STWD 10-Q Quarterly Report Sept. 30, 2021

STARWOOD PROPERTY TRUST, INC.

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stwd-20210930

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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, 2021


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

Commission file number 001-34436

__________________________________________________

Starwood Property Trust, Inc.

(Exact name of registrant as specified in its charter)


Maryland						27-0247747
(State or Other Jurisdiction of Incorporation or Organization)						(I.R.S. Employer Identification No.)

591 West Putnam Avenue
Greenwich , Connecticut						06830
(Address of Principal Executive Offices)						(Zip Code)

Registrant’s telephone number, including area code:

( 203 ) 422-7700

___________________________________________________________________________

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.01 par value per share	STWD	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) 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 ☒

The number of shares of the issuer’s common stock, $0.01 par value, outstanding as of November 5, 2021 was 288,596,238 .

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Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains certain forward-looking statements, including without limitation, statements concerning our operations, economic performance and financial condition. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are developed by combining currently available information with our beliefs and assumptions and are generally identified by the words “believe,” “expect,” “anticipate” and other similar expressions. Forward-looking statements do not guarantee future performance, which may be materially different from that expressed in, or implied by, any such statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their respective dates.

These forward-looking statements are based largely on our current beliefs, assumptions and expectations of our future performance taking into account all information currently available to us. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us or within our control, and which could materially affect actual results, performance or achievements. Factors that may cause actual results to vary from our forward-looking statements include, but are not limited to:

• factors described in our Annual Report on Form 10-K for the year ended December 31, 2020 and this Quarterly Report on Form 10-Q, including those set forth under the captions “Risk Factors”, “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”;

• the severity and duration of the pandemic of the novel strain of coronavirus (“COVID-19”), actions that may be taken by governmental authorities to contain the COVID-19 outbreak, including variants and resurgences, or to treat its impact and the adverse impacts that the COVID-19 pandemic has had, and will likely continue to have, on the global economy, on the borrowers underlying our real estate-related assets and infrastructure loans and tenants of our owned properties, including their ability to make payments on their loans or to pay rent, as the case may be, and on our operations and financial performance;

• defaults by borrowers in paying debt service on outstanding indebtedness;

• impairment in the value of real estate property securing our loans or in which we invest;

• availability of mortgage origination and acquisition opportunities acceptable to us;

• potential mismatches in the timing of asset repayments and the maturity of the associated financing agreements;

• our ability to integrate our prior acquisition of the project finance origination, underwriting and capital markets business of GE Capital Global Holdings, LLC into our business and to achieve the benefits that we anticipate from the acquisition;

• national and local economic and business conditions, including continued disruption from the COVID-19 pandemic;

• general and local commercial and residential real estate property conditions;

• changes in federal government policies;

• changes in federal, state and local governmental laws and regulations;

• increased competition from entities engaged in mortgage lending and securities investing activities;

• changes in interest rates; and

• the availability of, and costs associated with, sources of liquidity.

In light of these risks and uncertainties, there can be no assurances that the results referred to in the forward-looking statements contained in this Quarterly Report on Form 10-Q will in fact occur. Except to the extent required by applicable law or regulation, we undertake no obligation to, and expressly disclaim any such obligation to, update or revise any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events, changes to future results over time or otherwise.

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TABLE OF CONTENTS


		Page
Part I	Financial Information
Item 1.	Financial Statements	4
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Operations	5
	Condensed Consolidated Statements of Comprehensive Income	6
	Condensed Consolidated Statements of Equity	7
	Condensed Consolidated Statements of Cash Flows	9
	Notes to Condensed Consolidated Financial Statements	11
	Note 1 Business and Organization	11
	Note 2 Summary of Significant Accounting Policies	12
	Note 3 Acquisitions and Divestitures	18
	Note 4 Loans	19
	Note 5 Investment Securities	24
	Note 6 Properties	27
	Note 7 Investment in Unconsolidated Entities	29
	Note 8 Goodwill and Intangibles	30
	Note 9 Secured Borrowings	32
	Note 10 Unsecured Senior Notes	37
	Note 11 Loan Securitization/Sale Activities	38
	Note 12 Derivatives and Hedging Activity	40
	Note 13 Offsetting Assets and Liabilities	41
	Note 14 Variable Interest Entities	41
	Note 15 Related-Party Transactions	43
	Note 16 Stockholders’ Equity and Non-Controlling Interests	45
	Note 17 Earnings per Share	47
	Note 18 Accumulated Other Comprehensive Income	48
	Note 19 Fair Value	48
	Note 20 Income Taxes	56
	Note 21 Commitments and Contingencies	57
	Note 22 Segment Data	58
	Note 23 Subsequent Events	64
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	65
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	103
Item 4.	Controls and Procedures	105
Part II	Other Information
Item 1.	Legal Proceedings	106
Item 1A.	Risk Factors	106
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	106
Item 3.	Defaults Upon Senior Securities	106
Item 4.	Mine Safety Disclosures	106
Item 5.	Other Information	106
Item 6.	Exhibits	107

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Starwood Property Trust, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited, amounts in thousands, except share data)


	As of September 30, 2021		As of December 31, 2020
Assets:
Cash and cash equivalents	$	273,316	$	563,217
Restricted cash	110,472		158,945
Loans held-for-investment, net of credit loss allowances of $ 57,573 and $ 77,444 ($ 91,499 and $ 90,684 held at fair value)	13,292,998		11,087,073
Loans held-for-sale ($ 2,099,266 and $ 932,295 held at fair value)	2,183,519		1,052,835
Investment securities, net of credit loss allowances of $ 6,389 and $ 5,675 ($ 184,153 and $ 198,053 held at fair value)	670,887		736,658
Properties, net	2,228,862		2,271,153
Intangible assets ($ 15,942 and $ 13,202 held at fair value)	65,122		70,117
Investment in unconsolidated entities	94,000		108,054
Goodwill	259,846		259,846
Derivative assets	52,566		40,555
Accrued interest receivable	108,126		95,980
Other assets	294,670		190,748
Variable interest entity (“VIE”) assets, at fair value	62,346,480		64,238,328
Total Assets	$	81,980,864	$	80,873,509
Liabilities and Equity
Liabilities:
Accounts payable, accrued expenses and other liabilities	$	210,080	$	206,845
Related-party payable	23,378		39,170
Dividends payable	139,738		137,959
Derivative liabilities	15,615		41,324
Secured financing agreements, net	11,502,052		10,146,190
Collateralized loan obligations and single asset securitization, net	2,614,230		930,554
Unsecured senior notes, net	1,733,684		1,732,520
VIE liabilities, at fair value	60,894,975		62,776,371
Total Liabilities	77,133,752		76,010,933
Commitments and contingencies (Note 21)
Equity:
Starwood Property Trust, Inc. Stockholders’ Equity:
Preferred stock, $ 0.01 per share, 100,000,000 shares authorized, no shares issued and outstanding	—		—
Common stock, $ 0.01 per share, 500,000,000 shares authorized, 296,072,090 issued and 288,623,399 outstanding as of September 30, 2021 and 292,091,601 issued and 284,642,910 outstanding as of December 31, 2020	2,961		2,921
Additional paid-in capital	5,270,265		5,209,739
Treasury stock ( 7,448,691 shares)	( 138,022 )		( 138,022 )
Accumulated other comprehensive income	40,486		43,993
Accumulated deficit	( 687,980 )		( 629,733 )
Total Starwood Property Trust, Inc. Stockholders’ Equity	4,487,710		4,488,898
Non-controlling interests in consolidated subsidiaries	359,402		373,678
Total Equity	4,847,112		4,862,576
Total Liabilities and Equity	$	81,980,864	$	80,873,509

________________________________________________________

Note: In addition to the VIE assets and liabilities which are separately presented, our condensed consolidated balance sheets as of September 30, 2021 and December 31, 2020 include assets of $ 3.1 billion and $ 1.1 billion, respectively, and liabilities of $ 2.6 billion and $ 0.9 billion, respectively, related to consolidated collateralized loan obligations (“CLOs”) and a single asset securitization ("SASB"), which are considered to be VIEs. The CLOs' and SASB's assets can only be used to settle obligations of the CLOs and SASB, and the CLOs' and SASB's liabilities do not have recourse to Starwood Property Trust, Inc. Refer to Note 14 for additional discussion of VIEs.

See notes to condensed consolidated financial statements.

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Starwood Property Trust, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

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


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2021		2020		2021		2020
Revenues:
Interest income from loans	$	203,252	$	169,404	$	583,099	$	557,934
Interest income from investment securities	10,697		12,186		32,955		42,070
Servicing fees	10,473		9,548		29,739		20,999
Rental income	77,512		75,978		230,969		222,834
Other revenues	352		311		3,621		1,756
Total revenues	302,286		267,427		880,383		845,593
Costs and expenses:
Management fees	23,727		23,127		91,713		86,970
Interest expense	115,531		95,981		328,558		317,499
General and administrative	38,864		39,478		122,765		110,857
Acquisition and investment pursuit costs	214		884		806		3,383
Costs of rental operations	31,516		29,522		90,992		87,368
Depreciation and amortization	22,041		23,581		66,992		70,982
Credit loss (reversal) provision, net	( 563 )		( 3,587 )		( 12,363 )		55,284
Other expense	23		172		708		662
Total costs and expenses	231,353		209,158		690,171		733,005
Other income (loss):
Change in net assets related to consolidated VIEs	28,049		58,585		80,303		64,353
Change in fair value of servicing rights	2,237		634		2,740		( 2,328 )
Change in fair value of investment securities, net	( 299 )		( 199 )		903		3,132
Change in fair value of mortgage loans, net	31,727		61,384		68,116		79,700
Earnings from unconsolidated entities	2,042		3,192		6,002		32,065
(Loss) gain on sale of investments and other assets, net	( 47 )		—		26,377		6,768
Gain (loss) on derivative financial instruments, net	41,812		( 28,097 )		65,792		( 34,485 )
Foreign currency (loss) gain, net	( 27,003 )		25,452		( 36,057 )		( 1,861 )
Loss on extinguishment of debt	( 499 )		—		( 2,197 )		( 2,377 )
Other (loss) income, net	( 964 )		357		( 6,416 )		687
Total other income	77,055		121,308		205,563		145,654
Income before income taxes	147,988		179,577		395,775		258,242
Income tax provision	( 7,501 )		( 14,843 )		( 6,378 )		( 6,816 )
Net income	140,487		164,734		389,397		251,426
Net income attributable to non-controlling interests	( 11,885 )		( 12,900 )		( 33,107 )		( 26,705 )
Net income attributable to Starwood Property Trust, Inc.	$	128,602	$	151,834	$	356,290	$	224,721

Earnings per share data attributable to Starwood Property Trust, Inc.:
Basic	$	0.44	$	0.53	$	1.23	$	0.79
Diluted	$	0.44	$	0.52	$	1.22	$	0.79

See notes to condensed consolidated financial statements.

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Starwood Property Trust, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

(Unaudited, amounts in thousands)


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2021		2020		2021		2020
Net income	$	140,487	$	164,734	$	389,397	$	251,426
Other comprehensive (loss) income (net change by component):
Available-for-sale securities	( 824 )		( 581 )		( 3,571 )		( 8,647 )
Foreign currency translation	—		—		64		—
Other comprehensive loss	( 824 )		( 581 )		( 3,507 )		( 8,647 )
Comprehensive income	139,663		164,153		385,890		242,779
Less: Comprehensive income attributable to non-controlling interests	( 11,885 )		( 12,900 )		( 33,107 )		( 26,705 )
Comprehensive income attributable to Starwood Property Trust, Inc .	$	127,778	$	151,253	$	352,783	$	216,074

See notes to condensed consolidated financial statements.

