 fair value measurements based on expected present value techniques. This method discounts future estimated cash flows using rates the Company determined best reflect current market interest rates that would be offered for repurchase agreements, credit facilities and loan participations sold with similar characteristics and credit quality.

Note 13 – Disposition of Real Estate

On September 28, 2023, the Company sold the Renaissance O'Hare property for net proceeds of $11,942 and recorded a gain of $206 on the sale. During May 2023, the Company had recorded an impairment charge of $6,934, which is reflected in the provision for asset impairment on the consolidated statement of operations during the nine months ended September 30, 2023.

Note 14 – Leases

As of December 31, 2022, the Company was the lessee under one ground lease. The ground lease, which commenced on April 1, 1999, was assumed as part of the Renaissance O'Hare acquired through a deed-in-lieu of foreclosure transaction on August 20, 2020. The lease was classified as a finance lease.

Upon assumption of the lease, the Company recorded a lease liability of $16,827 and a right-of-use asset of $5,549 on its consolidated balance sheet. The lease liability was based on the present value of the ground lease’s future payments using an interest rate of 11.37%,

InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

September 30, 2023

(Unaudited, dollar amounts in thousands, except share data)

which the Company considers reasonable and within the range of the Company’s incremental borrowing rate. Upon the sale of the property on September 28, 2023 (see Note 13), the Company was no longer obligated under the ground lease.

For the three and nine months ended September 30, 2023 and 2022, total finance lease cost recorded to real estate operating expenses on the Company’s consolidated statements of operations was comprised as follows:


	Three months ended September 30,				Nine months ended September 30,
	2023		2022		2023		2022
Amortization of right-of-use assets	$	—	$	18	$	30	$	54
Interest on lease liabilities		486		492		1,483		1,468
Total finance lease cost	$	486	$	510	$	1,513	$	1,522

The table below shows the Company’s finance lease right of use asset, net of amortization as of December 31, 2022:


	December 31,
	2022
Finance lease right of use asset, gross	$	5,549
Accumulated amortization		(167	)
Finance lease right of use asset, net of amortization	$	5,382

Note 15 – Subsequent Events

The Company has evaluated subsequent events through November 13, 2023, the date the financial statements were issued. The following are updates on the Company’s operations since September 30, 2023.

Common Stock Distributions

On October 30, 2023, the Company announced that the Board authorized distributions to stockholders of record as of October 31, 2023, payable on or about November 17, 2023 for each class of its common stock in the amount per share set forth below:


	Common Stock
	Class P		Class A		Class T		Class S		Class D		Class I
Aggregate gross distributions declared per share	$	0.1042	$	0.1042	$	0.1042	$	—	$	0.1042	$	0.1042
Stockholder servicing fee per share	N/A		N/A			0.0126		—		0.0037	N/A
Net distributions declared per share	$	0.1042	$	0.1042	$	0.0916	$	—	$	0.1005	$	0.1042

Atlas Repo Facility

On November 9, 2023, the Atlas Repo Facility was extended to November 7, 2024. The Company requested and Atlas agreed to reduce the maximum advance amount to $100,000.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

Certain statements in this Quarterly Report on Form 10-Q constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Words such as “may,” “could,” “should,” “expect,” “intend,” “plan,” “goal,” “seek,” “anticipate,” “believe,” “estimate,” “predict,” “variables,” “potential,” “continue,” “expand,” “maintain,” “create,” “strategies,” “likely,” “will,” “would” and variations of these terms and similar expressions, or the negative of these terms or similar expressions, are intended to identify forward-looking statements.

These forward-looking statements are not historical facts but reflect the intent, belief or current expectations of the management of InPoint Commercial Real Estate Income, Inc. (which we refer to herein as the “Company,” “we,” “our” or “us”) based on their knowledge and understanding of the business and industry, the economy and other future conditions. These statements are not guarantees of future performance, and we caution stockholders not to place undue reliance on forward-looking statements. Actual results may differ materially from those expressed or forecasted in the forward-looking statements due to a variety of risks, uncertainties and other factors, including but not limited to the factors listed and described under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on March 30, 2023 (the “Annual Report”) and subsequent quarterly reports on Form 10-Q, and the factors described below:

•

We have paid past distributions from sources other than cash flows from operating activities, including from offering proceeds, which reduces the amount of cash we ultimately have to invest in assets, and some of our distributions have not been covered by net income; if we cannot generate sufficient cash flow from operations to fully fund distributions, some or all of our distributions may again be paid from these other sources, and if our net income does not cover our distributions, those distributions will dilute our stockholders’ equity;

•

There is no current public trading market for our common stock, and we do not expect that such a market will ever develop. Therefore, repurchase of shares by us will likely be the only way for stockholders to dispose of their shares, and our SRP is currently suspended;

•

Even if our stockholders are able to sell their shares pursuant to our SRP in the future, or otherwise, they may not be able to recover the amount of their investment in our shares;

•

Our Advisor and our Sub-Advisor may face conflicts of interest in allocating personnel and resources between their affiliates;

•

None of our agreements with our Advisor, our Sub-Advisor or any affiliates of our Advisor or Sub-Advisor were negotiated at arm’s-length; and

•

If we fail to continue to qualify as a REIT, our operations and distributions to stockholders will be adversely affected.

Forward-looking statements in this Quarterly Report on Form 10-Q reflect our management’s view only as of the date of this Quarterly Report on Form 10-Q and, as stated above, may not come into fruition. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results except as required by applicable law. We intend for these forward-looking statements to be covered by the applicable safe harbor provisions created by Section 27A of the Securities Act and Section 21E of the Exchange Act.

The following discussion and analysis relate to the three and nine months ended September 30, 2023 and 2022 and as of September 30, 2023 and December 31, 2022. You should read the following discussion and analysis along with our unaudited consolidated financial statements and the related notes included in this Quarterly Report on Form 10-Q.

Unless otherwise stated, all dollar amounts are stated in thousands, except share data.

Overview

We are a Maryland corporation formed on September 13, 2016 to originate, acquire and manage a diversified portfolio of CRE investments primarily comprised of (i) CRE debt, including (a) primarily floating-rate first mortgage loans, subordinate mortgage and mezzanine loans, and participations in such loans, and (ii) floating-rate CRE securities such as CMBS and senior unsecured debt of publicly traded REITs. Substantially all of our business is conducted through our Operating Partnership, of which we are the sole general partner. We are externally managed by our Advisor, an indirect subsidiary of IREIC. Our Advisor has engaged the Sub-Advisor, a subsidiary of Sound Point CRE Management, LP, to perform certain services on behalf of the Advisor for us.

We have operated in a manner that allows us to qualify as a REIT for U.S. federal income tax purposes commencing with the taxable year ended December 31, 2017.

For a discussion of the history of the Company and its Private Offering, the IPO, the Second Public Offering and the Preferred Stock Offering, please see “Note 1 – Organization and Business Operations” in the notes to our consolidated financial statements above. The IPO and the Second Public Offering are collectively referred to herein as the “Public Offerings”.

Recent Developments

In response to inflationary pressures, in 2022 the Federal Reserve began raising its federal funds rate target range and indicated that, due to the persistent high rate of inflation, it would continue to increase rates until a 2% inflation rate is achieved. The Federal Reserve has also been conducting monetary tightening by increasing the sale of bonds it had purchased on the open market. During the third quarter 2023, the Federal Reserve paused its increase in interest rates to evaluate the impact that the rate increases have had on inflation and has indicated they may be near the peak in rates. Additionally, driven by the shift in Federal Reserve interest rate policy, the general level of interest rates in the market has increased. While such increases in interest rates have resulted in increases in the variable rates we charge on our investments and, hence an increase in our interest income, the interest rates we pay on our repurchase agreements and our interest expense has also increased. We cannot guarantee that the increase in our interest income will not be fully offset by the corresponding increase in our interest expense. Higher interest rates may also slow the pace of loan repayments and increase the number of our borrowers who seek extension of term on their loans. The potential ultimate impact of higher market interest rates on the economy, real estate fundamentals in general and our business is uncertain and difficult to predict.

Company Update – Review of Strategic Alternatives

In connection with the Company’s suspension of the Primary Offering, the SRP and the DRP, the Board has determined to evaluate strategic alternatives available for the Company. The Company has not limited the form of such strategic alternatives, but is currently focused on growth in the form of a potential strategic recapitalization with one or more institutional investors. There is no assurance that the Company will be able to successfully implement such a strategic recapitalization or any other strategic alternative on acceptable terms or at all. In addition, our strategic efforts may continue to evolve or change over time, and there is no assurance we will be able to successfully achieve our desired growth for the Company. We make no undertaking to update you on future developments in this regard; however, to the extent our strategic efforts change in a material way, we may provide updates to the extent legally possible, through our public filings with the SEC.

Q3 2023 Highlights

Operating Results:

•

Net income attributable to common stockholders was $3.5 million, or $0.35 per share during the three months ended September 30, 2023 which included $0.7 million in provision for credit losses.

•

We sold the Renaissance O'Hare for net proceeds of $12.0 million and recorded a gain of $0.2 million on the sale. We had recorded an impairment loss of $6.9 million on the property in the second quarter of 2023 when we entered into the sale agreement, resulting in a total net loss of $6.7 million on the property.

•

During the third quarter of 2023, we paid an annual gross distribution rate of $1.25 per common share, which represents an annualized rate of 7.2% on our aggregate NAV of $17.3317 as of September 30, 2023. Holders of Class D and Class T shares of common stock received less than the gross distribution amount after the deduction of class-specific fees.

Loan Portfolio:

•

We originated no loans during the three months ended September 30, 2023.

•

We had $5.1 million in advances on previously originated loans and loan repayments of $11.1 million resulting in a 2.7% decrease in our loan portfolio to $751.3 million during the three months ended September 30, 2023. The decrease also includes $17.4 million related to the sale of a loan that was previously subject to a loan participation agreement and $0.7 million of provision for credit losses.

•

All 38 of our loans were current on their contractual interest payments with no interest deferrals during the three months ended September 30, 2023. One loan was placed on non-accrual status as of September 30, 2023 and all future cash collected,

including any interest payments, will be applied to its principal balance. As of September 30, 2023, we have recorded an allowance for loan loss of $18.6 million.

Significant Accounting Policies and Use of Estimates

Disclosures discussing all significant accounting policies are set forth in our Annual Report under the heading “Note 2 – Summary of Significant Accounting Policies.” See “Note 2 – Summary of Significant Accounting Policies” for a discussion of changes to our significant accounting policies for the three months ended September 30, 2023.

Portfolio

Our strategy is to originate, acquire and manage an investment portfolio of CRE debt that is primarily floating rate and diversified based on the type and location of collateral securing the underlying CRE debt.

The charts below summarize our debt investments portfolio as a percentage of par value by type of rate, our total investment portfolio by investment type, including real estate sold, and our loan portfolio by collateral type and geographical region as of September 30, 2023 and December 31, 2022:

Floating vs. Fixed Rate Debt Investments:


September 30, 2023	December 31, 2022

All Investments by Type:

September 30, 2023

December 31, 2022

Loans by Property Type:

September 30, 2023

December 31, 2022

Loans by Region:

September 30, 2023

December 31, 2022

An investment’s region is defined according to the below map based on the location of property underlying loans in our portfolio.

The changes in our loan portfolio by property type and by region as of September 30, 2023 compared to December 31, 2022 were primarily due to loans that were repaid by borrowers in ordinary course.

Commercial Mortgage Loans Held for Investment


	As of September 30, 2023			As of December 31, 2022
Principal balance of first mortgage loans	$	755,245		$	831,007
Number of first mortgage loans		36			41
Principal balance of credit loans	$	13,500			13,500
Number of credit loans		2			2
Total balance of loans	$	768,745		$	844,507
Total number of loans		38			43
All-in yield (1)		8.8	%		7.8	%
Weighted average years to maximum maturity		2.8			3.3
____________

(1)

All-in yield is the present value of all future principal and interest payments on the loan and does not include any origination fees or deferred commitment fees. All-in yield is calculated using the spread plus the values of the indices as of September 30, 2023.

The decrease in the size of our portfolio is primarily due to loan payoffs with no new loans during the nine months ended September 30, 2023. The change in the all-in yield was primarily driven by increases in the LIBOR and SOFR rates.