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Starwood Property Trust, Inc. and Subsidiaries

Condensed Consolidated Statements of Equity

For the Three Months Ended September 30, 2021 and 2020

(Unaudited, amounts in thousands, except share data)


	Common stock			Additional Paid-in Capital		Treasury Stock			Accumulated Deficit		Accumulated Other Comprehensive Income		Total Starwood Property Trust, Inc. Stockholders’ Equity		Non- Controlling Interests		Total Equity
	Shares	Par Value				Shares	Amount
Balance, June 30, 2021	295,257,898	$	2,952	$	5,248,490	7,448,691	$	( 138,022 )	$	( 677,375 )	$	41,310	$	4,477,355	$	374,345	$	4,851,700
Proceeds from DRIP Plan	8,161	—		209		—	—		—		—		209		—		209
Redemption of Class A Units	465,679	5		9,617		—	—		—		—		9,622		( 9,622 )		—
Equity offering costs	—	—		( 5 )		—	—		—		—		( 5 )		—		( 5 )
Share-based compensation	243,201	3		9,449		—	—		—		—		9,452		—		9,452
Manager fees paid in stock	97,151	1		2,505		—	—		—		—		2,506		—		2,506
Net income	—	—		—		—	—		128,602		—		128,602		11,885		140,487
Dividends declared, $ 0.48 per share	—	—		—		—	—		( 139,207 )		—		( 139,207 )		—		( 139,207 )
Other comprehensive loss, net	—	—		—		—	—		—		( 824 )		( 824 )		—		( 824 )
Contributions from non-controlling interests	—	—		—		—	—		—		—		—		52		52
Distributions to non-controlling interests	—	—		—		—	—		—		—		—		( 17,258 )		( 17,258 )
Balance, September 30, 2021	296,072,090	$	2,961	$	5,270,265	7,448,691	$	( 138,022 )	$	( 687,980 )	$	40,486	$	4,487,710	$	359,402	$	4,847,112

Balance, June 30, 2020	291,573,083	$	2,916	$	5,193,572	7,105,561	$	( 133,024 )	$	( 614,093 )	$	42,866	$	4,492,237	$	372,559	$	4,864,796
Proceeds from DRIP Plan	34,309	1		520		—	—		—		—		521		—		521
Redemption of Class A Units	—	—		418		—	—		—		—		418		( 1,703 )		( 1,285 )
Equity offering costs	—	—		( 54 )		—	—		—		—		( 54 )		—		( 54 )
Share-based compensation	179,935	1		6,260		—	—		—		—		6,261		—		6,261
Net income	—	—		—		—	—		151,834		—		151,834		12,900		164,734
Dividends declared, $ 0.48 per share	—	—		—		—	—		( 136,755 )		—		( 136,755 )		—		( 136,755 )
Other comprehensive loss, net	—	—		—		—	—		—		( 581 )		( 581 )		—		( 581 )
VIE non-controlling interests	—	—		—		—	—		—		—		—		12		12
Contributions from non-controlling interests	—	—		—		—	—		—		—		—		251		251
Distributions to non-controlling interests	—	—		—		—	—		—		—		—		( 12,207 )		( 12,207 )
Balance, September 30, 2020	291,787,327	$	2,918	$	5,200,716	7,105,561	$	( 133,024 )	$	( 599,014 )	$	42,285	$	4,513,881	$	371,812	$	4,885,693

See notes to condensed consolidated financial statements.

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Starwood Property Trust, Inc. and Subsidiaries

Condensed Consolidated Statements of Equity

For the Nine Months Ended September 30, 2021 and 2020 (Continued)

(Unaudited, amounts in thousands, except share data)


	Common stock			Additional Paid-in Capital		Treasury Stock			Accumulated Deficit		Accumulated Other Comprehensive Income		Total Starwood Property Trust, Inc. Stockholders’ Equity		Non- Controlling Interests		Total Equity
	Shares	Par Value				Shares	Amount
Balance, December 31, 2020	292,091,601	$	2,921	$	5,209,739	7,448,691	$	( 138,022 )	$	( 629,733 )	$	43,993	$	4,488,898	$	373,678	$	4,862,576
Cumulative effect of convertible notes accounting standard update adopted January 1, 2021	—	—		( 3,755 )		—	—		2,219		—		( 1,536 )		—		( 1,536 )
Proceeds from DRIP Plan	29,331	—		697		—	—		—		—		697		—		697
Redemption of Class A Units	853,681	9		17,729		—	—		—		—		17,738		( 17,738 )		—
Equity offering costs	—	—		( 27 )		—	—		—		—		( 27 )		—		( 27 )
Share-based compensation	2,400,946	24		29,335		—	—		—		—		29,359		—		29,359
Manager fees paid in stock	696,531	7		16,547		—	—		—		—		16,554		—		16,554
Net income	—	—		—		—	—		356,290		—		356,290		33,107		389,397
Dividends declared, $ 1.44 per share	—	—		—		—	—		( 416,756 )		—		( 416,756 )		—		( 416,756 )
Other comprehensive loss, net	—	—		—		—	—		—		( 3,507 )		( 3,507 )		—		( 3,507 )
Contributions from non-controlling interests	—	—		—		—	—		—		—		—		5,590		5,590
Distributions to non-controlling interests	—	—		—		—	—		—		—		—		( 35,235 )		( 35,235 )
Balance, September 30, 2021	296,072,090	$	2,961	$	5,270,265	7,448,691	$	( 138,022 )	$	( 687,980 )	$	40,486	$	4,487,710	$	359,402	$	4,847,112

Balance, December 31, 2019	287,380,891	$	2,874	$	5,132,532	5,180,140	$	( 104,194 )	$	( 381,719 )	$	50,932	$	4,700,425	$	436,589	$	5,137,014
Cumulative effect of credit loss accounting standard effective January 1, 2020	—	—		—		—	—		( 32,286 )		—		( 32,286 )		—		( 32,286 )
Proceeds from DRIP Plan	59,340	1		889		—	—		—		—		890		—		890
Redemption of Class A Units	409,712	4		8,952		—	—		—		—		8,956		( 10,241 )		( 1,285 )
Equity offering costs	—	—		( 69 )		—	—		—		—		( 69 )		—		( 69 )
Common stock repurchased	—	—		—		1,925,421	( 28,830 )		—		—		( 28,830 )		—		( 28,830 )
Share-based compensation	1,516,152	15		22,390		—	—		—		—		22,405		—		22,405
Manager fees paid in stock	2,421,232	24		36,022		—	—		—		—		36,046		—		36,046
Net income	—	—		—		—	—		224,721		—		224,721		26,705		251,426
Dividends declared, $ 1.44 per share	—	—		—		—	—		( 409,730 )		—		( 409,730 )		—		( 409,730 )
Other comprehensive loss, net	—	—		—		—	—		—		( 8,647 )		( 8,647 )		—		( 8,647 )
VIE non-controlling interests	—	—		—		—	—		—		—		—		( 2,177 )		( 2,177 )
Contributions from non-controlling interests	—	—		—		—	—		—		—		—		9,657		9,657
Distributions to non-controlling interests	—	—		—		—	—		—		—		—		( 88,721 )		( 88,721 )
Balance, September 30, 2020	291,787,327	$	2,918	$	5,200,716	7,105,561	$	( 133,024 )	$	( 599,014 )	$	42,285	$	4,513,881	$	371,812	$	4,885,693

See notes to condensed consolidated financial statements.

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Starwood Property Trust, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited, amounts in thousands)


	For the Nine Months Ended September 30,
	2021		2020
Cash Flows from Operating Activities:
Net income	$	389,397	$	251,426
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of deferred financing costs, premiums and discounts on secured borrowings	32,141		29,996
Amortization of discounts and deferred financing costs on unsecured senior notes	5,387		5,933
Accretion of net discount on investment securities	( 10,090 )		( 9,362 )
Accretion of net deferred loan fees and discounts	( 44,523 )		( 30,468 )
Share-based compensation	29,359		22,405
Manager fees paid in stock	16,554		36,046
Change in fair value of investment securities	( 903 )		( 3,132 )
Change in fair value of consolidated VIEs	26,990		41,008
Change in fair value of servicing rights	( 2,740 )		2,328
Change in fair value of loans	( 68,116 )		( 79,700 )
Change in fair value of derivatives	( 70,661 )		41,146
Foreign currency loss, net	36,057		1,861
Gain on sale of investments and other assets	( 26,377 )		( 6,768 )
Credit loss (reversal) provision, net	( 12,363 )		55,284
Depreciation and amortization	67,653		70,626
Earnings from unconsolidated entities	( 6,002 )		( 32,065 )
Distributions of earnings from unconsolidated entities	1,623		2,334
Loss on extinguishment of debt	2,197		2,377
Origination and purchase of loans held-for-sale, net of principal collections	( 3,027,235 )		( 1,725,341 )
Proceeds from sale of loans held-for-sale	2,333,767		1,997,651
Changes in operating assets and liabilities:
Related-party payable, net	( 15,792 )		( 18,829 )
Accrued and capitalized interest receivable, less purchased interest	( 105,039 )		( 121,923 )
Other assets	( 27,236 )		3,007
Accounts payable, accrued expenses and other liabilities	14,199		( 9,691 )
Net cash (used in) provided by operating activities	( 461,753 )		526,149
Cash Flows from Investing Activities:
Origination, purchase and funding of loans held-for-investment	( 5,635,707 )		( 2,368,931 )
Proceeds from principal collections on loans	3,173,764		1,357,445
Proceeds from loans sold	267,349		435,097
Purchase and funding of investment securities	—		( 22,408 )
Proceeds from sales of investment securities	—		7,940
Proceeds from principal collections on investment securities	77,855		67,957
Proceeds from sales of real estate	60,969		23,805
Purchases and additions to properties and other assets	( 17,259 )		( 17,923 )
Investment in unconsolidated entities	—		( 3,133 )
Proceeds from sale of interest in unconsolidated entities	—		10,313
Distribution of capital from unconsolidated entities	25,555		2,485
Payments for purchase or termination of derivatives	( 14,699 )		( 76,270 )
Proceeds from termination of derivatives	44,742		13,667
Net cash used in investing activities	( 2,017,431 )		$	( 569,956 )

See notes to condensed consolidated financial statements.

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Starwood Property Trust, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Continued)

(Unaudited, amounts in thousands)


	For the Nine Months Ended September 30,
	2021		2020
Cash Flows from Financing Activities:
Proceeds from borrowings	$	11,654,848	$	4,935,556
Principal repayments on and repurchases of borrowings	( 8,566,856 )		( 4,221,999 )
Payment of deferred financing costs	( 46,196 )		( 17,978 )
Proceeds from common stock issuances	697		511
Payment of equity offering costs	( 27 )		( 69 )
Payment of dividends	( 414,977 )		( 408,893 )
Contributions from non-controlling interests	5,590		9,657
Distributions to non-controlling interests	( 35,235 )		( 90,006 )
Purchase of treasury stock	—		( 28,830 )
Issuance of debt of consolidated VIEs	69,399		24,376
Repayment of debt of consolidated VIEs	( 608,435 )		( 279,419 )
Distributions of cash from consolidated VIEs	83,785		57,174
Net cash provided by (used in) financing activities	2,142,593		( 19,920 )
Net decrease in cash, cash equivalents and restricted cash	( 336,591 )		( 63,727 )
Cash, cash equivalents and restricted cash, beginning of period	722,162		574,031
Effect of exchange rate changes on cash	( 1,783 )		902
Cash, cash equivalents and restricted cash, end of period	$	383,788	$	511,206
Supplemental disclosure of cash flow information:
Cash paid for interest	$	276,783	$	284,855
Income taxes paid	7,036		2,261
Supplemental disclosure of non-cash investing and financing activities:
Dividends declared, but not yet paid	$	140,465	$	138,737
Consolidation of VIEs (VIE asset/liability additions)	4,427,479		3,589,657
Deconsolidation of VIEs (VIE asset/liability reductions)	935,855		7,652
Reclassification of loans held-for-investment to loans held-for-sale	237,132		449,025
Reclassification of loans held-for-sale to loans held-for-investment	124,932		104,327
Transfer of loans from VIE assets to residential loans upon redemption of consolidated RMBS trusts	432,926		—
Loan principal collections temporarily held at master servicer	119,925		9,911
Net assets acquired through conversion to equity interest and foreclosure	36,308		—
Redemption of Class A Units for common stock	17,738		8,538
Unsettled derivative transactions	4,047		—
Unsettled common stock issuances	—		379

See notes to condensed consolidated financial statements.

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Starwood Property Trust, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

As of September 30, 2021

(Unaudited)

1. Business and Organization

Starwood Property Trust, Inc. (“STWD” and, together with its subsidiaries, “we” or the “Company”) is a Maryland corporation that commenced operations in August 2009, upon the completion of our initial public offering. We are focused primarily on originating, acquiring, financing and managing mortgage loans and other real estate investments in both the United States (“U.S.”) and Europe. As market conditions change over time, we may adjust our strategy to take advantage of changes in interest rates and credit spreads as well as economic and credit conditions.

We have four reportable business segments as of September 30, 2021 and we refer to the investments within these segments as our target assets:

• Real estate commercial and residential lending (the “Commercial and Residential Lending Segment”)—engages primarily in originating, acquiring, financing and managing commercial first mortgages, non-agency residential mortgages (“residential loans”), subordinated mortgages, mezzanine loans, preferred equity, commercial mortgage-backed securities (“CMBS”), residential mortgage-backed securities (“RMBS”) and other real estate and real estate-related debt investments in both the U.S. and Europe (including distressed or non-performing loans). Our residential loans are secured by a first mortgage lien on residential property and primarily consist of non-agency residential loans that are not guaranteed by any U.S. Government agency or federally chartered corporation.

• Infrastructure lending (the “Infrastructure Lending Segment”)—engages primarily in originating, acquiring, financing and managing infrastructure debt investments.