The table below presents information for each of our commercial mortgage loans as of September 30, 2023:


	Origination Date	Loan Type (1)	Principal Balance (2)		Cash Coupon (2)(3)	All-in Yield (2)(3)			Maximum Maturity (4)	State	Property Type	LTV (5)			Risk Rating (6)
1	12/12/17	First mortgage	$	13,450	SOFR+4.70%		10.0	%	4/9/23 (7)	HI	Office		67.0	%		4
2	9/7/18	First mortgage		24,410	SOFR+3.75%		9.1	%	9/9/23 (8)	TX	Office		73.0	%		4
3	12/20/18	First mortgage		16,150	SOFR+4.20%		9.5	%	12/9/23	AL	Hospitality		63.6	%		3
4	5/31/19	First mortgage		11,056	SOFR+3.25%		8.6	%	2/9/24	CA	Multifamily		69.9	%		3
5	6/18/19	First mortgage		45,983	SOFR+2.75%		8.1	%	7/9/26	TX	Office		72.2	%		3
6	8/15/19	First mortgage		7,934	SOFR+4.20%		9.5	%	11/9/24	TN	Office		44.6	%		2
7	9/27/19	First mortgage		16,426	SOFR+3.10%		8.4	%	10/9/24	CA	Office		74.5	%		3
8	10/4/19	First mortgage		22,616	SOFR+2.90%		8.2	%	10/9/24	NC	Office		60.9	%		4
9	2/28/20	First mortgage		9,850	SOFR+3.50%		8.8	%	3/9/25	FL	Retail		77.7	%		2
10	3/5/21	First mortgage		13,647	SOFR+5.00%		10.4	%	3/9/26	VA	Office		56.8	%		4
11	3/12/21	First mortgage		20,135	SOFR+4.00%		9.4	%	3/9/26	MS	Industrial		63.5	%		3
12	4/6/21	First mortgage		15,669	SOFR+3.50%		8.9	%	4/9/26	AL	Multifamily		69.5	%		2
13	4/6/21	First mortgage		12,130	SOFR+3.50%		8.9	%	4/9/26	AL	Multifamily		78.2	%		2
14	4/15/21	First mortgage		9,090	SOFR+4.00%		9.4	%	5/9/26	NJ	Industrial		69.4	%		2
15	5/25/21	First mortgage		11,328	SOFR+3.20%		8.6	%	6/9/26	TN	Multifamily		80.0	%		2
16	5/26/21	First mortgage		15,889	SOFR+3.10%		8.5	%	6/9/26	NV	Multifamily		79.6	%		2
17	7/1/21	First mortgage		6,430	SOFR+4.50%		9.9	%	7/9/26	OH	Mixed Use		78.9	%		3
18	10/8/21	First mortgage		29,550	SOFR+3.20%		8.6	%	10/9/26	OR	Multifamily		72.2	%		5
19	10/15/21	First mortgage		23,354	SOFR+2.95%		8.4	%	11/9/26	VA	Multifamily		76.7	%		2
20	11/12/21	First mortgage		25,642	SOFR+2.90%		8.3	%	11/9/26	TX	Multifamily		73.2	%		2
21	11/16/21	First mortgage		24,452	SOFR+3.05%		8.5	%	12/9/26	TX	Multifamily		73.7	%		2
22	11/17/21	First mortgage		25,127	SOFR+2.85%		8.3	%	12/9/26	SC	Multifamily		71.5	%		2
23	12/9/21	First mortgage		39,654	SOFR+3.05%		8.5	%	12/9/26	GA	Multifamily		71.7	%		2
24	12/15/21	First mortgage		25,529	SOFR+3.20%		8.6	%	1/9/27	OR	Multifamily		70.2	%		2
25	1/14/22	First mortgage		38,387	SOFR+3.40%		8.7	%	1/9/27	MO	Multifamily		80.0	%		2
26	1/20/22	First mortgage		16,153	SOFR+3.65%		9.0	%	2/9/27	NC	Retail		62.6	%		2
27	1/26/22	First mortgage		15,496	SOFR+3.55%		8.9	%	2/9/27	NJ	Industrial		63.1	%		3
28	1/28/22	First mortgage		14,594	SOFR+3.30%		8.6	%	2/9/27	NC	Multifamily		69.9	%		2
29	2/25/22	First mortgage		30,000	SOFR+3.04%		8.4	%	3/9/27	NY	Mixed Use		66.7	%		2
30	3/1/22	First mortgage		28,076	SOFR+3.40%		8.7	%	3/9/27	TX	Multifamily		77.7	%		2
31	3/25/22	First mortgage		16,802	SOFR+3.30%		8.6	%	4/9/27	FL	Industrial		69.7	%		2
32	4/7/22	First mortgage		13,603	SOFR+3.25%		8.6	%	4/9/27	SC	Multifamily		69.0	%		2
33	4/19/22	First mortgage		19,124	SOFR+3.40%		8.7	%	5/9/26	TX	Multifamily		76.3	%		2
34	6/13/22	First mortgage		48,176	SOFR+3.45%		8.8	%	6/9/27	TX	Multifamily		73.1	%		2
35	9/1/22	First mortgage		27,333	SOFR+3.90%		9.2	%	9/9/27	NC	Multifamily		63.4	%		2
36	11/17/22	First mortgage		22,000	SOFR+3.90%		9.2	%	12/9/27	AL	Multifamily		69.6	%		2
37	9/29/17	Credit		7,500	9.20%		9.2	%	10/11/27	NJ	Office		79.9	%		2
38	10/4/19	Credit		6,000	10.00%		10.0	%	10/6/24	NV	Office		75.2	%		3
			$	768,745			8.8	%					71.0	%

(1)

First mortgage loans are first position mortgage loans and credit loans are mezzanine and subordinated loans.

(2)

As of September 30, 2023, an 80% undivided senior interest in each of loan numbers 1, 2, 4, and 8, which includes the right to receive priority interest payments at a rate of S+2.00%, was sold by our Operating Partnership pursuant to a Loan Participation Agreement dated November 15, 2021. Our Operating Partnership has retained a 20% undivided subordinate interest in each of these loans.

(3)

Cash coupon is the stated rate on the loan. All-in yield is the present value of all future principal and interest payments on the loan and does not include any origination fees or deferred commitment fees. The total is the weighted average all-in yield calculated using the spread plus the values of the indices as of September 30, 2023. SOFR was 5.32% as of September 30, 2023. Our first mortgage loans are all floating rate and each contains a minimum SOFR floor. As of September 30, 2023, the weighted average SOFR floor was 0.69%.

(4)

Maximum maturity assumes all extension options are exercised by the borrower, however loans may be repaid prior to such date.

(5)

Loan-to-value (“LTV”) was determined at loan origination and is not updated for subsequent property valuations or loan modifications. The total is the weighted average LTV.

(6)

Risk rating is the internal risk rating assigned by the Sub-Advisor. See “Note 3 – Commercial Mortgage Loans Held for Investment,” which is included in our notes to consolidated financial statements included in this Quarterly Report on Form 10-Q.

(7)

The loan matured on April 9, 2023 and is currently in maturity default. The borrower is paying maturity default interest until it completes a refinancing by a third party expected to be completed in the fourth quarter of 2023. The Company has reviewed the loan and based on the current estimated LTV does not believe the loan is impaired.

(8)

The loan matured on September 9, 2023 and is accruing default interest. The Company is negotiating an extension with the borrower and has recorded a $2.5 million asset-specific CECL reserve.

We entered into master repurchase agreements to fund our loan portfolio. As of September 30, 2023 and December 31, 2022, we had total borrowings of $473,276 (which is net of zero unamortized debt issuance costs) and $488,086 (which is net of $3 of unamortized debt issuance costs), respectively. During the nine months ended September 30, 2023 and the year ended December 31, 2022, we had weighted average borrowings of $569,942 and $551,192 and weighted average borrowing costs of 7.3% and 3.8%, respectively. The increase in weighted average borrowing costs was due to the increase in the SOFR index.

Real Property

During September 2023, we sold the Renaissance O'Hare for net proceeds of $12.0 million and recorded a gain of $0.2 million on the sale. We had recorded an impairment loss of $6.9 million on the property in the second quarter of 2023 when we entered into the sale agreement, resulting in a total net loss of $6.7 million on the property. Upon the sale of the property, we were no longer obligated under the ground lease.

The Renaissance O’Hare was negatively impacted by the COVID-19 pandemic. We recognized net operating income before depreciation and amortization from the hotel of $1.2 million in the nine months ended September 30, 2023. While there was significant improvement in operations in the third quarter in 2023, performance did not return to pre-pandemic levels.

The following table shows the Renaissance O’Hare’s performance trend over the past seven quarters.


Period	Average Occupancy Per Night			Average Revenue Per Available Room (1)		Average Daily Rate (1)
First Quarter 2022		48	%	$	48	$	100
Second Quarter 2022		59	%	$	87	$	146
Third Quarter 2022		59	%	$	93	$	158
Fourth Quarter 2022		55	%	$	85	$	152
First Quarter 2023		55	%	$	69	$	126
Second Quarter 2023		75	%	$	110	$	146
Third Quarter 2023 (2)		73	%	$	105	$	144

(1)

Amounts expressed in whole dollars.

(2)

Reflects information through the date of the sale.

The hotel’s performance improved during the third quarter of 2023 relative to the same period in 2022 primarily due to an increase in travel in the Chicago O’Hare area.

Results of Operations

Comparison of the Three Months Ended September 30, 2023 to the Three Months Ended September 30, 2022

Net Interest Income

Net interest income is generated on our interest-earning assets less related interest-bearing liabilities. The following table presents the average balance of interest-earning assets less related interest-bearing liabilities, associated interest income and expense and corresponding yield earned and incurred for the periods indicated.


	Three months ended September 30,
	2023								2022
	Average Carrying Value (1)			Interest Income/ Expense (2)(3)		Weighted Average Yield/Financing Cost (4)			Average Carrying Value (1)			Interest Income/ Expense (2)(3)		Weighted Average Yield/Financing Cost (4)
Interest-earning assets:
Commercial mortgage loans	$	770,170		$	17,256		8.8	%	$	805,589		$	11,802		5.7	%
Total/Weighted Average	$	770,170		$	17,256		8.8	%	$	805,589		$	11,802		5.7	%
Interest-bearing liabilities:
Repurchase agreements—commercial mortgage loans	$	473,668		$	9,267		7.7	%	$	473,132		$	5,026		4.2	%
Credit facility—loans		18,380			435		9.3	%		—			—		—
Loan participations sold, net		60,358			1,107		7.2	%		102,394			1,125		4.3	%
Total/Weighted Average	$	552,406		$	10,809		7.7	%	$	575,526		$	6,151		4.2	%
Net interest income/spread				$	6,447		1.1	%				$	5,651		1.6	%
Average leverage % (5)		253.7	%							250.2	%
Weighted average levered yield (6)							11.6	%							9.7	%

(1)

Based on amortized cost for real estate securities and principal amount for repurchase agreements. Amounts are calculated based on the average daily balance.

(2)

Includes the effect of amortization of premium or accretion of discount.

(3)

Interest income excludes $172 and $33 for the three months ended September 30, 2023 and 2022, respectively, related to bank deposits not included in the investment portfolio.

(4)

Calculated as annualized interest income or expense divided by average carrying value.

(5)

Calculated by dividing total average interest-bearing liabilities by total average equity (total average interest-earning assets less total average liabilities).

(6)

Calculated by taking the sum of (i) the net interest spread multiplied by the average leverage and (ii) the weighted average yield on interest-earning assets.

The change in our average interest-earning assets and interest-bearing liabilities was due to loan maturities. The change in the weighted average levered yield was primarily due to the Federal Reserve increasing interest rates and how those increases impacted our loan portfolio and our borrowings. Our loan portfolio has interest rate index floors that are higher than the index floors on our borrowings. As a result, our average borrowing costs increased more than our weighted average yield causing the net interest income spread to decrease. In the third quarter of 2022, the indices on the loans and borrowings climbed above their respective interest rate floors and have stayed there since. Consequently, the changes in the weighted average yield and the borrowing costs should be more correlated next quarter and in future quarters until such time as the index starts to fall below the floors.

Revenue from Real Estate

During the three months ended September 30, 2023 and 2022, the Renaissance O’Hare generated $4,472 and $4,788, respectively, in revenue. We believe the decrease in revenue was most likely due to a lower average daily rate caused by a competitive regional hotel environment. We sold the Renaissance O’Hare in September 2023.

Net Operating Expenses

Net operating expenses for the three months ended September 30, 2023 and 2022 consisted of the following:


	Three months ended September 30,
	2023		2022
Advisory fee	$	821	$	916
Debt finance costs		579		451
Directors compensation		21		21
Professional service fees		106		266
Real estate operating expenses		3,625		4,204
Depreciation and amortization		—		276
Other expenses		415		362
Net operating expenses	$	5,567	$	6,496

Net operating expenses for the three months ended September 30, 2023 and 2022 were $5,567 and $6,496, respectively. The primary driver of the decrease in net operating expenses was related to lower operating costs at the Renaissance O’Hare as we received $388 in Employee Retention Credits and $315 in an Illinois B2B Grant to offset payroll costs.

Net Income

For the three months ended September 30, 2023 and 2022, our net income was $4,992 and $3,976, respectively. The increase in net income was primarily due to a $935 increase in net interest income caused by an increase in interest rates and a $263 improvement in the performance of the Renaissance O’Hare that was partially offset by a $738 increase in the CECL provision.

Comparison of the Nine Months Ended September 30, 2023 to the Nine Months Ended September 30, 2022

Net Interest Income


	Nine months ended September 30,
	2023								2022
	Average Carrying Value (1)			Interest Income/ Expense (2)(3)		Weighted Average Yield/Financing Cost (4)			Average Carrying Value (1)			Interest Income/ Expense (2)(3)		Weighted Average Yield/Financing Cost (4)
Interest-earning assets:
Commercial mortgage loans	$	798,391			51,249		8.5	%		768,530			29,410		5.1	%
Total/Weighted Average	$	798,391		$	51,249		8.5	%	$	768,530		$	29,410		5.1	%
Interest-bearing liabilities:
Repurchase agreements—commercial mortgage loans	$	476,021		$	26,457		7.3	%	$	425,573		$	9,844		3.1	%
Credit facility—loans		18,380			1,193		8.6	%		4,521			142		4.1	%
Loan participations sold, net		75,541			4,096		7.2	%		107,545			2,526		3.1	%
Total/Weighted Average	$	569,942		$	31,746		7.3	%	$	537,639		$	12,512		3.1	%
Net interest income/spread				$	19,503		1.1	%				$	16,898		2.0	%
Average leverage % (5)		249.5	%							232.9	%
Weighted average levered yield (6)							11.3	%							9.7	%

(1)

Based on amortized cost for real estate securities and principal amount for repurchase agreements. Amounts are calculated based on the average daily balance.

(2)

Includes the effect of amortization of premium or accretion of discount.

(3)

Interest income excludes $365 and $33 for the nine months ended September 30, 2023 and 2022, respectively, related to bank deposits not included in the investment portfolio.

(4)

Calculated as annualized interest income or expense divided by average carrying value.

(5)

Calculated by dividing total average interest-bearing liabilities by total average equity (total average interest-earning assets less total average liabilities).

(6)

Calculated by taking the sum of (i) the net interest spread multiplied by the average leverage and (ii) the weighted average yield on interest-earning assets.

The change in our average interest-earning assets and interest-bearing liabilities was due to the change in the composition of our investment portfolio as we invested proceeds from the IPO, the Second Public Offering, the Preferred Stock Offering, and the sale of loan participations to execute our business strategy. The change in the weighted average levered yield was primarily due to the Federal Reserve increasing interest rates and how those increases impacted our loan portfolio and our borrowings. Our loan portfolio has interest rate index floors that are higher than the index floors on our borrowings. As a result, our average borrowing costs increased more than our weighted average yield causing the net interest income spread to decrease. In the third quarter of 2022, the indices on the loans and borrowings climbed above their respective interest rate floors and have stayed there since. Consequently, the changes in the weighted average yield and the borrowing costs should be more correlated next quarter and in future quarters until such time as the index starts to fall below the floors.

Revenue from Real Estate

During the nine months ended September 30, 2023 and 2022, the Renaissance O’Hare generated $12,719 and $10,578, respectively, in revenue. We believe the increase in revenue was most likely primarily due to increased travel because of the easing of pandemic related travel restrictions and increased willingness and desire to travel. We sold the Renaissance O’Hare in September 2023.

Net Operating Expenses

Net operating expenses for the nine months ended September 30, 2023 and 2022 consisted of the following:


	Nine months ended September 30,
	2023		2022
Advisory fee	$	2,563	$	2,797
Debt finance costs		1,457		1,222
Directors compensation		61		62
Professional service fees		483		749
Real estate operating expenses		11,535		11,204
Provision for asset impairment		6,934		—
Depreciation and amortization		514		835
Other expenses		1,243		1,025
Net operating expenses	$	24,790	$	17,894

Net operating expenses for the nine months ended September 30, 2023 and 2022 were $24,790 and $17,894, respectively. The primary driver of the increase in net operating expenses was related to the impairment loss recorded on the Renaissance O’Hare.

Net Income

For the nine months ended September 30, 2023 and 2022, our net (loss) income was $(5,722) and $9,615, respectively. The decrease in net income was primarily due to an increase in our CECL reserve by $13,703 and the impairment loss of $6,934 recorded on the Renaissance O’Hare, partially offset by a $2,937 increase in net interest income caused by an increase in interest rates.

Non-GAAP Financial Measures

Funds from Operations and Modified Funds from Operations

We use Funds from Operations (“FFO”), a widely accepted metric, to evaluate our performance. FFO provides a supplemental measure to compare our performance and operations to other REITs. Due to certain unique operating characteristics of real estate companies, the

National Association of Real Estate Investment Trusts (“NAREIT”) has promulgated a standard known as FFO, which it believes more accurately reflects the operating performance of a REIT. As defined by NAREIT, FFO means net income (loss) attributable to common stockholders computed in accordance with GAAP, excluding gains (or losses) from sales of operating property, plus depreciation and amortization and after adjustments for unconsolidated entities. In addition, NAREIT has further clarified the FFO definition to add-back impairment write-downs of depreciable real estate or of investments in unconsolidated entities that are driven by measurable decreases in the fair value of depreciable real estate and to exclude the earnings impacts of cumulative effects of accounting changes. We have adopted the NAREIT definition for computing FFO.

Due to the unique features of publicly registered, non-listed REITs, the Institute for Portfolio Alternatives (“IPA”), an industry trade group, published a standardized measure known as Modified Funds from Operations (“MFFO”), which the IPA has promulgated as a supplemental measure for publicly registered non-listed REITs and which may be another appropriate supplemental measure to reflect the operating performance of a non-listed REIT.

The IPA defines MFFO as FFO adjusted for acquisition fees and expenses, amounts relating to straight line rents and amortization of premiums on debt investments, non-recurring impairments of real estate-related investments, mark-to-market adjustments included in net income, non-recurring gains or losses included in net income from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, and after adjustments for consolidated and unconsolidated partnerships and joint ventures.

We define MFFO in accordance with the concepts established by the IPA and adjust FFO for certain items, such as amortization of premium and discounts on real estate securities. We purchase real estate securities at a premium or discount to par value, and in accordance with GAAP, record the amortization of premium/accretion of the discount to interest income. We believe that excluding the amortization of premiums and discounts provides better insight to the expected contractual cash flows. We also adjust FFO for gains or losses on preferred stock repurchases because we do not consider these gains or losses to be a measure of our operating performance. In addition, we adjust FFO for unrealized gains or losses on real estate securities. Any mark-to-market or fair value adjustments are based on general market or overall industry conditions and may be temporary in nature.

Because MFFO may be a recognized measure of operating performance within the non-listed REIT industry, MFFO and the adjustments used to calculate it may be useful in order to evaluate our performance against other non-listed REITs. Like FFO, MFFO is not equivalent to our net income or loss as determined under GAAP, as detailed in the table below, and MFFO may not be a useful measure of the impact of long-term operating performance on value if we continue to acquire a significant amount of investments.

Our presentation of FFO and MFFO may not be comparable to other similarly titled measures presented by other REITs. We believe that the use of FFO and MFFO provides a more complete understanding of our operating performance to stockholders and to management, and when compared year over year, reflects the impact on our operations from trends in operating costs, general and administrative expenses, and interest costs. Neither FFO nor MFFO is intended to be an alternative to “net income” or to “cash flows from operating activities” as determined by GAAP as a measure of our capacity to pay distributions. Management uses FFO and MFFO to compare our operating performance to that of other REITs and to assess our operating performance.

Neither the SEC, any other regulatory body nor NAREIT has passed judgment on the acceptability of the adjustments that we use to calculate FFO or MFFO. In the future, the SEC, another regulatory body or NAREIT may decide to standardize the allowable adjustments across the non-listed REIT industry and we would have to adjust our calculation and characterization of FFO or MFFO.

Our FFO and MFFO are calculated as follows:


	Three months ended September 30,						Nine months ended September 30,
	2023			2022			2023			2022
GAAP net income attributable to common stockholders	$	3,497		$	2,482		$	(10,187	)	$	5,083
Depreciation and amortization		—			276			514			835
Provision for asset impairment		—			—			6,934			—
Gain on sale of real estate		(206	)		—			(206	)		—
Funds from operations attributable to common stockholders	$	3,291		$	2,758		$	(2,945	)	$	5,918

Amortization of debt financing costs		579			451			1,457			1,222
Non-cash adjustment for ground lease		84			107			305			314
Provision for credit losses		738			—			13,703			—
Adjustment for gain on repurchase and retirement of preferred stock		—			(24	)		(21	)		(24	)
Modified funds from operations attributable to common stockholders	$	4,692		$	3,292		$	12,499		$	7,430

Net Asset Value

The purchase price per share for each class of our common stock in our Public Offerings generally equals our prior month’s NAV per share, as determined monthly, plus applicable selling commissions and dealer manager fees. Our NAV for each class of shares is based on the net asset values of our investments, the addition of any other assets (such as cash on hand) and the deduction of any liabilities, including the allocation/accrual of any performance participation and any stockholder servicing fees applicable to such class of shares. The Advisor is responsible for reviewing and confirming our NAV, as well as overseeing the process around the calculation of our NAV, in each case, as calculated by the independent valuation advisor. See “Valuation Guidelines” below for further information regarding our valuation policies used to determine our NAV.

The following table provides a breakdown of the major components of our net asset value attributable to common stock:


Components of NAV	As of September 30, 2023
Commercial mortgage loans	$	757,156
Cash and cash equivalents and restricted cash		53,667
Other assets		5,732
Repurchase agreements - commercial mortgage loans		(473,276	)
Credit facility payable		(18,380	)
Loan participations sold		(57,226	)
Due to related parties		(2,133	)
Distributions payable		(1,050	)
Accrued interest payable		(1,780	)
Accrued stockholder servicing fees (1)		(193	)
Other liabilities		(681	)
Preferred stock		(86,509	)
Net asset value attributable to common stock	$	175,327
Number of outstanding shares		10,116

(1)

Stockholder servicing fees only apply to Class T, Class S, and Class D shares. For purposes of NAV, we recognize the stockholder servicing fee as a reduction of NAV on a monthly basis as such fee is paid. Under GAAP, we accrue the full cost of the stockholder servicing fee as an offering cost at the time we sell Class T, Class S, and Class D shares. As of September 30, 2023, we have accrued under GAAP $645 of stockholder servicing fees payable to the Dealer Manager related to the Class T and Class D shares sold. As of September 30, 2023, we have not sold any Class S shares and, therefore, we have not accrued any stockholder servicing fees payable to the Dealer Manager related to Class S shares. The Dealer Manager does not retain any of these fees, all of which are retained by, or reallowed (paid) to, participating broker-dealers and servicing broker-dealers for ongoing stockholder services performed by such broker-dealers.

The table below outlines our total NAV and NAV per share by share class as of September 30, 2023:


	Common Stock
NAV Per Share	Class P		Class A		Class T		Class S		Class D		Class I		Total
Monthly NAV	$	148,316	$	12,956	$	5,060	$	—	$	834	$	8,148	$	175,327
Number of outstanding shares		8,563		746		290		—		48		469		10,116
NAV per share as of September 30, 2023	$	17.3211	$	17.3702	$	17.4283	$	—	$	17.3636	$	17.3678	$	17.3317

The following table reconciles stockholders’ equity per our consolidated balance sheet to our NAV:


Reconciliation of Stockholders’ Equity to NAV	As of September 30, 2023
Stockholders' equity per GAAP	$	253,950
Adjustments:
Unamortized stockholder servicing fee		472
Unamortized offering costs		1,192
Allowance for loan losses excluding specific reserve		6,222
Net asset value	$	261,836
Preferred Stock Adjustments:
Preferred stock liquidation value		(88,614	)
Unamortized preferred stock offering costs		2,105
Net asset value attributable to common stock	$	175,327

Valuation Guidelines

Our Board, including a majority of our independent directors, has adopted valuation guidelines that contain a comprehensive set of methodologies to be used by our Advisor, with the assistance of our Sub-Advisor, and our independent valuation advisor in connection with estimating the values of our assets and liabilities for purposes of our NAV calculation. From time to time, our Board, including a majority of our independent directors, may adopt changes to the valuation guidelines if it (1) determines that such changes are likely to result in a more accurate reflection of NAV or a more efficient or less costly procedure for the determination of NAV without having a material adverse effect on the accuracy of such determination or (2) otherwise reasonably believes a change is appropriate for the determination of NAV. In connection with carrying out its responsibility to determine our NAV, our Advisor may delegate certain tasks to our Sub-Advisor. Our Advisor, however, is ultimately responsible for the NAV determination process.