• Real estate property (the “Property Segment”)—engages primarily in acquiring and managing equity interests in stabilized commercial real estate properties, including multifamily properties and commercial properties subject to net leases, that are held for investment.

• Real estate investing and servicing (the “Investing and Servicing Segment”)—includes (i) a servicing business in the U.S. that manages and works out problem assets, (ii) an investment business that selectively acquires and manages unrated, investment grade and non-investment grade rated CMBS, including subordinated interests of securitization and resecuritization transactions, (iii) a mortgage loan business which originates conduit loans for the primary purpose of selling these loans into securitization transactions and (iv) an investment business that selectively acquires commercial real estate assets, including properties acquired from CMBS trusts.

Our segments exclude the consolidation of securitization variable interest entities (“VIEs”).

We are organized and conduct our operations to qualify as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”). As such, we will generally not be subject to U.S. federal corporate income tax on that portion of our net income that is distributed to stockholders if we distribute at least 90 % of our taxable income to our stockholders by prescribed dates and comply with various other requirements.

We are organized as a holding company and conduct our business primarily through our various wholly-owned subsidiaries. We are externally managed and advised by SPT Management, LLC (our “Manager”) pursuant to the terms of a management agreement. Our Manager is controlled by Barry Sternlicht, our Chairman and Chief Executive Officer. Our Manager is an affiliate of Starwood Capital Group, a privately-held private equity firm founded by Mr. Sternlicht.

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2. Summary of Significant Accounting Policies

Balance Sheet Presentation of Securitization Variable Interest Entities

We operate investment businesses that acquire unrated, investment grade and non-investment grade rated CMBS and RMBS. These securities represent interests in securitization structures (commonly referred to as special purpose entities, or “SPEs”). These SPEs are structured as pass through entities that receive principal and interest on the underlying collateral and distribute those payments to the certificate holders. Under accounting principles generally accepted in the United States of America (“GAAP”), SPEs typically qualify as VIEs. These are entities that, by design, either (1) lack sufficient equity to permit the entity to finance its activities without additional subordinated financial support from other parties, or (2) have equity investors that do not have the ability to make significant decisions relating to the entity’s operations through voting rights, or do not have the obligation to absorb the expected losses, or do not have the right to receive the residual returns of the entity.

Because we often serve as the special servicer or servicing administrator of the trusts in which we invest, or we have the ability to remove and replace the special servicer without cause, consolidation of these structures is required pursuant to GAAP as outlined in detail below. This results in a consolidated balance sheet which presents the gross assets and liabilities of the VIEs. The assets and other instruments held by these VIEs are restricted and can only be used to fulfill the obligations of the entity. Additionally, the obligations of the VIEs do not have any recourse to the general credit of any other consolidated entities, nor to us as the consolidator of these VIEs.

The VIE liabilities initially represent investment securities on our balance sheet (pre-consolidation). Upon consolidation of these VIEs, our associated investment securities are eliminated, as is the interest income related to those securities. Similarly, the fees we earn in our roles as special servicer of the bonds issued by the consolidated VIEs or as collateral administrator of the consolidated VIEs are also eliminated. Finally, a portion of the identified servicing intangible associated with the eliminated fee streams is eliminated in consolidation.

Refer to the segment data in Note 22 for a presentation of our business segments without consolidation of these VIEs.

Basis of Accounting and Principles of Consolidation

The accompanying condensed consolidated financial statements include our accounts and those of our consolidated subsidiaries and VIEs. Intercompany amounts have been eliminated in consolidation. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows have been included.

These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (our “Form 10-K”), as filed with the Securities and Exchange Commission (“SEC”). The results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of the operating results for the full year.

Refer to our Form 10-K for a description of our recurring accounting policies. We have included disclosure in this Note 2 regarding principles of consolidation and other accounting policies that (i) are required to be disclosed quarterly, (ii) we view as critical, (iii) became significant since December 31, 2020 due to a corporate action or increase in the significance of the underlying business activity or (iv) changed upon adoption of an Accounting Standards Update (“ASU”) issued by the Financial Accounting Standards Board (“FASB”).

Variable Interest Entities

In addition to the securitization VIEs, we have financed pools of our loans through collateralized loan obligations (“CLOs”) and a single asset securitization ("SASB"), which are considered VIEs. We also hold interests in certain other entities which are considered VIEs as the limited partners of those entities with equity at risk do not collectively possess (i) the right to remove the general partner or dissolve the partnership without cause or (ii) the right to participate in significant decisions made by the partnership.

We evaluate all of our interests in VIEs for consolidation. When our interests are determined to be variable interests, we assess whether we are deemed to be the primary beneficiary of the VIE. The primary beneficiary of a VIE is required to consolidate the VIE. Accounting Standards Codification (“ASC”) 810, Consolidation , defines the primary beneficiary as the party that has both (i) the power to direct the activities of the VIE that most significantly impact its economic performance, and (ii) the obligation to absorb losses and the right to receive benefits from the VIE which could be potentially significant. We

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consider our variable interests as well as any variable interests of our related parties in making this determination. Where both of these factors are present, we are deemed to be the primary beneficiary and we consolidate the VIE. Where either one of these factors is not present, we are not the primary beneficiary and do not consolidate the VIE.

To assess whether we have the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, we consider all facts and circumstances, including our role in establishing the VIE and our ongoing rights and responsibilities. This assessment includes: (i) identifying the activities that most significantly impact the VIE’s economic performance; and (ii) identifying which party, if any, has power over those activities. In general, the parties that make the most significant decisions affecting the VIE or have the right to unilaterally remove those decision makers are deemed to have the power to direct the activities of a VIE. The right to remove the decision maker in a VIE must be exercisable without cause for the decision maker to not be deemed the party that has the power to direct the activities of a VIE.

To assess whether we have the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE, we consider all of our economic interests, including debt and equity investments, servicing fees and other arrangements deemed to be variable interests in the VIE. This assessment requires that we apply judgment in determining whether these interests, in the aggregate, are considered potentially significant to the VIE. Factors considered in assessing significance include: the design of the VIE, including its capitalization structure; subordination of interests; payment priority; relative share of interests held across various classes within the VIE’s capital structure; and the reasons why the interests are held by us.

Our purchased investment securities include unrated and non-investment grade rated securities issued by securitization trusts. In certain cases, we may contract to provide special servicing activities for these trusts, or, as holder of the controlling class, we may have the right to name and remove the special servicer for these trusts. In our role as special servicer, we provide services on defaulted loans within the trusts, such as foreclosure or work-out procedures, as permitted by the underlying contractual agreements. In exchange for these services, we receive a fee. These rights give us the ability to direct activities that could significantly impact the trust’s economic performance. However, in those instances where an unrelated third party has the right to unilaterally remove us as special servicer without cause, we do not have the power to direct activities that most significantly impact the trust’s economic performance. We evaluated all of our positions in such investments for consolidation.

For securitization VIEs in which we are determined to be the primary beneficiary, all of the underlying assets, liabilities and equity of the structures are recorded on our books, and the initial investment, along with any associated unrealized holding gains and losses, are eliminated in consolidation. Similarly, the interest income earned from these structures, as well as the fees paid by these trusts to us in our capacity as special servicer, are eliminated in consolidation. Further, a portion of the identified servicing intangible asset associated with the servicing fee streams, and the corresponding amortization or change in fair value of the servicing intangible asset, are also eliminated in consolidation.

We perform ongoing reassessments of: (i) whether any entities previously evaluated under the majority voting interest framework have become VIEs, based on certain events, and therefore subject to the VIE consolidation framework, and (ii) whether changes in the facts and circumstances regarding our involvement with a VIE causes our consolidation conclusion regarding the VIE to change.

We elect the fair value option for initial and subsequent recognition of the assets and liabilities of our consolidated securitization VIEs. Interest income and interest expense associated with these VIEs are no longer relevant on a standalone basis because these amounts are already reflected in the fair value changes. We have elected to present these items in a single line on our condensed consolidated statements of operations. The residual difference shown on our condensed consolidated statements of operations in the line item “Change in net assets related to consolidated VIEs” represents our beneficial interest in the VIEs.

We separately present the assets and liabilities of our consolidated securitization VIEs as individual line items on our condensed consolidated balance sheets. The liabilities of our consolidated securitization VIEs consist solely of obligations to the bondholders of the related trusts, and are thus presented as a single line item entitled “VIE liabilities.” The assets of our consolidated securitization VIEs consist principally of loans, but at times, also include foreclosed loans which have been temporarily converted into real estate owned (“REO”). These assets in the aggregate are likewise presented as a single line item entitled “VIE assets.”

Loans comprise the vast majority of our securitization VIE assets and are carried at fair value due to the election of the fair value option. When an asset becomes REO, it is due to non-performance of the loan. Because the loan is already at fair value, the carrying value of an REO asset is also initially at fair value. Furthermore, when we consolidate a trust, any existing

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REO would be consolidated at fair value. Once an asset becomes REO, its disposition time is relatively short. As a result, the carrying value of an REO generally approximates fair value under GAAP.

In addition to sharing a similar measurement method as the loans in a trust, the securitization VIE assets as a whole can only be used to settle the obligations of the consolidated VIE. The assets of our securitization VIEs are not individually accessible by the bondholders, which creates inherent limitations from a valuation perspective. Also creating limitations from a valuation perspective is our role as special servicer, which provides us very limited visibility, if any, into the performing loans of a trust.

REO assets generally represent a very small percentage of the overall asset pool of a trust. In new issue trusts there are no REO assets. We estimate that REO assets constitute approximately 1 % of our consolidated securitization VIE assets, with the remaining 99 % representing loans. However, it is important to note that the fair value of our securitization VIE assets is determined by reference to our securitization VIE liabilities as permitted under ASU 2014-13, Consolidation (Topic 810): Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity . In other words, our VIE liabilities are more reliably measurable than the VIE assets, resulting in our current measurement methodology which utilizes this value to determine the fair value of our securitization VIE assets as a whole. As a result, these percentages are not necessarily indicative of the relative fair values of each of these asset categories if the assets were to be valued individually.

Due to our accounting policy election under ASU 2014-13, separately presenting two different asset categories would result in an arbitrary assignment of value to each, with one asset category representing a residual amount, as opposed to its fair value. However, as a pool, the fair value of the assets in total is equal to the fair value of the liabilities.

For these reasons, the assets of our securitization VIEs are presented in the aggregate.

Fair Value Option

The guidance in ASC 825, Financial Instruments , provides a fair value option election that allows entities to make an irrevocable election of fair value as the initial and subsequent measurement attribute for certain eligible financial assets and liabilities. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. The decision to elect the fair value option is determined on an instrument by instrument basis and must be applied to an entire instrument and is irrevocable once elected. Assets and liabilities measured at fair value pursuant to this guidance are required to be reported separately in our consolidated balance sheets from those instruments using another accounting method.

We have elected the fair value option for certain eligible financial assets and liabilities of our consolidated securitization VIEs, residential loans held-for-investment, loans held-for-sale originated or acquired for future securitization and purchased CMBS issued by VIEs we could consolidate in the future. The fair value elections for VIE and securitization related items were made in order to mitigate accounting mismatches between the carrying value of the instruments and the related assets and liabilities that we consolidate at fair value. The fair value elections for residential loans held-for-investment were made in order to maintain consistency across all our residential loans. The fair value elections for mortgage loans held-for-sale were made due to the expected short-term holding period of these instruments.

Fair Value Measurements

We measure our mortgage-backed securities, derivative assets and liabilities, domestic servicing rights intangible asset and any assets or liabilities where we have elected the fair value option at fair value. When actively quoted observable prices are not available, we either use implied pricing from similar assets and liabilities or valuation models based on net present values of estimated future cash flows, adjusted as appropriate for liquidity, credit, market and/or other risk factors.

As discussed above, we measure the assets and liabilities of consolidated securitization VIEs at fair value pursuant to our election of the fair value option. The securitization VIEs in which we invest are “static”; that is, no reinvestment is permitted, and there is no active management of the underlying assets. In determining the fair value of the assets and liabilities of the securitization VIEs, we maximize the use of observable inputs over unobservable inputs. Refer to Note 19 for further discussion regarding our fair value measurements.

Loans Held-for-Investment

Loans that are held for investment (“HFI”) are carried at cost, net of unamortized acquisition premiums or discounts, loan fees and origination costs, as applicable, and net of credit loss allowances as discussed below, unless we have elected to apply the fair value option at purchase.

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Loans Held-For-Sale

Our loans that we intend to sell or liquidate in the short-term are classified as held-for-sale and are carried at the lower of amortized cost or fair value, unless we have elected to apply the fair value option at origination or purchase.

Investment Securities

We designate our debt investment securities as held-to-maturity (“HTM”), available-for-sale (“AFS”), or trading depending on our investment strategy and ability to hold such securities to maturity. HTM debt securities where we have not elected to apply the fair value option are stated at cost plus any premiums or discounts, which are amortized or accreted through the condensed consolidated statements of operations using the effective interest method. Debt securities we (i) do not hold for the purpose of selling in the near-term, or (ii) may dispose of prior to maturity, are classified as AFS and are carried at fair value in the accompanying financial statements. Unrealized gains or losses on AFS debt securities where we have not elected the fair value option are reported as a component of accumulated other comprehensive income (“AOCI”) in stockholders’ equity. Our HTM and AFS debt securities are also subject to credit loss allowances as discussed below.

Our only equity investment security is carried at fair value, with unrealized holding gains and losses recorded in earnings.

Credit Losses

Loans and Debt Securities Measured at Amortized Cost

ASC 326, Financial Instruments – Credit Losses , became effective for the Company on January 1, 2020. ASC 326 mandates the use of a current expected credit loss model (“CECL”) for estimating future credit losses of certain financial instruments measured at amortized cost, instead of the “incurred loss” credit model previously required under GAAP. The CECL model requires the consideration of possible credit losses over the life of an instrument as opposed to only estimating credit losses upon the occurrence of a discrete loss event under the previous “incurred loss” methodology. The CECL model applies to our HFI loans and our HTM debt securities which are carried at amortized cost, including future funding commitments and accrued interest receivable related to those loans and securities. However, as permitted by ASC 326, we have elected not to measure an allowance for credit losses on accrued interest receivable (which is classified separately on our condensed consolidated balance sheet), but rather write off in a timely manner by reversing interest income and/or cease accruing interest that would likely be uncollectible. Our adoption of the CECL model resulted in a $ 32.3 million increase to our total allowance for credit losses, which was recognized as a cumulative-effect adjustment to accumulated deficit as of January 1, 2020.

We also evaluate each loan and security measured at amortized cost for credit deterioration at least quarterly. Credit deterioration occurs when it is deemed probable that we will not be able to collect all amounts due according to the contractual terms of the loan or security. If a loan or security is considered to be credit deteriorated, we depart from the industry loss rate approach described above and determine the credit loss allowance as any excess of the amortized cost basis of the loan or security over (i) the present value of expected future cash flows discounted at the contractual effective interest rate or (ii) the fair value of the collateral, if repayment is expected solely from the collateral.

Available-for-Sale Debt Securities

Separate provisions of ASC 326 apply to our AFS debt securities, which are carried at fair value with unrealized gains and losses reported as a component of AOCI. We are required to establish an initial credit loss allowance for those securities that are purchased with credit deterioration (“PCD”) by grossing up the amortized cost basis of each security and providing an offsetting credit loss allowance for the difference between expected cash flows and contractual cash flows, both on a present value basis. As of the January 1, 2020 effective date, no such credit loss allowance gross-up was required on our AFS debt securities with PCD due to their individual unrealized gain positions as of that date.

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Subsequently, cumulative adverse changes in expected cash flows on our AFS debt securities are recognized currently as an increase to the allowance for credit losses. However, the allowance is limited to the amount by which the AFS debt security’s amortized cost exceeds its fair value. Favorable changes in expected cash flows are first recognized as a decrease to the allowance for credit losses (recognized currently in earnings). Such changes would be recognized as a prospective yield adjustment only when the allowance for credit losses is reduced to zero. A change in expected cash flows that is attributable solely to a change in a variable interest reference rate does not result in a credit loss and is accounted for as a prospective yield adjustment.

Convertible Senior Notes

Effective January 1, 2021, the Company early adopted ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40), which removes certain separation models for convertible debt instruments and convertible preferred stock that require the separation into a debt component and an equity or derivative component. Consequently, our convertible senior notes (the “Convertible Notes”), which were previously accounted for as having separate liability and equity components, are now accounted for as a single liability measured at amortized cost. The standard was adopted using the modified retrospective method of transition, which resulted in a cumulative decrease to additional paid-in capital of $ 3.7 million, partially offset by a cumulative decrease to accumulated deficit of $ 2.2 million as of January 1, 2021.

Revenue Recognition

Interest Income

Interest income on performing loans and financial instruments is accrued based on the outstanding principal amount and contractual terms of the instrument. For loans where we do not elect the fair value option, origination fees and direct loan origination costs are also recognized in interest income over the loan term as a yield adjustment using the effective interest method. When we elect the fair value option, origination fees and direct loan costs are recorded directly in income and are not deferred. Discounts or premiums associated with the purchase of non-performing loans and investment securities are amortized or accreted into interest income as a yield adjustment on the effective interest method, based on expected cash flows through the expected maturity date of the investment. On at least a quarterly basis, we review and, if appropriate, make adjustments to our cash flow projections.

We cease accruing interest on non-performing loans at the earlier of (i) the loan becoming significantly past due or (ii) management concluding that a full recovery of all interest and principal is doubtful. Interest income on non-accrual loans in which management expects a full recovery of the loan’s outstanding principal balance is only recognized when received in cash. If a full recovery of principal is doubtful, the cost recovery method is applied whereby any cash received is applied to the outstanding principal balance of the loan. A non-accrual loan is returned to accrual status at such time as the loan becomes contractually current and management believes all future principal and interest will be received according to the contractual loan terms.

For loans acquired with deteriorated credit quality, interest income is only recognized to the extent that our estimate of undiscounted expected principal and interest exceeds our investment in the loan. Such excess, if any, is recognized as interest income on a level-yield basis over the life of the loan.

Upon the sale of loans or securities which are not accounted for pursuant to the fair value option, the excess (or deficiency) of net proceeds over the net carrying value of such loans or securities is recognized as a realized gain (loss).

Servicing Fees

We typically seek to be the special servicer on CMBS transactions in which we invest. When we are appointed to serve in this capacity, we earn special servicing fees from the related activities performed, which consist primarily of overseeing the workout of under-performing and non-performing loans underlying the CMBS transactions. These fees are recognized in income in the period in which the services are performed and the revenue recognition criteria have been met.

Rental Income

Rental income is recognized when earned from tenants. For leases that provide rent concessions or fixed escalations over the lease term, rental income is recognized on a straight-line basis over the noncancelable term of the lease. In net lease arrangements, costs reimbursable from tenants are recognized in rental income in the period in which the related expenses are

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incurred as we are generally the primary obligor with respect to purchasing goods and services for property operations. In instances where the tenant is responsible for property maintenance and repairs and contracts and settles such costs directly with third party service providers, we do not reflect those expenses in our consolidated statement of operations as the tenant is the primary obligor.

Earnings Per Share

We present both basic and diluted earnings per share (“EPS”) amounts in our financial statements. Basic EPS excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of shares of common stock outstanding for the period. Diluted EPS reflects the maximum potential dilution that could occur from (i) our share-based compensation, consisting of unvested restricted stock (“RSAs”) and restricted stock units (“RSUs”), (ii) shares contingently issuable to our Manager, (iii) the conversion options associated with our Convertible Notes (see Notes 10 and 17) and (iv) non-controlling interests that are redeemable with our common stock (see Note 16). Potential dilutive shares are excluded from the calculation if they have an anti-dilutive effect in the period.

Nearly all of the Company’s unvested RSUs and RSAs contain rights to receive non-forfeitable dividends and thus are participating securities. In addition, the non-controlling interests that are redeemable with our common stock are considered participating securities because they earn a preferred return indexed to the dividend rate on our common stock (see Note 16). Due to the existence of these participating securities, the two-class method of computing EPS is required, unless another method is determined to be more dilutive. Under the two-class method, undistributed earnings are reallocated between shares of common stock and participating securities. For the three and nine months ended September 30, 2021 and 2020, the two-class method resulted in the most dilutive EPS calculation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. The most significant and subjective estimate that we make is the projection of cash flows we expect to receive on our investments, which has a significant impact on the amount of income that we record and/or disclose. In addition, the fair value of financial assets and liabilities that are estimated using a discounted cash flows method is significantly impacted by the rates at which we estimate market participants would discount the expected cash flows.

We believe the estimates and assumptions underlying our consolidated financial statements are reasonable and supportable based on the information available as of September 30, 2021. However, uncertainty over the ultimate impact COVID-19 will have on the global economy generally, and our business in particular, makes any estimates and assumptions as of September 30, 2021 inherently less certain than they would be absent the current and potential impacts of COVID-19. Actual results may ultimately differ from those estimates.

Recent Accounting Developments

On March 12, 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting, and on January 11, 2021, issued ASU 2021-01, Reference Rate Reform (Topic 848) – Scope, both of which provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions that reference LIBOR or other reference rates expected to be discontinued because of reference rate reform. These ASUs are effective through December 31, 2022. The Company has not adopted any of the optional expedients or exceptions through September 30, 2021, but will continue to evaluate the possible adoption of any such expedients or exceptions during the effective period as circumstances evolve.

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3. Acquisitions and Divestitures

During the nine months ended September 30, 2021, we sold a property within the Investing and Servicing Segment Property Portfolio ("REIS Equity Portfolio") for $ 30.9 million. In connection with this sale, we recognized a gain of $ 9.7 million within gain on sale of investments and other assets in our condensed consolidated statements of operations. During the nine months ended September 30, 2020, we sold a property within the REIS Equity Portfolio for $ 24.1 million. In connection with this sale, we recognized a gain of $ 7.4 million within gain on sale of investments and other assets in our condensed consolidated statements of operations.

During the nine months ended September 30, 2021, we sold an operating property within the Commercial and Residential Lending Segment relating to a grocery distribution facility located in Montgomery, Alabama that was previously acquired in March 2019 through foreclosure of a loan with a carrying value of $ 9.0 million ($ 20.9 million unpaid principal balance net of an $ 8.3 million allowance and $ 3.6 million of unamortized discount) at the foreclosure date. The operating property was sold for $ 30.6 million and we recognized a gain of $ 17.7 million within gain on sale of investments and other assets in our condensed consolidated statements of operations.

During the three and nine months ended September 30, 2021 and 2020, we had no significant acquisitions of properties or businesses.

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4. Loans

Our loans held-for-investment are accounted for at amortized cost and our loans held-for-sale are accounted for at the lower of cost or fair value, unless we have elected the fair value option for either. The following tables summarize our investments in mortgages and loans as of September 30, 2021 and December 31, 2020 (dollars in thousands):


September 30, 2021	Carrying Value		Face Amount		Weighted Average Coupon (1)		Weighted Average Life (“WAL”) (years)(2)
Loans held-for-investment:
Commercial loans:
First mortgages (3)	$	10,984,936	$	11,043,211	4.9	%	1.8
Subordinated mortgages (4)	81,159		82,916		9.6	%	3.0
Mezzanine loans (3)	477,227		474,105		9.6	%	1.3
Other	17,689		19,450		8.2	%	2.3
Total commercial loans	11,561,011		11,619,682
Infrastructure first priority loans (5)	1,698,061		1,719,931		4.3	%	3.9
Residential loans, fair value option (6)	91,499		91,280		6.1	%	N/A	(7)
Total loans held-for-investment	13,350,571		13,430,893
Loans held-for-sale:
Residential, fair value option (6)	1,813,458		1,758,342		4.3	%	N/A	(7)
Commercial, fair value option	285,808		278,736		3.6	%	9.7
Infrastructure, lower of cost or fair value (5)	84,253		84,457		2.8	%	1.5
Total loans held-for-sale	2,183,519		2,121,535
Total gross loans	15,534,090		$	15,552,428
Credit loss allowances:
Commercial loans held-for-investment	( 48,359 )
Infrastructure loans held-for-investment	( 9,214 )
Total allowances	( 57,573 )
Total net loans	$	15,476,517

December 31, 2020
Loans held-for-investment:
Commercial loans:
First mortgages (3)	$	8,931,772	$	8,978,373	5.3	%	1.5
Subordinated mortgages (4)	71,185		72,257		8.8	%	2.8
Mezzanine loans (3)	620,319		619,352		10.1	%	1.6
Other	30,284		33,626		8.9	%	1.8
Total commercial loans	9,653,560		9,703,608
Infrastructure first priority loans	1,420,273		1,439,940		4.4	%	4.3
Residential loans, fair value option	90,684		86,796		6.0	%	N/A	(7)
Total loans held-for-investment	11,164,517		11,230,344
Loans held-for-sale:
Residential, fair value option	841,963		820,807		6.0	%	N/A	(7)
Commercial, fair value option	90,332		90,789		3.9	%	10.0
Infrastructure, lower of cost or fair value	120,540		120,900		3.1	%	3.2
Total loans held-for-sale	1,052,835		1,032,496
Total gross loans	12,217,352		$	12,262,840
Credit loss allowances:
Commercial loans held-for-investment	( 69,611 )
Infrastructure loans held-for-investment	( 7,833 )
Total allowances	( 77,444 )
Total net loans	$	12,139,908

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______________________________________________________________________________________________________________________

(1) Calculated using LIBOR or other applicable index rates as of September 30, 2021 and December 31, 2020 for variable rate loans.