The calculation of our NAV is intended to be a calculation of the value of our assets less our outstanding liabilities for the purpose of establishing a purchase and repurchase price for our shares of common stock and may differ from our financial statements. NAV is not a measure used under GAAP and the valuations of and certain adjustments made to our assets and liabilities used in the determination of NAV will differ from GAAP.

Our Advisor calculates the fair value of our assets in accordance with our valuation guidelines. Because these fair value calculations involve significant professional judgment in the application of both observable and unobservable attributes, the calculated fair value of our assets may differ from their actual realizable value or future fair value. Furthermore, no rule or regulation requires that we calculate NAV in a certain way. While we believe our NAV calculation methodologies are consistent with standard industry principles, there is no established practice among public REITs, whether listed or not, for calculating NAV in order to establish a purchase and repurchase price. As a result, other public REITs may use different methodologies or assumptions to determine NAV.

Our Independent Valuation Advisor

With the approval of our Board, including a majority of our independent directors, we have engaged BDO USA, LLP to serve as our independent valuation advisor. Our Advisor, with the approval of our Board, including a majority of our independent directors, may engage additional independent valuation advisors in the future as our portfolio grows. At the end of each month, the independent valuation advisor reviews the calculation of our monthly NAV. The independent valuation advisor is not responsible for our NAV, and performs its services based solely on information received from us, our Advisor and our Sub-Advisor. Our Advisor, and not the independent valuation advisor, is ultimately responsible for the determination of our NAV.

Our independent valuation advisor may be replaced at any time, in accordance with agreed-upon notice requirements, by a majority vote of our Board, including a majority of our independent directors. We will promptly disclose any changes to the identity or role of the independent valuation advisor in reports we publicly file with the SEC. Our independent valuation advisor discharges its responsibilities

in accordance with our valuation guidelines. Our Board is not involved in the monthly valuation of our assets and liabilities, but periodically receives and reviews such information about the valuation of our assets and liabilities as it deems necessary to exercise its oversight responsibility.

We have agreed to pay fees to our independent valuation advisor upon its delivery to us of its review reports. We have also agreed to indemnify our independent valuation advisor against certain liabilities arising out of this engagement. The compensation we pay to our independent valuation advisor is not based on the estimated values of our loans or our NAV.

Our independent valuation advisor may from time to time in the future perform other commercial real estate and financial advisory services for our Advisor or Sub-Advisor and their affiliates, so long as such other services do not adversely affect the independence of the independent valuation advisor.

Valuation of Investments

The majority of our investments consist of CRE debt intended to be held to maturity. We may also invest in real estate and other real estate-related assets and liquid non-real estate-related assets. Real estate-related assets include CRE securities, such as CMBS and CRE CLOs, and unsecured debt of publicly traded REITs. Our liquid non-real estate-related assets may include credit rated government and corporate debt securities, publicly traded equity securities and cash and cash equivalents.

Our Advisor seeks to determine the fair value of investments as of the last day of each month. Fair value determinations are based upon all available inputs that our Advisor deems relevant, including, but not limited to, indicative dealer quotes, values of like securities, discounted cash flow analysis, and valuations prepared by third-party valuation services. However, determination of fair value involves subjective judgments and estimates.

•

Mortgage Loans, Participations in Mortgage Loans and Mezzanine Loans. Our Advisor estimates the fair value of our loan portfolio in accordance with the methodologies contained in our valuation guidelines approved by our Board. In general, the loan portfolio will be valued at amortized cost, subject to impairment testing. As of January 1, 2023, we are required under GAAP to record a Current Expected Credit Loss (CECL) reserve on the CRE debt portfolio that will be adjusted at least quarterly. The CECL reserve is not considered an impairment and, therefore, the value of the loans will exclude the CECL reserve amount. The value of the loans does include any reserves for collateral-dependent loans. We believe this methodology is consistent with institutional valuation practices and provides an appropriate valuation for purposes of establishing a purchase and repurchase price for our shares of common stock as it relates to assets that are intended to be held to maturity.

•

Real Estate-Related Securities and Derivatives. Our real estate-related securities investments will generally focus on non-distressed public and private real estate debt, including, but not limited to, CMBS and other forms of debt. Additionally, we may make open market purchases of common stock in public equity REITs. We may also invest in derivatives. Our principal investments in derivative instruments may include investments in interest rate swaps, interest rate cap or floor contracts, futures or forward contracts, options or repurchase agreements. Our real estate-related securities and derivative investments are recorded at fair market value in our financial statements, in accordance with ASC Topic 820. The valuation of these assets is obtained from market quotations obtained from third-party pricing service providers or broker-dealers. Pursuant to the valuation guidelines adopted by our Board, if market quotations are not readily available (or are otherwise not reliable for a particular investment), the fair value is determined in good faith by our Advisor. Due to the inherent uncertainty of these estimates, estimates of fair value may differ from the values that would have been used had a ready market for these investments existed and the differences could be material. Market quotes are considered not readily available in circumstances where there is an absence of current or reliable market-based data (e.g., trade information, bid/ask information, or broker-dealer quotations). Our Board has delegated to our Advisor the responsibility for monitoring significant events that may materially affect the values of our real estate-related securities and derivative investments and for determining whether the value of the applicable investments should be reevaluated in light of such significant events.

•

Valuation of Liquid Non-Real Estate-Related Assets. Our liquid non-real estate-related assets are recorded at fair market value in our financial statements, in accordance with ASC Topic 820. The valuation of these assets is based on market prices obtained from third-party pricing services or as published in nationally recognized sources such as Bloomberg.

Valuation of Properties

•

Wholly Owned Properties. For real properties we own, our Advisor has developed a valuation plan with the objective of having each of our wholly owned properties valued at least annually by an appraisal, except for newly acquired properties as described below, with appraisals scheduled over the course of a year. We rely on property-level information provided by our Advisor, including but not limited to (1) historical and projected operating revenues and expenses of the property, (2) lease agreements

with respect to the property and (3) information regarding recent or planned capital expenditures. Appraisals will be performed in accordance with the Internal Revenue Code of Ethics and the Uniform Standards of Professional Appraisal Practices, the real estate appraisal industry standards created by The Appraisal Foundation. Each appraisal must be reviewed, approved and signed by an individual with the professional designation of MAI (Member of the Appraisal Institute). Newly acquired wholly owned properties will initially be valued at cost and thereafter will join the annual appraisal cycle during the year following the first full calendar year in which we own the property. Development assets, if any, will be valued at cost plus capital expenditures and will join the annual appraisal cycle upon stabilization. Acquisition costs and expenses incurred in connection with the acquisition of multiple wholly owned properties that are not directly related to any single wholly owned property generally will be allocated among the applicable wholly owned properties pro rata based on relative values. Properties purchased as a portfolio or held in a joint venture that acquires properties over time may be valued as a single asset. Each individual appraisal report for our assets will be addressed solely to our company to assist in providing our monthly portfolio valuation.

Our valuation reports will not be addressed to the public and may not be relied upon by any other person to establish an estimated value of our common stock and will not constitute a recommendation to any person to purchase or sell any shares of our common stock. In preparing our NAV calculation, our Advisor will not solicit third-party indications of interest for our common stock in connection with possible purchases thereof or the acquisition of all or any part of our company. Real estate appraisals are reported on a free and clear basis (for example no mortgage), irrespective of any property-level financing that may be in place. The primary methodology used to value properties is the income approach, whereby value is derived by determining the present value of an asset’s stream of future cash flows (for example, discounted cash flow analysis). Consistent with industry practices, the income approach incorporates subjective judgments regarding comparable rental and operating expense data, the capitalization or discount rate, and projections of future rent and expenses based on appropriate evidence. Other methodologies that may also be used to value properties include sales comparisons and replacement cost approaches. Because the appraisals involve subjective judgments, the fair value of our assets, which is included in our NAV, may not reflect the liquidation value or net realizable value of our properties.

•

Properties Held Through Joint Ventures. Properties held through joint ventures will be valued in a manner that is consistent with the guidelines described above for wholly owned properties. Once the value of a property held by the joint venture is determined by an independent appraisal, the value of our interest in the joint venture is then determined by applying the distribution provisions of the applicable joint venture agreements to the value of the underlying property held by the joint venture.

Liabilities

We include the fair value of our liabilities as part of our NAV calculation. Our liabilities generally include portfolio-level credit facilities, the fees payable to our Advisor and the Dealer Manager, accounts payable, accrued operating expenses, property-level mortgages, reserves for future liabilities and other liabilities. All liabilities are valued using widely accepted methodologies specific to each type of liability. Our debt is typically valued at fair value in accordance with GAAP. Our aggregate monthly NAV will be reduced to reflect the accrual of the liability to pay any declared (and unpaid) distributions for all classes of common stock. Liabilities allocable to a specific class of shares will only be included in the NAV calculation for that class.

NAV and NAV Per Share Calculation

Each class of our common stock, including Class P common stock that we are not offering to the public, have an undivided interest in our assets and liabilities, other than class-specific liabilities. Our NAV is calculated by the independent valuation advisor for each of these classes. Our Advisor is responsible for reviewing and confirming our NAV, and overseeing the process around the calculation of our NAV, in each case, as calculated by the independent valuation advisor. Because stockholder servicing fees allocable to a specific class of shares will only be included in the NAV calculation for that class, the NAV per share for our share classes may differ.

At the end of each month, before taking into consideration class-specific expense accruals for that month, any change in our aggregate NAV (whether an increase or decrease) is allocated among each class of shares based on each class’s relative percentage of the previous aggregate NAV plus issuances of shares that were effective on the first business day of such month and issuances of shares under our DRP and less repurchases under our SRP during such month. The NAV calculation is generally available within 15 calendar days after the end of the applicable month. Changes in our monthly NAV include, without limitation, accruals of our net portfolio income, interest expense, the management fee, any accrued performance fee, distributions, unrealized/realized gains and losses on assets, provisions for credit losses recorded on specific loans, any applicable organization and offering costs and any expense reimbursements. Changes in our monthly NAV also include material non-recurring events, such as capital expenditures and material property acquisitions and dispositions occurring during the month. On an ongoing basis, our Advisor will adjust the accruals to reflect actual operating results and the outstanding receivable, payable and other account balances resulting from the accumulation of monthly accruals for which financial information is available.

For the purpose of calculating our NAV, offering costs are expenses we incur as we raise proceeds in our public and private offerings. For GAAP purposes, these costs are deducted from equity when incurred. For the NAV calculation, all of the offering costs from our public and private offerings incurred through July 17, 2019 (the “NAV Pricing Date”) were added back to equity and amortized into equity monthly over the 60 months beginning with the first full month that follows the NAV Pricing Date. Following the NAV Pricing Date, offering costs are included in the NAV calculation as and when incurred.

Following the aggregation of the NAV of our investments, the addition of any other assets (such as cash on hand) and the deduction of any other liabilities, the independent valuation advisor will incorporate any class-specific adjustments to our NAV, including additional issuances and repurchases of our common stock and accruals of class-specific stockholder servicing fees. For each applicable class of shares, the stockholder servicing fees will be calculated as a percentage of the aggregate NAV for such class of shares. NAV per share for each class is calculated by dividing such class’s NAV at the end of each month by the number of shares outstanding for that class at the end of such month.

The combination of the Class A NAV, Class T NAV, Class S NAV, Class D NAV, Class I NAV and Class P NAV equals the value of our assets less our liabilities, which include certain class-specific liabilities. Our Advisor calculates the value of our investments as directed by our valuation guidelines based upon values received from various sources, including independent valuation services. Our Advisor, with assistance from our Sub-Advisor, is responsible for information received from third parties that is used in calculating our NAV.