(2) Represents the WAL of each respective group of loans as of the respective balance sheet date. The WAL of each individual loan is calculated using amounts and timing of future principal payments, as projected at origination or acquisition.

(3) First mortgages include first mortgage loans and any contiguous mezzanine loan components because as a whole, the expected credit quality of these loans is more similar to that of a first mortgage loan. The application of this methodology resulted in mezzanine loans with carrying values of $ 1.2 billion and $ 877.3 million being classified as first mortgages as of September 30, 2021 and December 31, 2020, respectively.

(4) Subordinated mortgages include B-Notes and junior participation in first mortgages where we do not own the senior A-Note or senior participation. If we own both the A-Note and B-Note, we categorize the loan as a first mortgage loan.

(5) During the nine months ended September 30, 2021, $ 30.7 million of infrastructure loans held-for-sale were reclassified into loans held-for-investment.

(6) During the nine months ended September 30, 2021, $ 94.2 million of residential loans held-for-sale were reclassified into loans held-for-investment and $ 94.9 million of residential loans held-for-investment were reclassified into loans held-for-sale.

(7) Residential loans have a weighted average remaining contractual life of 29.5 years and 27.9 years as of September 30, 2021 and December 31, 2020, respectively.

As of September 30, 2021, our variable rate loans held-for-investment were as follows (dollars in thousands):


September 30, 2021	Carrying Value		Weighted-average Spread Above Index
Commercial loans	$	11,114,900	4.2	%
Infrastructure loans	1,698,061		3.9	%
Total variable rate loans held-for-investment	$	12,812,961	4.2	%

Credit Loss Allowances

As discussed in Note 2, we do not have a history of realized credit losses on our HFI loans and HTM securities, so we have subscribed to third party database services to provide us with industry losses for both commercial real estate and infrastructure loans. Using these losses as a benchmark, we determine expected credit losses for our loans and securities on a collective basis within our commercial real estate and infrastructure portfolios.

For our commercial loans, we utilize a loan loss model that is widely used among banks and commercial mortgage REITs and is marketed by a leading CMBS data analytics provider. It employs logistic regression to forecast expected losses at the loan level based on a commercial real estate loan securitization database that contains activity dating back to 1998. We provide specific loan-level inputs which include loan-to-stabilized-value (“LTV”) and debt service coverage ratio (DSCR) metrics, as well as principal balances, property type, location, coupon, origination year, term, subordination, expected repayment dates and future fundings. We also select from a group of independent five-year macroeconomic forecasts included in the model that are updated regularly based on current economic trends. We categorize the results by LTV range, which we consider the most significant indicator of credit quality for our commercial loans, as set forth in the credit quality indicator table below. A lower LTV ratio typically indicates a lower credit loss risk.

The macroeconomic forecasts do not differentiate among property types or asset classes. Instead, these forecasts reference general macroeconomic growth factors which apply broadly across all assets. However, the COVID-19 pandemic has had a more negative impact on certain property types, principally retail and hospitality, which were initially impacted by lockdowns and partial reopenings and reduced consumer travel. The office sector has also been adversely affected due to the increase in remote working arrangements. The broad macroeconomic forecasts do not account for such differentiation. Accordingly, we have selected a more adverse macroeconomic recovery forecast related to these property types in determining our credit loss allowance.

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For our infrastructure loans, we utilize a database of historical infrastructure loan performance that is shared among a consortium of banks and other lenders and compiled by a major bond credit rating agency. The database is representative of industry-wide project finance activity dating back to 1983. We derive historical loss rates from the database filtered by industry, sub-industry, term and construction status for each of our infrastructure loans. Those historical loss rates reflect global economic cycles over a long period of time as well as average recovery rates. We categorize the results between the power and oil and gas industries, which we consider the most significant indicator of credit quality for our infrastructure loans, as set forth in the credit quality indicator table below.

As discussed in Note 2, we use a discounted cash flow or collateral value approach, rather than the industry loan loss approach described above, to determine credit loss allowances for any credit deteriorated loans.

We regularly evaluate the extent and impact of any credit deterioration associated with the performance and/or value of the underlying collateral, as well as the financial and operating capability of the borrower. Specifically, the collateral’s operating results and any cash reserves are analyzed and used to assess (i) whether cash flow from operations is sufficient to cover the debt service requirements currently and into the future, (ii) the ability of the borrower to refinance the loan and/or (iii) the collateral’s liquidation value. We also evaluate the financial wherewithal of any loan guarantors as well as the borrower’s competency in managing and operating the collateral. In addition, we consider the overall economic environment, real estate or industry sector, and geographic sub-market in which the borrower operates. Such analyses are completed and reviewed by asset management and finance personnel who utilize various data sources, including (i) periodic financial data such as property operating statements, occupancy, tenant profile, rental rates, operating expenses, the borrower’s exit plan, and capitalization and discount rates, (ii) site inspections and (iii) current credit spreads and discussions with market participants.

The significant credit quality indicators for our loans measured at amortized cost, which excludes loans held-for-sale, were as follows as of September 30, 2021 (dollars in thousands):


	Term Loans Amortized Cost Basis by Origination Year												Revolving Loans Amortized Cost Total		Total Amortized Cost Basis		Credit Loss Allowance
As of September 30, 2021	2021		2020		2019		2018		2017		Prior
Commercial loans:
Credit quality indicator:
LTV < 60%	$	2,055,283	$	758,931	$	1,185,385	$	595,145	$	657,732	$	287,335	$	—	$	5,539,811	$	8,226
LTV 60% - 70%	2,136,337		416,218		1,188,220		679,369		—		82,258		—		4,502,402		19,763
LTV > 70%	329,066		272,581		473,177		352,473		—		61,835		—		1,489,132		12,104
Credit deteriorated	—		—		—		—		—		11,977		—		11,977		8,266
Defeased and other	—		—		—		—		—		17,689		—		17,689		—
Total commercial	$	4,520,686	$	1,447,730	$	2,846,782	$	1,626,987	$	657,732	$	461,094	$	—	$	11,561,011	$	48,359
Infrastructure loans:
Credit quality indicator:
Power	$	98,003	$	52,343	$	217,061	$	410,610	$	121,482	$	305,241	$	9,111	$	1,213,851	$	5,108
Oil and gas	64,547		17,376		254,266		98,924		45,113		—		3,984		484,210		4,106
Total infrastructure	$	162,550	$	69,719	$	471,327	$	509,534	$	166,595	$	305,241	$	13,095	$	1,698,061	$	9,214
Residential loans held-for-investment, fair value option															91,499		—
Loans held-for-sale															2,183,519		—
Total gross loans															$	15,534,090	$	57,573

As of September 30, 2021, we had credit deteriorated commercial loans with an amortized cost basis of $ 12.0 million. These loans were on nonaccrual status, with the cost recovery method of interest income recognition applied. In addition to these credit deteriorated loans, we had a $ 196.2 million commercial loan and $ 19.5 million of residential loans that were 90 days or greater past due at September 30, 2021. In March 2021, $ 7.3 million relating to the $ 196.2 million commercial loan that was 90 days or greater past due was converted to equity interests pursuant to a consensual transfer under pre-existing equity pledges of additional collateral (see Note 7). The $ 196.2 million commercial loan, along with a $ 13.1 million infrastructure loan in forbearance, were placed on nonaccrual status in January 2021, but are not considered credit deteriorated as we presently expect to recover all amounts due. Any loans which are modified to provide for the deferral of interest are not considered past due and are accounted for in accordance with our revenue recognition policy on interest income.

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In April 2021, we foreclosed on certain credit deteriorated loans related to a residential conversion project located in New York City, which resulted in our obtaining physical possession of the underlying collateral. The net carrying value of the loans related to this project totaled $ 100.5 million and consisted of: (i) a first mortgage and mezzanine loan with a net carrying value of $ 71.5 million, for which we consolidated the underlying property collateral in October 2020 when we obtained control over certain pledged equity interests of the borrower; and (ii) a first mortgage loan with a net carrying value of $ 29.0 million that was not subject to the pledged equity interests and thus continued to be reflected as a loan on our consolidated balance sheet until the April 2021 foreclosure. See Note 6 for further detail.

The following tables present the activity in our credit loss allowance for funded loans and unfunded commitments (amounts in thousands):


	Funded Commitments Credit Loss Allowance
	Loans Held-for-Investment					Total Funded Loans
Nine Months Ended September 30, 2021	Commercial			Infrastructure
Credit loss allowance at December 31, 2020	$	69,611		$	7,833	$	77,444
Credit loss (reversal) provision, net	( 13,238 )			1,124		( 12,114 )
Charge-offs	( 7,757 )		(1)	—		( 7,757 )
Recoveries	—			—		—
Transfers	( 257 )			257		—
Credit loss allowance at September 30, 2021	$	48,359		$	9,214	$	57,573


	Unfunded Commitments Credit Loss Allowance (2)
	Loans Held-for-Investment
Nine Months Ended September 30, 2021	Commercial		Infrastructure		Total
Credit loss allowance at December 31, 2020	$	5,258	$	812	$	6,070
Credit loss reversal, net	( 440 )		( 523 )		( 963 )
Credit loss allowance at September 30, 2021	$	4,818	$	289	$	5,107
Memo: Unfunded commitments as of September 30, 2021 (3)	$	1,352,772	$	32,080	$	1,384,852

______________________________________________________________________________________________________________________

(1) Relates to an unsecured promissory note deemed uncollectible in connection with a residential conversion project located in New York City. The note was previously considered credit deteriorated and was fully reserved.

(2) Included in accounts payable, accrued expenses and other liabilities in our condensed consolidated balance sheets.

(3) Represents amounts expected to be funded (see Note 21).

Loan Portfolio Activity

The activity in our loan portfolio was as follows (amounts in thousands):


	Held-for-Investment Loans
Nine Months Ended September 30, 2021	Commercial		Infrastructure		Residential		Held-for-Sale Loans		Total Loans
Balance at December 31, 2020	$	9,583,949	$	1,412,440	$	90,684	$	1,052,835	$	12,139,908
Acquisitions/originations/additional funding	5,242,378		393,329		—		3,151,361		8,787,068
Capitalized interest (1)	89,830		—		2,068		2,062		93,960
Basis of loans sold (2)	( 243,378 )		—		—		( 2,358,790 )		( 2,602,168 )
Loan maturities/principal repayments	( 2,897,747 )		( 211,695 )		( 26,341 )		( 250,662 )		( 3,386,445 )
Discount accretion/premium amortization	40,367		3,652		—		504		44,523
Changes in fair value	—		—		1,837		66,279		68,116
Foreign currency translation loss, net	( 75,094 )		( 840 )		—		—		( 75,934 )
Credit loss reversal (provision), net	13,238		( 1,124 )		—		—		12,114
Loan foreclosure and conversion to equity interest	( 36,308 )		—		—		—		( 36,308 )		(3)
Transfer to/from other asset classifications or between segments	( 204,583 )		93,085		23,251		519,930		431,683		(4)
Balance at September 30, 2021	$	11,512,652	$	1,688,847	$	91,499	$	2,183,519	$	15,476,517

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	Held-for-Investment Loans
Nine Months Ended September 30, 2020	Commercial		Infrastructure		Residential		Held-for-Sale Loans		Total Loans
Balance at December 31, 2019	$	8,517,054	$	1,397,448	$	671,572	$	884,150	$	11,470,224
Cumulative effect of ASC 326 effective January 1, 2020	( 10,112 )		( 10,328 )		—		—		( 20,440 )
Acquisitions/originations/additional funding	2,090,964		177,247		100,720		1,800,018		4,168,949
Capitalized interest (1)	105,329		48		—		—		105,377
Basis of loans sold (2)	( 397,038 )		—		( 604 )		( 2,035,770 )		( 2,433,412 )
Loan maturities/principal repayments	( 1,148,317 )		( 96,150 )		( 76,025 )		( 75,632 )		( 1,396,124 )
Discount accretion/premium amortization	28,686		1,672		—		110		30,468
Changes in fair value	—		—		( 16,565 )		96,265		79,700
Foreign currency translation loss, net	( 15,279 )		( 38 )		—		( 1,291 )		( 16,608 )
Credit loss (provision) reversal, net	( 53,110 )		( 3,824 )		—		125		( 56,809 )
Transfer to/from other asset classifications	—		77,993		( 422,691 )		344,698		—
Balance at September 30, 2020	$	9,118,177	$	1,544,068	$	256,407	$	1,012,673	$	11,931,325

______________________________________________________________________________________________________________________

(1) Represents accrued interest income on loans whose terms do not require current payment of interest.

(2) See Note 11 for additional disclosure on these transactions.

(3) Includes (i) a $ 29.0 million credit deteriorated loan related to a residential conversion project which was foreclosed in April 2021 and (ii) $ 7.3 million of a commercial loan that was converted to equity interests in March 2021 (see Note 7) pursuant to a consensual transfer under pre-existing equity pledges of additional collateral, both as described above.