Limits on the Calculation of Our Per Share NAV

The overarching principle of our valuation guidelines is to produce reasonable estimated values for each of our investments (and other assets and liabilities). However, the majority of our assets will consist of real estate loans and, as with any real estate valuation protocol and as described above, the valuation of our loans (and other assets and liabilities) will be based on a number of judgments, assumptions and opinions about future events that may or may not prove to be correct. The use of different judgments, assumptions or opinions would likely result in a different estimate of the value of our real estate loans (and other assets and liabilities). Any resulting potential disparity in our NAV per share may be in favor of stockholders whose shares are repurchased, existing stockholders or new purchasers of our common stock, as the case may be, depending on the circumstances at the time (for cases in which our transaction price is based on NAV).

Additionally, while the methodologies contained in our valuation guidelines are designed to operate reliably within a wide variety of circumstances, it is possible that in certain unanticipated situations or after the occurrence of certain extraordinary events (such as a significant disruption in relevant markets, a terrorist attack or an act of nature), our ability to calculate NAV may be impaired or delayed, including, without limitation, circumstances where there is a delay in accessing or receiving information from vendors or other reporting agents upon which we may rely upon in determining the monthly value of our NAV. In these circumstances, a more accurate valuation of our NAV could be obtained by using different assumptions or methodologies. Accordingly, in special situations when, in our Advisor’s reasonable judgment, the administration of the valuation guidelines would result in a valuation that does not represent a fair and accurate estimate of the value of our investment, alternative methodologies may be applied, provided that our Advisor must notify our Board at the next scheduled board meeting of any alternative methodologies utilized and their impact on the overall valuation of our investment. Notwithstanding the foregoing, our Board may suspend the Second Public Offering and/or our SRP if it determines that the calculation of NAV is materially incorrect or unreliable or there is a condition that restricts the valuation of a material portion of our assets. We include no discounts to our NAV for the illiquid nature of our shares, including the limitations under our SRP and our ability to suspend or terminate our SRP at any time. Our NAV generally does not consider exit costs that would likely be incurred if our assets and liabilities were liquidated or sold. While we may use market pricing concepts to value individual components of our NAV, our per share NAV is not derived from the market pricing information of open-end real estate funds listed on stock exchanges. Our NAV does not represent the fair value of our assets less liabilities under GAAP.

Liquidity and Capital Resources

Liquidity is a measurement of our ability to meet potential cash requirements, including ongoing commitments to pay distributions to our stockholders, fund investments, originate loans, repay borrowings, and other general business needs including the payment of our operating and administrative expenses. Our primary sources of funds for liquidity consist of the net proceeds from our IPO, Second Public Offering, Preferred Stock Offering and any follow-on public offerings of common stock, net cash provided by operating activities, proceeds from repurchase agreements and other financing arrangements and future issuances of equity and/or debt securities.

Our primary sources of liquidity include $53.7 million in cash, $449 million in available capacity on our borrowing facilities, and $20 million in available borrowing capacity from our revolving credit letter agreements with IREIC and Sound Point. We may seek additional sources of liquidity from syndicated financing in the form of collateralized loan obligations, sale of loan participations, other borrowings, including additional repurchase agreement facilities and borrowings not related to a specific investment and future offerings of equity and debt securities.

Our primary liquidity needs include originating new loans and acquiring assets in accordance with our investment objectives, our commitments to repay the principal and interest on our borrowings and pay other financing costs, financing our assets, making advances on our future funding obligations, making distributions to our stockholders, funding redemptions under our SRP, funding our operations which includes paying fees and expenses to our Advisor and Sub-Advisor, payment of offering costs in connection with public offerings of common stock, and other general business needs.

Cash Flow Analysis


	Nine months ended September 30,
	2023			2022
Net cash provided by operating activities	$	12,326		$	13,136
Net cash provided by (used in) investing activities		70,468			(151,853	)
Net cash (used in) provided by financing activities		(58,535	)		128,516
Net increase (decrease) in cash and cash equivalents	$	24,259		$	(10,201	)

We experienced a net increase in cash and cash equivalents of $24,259 for the nine months ended September 30, 2023 compared to a net decrease of $10,201 for the nine months ended September 30, 2022. During the nine months ended September 30, 2023, we funded $18,661 in mortgage loans, received $77,243 in principal payments from our loans, paid down $14,813 on our borrowing facilities, made net repayments of $28,293 on our loan participations sold, and paid distributions of $13,844.

Repurchase Agreements and Credit Facilities

On February 15, 2018, we, through our wholly owned subsidiary, entered into a master repurchase agreement (the “Atlas Repo Facility”) with Column Financial, Inc. as administrative agent for certain of its affiliates. As our business has grown, we have increased the borrowing limit and extended the maturity. The most recent extension was in November 2022 for a twelve-month term and the maximum advance amount was increased to $375,000. On February 8, 2023, Column Financial, Inc. and affiliated parties sold and assigned their interest in the Atlas Repo Facility to Atlas Securitized Products Investments 2, L.P. with no changes to the terms of the Atlas Repo Facility. Advances under the Atlas Repo Facility for current loans accrue interest at a per annum rate equal to SOFR plus 2.50% to 3.00% with a 0.15% to 0.25% floor. We paid off the outstanding balance on the Atlas Repo Facility in May 2023 and had no outstanding balance as of September 30, 2023. As there was no outstanding balance on the Atlas Repo Facility, we were not subject to any financial covenants.

On May 6, 2019, we, through our wholly owned subsidiary, entered into an uncommitted master repurchase agreement (the “JPM Repo Facility”) with JPMorgan Chase Bank, National Association ("JPM"). The JPM Repo Facility provides up to $150,000 in advances that we expect to use to finance the acquisition or origination of eligible loans and participation interests therein. Advances made prior to December 2021 under the JPM Repo Facility accrue interest at per annum rates equal to the sum of (i) the applicable LIBOR index rate plus (ii) a margin of between 1.75% to 2.50% with no floor, depending on the attributes of the purchased assets. Advances made subsequent to December 2021 under the JPM Repo Facility accrue interest at per annum rates equal to the sum of SOFR plus an agreed upon margin. As of September 30, 2023, all of the advances made under the JPM Repo Facility were indexed to SOFR and have margins between 1.85% and 2.85% with a floor between 0.00% and 2.00%. In May 2022, the maturity date of the JPM Repo Facility was extended to May 6, 2023. On May 5, 2023, we entered into an amendment that extended the maturity date to May 6, 2026, with the option to extend the maturity date further to May 6, 2028 subject to two optional one-year extensions. The amendment also increased the maximum facility amount to $526,076. We used the increased capacity to pay off the balance on the Atlas Repo Facility. The JPM Repo Facility is subject to certain financial covenants. One of the covenants requires that the ratio of earnings before interest, taxes, depreciation, and amortization (“EBITDA”) to Fixed Charges, defined as preferred dividends plus interest expense per the JPM Repo

Facility agreement, should not fall below 150% on a trailing four quarter basis. The amendment on May 5, 2023 removed preferred dividends from the definition of Fixed Charges for purposes of this calculation on a prospective basis. As of September 30, 2023 and December 31, 2022, the EBITDA to Fixed Charges ratio for the trailing four quarters was 154% and 135%, respectively. JPM agreed to waive this covenant as of December 31, 2022. As a result, we were in compliance with all financial covenant requirements as of September 30, 2023 and December 31, 2022.

On March 10, 2021, we, through our wholly owned subsidiary, entered into a credit facility with Western Alliance Bank (the “WA Credit Facility,” together with the Atlas Repo Facility and the JPM Repo Facility, the “Facilities”). The WA Credit Facility provides for loan advances up to the lesser of $75,000 or the borrowing base. The borrowing base consists of eligible assets pledged to and accepted by Western Alliance in its discretion up to the lower of (i) 60% to 70% of loan-to-unpaid balance or (ii) 45% to 50% of the loan-to-appraised value (depending on the property type underlying the asset, for both (i) and (ii)). Assets that would otherwise be eligible become ineligible after being pledged as part of the borrowing base for 36 months. Advances under the WA Credit Facility accrue interest at an annual rate equal to one-month LIBOR plus 3.25% with a floor of 0.75%. The initial maturity date of the WA Credit Facility was March 10, 2023. On March 9, 2023, we extended the maturity date of the WA Credit Facility to March 10, 2025, modified that loan advances are up to the lesser of $40,000 or the borrowing base, and changed the index rate from LIBOR to SOFR. In addition, the spread increased to 3.50% and the floor to 2.50%. We have an option to convert the loan made pursuant to the WA Credit Facility upon its maturity to a term loan with the same interest rate and floor and a maturity of two years in exchange for, among other things, a conversion fee of 0.25% of the outstanding amount at the time of conversion. The WA Credit Facility requires maintenance of an average unrestricted aggregate deposit account balance with Western Alliance of not less than $3,750. Failure to meet the minimum deposit balance will result in, among other things, the interest rate of the WA Credit Facility increasing by 0.50% per annum for each quarter in which the compensating balances are not maintained. We were in compliance with all financial covenant requirements as of September 30, 2023 and December 31, 2022.

The Facilities are used to finance eligible loans and act in the manner of a revolving credit facility that can be repaid as our assets are paid off and re-drawn as advances against new assets.

The tables below show our Facilities as of September 30, 2023 and December 31, 2022:


September 30, 2023									Weighted Average
	Committed Financing		Amount Outstanding (1)		Accrued Interest Payable		Collateral Pledged		Interest Rate			Days to Maturity

Atlas Repo Facility	$	375,000	$	—	$	—	$	—		—			—
JPM Repo Facility		526,076		473,276		1,323		653,917		7.74	%		1,680
Total Repurchase Facilities — commercial mortgage loans		901,076		473,276		1,323		653,917		7.74	%		1,680
WA Credit Facility		40,000		18,380		76		29,797	9.33% (2)				527
	$	941,076	$	491,656	$	1,399	$	683,714		7.80	%		1,637


December 31, 2022									Weighted Average
	Committed Financing		Amount Outstanding (1)		Accrued Interest Payable		Collateral Pledged		Interest Rate			Days to Maturity
Atlas Repo Facility	$	375,000	$	356,097	$	882	$	494,962		6.89	%		679
JPM Repo Facility		150,000		131,992		305		181,972		6.40	%		492
Total Repurchase Facilities — commercial mortgage loans		525,000		488,089		1,187		676,934		6.76	%		628
WA Credit Facility		75,000		18,380		16		29,797		7.64	%		435
	$	600,000	$	506,469	$	1,203	$	706,731		6.79	%		621

(1)

Excludes zero and $3 of unamortized debt issuance costs at September 30, 2023 and December 31, 2022, respectively.

(2)

Includes 0.50% additional interest rate during the third quarter of 2023 as the minimum deposit balance was not met by us as of June 30, 2023.

Loan Participations Sold

On November 15, 2021, we sold a non-recourse senior participation interest in nine first mortgage loans to a third party. Under the loan participation agreement, in the event of default by the underlying mortgagor, any amounts paid are first allocated to the third party before any amounts are allocated to our subordinate interest. As the directing participant in the loan participation agreement, we are entitled to exercise, without the consent of the third party, each of the consent approval and control rights under the applicable underlying mortgage loan documents with a few exceptions. We require the third party’s approval for any modification or amendment to the loan, a bankruptcy plan for an underlying mortgagor where the third party would incur an out-of-pocket loss, or any transfer of the underlying mortgaged property if our approval is required by the underlying mortgage documents. We remain the directing participant unless certain conditions are met related to losses on the property or if the mortgagor is one of our affiliates. In the former case, we may post cash or short-term U.S. government securities as collateral to retain the rights of the directing participant.

The third party, as the senior participation interest holder, receives interest and principal payments from the borrower until they receive the amounts to which they are entitled. All expenses or losses on the underlying mortgages are allocated first to us and then to the third party. If the underlying mortgage is in default, we will have the option to purchase the third party’s participation interest and remove it from the loan participation agreement.

During July 2023, we sold a senior office loan located in Alexandria, VA. The loan originally had a senior participation sold under a loan participation agreement to a third party. We sold our interest in the loan to the participant counterparty to extinguish the debt. We had previously recorded an asset-specific CECL reserve of $3,483 for this loan which was charged-off against the CECL reserve.