(4) Net transfers represent residential loans transferred from VIE assets upon redemption of two consolidated RMBS trusts.

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5. Investment Securities

Investment securities were comprised of the following as of September 30, 2021 and December 31, 2020 (amounts in thousands):


	Carrying Value as of
	September 30, 2021		December 31, 2020
RMBS, available-for-sale	$	148,583	$	167,349
RMBS, fair value option (1)	215,152		235,997
CMBS, fair value option (1), (2)	1,227,119		1,209,030
HTM debt securities, amortized cost net of credit loss allowance of $ 6,389 and $ 5,675	486,734		538,605
Equity security, fair value	12,067		11,247
Subtotal — Investment securities	2,089,655		2,162,228
VIE eliminations (1)	( 1,418,768 )		( 1,425,570 )
Total investment securities	$	670,887	$	736,658

______________________________________________________________________________________________________________________

(1) Certain fair value option CMBS and RMBS are eliminated in consolidation against VIE liabilities pursuant to ASC 810.

(2) Includes $ 179.8 million and $ 179.5 million of non-controlling interests in the consolidated entities which hold certain of these CMBS as of September 30, 2021 and December 31, 2020, respectively.

Purchases, sales, principal collections and redemptions for all investment securities were as follows (amounts in thousands):


	RMBS, available-for-sale		RMBS, fair value option		CMBS, fair value option		HTM Securities		Securitization VIEs (1)		Total
Three Months Ended September 30, 2021
Purchases	$	—	$	33,009	$	8,383	$	—	$	( 41,392 )	$	—
Sales	—		—		27,111		—		( 27,111 )		—
Principal collections	7,881		14,204		706		752		( 14,555 )		8,988
Redemptions	—		26,753		—		—		( 26,753 )		—
Three Months Ended September 30, 2020
Purchases/fundings	$	—	$	43,083	$	—	$	6,288	$	( 43,083 )	$	6,288
Principal collections	6,063		12,132		8,265		11,203		( 20,185 )		17,478


	RMBS, available-for-sale		RMBS, fair value option		CMBS, fair value option		HTM Securities		Securitization VIEs (1)		Total
Nine Months Ended September 30, 2021
Purchases	$	—	$	112,693	$	62,465	$	—	$	( 175,158 )	$	—
Sales	—		30,684		38,715		—		( 69,399 )		—
Principal collections	22,995		42,235		4,429		53,321		( 45,125 )		77,855
Redemptions	—		38,729		—		—		( 38,729 )		—
Nine Months Ended September 30, 2020
Purchases/fundings	$	—	$	257,808	$	7,661	$	22,408	$	( 265,469 )	$	22,408
Sales	—		—		32,316		—		( 24,376 )		7,940
Principal collections	18,626		32,236		25,715		48,554		( 57,174 )		67,957

______________________________________________________________________________________________________________________

(1) Represents RMBS and CMBS, fair value option amounts eliminated due to our consolidation of securitization VIEs. These amounts are reflected as issuance or repayment of debt of, or distributions from, consolidated VIEs in our condensed consolidated statements of cash flows.

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RMBS, Available-for-Sale

The Company classified all of its RMBS not eliminated in consolidation as available-for-sale as of September 30, 2021 and December 31, 2020. These RMBS are reported at fair value in the balance sheet with changes in fair value recorded in accumulated other comprehensive income (“AOCI”).

The tables below summarize various attributes of our investments in available-for-sale RMBS as of September 30, 2021 and December 31, 2020 (amounts in thousands):


							Unrealized Gains or (Losses) Recognized in AOCI
	Amortized Cost		Credit Loss Allowance		Net Basis		Gross Unrealized Gains		Gross Unrealized Losses		Net Fair Value Adjustment		Fair Value
September 30, 2021
RMBS	$	108,097	$	—	$	108,097	$	40,486	$	—	$	40,486	$	148,583
December 31, 2020
RMBS	$	123,292	$	—	$	123,292	$	44,123	$	( 66 )	$	44,057	$	167,349


	Weighted Average Coupon (1)		WAL (Years) (2)
September 30, 2021
RMBS	1.2	%	5.4

______________________________________________________________________________________________________________________

(1) Calculated using the September 30, 2021 one-month LIBOR rate of 0.080 % for floating rate securities.

(2) Represents the remaining WAL of each respective group of securities as of the balance sheet date. The WAL of each individual security is calculated using projected amounts and projected timing of future principal payments.

As of September 30, 2021, approximately $ 129.4 million, or 87 %, of RMBS were variable rate. We purchased all of the RMBS at a discount, a portion of which is accreted into income over the expected remaining life of the security. The majority of the income from this strategy is earned from the accretion of this accretable discount.

We have engaged a third party manager who specializes in RMBS to execute the trading of RMBS, the cost of which was $ 0.3 million and $ 0.3 million for the three months ended September 30, 2021 and 2020, respectively, and $ 0.9 million and $ 1.0 million for the nine months ended September 30, 2021 and 2020, respectively, recorded as management fees in the accompanying condensed consolidated statements of operations.

The following table presents the gross unrealized losses and estimated fair value of any available-for-sale securities that were in an unrealized loss position as of September 30, 2021 and December 31, 2020, and for which an allowance for credit losses has not been recorded (amounts in thousands):


	Estimated Fair Value				Unrealized Losses
	Securities with a loss less than 12 months		Securities with a loss greater than 12 months		Securities with a loss less than 12 months		Securities with a loss greater than 12 months
As of September 30, 2021
RMBS	$	—	$	—	$	—	$	—
As of December 31, 2020
RMBS	$	438	$	1,195	$	( 25 )	$	( 41 )

As of December 31, 2020, there were two securities with unrealized losses reflected in the table above ( none as of September 30, 2021). After evaluating the securities and recording adjustments for credit losses, we concluded that the remaining unrealized losses reflected above were noncredit-related and would be recovered from the securities’ estimated future cash flows. We considered a number of factors in reaching this conclusion, including that we did not intend to sell the securities, it was not considered more likely than not that we would be forced to sell the securities prior to recovering our amortized cost, and there were no material credit events that would have caused us to otherwise conclude that we would not recover our cost. Credit losses are calculated by comparing (i) the estimated future cash flows of each security discounted at the yield determined as of the initial acquisition date or, if since revised, as of the last date previously revised, to (ii) our net amortized cost basis. Significant judgment is used in projecting cash flows for our non-agency RMBS. As a result, actual income and/or credit losses could be materially different from what is currently projected and/or reported.

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CMBS and RMBS, Fair Value Option

As discussed in the “Fair Value Option” section of Note 2 herein, we elect the fair value option for certain CMBS and RMBS in an effort to eliminate accounting mismatches resulting from the current or potential consolidation of securitization VIEs. As of September 30, 2021, the fair value and unpaid principal balance of CMBS where we have elected the fair value option, excluding the notional value of interest-only securities and before consolidation of securitization VIEs, were $ 1.2 billion and $ 2.8 billion, respectively. As of September 30, 2021, the fair value and unpaid principal balance of RMBS where we have elected the fair value option, excluding the notional value of interest-only securities and before consolidation of securitization VIEs, were $ 215.2 million and $ 119.5 million, respectively. The $ 1.4 billion total fair value balance of CMBS and RMBS represents our economic interests in these assets. However, as a result of our consolidation of securitization VIEs, the vast majority of this fair value (all except $ 23.5 million at September 30, 2021) is eliminated against VIE liabilities before arriving at our GAAP balance for fair value option investment securities.

As of September 30, 2021, $ 98.2 million of our CMBS were variable rate and none of our RMBS were variable rate.

HTM Debt Securities, Amortized Cost

The table below summarizes our investments in HTM debt securities as of September 30, 2021 and December 31, 2020 (amounts in thousands):


	Amortized Cost Basis		Credit Loss Allowance		Net Carrying Amount		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses		Fair Value
September 30, 2021
CMBS	$	339,190	$	( 1,593 )	$	337,597	$	—	$	( 23,490 )	$	314,107
Preferred interests	117,692		( 1,877 )		115,815		3,415		—		119,230
Infrastructure bonds	36,241		( 2,919 )		33,322		498		—		33,820
Total	$	493,123	$	( 6,389 )	$	486,734	$	3,913	$	( 23,490 )	$	467,157

December 31, 2020
CMBS	$	339,059	$	—	$	339,059	$	—	$	( 23,286 )	$	315,773
Preferred interests	166,614		( 2,749 )		163,865		432		( 913 )		163,384
Infrastructure bonds	38,607		( 2,926 )		35,681		415		—		36,096
Total	$	544,280	$	( 5,675 )	$	538,605	$	847	$	( 24,199 )	$	515,253

The following table presents the activity in our credit loss allowance for HTM debt securities (amounts in thousands):


	CMBS		Preferred Interests		Infrastructure Bonds		Total HTM Credit Loss Allowance
Nine Months Ended September 30, 2021
Credit loss allowance at December 31, 2020	$	—	$	2,749	$	2,926	$	5,675
Credit loss provision (reversal), net	1,593		( 872 )		( 7 )		714
Credit loss allowance at September 30, 2021	$	1,593	$	1,877	$	2,919	$	6,389

The table below summarizes the maturities of our HTM debt securities by type as of September 30, 2021 (amounts in thousands):


	CMBS		Preferred Interests		Infrastructure Bonds		Total
Less than one year	$	313,928	$	—	$	—	$	313,928
One to three years	23,669		115,815		—		139,484
Three to five years	—		—		814		814
Thereafter	—		—		32,508		32,508
Total	$	337,597	$	115,815	$	33,322	$	486,734

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Equity Security, Fair Value

During 2012, we acquired 9,140,000 ordinary shares from a related-party in Starwood European Real Estate Finance Limited (“SEREF”), a debt fund that is externally managed by an affiliate of our Manager and is listed on the London Stock Exchange. The fair value of the investment remeasured in USD was $ 12.1 million and $ 11.2 million as of September 30, 2021 and December 31, 2020, respectively. As of September 30, 2021, our shares represent an approximate 2 % interest in SEREF.

6. Properties

Our properties are held within the following portfolios:

Woodstar I Portfolio

The Woodstar I Portfolio is comprised of 32 affordable housing communities with 8,948 units concentrated primarily in the Tampa, Orlando and West Palm Beach metropolitan areas. During the year ended December 31, 2015, we acquired 18 of the 32 affordable housing communities of the Woodstar I Portfolio with the final 14 communities acquired during the year ended December 31, 2016. The Woodstar I Portfolio includes total gross properties and lease intangibles of $ 640.9 million and debt of $ 573.4 million as of September 30, 2021.

Woodstar II Portfolio

The Woodstar II Portfolio is comprised of 27 affordable housing communities with 6,109 units concentrated primarily in Central and South Florida. We acquired eight of the 27 affordable housing communities in December 2017, with the final 19 communities acquired during the year ended December 31, 2018. The Woodstar II Portfolio includes total gross properties and lease intangibles of $ 611.8 million and debt of $ 512.9 million as of September 30, 2021.

Medical Office Portfolio

The Medical Office Portfolio is comprised of 34 medical office buildings acquired during the year ended December 31, 2016. These properties, which collectively comprise 1.9 million square feet, are geographically dispersed throughout the U.S. and primarily affiliated with major hospitals or located on or adjacent to major hospital campuses. The Medical Office Portfolio includes total gross properties and lease intangibles of $ 762.1 million and debt of $ 593.9 million as of September 30, 2021.

Master Lease Portfolio

The Master Lease Portfolio is comprised of 16 retail properties geographically dispersed throughout the U.S., with more than 50 % of the portfolio, by carrying value, located in Florida, Texas and Minnesota. These properties, which we acquired in September 2017, collectively comprise 1.9 million square feet and were leased back to the seller under corporate guaranteed master net lease agreements with initial terms of 24.6 years and periodic rent escalations. The Master Lease Portfolio includes total gross properties of $ 343.8 million and debt of $ 193.0 million as of September 30, 2021.

Investing and Servicing Segment Property Portfolio

The REIS Equity Portfolio is comprised of 14 commercial real estate properties and one equity interest in an unconsolidated commercial real estate property which were acquired from CMBS trusts during the previous five years. The REIS Equity Portfolio includes total gross properties and lease intangibles of $ 250.3 million and debt of $ 176.7 million as of September 30, 2021.

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The table below summarizes our properties held as of September 30, 2021 and December 31, 2020 (dollars in thousands):


	Depreciable Life	September 30, 2021		December 31, 2020
Property Segment
Land and land improvements	0 - 15 years	$	485,177	$	484,846
Buildings and building improvements	0 - 45 years	1,693,834		1,690,701
Furniture & fixtures	3 - 7 years	65,575		59,632
Investing and Servicing Segment
Land and land improvements	0 - 15 years	45,243		50,585
Buildings and building improvements	3 - 40 years	167,271		179,014
Furniture & fixtures	2 - 5 years	3,077		2,606
Commercial and Residential Lending Segment (1)
Land and land improvements	0 - 7 years	9,691		11,416
Buildings and building improvements	10 - 20 years	12,409		19,251
Construction in progress	N/A	104,088		75,245
Properties, cost		2,586,365		2,573,296
Less: accumulated depreciation		( 357,503 )		( 302,143 )
Properties, net		$	2,228,862	$	2,271,153

______________________________________________________________________________________________________________________

(1) Represents properties acquired through loan foreclosure. Refer to Note 4 with respect to the construction in progress properties relating to a residential conversion project.

During the nine months ended September 30, 2021, we sold an operating property within the REIS Equity Portfolio for $ 30.9 million and recognized a gain of $ 9.7 million within gain on sale of investments and other assets in our condensed consolidated statements of operations. During the nine months ended September 30, 2020, we sold an operating property within the REIS Equity Portfolio for $ 24.1 million and recognized a gain of $ 7.4 million within gain on sale of investments and other assets in our condensed consolidated statements of operations.

During the nine months ended September 30, 2021, we sold an operating property within the Commercial and Residential Lending Segment for $ 30.6 million and recognized a gain of $ 17.7 million within gain on sale of investments and other assets in our condensed consolidated statements of operations. Refer to Note 3 for further discussion.

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7. Investment in Unconsolidated Entities

The table below summarizes our investments in unconsolidated entities as of September 30, 2021 and December 31, 2020 (dollars in thousands):


	Participation / Ownership % (1)	Carrying value as of
		September 30, 2021		December 31, 2020
Equity method investments:
Equity interest in a natural gas power plant	10 %	$	25,170	$	25,095
Investor entity which owns equity in an online real estate company (2)	50 %	5,142		9,397
Equity interests in commercial real estate	50 %	975		1,543
Equity interest in and advances to a residential mortgage originator (3)	N/A	19,376		17,852
Various	25 % - 50 %	11,166		8,831
		61,829		62,718
Other equity investments:
Equity interest in a servicing and advisory business	2 %	17,584		17,584
Investment funds which own equity in a loan servicer and other real estate assets	4 % - 6 %	7,267		7,267
Investor entities which own equity interests in two entertainment and retail centers (4)	15 %	7,320		—
Federal Home Loan Bank stock	N/A	—		20,485
		32,171		45,336
		$	94,000	$	108,054

______________________________________________________________________________________________________________________

(1) None of these investments are publicly traded and therefore quoted market prices are not available.

(2) During the three and nine months ended September 30, 2021, we received a capital distribution of $ 4.5 million, which reduced our carrying value.

(3) Includes a $ 4.5 million subordinated loan as of both September 30, 2021 and December 31, 2020.

(4) During the nine months ended September 30, 2021, we obtained equity interests in two investor entities that own interests in two entertainment and retail centers in satisfaction of $ 7.3 million principal amount of a commercial loan. The interests were obtained in order to facilitate repayment of a portion of that loan for which these interests represented underlying collateral. The interests are entitled to preferred treatment in the distribution waterfall and are intended to repay us the $ 7.3 million principal amount of the loan plus interest. See further discussion in Note 4.

As of September 30, 2021, the carrying value of our equity investment in a residential mortgage originator exceeded the underlying equity in net assets of such investee by $ 1.6 million. This difference is the result of the Company recording its investment in the investee at its acquisition date fair value, which included certain non-amortizing intangible assets not recognized by the investee. Should the Company determine these intangible assets held by the investee are impaired, the Company will recognize such impairment loss through earnings from unconsolidated entities in our consolidated statement of operations, otherwise, such difference between the carrying value of our equity investment in the residential mortgage originator and the underlying equity in the net assets of the residential mortgage originator will continue to exist.

Other than our equity interest in the residential mortgage originator, there were no differences between the carrying value of our equity method investments and the underlying equity in the net assets of the investees as of September 30, 2021.

During the three and nine months ended September 30, 2021, we did not become aware of (i) any observable price changes in our other equity investments accounted for under the fair value practicability election or (ii) any indicators of impairment.

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8. Goodwill and Intangibles

Goodwill

Goodwill is tested for impairment annually in the fourth quarter, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Management considered the general economic decline and the impact of the COVID-19 pandemic, but did not identify any such event or circumstances. However, future changes in the expectations of the impact of COVID-19 on our operations, financial performance and cash flows could cause our goodwill to be impaired.

Infrastructure Lending Segment

The Infrastructure Lending Segment’s goodwill of $ 119.4 million at both September 30, 2021 and December 31, 2020 represents the excess of consideration transferred over the fair value of net assets acquired on September 19, 2018 and October 15, 2018. The goodwill recognized is attributable to value embedded in the acquired Infrastructure Lending Segment’s lending platform.

LNR Property LLC (“LNR”)

The Investing and Servicing Segment’s goodwill of $ 140.4 million at both September 30, 2021 and December 31, 2020 represents the excess of consideration transferred over the fair value of net assets of LNR acquired on April 19, 2013. The goodwill recognized is attributable to value embedded in LNR’s existing platform, which includes a network of commercial real estate asset managers, work-out specialists, underwriters and administrative support professionals as well as proprietary historical performance data on commercial real estate assets.

Intangible Assets

Servicing Rights Intangibles

In connection with the LNR acquisition, we identified domestic servicing rights that existed at the purchase date, based upon the expected future cash flows of the associated servicing contracts. As of September 30, 2021 and December 31, 2020, the balance of the domestic servicing intangible was net of $ 39.4 million and $ 41.4 million, respectively, which was eliminated in consolidation pursuant to ASC 810 against VIE assets in connection with our consolidation of securitization VIEs. Before VIE consolidation, as of September 30, 2021 and December 31, 2020, the domestic servicing intangible had a balance of $ 55.4 million and $ 54.6 million, respectively, which represents our economic interest in this asset.

Lease Intangibles

In connection with our acquisitions of commercial real estate, we recognized in-place lease intangible assets and favorable lease intangible assets associated with certain non-cancelable operating leases of the acquired properties.

The following table summarizes our intangible assets, which are comprised of servicing rights intangibles and lease intangibles, as of September 30, 2021 and December 31, 2020 (amounts in thousands):


	As of September 30, 2021						As of December 31, 2020
	Gross Carrying Value		Accumulated Amortization		Net Carrying Value		Gross Carrying Value		Accumulated Amortization		Net Carrying Value
Domestic servicing rights, at fair value	$	15,942	$	—	$	15,942	$	13,202	$	—	$	13,202
In-place lease intangible assets	131,418		( 97,365 )		34,053		133,203		( 92,540 )		40,663
Favorable lease intangible assets	23,862		( 8,735 )		15,127		24,181		( 7,929 )		16,252
Total net intangible assets	$	171,222	$	( 106,100 )	$	65,122	$	170,586	$	( 100,469 )	$	70,117

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The following table summarizes the activity within intangible assets for the nine months ended September 30, 2021 (amounts in thousands):


	Domestic Servicing Rights		In-place Lease Intangible Assets		Favorable Lease Intangible Assets		Total
Balance as of January 1, 2021	$	13,202	$	40,663	$	16,252	$	70,117
Amortization	—		( 6,250 )		( 1,056 )		( 7,306 )
Sales	—		( 360 )		( 69 )		( 429 )
Changes in fair value due to changes in inputs and assumptions	2,740		—		—		2,740
Balance as of September 30, 2021	$	15,942	$	34,053	$	15,127	$	65,122

The following table sets forth the estimated aggregate amortization of our in-place lease intangible assets and favorable lease intangible assets for the next five years and thereafter (amounts in thousands):


2021 (remainder of)	$	2,231
2022	7,783
2023	6,043
2024	4,650
2025	3,775
Thereafter	24,698
Total	$	49,180

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9. Secured Borrowings

Secured Financing Agreements

The following table is a summary of our secured financing agreements in place as of September 30, 2021 and December 31, 2020 (dollars in thousands):


												Outstanding Balance at
	Current Maturity		Extended Maturity (a)		Weighted Average Pricing	Pledged Asset Carrying Value			Maximum Facility Size			September 30, 2021			December 31, 2020
Repurchase Agreements:
Commercial Loans	Mar 2022 to Jul 2026	(b)	Jun 2025 to Mar 2029	(b)	(c)	$	7,750,853		$	9,980,380	(d)	$	5,294,281		$	4,878,939
Residential Loans	Jun 2022 to Oct 2023		N/A		LIBOR + 2.01 %	1,755,161			2,550,000			1,440,018			22,590
Infrastructure Loans	Sep 2024		Sep 2026		LIBOR + 2.00 %	467,921			650,000			368,442			232,961
Conduit Loans	Feb 2022 to Jun 2024		Feb 2023 to Jun 2025		LIBOR + 1.99 %	259,155			350,000			192,829			53,554
CMBS/RMBS	Dec 2021 to May 2031	(e)	Sep 2022 to Nov 2031	(e)	(f)	1,193,808			835,850			709,340		(g)	620,763
Total Repurchase Agreements						11,426,898			14,366,230			8,004,910			5,808,807
Other Secured Financing:
Borrowing Base Facility	Apr 2022		Apr 2024		LIBOR + 2.25 %	73,502			650,000		(h)	2,000			43,014
Commercial Financing Facility	Mar 2022		Mar 2029		GBP LIBOR + 1.75 %	177,424			142,872			142,872			81,218
Residential Financing Facility	Sep 2022		Sep 2025		3.50 %	149,604			250,000			2,018			215,024
Infrastructure Acquisition Facility	N/A		N/A		N/A	—			—			—			467,450
Infrastructure Financing Facilities	Jul 2022 to Oct 2022		Oct 2024 to Jul 2027		LIBOR + 2.03 %	688,488			1,250,000			544,582			538,645
Property Mortgages - Fixed rate	Nov 2024 to Aug 2052	(i)	N/A		4.03 %	1,254,141			1,154,763			1,154,763			1,077,528
Property Mortgages - Variable rate	Nov 2021 to Jul 2030		N/A		(j)	898,634			969,790			945,311			960,903
Term Loan and Revolver	(k)		N/A		(k)	N/A		(k)	940,750			790,750			645,000
Federal Home Loan Bank	N/A		N/A		N/A	—			—			—			396,000
Total Other Secured Financing						3,241,793			5,358,175			3,582,296			4,424,782
						$	14,668,691		$	19,724,405		11,587,206			10,233,589
Unamortized net discount												( 14,603 )			( 13,569 )
Unamortized deferred financing costs												( 70,551 )			( 73,830 )
												$	11,502,052		$	10,146,190

______________________________________________________________________________________________________________________

(a) Subject to certain conditions as defined in the respective facility agreement.

(b) For certain facilities, borrowings collateralized by loans existing at maturity may remain outstanding until such loan collateral matures, subject to certain specified conditions.

(c) Certain facilities with an outstanding balance of $ 1.9 billion as of September 30, 2021 are indexed to GBP LIBOR, EURIBOR, BBSY and SONIA. The remainder have a weighted average rate of LIBOR + 1.94 %.

(d) Certain facilities with an aggregate initial maximum facility size of $ 9.1 billion may be increased to $ 10.0 billion, subject to certain conditions. The $ 10.0 billion amount includes such upsizes.

(e) Certain facilities with an outstanding balance of $ 292.8 million as of September 30, 2021 carry a rolling 11-month or 12-month term which may reset monthly or quarterly with the lender's consent. These facilities carry no maximum facility size.

(f) A facility with an outstanding balance of $ 243.0 million as of September 30, 2021 has a weighted average fixed annual interest rate of 3.21 %. All other facilities are variable rate with a weighted average rate of LIBOR + 1.76 %.

(g) Includes: (i) $ 243.0 million outstanding on a repurchase facility that is not subject to margin calls; and (ii) $ 35.8 million outstanding on one of our repurchase facilities that represents the 49 % pro rata share owed by a non-controlling partner in a consolidated joint venture (see Note 14).

(h) The initial maximum facility size of $ 300.0 million may be increased to $ 650.0 million, subject to certain conditions.

(i) The weighted average maturity is 6.0 years as of September 30, 2021.

(j) Includes a $ 600.0 million first mortgage and mezzanine loan secured by our Medical Office Portfolio. This debt has a weighted average interest rate of LIBOR + 2.07 % that we swapped to a fixed rate of 3.34 %. The remainder have a weighted average rate of LIBOR + 2.61 %.

(k) Consists of: (i) a $ 790.8 million term loan facility that matures in July 2026, of which $ 392.0 million (the "Initial Borrowings") has an annual interest rate of LIBOR + 2.50 % and $ 398.8 million (the "Incremental Borrowings") has an annual interest rate of LIBOR + 3.25 %, subject to a 0.75 % LIBOR floor, and (ii) a $ 150.0 million revolving credit

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facility that matures in April 2026 with an annual interest rate of SOFR + 2.50 %. These facilities are secured by the equity interests in certain of our subsidiaries which totaled $ 4.7 billion as of September 30, 2021.