The following table details our loan participations sold as of September 30, 2023 and December 31, 2022:


	September 30, 2023
Loan Participations Sold	Count		Principal Balance		Book Value		Yield/Cost (1)	Guarantee (2)	Weighted Average Maximum Maturity
Total Loans		4	$	71,532	$	65,607	S+5.9%	n/a		0.48
Senior participations (3)		4	$	57,226	$	57,226	S+2.0%	n/a		0.48


	December 31, 2022
Loan Participations Sold	Count		Principal Balance		Book Value		Yield/Cost (1)	Guarantee (2)	Weighted Average Maximum Maturity
Total Loans		7	$	124,275	$	121,431	L+3.7%	n/a		1.22
Senior participations (3)		7	$	99,420	$	99,420	L+2.0%	n/a		1.22
____________

(1)

The yield/cost is the present value of all future principal and interest payments on the loan or participation interest and does not include any origination fees or deferred commitment fees.

(2)

As of September 30, 2023 and December 31, 2022, the loan participations sold were non-recourse to us.

(3)

During the nine months ended September 30, 2023 and 2022, we recorded $4,096 and $2,526 of interest expense related to loan participations sold, respectively.

Revolving Credit Liquidity Letter Agreements

IREIC, our sponsor, and Sound Point have agreed under separate letter agreements dated July 20, 2021, and July 15, 2021, respectively, to make revolving credit loans to us in an aggregate principal amount outstanding at any one time not to exceed $5,000 and $15,000, respectively (the “IREIC-Sound Point Commitments”) from time to time. Use of the IREIC-Sound Point Commitments is limited to satisfying requirements to maintain cash or cash equivalents under our repurchase and other borrowing arrangements.

Distributions

Common Stock

The table below presents the aggregate annualized and monthly distributions declared by record date for all classes of shares of common stock since January 1, 2022.


Record date	Aggregate annualized gross distribution declared per share		Aggregate monthly gross distribution declared per share
January 31, 2022	$	1.2500	$	0.1042
February 28, 2022	$	1.2500	$	0.1042
March 31, 2022	$	1.2500	$	0.1042
April 30, 2022	$	1.2500	$	0.1042
May 31, 2022	$	1.2500	$	0.1042
June 30, 2022	$	1.2500	$	0.1042
July 31, 2022	$	1.2500	$	0.1042
August 31, 2022	$	1.2500	$	0.1042
September 30, 2022	$	1.2500	$	0.1042
October 31, 2022	$	1.2500	$	0.1042
November 30, 2022	$	1.2500	$	0.1042
December 31, 2022	$	1.2500	$	0.1042
January 31, 2023	$	1.2500	$	0.1042
February 28, 2023	$	1.2500	$	0.1042
March 31, 2023	$	1.2500	$	0.1042
April 30, 2023	$	1.2500	$	0.1042
May 31, 2023	$	1.2500	$	0.1042
June 30, 2023	$	1.2500	$	0.1042
July 31, 2023	$	1.2500	$	0.1042
August 31, 2023	$	1.2500	$	0.1042
September 30, 2023	$	1.2500	$	0.1042

The gross distribution was reduced for Class D and Class T of our common stock for applicable class-specific stockholder servicing fees to arrive at the net distribution amount for those classes. For a description of the stockholder servicing fees applicable to Class D, Class S and Class T shares of our common stock, please see “Note 10 – Transactions with Related Parties” in the notes to our consolidated financial statements included in this Quarterly Report on Form 10-Q. Since the IPO and through September 30, 2023, we have not issued any shares of Class S common stock.

The following table shows our monthly net distribution per share for shares of Class D and Class T common stock since January 1, 2022.


Record date	Monthly net distribution declared per share of Class D common stock		Monthly net distribution declared per share of Class T common stock
January 31, 2022	$	0.0999	$	0.0896
February 28, 2022	$	0.1003	$	0.0910
March 31, 2022	$	0.0999	$	0.0898
April 30, 2022	$	0.1001	$	0.0903
May 31, 2022	$	0.1000	$	0.0899
June 30, 2022	$	0.1001	$	0.0904
July 31, 2022	$	0.1000	$	0.0899
August 31, 2022	$	0.1000	$	0.0900
September 30, 2022	$	0.1001	$	0.0905
October 31, 2022	$	0.1000	$	0.0900
November 30, 2022	$	0.1002	$	0.0905
December 31, 2022	$	0.1000	$	0.0900
January 31, 2023	$	0.1000	$	0.0900
February 28, 2023	$	0.1004	$	0.0914
March 31,2023	$	0.1001	$	0.0903
April 30,2023	$	0.1002	$	0.0907
May 31, 2023	$	0.1001	$	0.0903
June 30, 2023	$	0.1004	$	0.0912
July 31, 2023	$	0.1005	$	0.0916
August 31, 2023	$	0.1005	$	0.0915
September 30, 2023	$	0.1006	$	0.0920

Series A Preferred Stock

Series A Preferred Stock dividends are paid quarterly in arrears based on an annualized distribution rate of 6.75% of the $25.00 per share liquidation preference, or $1.6875 per share per annum. The table below shows the aggregate annualized and quarterly distributions declared on the Series A Preferred Stock by record date since January 1, 2022.


Record date	Aggregate annualized gross distribution declared per share		Aggregate quarterly gross distribution declared per share
March 15, 2022	$	1.6875	$	0.421875
June 15, 2022	$	1.6875	$	0.421875
September 15, 2022	$	1.6875	$	0.421875
December 15, 2022	$	1.6875	$	0.421875
March 15, 2023	$	1.6875	$	0.421875
June 15, 2023	$	1.6875	$	0.421875
September 15, 2023	$	1.6875	$	0.421875

Sources of Distributions to Common Stockholders


	Nine months ended September 30,
	2023		2022
Distributions to Holders of Common Stock
Paid in cash	$	9,358	$	9,490
Reinvested in shares		85		487
Total distributions	$	9,443	$	9,977
Net cash provided by operating activities	$	12,326	$	13,136

During the nine months ended September 30, 2023 and 2022, 100% of our distributions were paid from cash flows from operating activities generated during the period.

Critical Accounting Policies

Disclosures discussing all critical accounting policies are set forth in our Annual Report under the heading “Summary of Critical Accounting Policies.” The following is an update to our critical accounting policies during the nine months ended September 30, 2023.

Commercial Mortgage Loans Held for Investment and Allowance for Credit Losses

Loans held-for-investment are anticipated to be held until maturity, and reported at cost, net of allowance for credit losses, any unamortized acquisition premiums or discounts, loan fees and origination costs, as applicable. In accordance with ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, or ASU 2016-13, we use a probability-weighted analytical model to estimate and recognize an allowance for credit losses on loans held-for-investment and their related unfunded commitments. We employed quarterly updated macroeconomic forecasts, which reflect expectations for overall economic output, interest rates, values of real estate properties and other factors, geopolitical instability and the Federal Reserve monetary policy impact on the overall U.S. economy and commercial real estate markets generally. These estimates may change in future periods based on available future macroeconomic data and might result in a material change in our future estimates of expected credit losses for our loan portfolio.

We consider loan investments that are both (i) expected to be substantially repaid through the operation or sale of the underlying collateral, and (ii) for which the borrower is experiencing financial difficulty, to be “collateral-dependent” loans. For loans that we determine foreclosure of the collateral is probable, we measure the expected losses based on the difference between the fair value of the collateral and the amortized cost basis of the loan as of the measurement date. For collateral-dependent loans that we determine foreclosure is not probable, we apply a practical expedient to estimate expected losses using the difference between the collateral’s fair value (less costs to sell the asset if repayment is expected through the sale of the collateral) and the amortized cost basis of the loan.

For loans assigned a risk rating of “5,” we have determined that the recovery of the loan’s principal is collateral-dependent. Accordingly, these loans are assessed individually, and we elected to apply a practical expedient in accordance with ASU 2016-13. While utilizing the practical expedient for collateral-dependent loans, we estimate the fair value of the loan’s underlying collateral using the discounted cash flow method of valuation, less the estimated cost to foreclose and sell the property when applicable. The estimation of the fair value of the collateral property also involves using various Level 3 unobservable inputs, which are inherently uncertain and subjective, and are in part developed based on discussions with various market participants and management’s best estimates, which may vary depending on the information available and market conditions as of the valuation date. Selecting the appropriate inputs and assumptions requires significant judgment and consideration of various factors that are specific to the underlying collateral property being assessed. Our

estimate of the fair value of the collateral property is sensitive to both the valuation methodology selected and inputs used in the analysis. As a result, the fair value of the collateral property used in determining the expected credit losses is subject to uncertainty and any actual losses, if incurred, could differ materially from the estimated provision for credit losses.

Interest income on loans held-for-investment is recognized at the loan coupon rate. Any premiums or discounts, loan fees, contractual exit fees and origination costs are amortized or accreted into interest income over the lives of the loans using the effective interest method. Generally, loans held-for-investment are placed on nonaccrual status when delinquent for more than 90 days or when determined not to be probable of full collection. Interest income recognition is suspended when loans are placed on nonaccrual status. Interest accrued, but not collected, at the date loans are placed on nonaccrual is reversed and subsequently recognized only to the extent it is received in cash or until it qualifies for return to accrual status. However, when there is doubt regarding the ultimate collectability of loan principal, all cash received is applied to reduce the carrying value of such loans. Loans held-for-investment are restored to accrual status only when contractually current or the collection of future payments is reasonably assured. We may make exceptions to placing a loan on nonaccrual status if the loan has sufficient collateral value and is in the process of collection or has been modified.

The allowance for credit losses is recorded in accordance with ASU 2016-13, and is a valuation account that is deducted from the amortized cost basis of loans held-for-investment on our consolidated balance sheets. Changes to the allowance for credit losses are recognized through net income (loss) on our consolidated statements of operations. The allowance is based on relevant information about past events, including historical loss experience, current portfolio, market conditions and reasonable and supportable forecasts for the duration of each respective loan. All loans held-for-investment within our portfolio have some amount of expected loss to reflect the GAAP principal underlying the CECL model that all loans have some inherent risk of loss, regardless of credit quality, subordinate capital or other mitigating factors.

Our loans typically include commitments to fund incremental proceeds to our borrowers over the life of the loan. Those future funding commitments are also subject to an allowance for credit losses. The allowance for credit losses related to future loan fundings is recorded as a component of "Accrued expenses and other liabilities" on our consolidated balance sheets, and not as an offset to the related loan balance. This allowance for credit losses is estimated using the same process outlined below for our outstanding loan balances, and changes in this component of the allowance for credit losses similarly flow through our consolidated statements of operations.

The allowance for credit losses is estimated on a quarterly basis and represents management’s estimates of current expected credit losses in our investment portfolio. Pools of loans with similar risk characteristics are collectively evaluated while loans that no longer share risk characteristics with loan pools are evaluated individually. Estimating an allowance for credit losses is inherently subjective, as it requires management to exercise significant judgment in establishing appropriate factors used to determine the allowance and a variety of subjective assumptions, including (i) determination of relevant historical loan loss data sets, (ii) the expected timing and amount of future loan fundings and repayments, (iii) the current credit quality of loans and operating performance of loan collateral and our expectations of performance, (iv) selecting the forecast for macroeconomic conditions and (v) determining the reasonable and supportable forecast period.

We generally estimate our allowance for credit losses by using a probability-weighted analytical model that considers the likelihood of default and loss-given-default for each individual loan. The analytical model incorporates a third-party licensed database with historical loan losses dating back to 1965 for over 100,000 commercial real estate loans. We license certain macroeconomic financial forecasts from a third-party to inform our view of the potential future impact that broader macroeconomic conditions may have on the performance of the loans held-for-investment. These macroeconomic factors include unemployment rates, interest rates, price indices for commercial property and other factors. We may use one or more of these forecasts in the process of estimating our allowance for credit losses. Selection of these economic forecasts requires significant judgment about future events that, while based on the information available to us as of the balance sheet date, are ultimately unknowable with certainty, and the actual economic conditions impacting our portfolio could vary significantly from the estimates we made for the periods presented. Significant inputs to our estimate of the allowance for credit losses include the reasonable and supportable forecast period and loan specific factors such as debt service coverage ratio, or DSCR, loan-to-value ratio, or LTV, remaining contractual loan term, property type and others. In addition, we also consider relevant loan-specific qualitative factors to estimate our allowance for credit losses. In certain instances, for loans with unique risk characteristics, we may instead elect to employ different methods to estimate loan losses that also conform to ASU 2016-13 and related guidance.

The asset-specific component related to reserves for losses on individual impaired loans. We considered a loan to be impaired when, based upon current information and events, we believed that it was probable that we would be unable to collect all amounts due under the contractual terms of the loan agreement. This assessment was made on an individual loan basis each quarter based on such factors as payment status, borrower financial resources including ability to refinance and collateral economics. A reserve was established for

an impaired loan when the present value of payments expected to be received, observable market prices or the estimated fair value of the collateral was lower than the carrying value of that loan.

Valuations were performed or obtained at the time a loan was determined to be impaired and designated non-performing, and they were updated if circumstances indicate that a significant change in value had occurred. Our Advisor generally used the income approach through internally developed valuation models to estimate the fair value of the collateral for such loans. In more limited cases, our Advisor obtained external “as is” appraisals for loan collateral, generally when third party participations existed.

General reserves were recorded when (i) available information as of each balance sheet date indicates that it was probable a loss had occurred in the portfolio and (ii) the amount of the loss could be reasonably estimated. Our policy was to estimate loss rates based on actual losses experienced, if any, or based on historical realized losses experienced in the industry if we had not experienced any losses. Current collateral and economic conditions affecting the probability and severity of losses were taken into account when establishing the allowance for loan losses.

Off-Balance Sheet Arrangements

We currently have no off-balance sheet arrangements that are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Subsequent Events

For information related to subsequent events, reference is made to “Note 15 – Subsequent Events,” which is included in our notes to consolidated financial statements included in this Quarterly Report on Form 10-Q.

Our Corporate Information

Our principal executive offices are located at 2901 Butterfield Rd., Oak Brook, Illinois 60523, our telephone number is (800) 826-8228 and our website is www.inland-investments.com/inpoint. From time to time, we may use our website as a distribution channel for material company information, including, for example, our position on any third-party tender offers for our securities. Our website is not incorporated by reference in or otherwise a part of this Quarterly Report on Form 10-Q. We will provide without charge a copy of this Quarterly Report on Form 10-Q upon written request delivered to our principal executive offices. We electronically file our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements and all amendments to those reports with the SEC. The SEC maintains an Internet site at www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Credit Risk

Our investments are subject to a high degree of credit risk. Credit risk is the exposure to loss from loan defaults. Default rates are subject to a wide variety of factors, including, but not limited to, borrower financial condition, property performance, property management, supply/demand factors, construction trends, consumer behavior, regional economics, interest rates, the strength of the U.S. economy, and other factors beyond our control. All loans are subject to some risk of default. We manage credit risk through the underwriting process and investment structuring process, acquiring our investments at the appropriate discount to face value, if any, and establishing loss assumptions. We also carefully monitor the performance of the loans, as well as external factors that may affect their value.

Adverse economic conditions could negatively impact the commercial properties underlying our investments resulting in potential borrower delinquencies or defaults. If we fail to repay the lender at maturity, the lender has the right to immediately sell the collateral and pursue us for any shortfall if the sales proceeds are inadequate to cover the repurchase agreement financing.

Interest Rate Risk

Our market risk arises primarily from interest rate risk relating to interest rate fluctuations. Many factors including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond our control contribute to interest rate risk. To meet our short and long-term liquidity requirements, we may borrow funds at fixed and variable rates. Our interest rate risk management objectives are to limit the impact of interest rate changes in earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, from time to time, we may enter into interest rate hedge contracts such as swaps, collars and treasury lock agreements in order to mitigate our interest rate risk with respect to various debt instruments. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in benefits of lower interest rates with respect to our portfolio of investments with fixed interest rates. During the nine months ended September 30, 2023 and 2022, we did not engage in interest rate hedging activities. We do not hold or issue derivative contracts for trading or speculative purposes. We do not have any foreign denominated investments, and thus, we are not exposed to foreign currency fluctuations.

As of both September 30, 2023 and December 31, 2022, our debt investment portfolio was 98% variable rate investments based on SOFR for various terms. Borrowings under our master repurchase agreements were short-term and at a variable rate. Both our investment portfolio and borrowings have minimum levels for SOFR known as interest rate floors. The floors were established when the loans and borrowings were originated based on market conditions. The following table quantifies the potential changes in interest income net of interest expense should interest rates increase or decrease by 25 or 50 basis points, assuming that our current balance sheet was to remain constant and no actions were taken to alter our existing interest rate sensitivity. The change from December 31, 2022 to September 30, 2023 was primarily due to the Federal Reserve increasing interest rates and SOFR increasing above the minimum interest rate floors for our investment portfolio and borrowings.


	Estimated Percentage Change in Interest Income Net of Interest Expense
Change in Rates	September 30, 2023			December 31, 2022
(-) 50 Basis Points		(4.16	)%		(4.49	)%
(-) 25 Basis Points		(2.08	)%		(2.25	)%
Base Interest Rate		0.00	%		0.00	%
(+) 25 Basis Points		2.08	%		2.25	%
(+) 50 Basis Points		4.16	%		4.49	%

For this analysis, SOFR was assumed to not fall below zero.

LIBOR Transition

The ICE Benchmark Administration Limited (“IBA”) has been compelled by the UK Financial Conduct Authority to publish the 1-, 3- and 6-month US Dollar LIBOR setting through September 30, 2024. The Federal Reserve, in conjunction with the Alternative Reference Rate Committee, a committee convened by the Federal Reserve that includes major market participants, has identified the SOFR, a new index calculated by short-term repurchase agreements, backed by U. S. Treasury securities, as its preferred alternative rate for LIBOR. As of September 30, 2023, all of our commercial mortgage loan agreements and our Facilities have been modified to be indexed to SOFR.

Item 4. Controls and Procedures

Controls and Procedures

Our management has evaluated, with the participation of our principal executive and principal financial officers, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the principal executive and principal financial officers have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q.

Changes in Internal Control over Financial Reporting

There were no changes to our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) or Rule 15d-15(f)) during the three months ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II - Other Information

Item 1. Legal Proceedings

In the ordinary course of business, we may become subject to litigation. We have no knowledge of material legal proceedings pending or known to be contemplated against us at this time.

Item 1A. Risk Factors

The following risk factors amend and supplement the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2022 and our Quarterly Report on Form 10-Q for the period ended March 31, 2023.

Economic events that may cause our stockholders to request that we repurchase their shares may materially adversely affect our cash flow and our results of operations and financial condition.

Economic events affecting the U.S. economy, such as the general negative performance of the real estate sector, inflation, disruptions in the labor market (including labor shortages and unemployment), the turbulence in the stock market related to the COVID-19 pandemic and the current military conflicts in Ukraine and the Middle East, could cause our stockholders to seek to sell their shares to us pursuant

to our SRP at a time when such events are adversely affecting the performance of our assets. Our SRP is currently suspended. If we decide to satisfy all repurchase requests within the limits of our SRP, our cash flow could be materially adversely affected. In addition, if we determine to sell assets to satisfy repurchase requests, we may not be able to realize the return on such assets that we may have been able to achieve had we sold at a more favorable time, and our results of operations and financial condition, including, without limitation, breadth of our portfolio by property type and location, could be materially adversely affected.

Our CRE debt and securities investments are subject to the risks typically associated with CRE.

Our CRE debt and securities investments are subject to the risks typically associated with CRE, including:

•

local, state, national or international economic conditions, including market disruptions caused by regional concerns, political upheaval, virus outbreaks and pandemics, war and military conflicts (including volatility as a result of the ongoing conflicts between Russia and Ukraine and in the Middle East), the sovereign debt crisis, inflation and other factors;

•

real estate conditions, such as an oversupply of or a reduction in demand for real estate space in an area;

•

lack of liquidity inherent in the nature of the asset;

•

tenant/operator mix and the success of the tenant/operator business;

•

the ability and willingness of tenants/operators/managers to maintain the financial strength and liquidity to satisfy their obligations to us and to third parties;

•

reliance on tenants/operators/managers to operate their business in a sufficient manner and in compliance with their contractual arrangements with us;

•

ability and cost to replace a tenant/operator/manager upon default;

•

property management decisions;

•

property location and conditions;

•

property operating costs, including insurance premiums, real estate taxes and maintenance costs;

•

the perceptions of the quality, convenience, attractiveness and safety of the properties;

•

branding, marketing and operational strategies;

•

competition from comparable properties;

•

the occupancy rate of, and the rental rates charged at, the properties;

•

the ability to collect on a timely basis all rent;

•

the effects of any bankruptcies or insolvencies;

•

the expense of leasing, renovation or construction;

•

changes in interest rates and in the availability, cost and terms of mortgage financing;

•

unknown liens being placed on the properties;

•

bad acts of third parties;

•

the ability to refinance mortgage notes payable related to the real estate on favorable terms, if at all;

•

changes in governmental rules, regulations and fiscal policies;

•

tax implications;

•

changes in laws, including laws that increase operating expenses or limit rents that may be charged;

•

the impact of present or future environmental legislation and compliance with environmental laws, including costs of remediation and liabilities associated with environmental conditions affecting properties;

•

cost of compliance with the Americans with Disabilities Act;

•

adverse changes in governmental rules and fiscal policies;

•

social unrest and civil disturbances;

•

acts of nature, including earthquakes, hurricanes and other natural disasters;

•

terrorism;

•

the potential for uninsured or underinsured property losses;

•

adverse changes in state and local laws, including zoning laws; and

•

other factors which are beyond our control.

The value of each property underlying our CRE debt and CRE securities investments is affected significantly by its ability to generate cash flow and net income, which in turn depends on the amount of rental or other income that can be generated net of expenses required to be incurred with respect to the property. Many expenses associated with properties (such as operating expenses and capital expenses) cannot be reduced when there is a reduction in income from the properties.

These factors may have a material adverse effect on the value and the return that we can realize from our assets, as well as the ability of our borrowers to pay their loans and the ability of the borrowers on the underlying loans securing our securities to pay their loans.

A prolonged economic slowdown, a lengthy or severe recession or declining real estate values could harm our investments.

Many of our investments may be susceptible to economic slowdowns, recessions, depressions or a pandemic, which could lead to financial losses and a decrease in revenues, earnings and assets. This risk may be magnified in the case of the conflict between Russia and Ukraine, due to the significant sanctions and other restrictive actions taken against Russia by the United States and other countries in response to Russia’s February 2022 invasion of Ukraine, as well as the cessation of all business in Russia by many global companies, and in the case of the conflict in the Middle East. An economic slowdown, or recession or depression, in addition to other economic and non-economic factors such as an excess supply of properties, could have a material negative impact on the values of our investments. Borrowers may be less likely to achieve their business plans and be able to pay principal and interest on our CRE debt investments if the economy weakens and property values decline. Further, declining real estate values significantly increase the likelihood that we will incur losses on our investments in the event of a default because the value of our collateral may be insufficient to cover our cost. In addition, declining real estate values will reduce the value of any of our investments. A strained labor market, along with overall financial uncertainty, could result in lower occupancy rates and lower lease rates across many property types and may create obstacles for us to achieve our business plans. We may also be less able to pay principal and interest on our borrowings, which could cause us to lose title to properties securing our borrowings. Any sustained period of increased payment delinquencies, taking title to collateral or losses could adversely affect both our CRE investments as well as our ability to finance our portfolio, which would significantly harm our revenues, results of operations, financial condition, business prospects and our ability to pay distributions to stockholders.

We depend on borrowers and tenants for a substantial portion of our revenue and, accordingly, our revenue and our ability to pay distributions to our stockholders is dependent upon the success and economic viability of such borrowers and tenants.

The success of our origination or acquisition of investments significantly depends on the financial stability of the borrowers and tenants underlying such investments. The inability of a single major borrower or tenant, or a number of smaller borrowers or tenants, to meet their payment obligations could result in reduced revenue or losses. Our borrowers and tenants may be negatively affected by continued disruptions in global supply chains, labor shortages, broad inflationary pressures or military conflicts (including volatility as a result of the ongoing conflicts between Russia and Ukraine and in the Middle East), any of which may have a negative impact on our borrowers’ ability to execute on their business plans and their ability to perform under the terms of their loan obligations.

We may originate or acquire properties located outside of the United States or loans that are made to borrowers or secured by properties located outside of the United States with the approval of our Board. These international investments present unique risks to our business.

Our Board may approve an investment in a property outside of the United States or in a CRE debt or CRE securities investment secured by a property located outside of the United States. Any international investments we make may be affected by factors peculiar to the laws of the jurisdiction in which the borrower or the property is located and these laws may expose us to risks that are different from or in addition to those commonly found in the United States. We may not be as familiar with the potential risks to our investments outside of the United States and we may incur losses as a result.

Any international investments we make could be subject to the following risks:

•

governmental laws, rules and policies, including laws relating to the foreign ownership of real property or mortgages and laws relating to the ability of foreign persons or corporations to remove profits earned from activities within the country to the person's or corporation's country of origin;

•

translation and transaction risks relating to fluctuations in foreign currency exchange rates;

•

adverse market conditions caused by inflation or other changes in national or local political and economic conditions;

•

challenges of complying with a wide variety of foreign laws, including corporate governance, operations, taxes and litigation;

•

changes in relative interest rates;

•

changes in the availability, cost and terms of borrowings resulting from varying national economic policies;

•

changes in real estate and other tax rates, the tax treatment of transaction structures and other changes in operating expenses in a particular country where we have an investment;

•

our REIT tax status not being respected under foreign laws, in which case any income or gains from foreign sources would likely be subject to foreign taxes, withholding taxes, transfer taxes and value added taxes;

•

lack of uniform accounting standards (including availability of information in accordance with GAAP);

•

changes in land use and zoning laws;

•

more stringent environmental laws or changes in such laws;

•

changes in the social stability or other political, economic or diplomatic developments in or affecting a country where we have an investment (including military conflicts, such as the ongoing conflicts between Russia and Ukraine and in the Middle East);

•

changes in applicable laws and regulations in the United States that affect foreign operations; and

•

legal and logistical barriers to enforcing our contractual rights in other countries, including insolvency regimes, landlord/tenant rights and ability to take possession of the collateral.

Certain of these risks may be greater in emerging markets and less developed countries. Each of these risks might adversely affect our performance and impair our ability to pay distributions to stockholders required to maintain our REIT qualification. In addition, there is less publicly available information about foreign companies and a lack of uniform financial accounting standards and practices (including the availability of information in accordance with GAAP) which could impair our ability to analyze transactions and receive timely and accurate financial information from tenants or borrowers necessary to meet our reporting obligations to financial institutions or governmental or regulatory agencies.

As of November 13, 2023, we do not have any investments in properties located or secured by properties located outside the United States.

The CRE industry has been and may continue to be adversely affected by economic conditions in the United States and global financial markets generally.

Our business and operations are currently dependent on the CRE industry generally, which in turn is dependent upon broad economic conditions in the United States, Europe, China and elsewhere. Recently, concerns over global economic conditions, virus outbreaks, energy and commodity prices, geopolitical issues, and military conflicts (including the ongoing conflicts between Russia and Ukraine and in the Middle East), inflation, deflation, Federal Reserve short-term rate decisions, foreign exchange rates, the availability and cost of credit, the Chinese economy and the relationship between the Chinese and U.S. governments have contributed to increased economic uncertainty. These factors could cause extreme volatility in security prices. Global economic and political headwinds, along with global market instability and the risk of maturing debt that may have difficulties being refinanced, may continue to cause periodic volatility in the CRE market for some time. Adverse conditions in the CRE industry could harm our business and financial condition by, among other factors, the tightening of the credit markets, decline in the value of our assets and continuing credit and liquidity concerns and otherwise negatively impacting our operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Recent Sales of Unregistered Equity Securities

On September 29, 2023, we issued 574.017 shares of restricted stock to each of our independent directors for their service as such. The issuance of these securities was effected without registration in reliance on Section 4(a)(2) of the Securities Act as a sale by the Company not involving a public offering. No underwriters were involved with the issuance of such securities.

Use of Proceeds (dollar amounts in thousands, except share data)

On May 3, 2019, our 2019 Registration Statement on Form S-11 (File No. 333-230465) for our IPO of common stock of up to $2,350,000 in shares of Class A, Class T, Class S, Class D and Class I common stock, was declared effective under the Securities Act. Inland Securities Corporation served as our dealer manager for the common stock IPO. On April 28, 2022, we filed 2022 Registration Statement on Form S-11 (File No. 333-264540) with the SEC, for our Second Public Offering, to register up to $2,200,000 in shares of common stock, which was declared effective by the SEC on November 2, 2022.

As of September 30, 2023, we had received net offering proceeds of $42.8 million from the IPO and Second Public Offering. The following table summarizes certain information about the proceeds from the Public Offerings:


	Class A Shares		Class T Shares		Class S Shares		Class D Shares		Class I Shares		Total
Primary shares sold		794,715		464,881		—		53,815		489,069		1,802,480
Gross proceeds from primary offerings	$	19,695	$	11,309	$	—	$	1,237	$	10,999	$	43,240
Reinvestments of distributions		619		304		—		93		658		1,674
Total gross proceeds		20,314		11,613		—		1,330		11,657		44,914
Selling commissions and dealer manager fees		1,142		313		—		—		—		1,455
Stockholder servicing fees		—		547		—		98		—		645
Total expenses		1,142		860		—		98		—		2,100
Net offering proceeds (1)	$	19,172	$	10,753	$	—	$	1,232	$	11,657	$	42,814

(1)

Excludes company-level offering costs of $6,304.

We primarily used the net offering proceeds from the Public Offerings to originate commercial real estate loans and purchase real estate securities on a levered basis, subject to our investment guidelines and to the extent consistent with maintaining our REIT qualification, and other general corporate purposes.

In light of the pace of fundraising in the Second Public Offering and the amount of monthly redemption requests pursuant to the SRP, which were in excess of such fundraising, on January 30, 2023, the Board approved, effective immediately, the suspension of the operation of the SRP. In connection with such suspension, the Board has also approved the suspension of the sale of shares in the primary portion of the Second Public Offering (the "Primary Offering"), effective immediately, and the suspension of the sale of shares pursuant to the DRP, effective as of February 10, 2023. The Primary Offering, the SRP, and the DRP shall each remain suspended unless and until such time as the Board approves their resumption.

On September 15, 2021, our registration statement on Form S-11 (File No. 333-258802) for our Preferred Stock Offering of up to 3,500,000 shares of Series A Preferred Stock was declared effective under the Securities Act. Raymond James & Associates acted as representative of the underwriters. On September 22, 2021, we issued and sold 3,500,000 shares of our Series A Preferred Stock at a public offering price of $25.00 per share. In addition, on October 15, 2021, the underwriters partially exercised their over-allotment option and purchased an additional 100,000 shares of Series A Preferred Stock. The Series A Preferred Stock is listed on the New York Stock Exchange with the ticker symbol ICR PR A.

As of September 30, 2023, we received net offering proceeds of $86.3 million from our Preferred Stock Offering. The following table summarizes certain information about the proceeds from our Preferred Stock Offering:


	Series A Preferred Stock
Primary shares sold		3,600,000
Gross proceeds from primary offering	$	90,000
Underwriting discounts and commissions		2,835
Other expenses		855
Total expenses		3,690
Net offering proceeds	$	86,310

We contributed the net proceeds from the Preferred Stock Offering to our Operating Partnership, which in turn used the net proceeds to originate first mortgage loans and acquire other targeted assets in a manner consistent with our investment strategies and investment guidelines and for general corporate purposes.

Repurchases of Common Stock

We have adopted the SRP, whereby on a monthly basis, common stockholders may request that we repurchase all or any portion of their shares. The total amount of aggregate repurchases of shares will be limited to no more than 2% of our aggregate NAV per month as of the last day of the previous calendar month and no more than 5% of our aggregate NAV per calendar quarter with NAV measured as of the last day of the previous calendar quarter. Common stockholders may not request that we repurchase their shares for at least one year, provided we can waive the holding period in the event of death.

Due to the illiquid nature of investments in real estate, we may not have sufficient liquid resources to fund repurchase requests. We may choose to repurchase all, some or none of the shares that have been requested to be repurchased at the end of any particular month, in our discretion, subject to any limitations in the SRP. Further, our Board may modify, suspend or terminate the SRP.

During the nine months ended September 30, 2023, we repurchased no shares of our common stock.

Repurchases of Preferred Stock

Subject to certain exceptions, we may not redeem our Series A Preferred Stock until on or after September 22, 2026. Preferred stockholders may only convert their Series A Preferred Shares into Class I common stock if there is a change in control and we do not redeem the shares within 120 days of the change in control event. For the nine months ended September 30, 2023, there were no redemptions of our Series A Preferred Stock and no conversions of our Series A Preferred Stock to common stock.

Series A Preferred Repurchase Program

On August 11, 2022, the Board authorized and approved the Series A Preferred Repurchase Program through December 31, 2022 pursuant to which we were permitted to repurchase up to the lesser of 1,000,000 shares or $15 million of the outstanding shares of our Series A Preferred Stock. On November 10, 2022, the Board approved the extension of the Series A Preferred Repurchase Program through December 31, 2023. Under the Series A Preferred Repurchase Program, repurchases of shares of our Series A Preferred Stock were to be made at management’s discretion from time to time through open market purchases, privately-negotiated transactions, block purchases or otherwise in accordance with applicable federal securities laws. During the nine months ended September 30, 2023, we purchased and retired 4,143 shares of Series A Preferred Stock resulting in a gain of less than $0.1 million from these repurchases. On January 30, 2023, our Board approved the termination of the Series A Preferred Repurchase Program.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

Not Applicable.

Item 6. Exhibits

The representations, warranties and covenants made by us in any agreement filed as an exhibit to this Quarterly Report on Form 10-Q are made solely for the benefit of the parties to the agreement, including, in some cases, for the purpose of allocating risk among the parties to the agreement, and should not be deemed to be representations, warranties or covenants to, or with, you. Moreover, these representations, warranties and covenants should not be relied upon as accurately describing or reflecting the current state of our affairs.

The exhibits filed in response to Item 601 of Regulation S-K are listed on the Exhibit Index attached hereto and are incorporated herein by reference.


Exhibit No.		Description

1.1		Amendment No. 1 to Dealer Manager Agreement (filed as Exhibit 1.2 to Pre-Effective Amendment No. 1 the Registrant’s Registration Statement on Form S-11 filed October 17, 2022 and incorporated by reference)
3.1		Articles of Amendment and Restatement of InPoint Commercial Real Estate Income, Inc. (filed as Exhibit 3.1 to the Registrant’s Registration Statement on Form 10 filed May 2, 2017 and incorporated by reference)
3.2		Articles of Amendment of InPoint Commercial Real Estate Income, Inc. (filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed April 30, 2019 and incorporated by reference)
3.3		Articles Supplementary of InPoint Commercial Real Estate Income, Inc. (filed as Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed April 30, 2019 and incorporated by reference)
3.4		Certificate of Correction of InPoint Commercial Real Estate Income, Inc. (filed as Exhibit 3.4 to the Registrant’s Quarterly Report on Form 10-Q filed August 14, 2019 and incorporated by reference)
3.5		Articles Supplementary of InPoint Commercial Real Estate Income, Inc. designating the Series A Preferred Stock (filed as Exhibit 3.5 to the Registrant’s Form 8-A filed September 22, 2021 and incorporated by reference)
3.6		Bylaws of InPoint Commercial Real Estate Income, Inc. (filed as Exhibit 3.2 to the Registrant’s Registration Statement on Form 10 filed May 2, 2017 and incorporated by reference)
4.1		Amended and Restated Distribution Reinvestment Plan (filed as Exhibit 4.1 to the Registrant’s Registration Statement on Form S-11 filed April 11, 2022 and incorporated by reference)
4.2		Form of certificate representing the Series A Preferred Stock (filed as Exhibit 4.1 to the Registrant’s Form 8-A filed September 22, 2021 and incorporated by reference)
31.1*		Certification of the Principal Executive Officer of the Company, pursuant to Securities Exchange Act Rule 13a-14 and 15d-14 as adopted pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002
31.2*		Certification of the Principal Financial Officer of the Company, pursuant to Securities Exchange Act Rule 13a-14 and 15d-14 as adopted pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002
32.1*		Certification of the Principal Executive Officer of the Company pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002
32.2*		Certification of the Principal Financial Officer of the Company pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002
101.INS		Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.
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
104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

* Filed as part of this Quarterly Report on Form 10-Q

SIGNATURES

Pursuant to the requirements 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.


	INPOINT COMMERCIAL REAL ESTATE INCOME, INC.

	By:	/s/ Mitchell A. Sabshon
	Name:	Mitchell A. Sabshon
	Title:	Chief Executive Officer and Chairman
		(principal executive officer)
	Date:	November 13, 2023

	By:	/s/ Catherine L. Lynch
	Name:	Catherine L. Lynch
	Title:	Chief Financial Officer
		(principal financial officer)
	Date:	November 13, 2023