In the normal course of business, the Company is in discussions with its lenders to extend, amend or replace any financing facilities which contain near term expirations.

In January 2021, we entered into a Residential Loans repurchase facility to finance residential loans. The facility carries a one-year term, which we intend to extend every three months , and an annual interest rate of one-month LIBOR + 2.00 % to 2.50 %, subject to a 0.25 % LIBOR floor. The maximum facility size was initially $ 375.0 million and was increased to $ 1.0 billion in March 2021.

In March 2021, we entered into mortgage loans with total borrowings of $ 82.9 million to refinance our Woodstar II Portfolio. The loans carry seven-year terms and a weighted average fixed annual interest rate of 4.36 %. A portion of the net proceeds from the mortgage loans was used to repay $ 4.9 million of outstanding government sponsored mortgage loans.

In May 2021, we entered into a Residential Loans repurchase facility to finance residential loans. The facility carries a 15-month term, which renews to a new 15-month term every three months , and an annual interest rate of one-month LIBOR + 2.25 %, subject to a 0.15 % LIBOR floor. The maximum facility size was initially $ 150.0 million and was increased to $ 300.0 million during the three months ended September 30, 2021.

In August 2021, we amended a Residential Loans repurchase facility to increase the available borrowings from $ 1.0 billion to $ 1.5 billion. The margin call provisions under this facility do not permit valuation adjustments based on capital market events and are limited to collateral-specific credit marks.

In August 2021, we entered into a Commercial Loans repurchase facility to provide short-term bridge financing for loans denominated in foreign currency. The facility carries a three-year term, with a one-year extension option, and has a maximum facility size of £ 250.0 million and an interest rate of the applicable index + 1.50 %. The margin call provisions under this facility do not permit valuation adjustments based on capital market events and are limited to collateral-specific credit marks.

In September 2021, we amended an Infrastructure Loans repurchase facility. The amendment provides for a temporary increase to available borrowings from $ 500.0 million to $ 650.0 million, with available capacity decreasing to $ 600.0 million in September 2022, $ 550.0 million in December 2022 and back to $ 500.0 million in March 2023. The amendment also extends the current maturity from February 2022 to September 2024, with two one-year extension options. In connection with this amendment, we terminated the Infrastructure Acquisition Facility and transferred the related financing to the amended repurchase facility. The facility carries an annual interest rate of LIBOR + 2.00 %.

In September 2021, we amended the Term Loan facility to increase the Incremental Borrowings by $ 150.0 million and reduce the annual interest rate by 0.25 % to LIBOR + 3.25 % on all the Incremental Borrowings, subject to a 0.75 % LIBOR floor. Additionally, we increased the maximum facility size of the revolver by $ 30.0 million to $ 150.0 million, reduced the annual rate by 0.50 % to SOFR + 2.50 % and extended the maturity from July 2024 to April 2026.

Our secured financing agreements contain certain financial tests and covenants. As of September 30, 2021, we were in compliance with all such covenants.

We seek to mitigate risks associated with our repurchase agreements by managing risk related to the credit quality of our assets, interest rates, liquidity, prepayment speeds and market value. The margin call provisions under the majority of our repurchase facilities, consisting of 64 % of these agreements, do not permit valuation adjustments based on capital market events and are limited to collateral-specific credit marks generally determined on a commercially reasonable basis. To monitor credit risk associated with the performance and value of our loans and investments, our asset management team regularly reviews our investment portfolios and is in regular contact with our borrowers, monitoring performance of the collateral and enforcing our rights as necessary. For the 36 % of repurchase agreements which do permit valuation adjustments based on capital market events, approximately 7 % of these pertain to our loans held-for-sale, for which we manage credit risk through the purchase of credit index instruments. We further seek to manage risks associated with our repurchase agreements by matching the maturities and interest rate characteristics of our loans with the related repurchase agreement.

For the three and nine months ended September 30, 2021, approximately $ 8.6 million and $ 26.9 million, respectively, of amortization of deferred financing costs from secured financing agreements was included in interest expense on our condensed consolidated statements of operations. For the three and nine months ended September 30, 2020, approximately

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$ 9.5 million and $ 27.3 million, respectively, of amortization of deferred financing costs from secured financing agreements was included in interest expense on our condensed consolidated statements of operations.

As of September 30, 2021, JPMorgan Chase Bank, N.A. and Morgan Stanley Bank, N.A. held collateral sold under certain of our repurchase agreements with carrying values that exceeded the respective repurchase obligations by $ 785.7 million and $ 579.5 million, respectively. The weighted average extended maturities of those repurchase agreements were 4.0 and 4.1 years, respectively.

Collateralized Loan Obligations and Single Asset Securitization

Commercial and Residential Lending Segment

In July 2021, we contributed into a single asset securitization, STWD 2021-HTS, a previously originated $ 230.0 million first mortgage and mezzanine loan on a portfolio of 41 extended stay hotels with $ 210.1 million of third party financing at an average coupon of LIBOR + 2.22 %.

In May 2021, we refinanced a pool of our commercial loans held-for-investment through a CLO, STWD 2021-FL2. On the closing date, the CLO issued $ 1.3 billion of notes and preferred shares, of which $ 1.1 billion of notes was purchased by third party investors. We retained $ 70.1 million of notes, along with preferred shares with a liquidation preference of $ 127.5 million. The CLO contains a reinvestment feature that, subject to certain eligibility criteria, allows us to contribute new loans or participation interests in loans to the CLO in exchange for cash. During the nine months ended September 30, 2021, we utilized the reinvestment feature, contributing $ 1.0 million of additional interests into the CLO.

In August 2019, we refinanced a pool of our commercial loans held-for-investment through a CLO, STWD 2019-FL1. On the closing date, the CLO issued $ 1.1 billion of notes and preferred shares, of which $ 936.4 million of notes was purchased by third party investors. We retained $ 86.6 million of notes, along with preferred shares with a liquidation preference of $ 77.0 million. The CLO contains a reinvestment feature that, subject to certain eligibility criteria, allows us to contribute new loans or participation interests in loans to the CLO in exchange for cash. During the nine months ended September 30, 2021, we utilized the reinvestment feature, contributing $ 163.7 million of additional interests into the CLO.

Infrastructure Lending Segment

In April 2021, we refinanced a pool of our infrastructure loans held-for-investment through a CLO, STWD 2021-SIF1. On the closing date, the CLO issued $ 500.0 million of notes and preferred shares, of which $ 410.0 million of notes was purchased by third party investors. We retained preferred shares with a liquidation preference of $ 90.0 million. The CLO contains a reinvestment feature that, subject to certain eligibility criteria, allows us to contribute new loans or participation interests in loans to the CLO in exchange for cash. During the nine months ended September 30, 2021, we utilized the reinvestment feature, contributing $ 37.0 million of additional interests into the CLO.

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The following table is a summary of our CLOs and our SASB as of September 30, 2021 and December 31, 2020 (amounts in thousands):

September 30, 2021

Count

Face
Amount

Carrying
Value

Weighted
Average Spread

Maturity

STWD 2019-FL1

Collateral assets

1,034,361

1,103,259

LIBOR + 4.23 %

(a)

September 2024

(b)

Financing

936,375

932,425

SOFR + 1.63 %

(c)

July 2038

(d)

STWD 2021-FL2

Collateral assets

1,269,744

1,279,245

LIBOR + 4.23 %

(a)

January 2025

(b)

Financing

1,077,375

1,069,014

LIBOR + 1.78 %

(c)

April 2038

(d)

STWD 2021-SIF1

Collateral assets

494,065

510,592

LIBOR + 3.94 %

(a)

March 2026

(b)

Financing

410,000

404,960

LIBOR + 2.15 %

(c)

April 2032

(d)

STWD 2021-HTS

Collateral assets

230,000

230,562

LIBOR + 4.34 %

(a)

April 2026

(b)

Financing

210,091

207,831

LIBOR + 2.47 %

(c)

April 2034

(d)

Total

Collateral assets

3,028,170

3,123,658

Financing

2,633,841

2,614,230

December 31, 2020

STWD 2019-FL1

Collateral assets

1,002,445

1,099,439

LIBOR + 3.93 %

(a)

April 2024

(b)

Financing

936,375

930,554

LIBOR + 1.64 %

(c)

July 2038

(d)

___________________________________________________________________________________________________________________________________

(a) Represents the weighted-average coupon earned on variable rate loans during the respective year-to-date period. Of the loans financed by the STWD 2021-FL2 CLO as of September 30, 2021, 7 % earned fixed-rate weighted average interest of 7.55 %. Of the loans financed by the STWD 2021-SIF1 CLO as of September 30, 2021, 2 % earned fixed-rate weighted average interest of 5.62 %.

(b) Represents the weighted-average maturity, assuming the extended contractual maturity of the collateral assets.

(c) Represents the weighted-average cost of financing incurred during the respective year-to-date period, inclusive of deferred issuance costs.

(d) Repayments of the CLO and SASB are tied to timing of the related collateral asset repayments. The term of the CLO and SASB financing obligation represents the legal final maturity date.

We incurred $ 26.9 million of issuance costs in connection with the CLOs and SASB, which are amortized on an effective yield basis over the estimated life of the CLOs and SASB. For the three and nine months ended September 30, 2021, approximately $ 1.8 million and $ 3.9 million, respectively, of amortization of deferred financing costs was included in interest expense on our condensed consolidated statements of operations. For the three and nine months ended September 30, 2020, approximately $ 0.7 million and $ 1.9 million, respectively, of amortization of deferred financing costs was included in interest expense. As of September 30, 2021 and December 31, 2020, our unamortized issuance costs were $ 19.6 million and $ 5.8 million, respectively.

The CLOs and SASB are considered VIEs, for which we are deemed the primary beneficiary. We therefore consolidate the CLOs and SASB. Refer to Note 14 for further discussion.

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Maturities

Our credit facilities generally require principal to be paid down prior to the facilities’ respective maturities if and when we receive principal payments on, or sell, the investment collateral that we have pledged. The following table sets forth our principal repayments schedule for secured financings based on the earlier of (i) the extended contractual maturity of each credit facility or (ii) the extended contractual maturity of each of the investments that have been pledged as collateral under the respective credit facility (amounts in thousands):


	Repurchase Agreements		Other Secured Financing		CLOs and SASB (a)		Total
2021 (remainder of)	$	273,583	$	15,751	$	4,103	$	293,437
2022	1,998,566		35,189		125,338		2,159,093
2023	860,568		821,810		638,036		2,320,414
2024	824,181		214,086		485,408		1,523,675
2025	2,585,446		264,934		513,671		3,364,051
Thereafter	1,462,566		2,230,526		867,285		4,560,377
Total	$	8,004,910	$	3,582,296	$	2,633,841	$	14,221,047

______________________________________________________________________________________________________________________

(a) For the CLOs, the above does not assume utilization of their reinvestment features. The SASB does not have a reinvestment feature.

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10. Unsecured Senior Notes

The following table is a summary of our unsecured senior notes outstanding as of September 30, 2021 and December 31, 2020 (dollars in thousands):


	Coupon Rate			Effective Rate (1)		Maturity Date	Remaining Period of Amortization	Carrying Value at
								September 30, 2021		December 31, 2020
2021 Senior Notes (2)	5.00	%		5.32	%	12/15/2021	0.2 years	$	300,000	$	700,000
2023 Senior Notes	5.50	%		5.71	%	11/1/2023	2.1 years	300,000		300,000
2023 Convertible Notes	4.38	%		4.57	%	4/1/2023	1.5 years	250,000		250,000
2025 Senior Notes	4.75	%	(3)	5.04	%	3/15/2025	3.5 years	500,000		500,000
2026 Senior Notes	3.63	%		3.77	%	7/15/2026	4.8 years	400,000		—
Total principal amount								1,750,000		1,750,000
Unamortized discount—Convertible Notes								( 690 )		( 2,559 )
Unamortized discount—Senior Notes								( 8,666 )		( 9,332 )
Unamortized deferred financing costs								( 6,960 )		( 5,589 )
Carrying amount of debt components								$	1,733,684	$	1,732,520
Carrying amount of conversion option equity components recorded in additional paid-in capital for outstanding convertible notes								N/A		$	3,755

______________________________________________________________________________________________________________________

(1) Effective rate includes the effects of underwriter purchase discount.

(2) On September 15, 2021, we redeemed $ 400.0 million of our 2021 Senior Notes and the remaining $ 300.0 million matures on December 15, 2021.

(3) The coupon on the 2025 Senior Notes is 4.75 %. At closing, we swapped $ 470.0 million of the notes to a floating rate of LIBOR + 2.53 % .

Our unsecured senior notes contain certain financial tests and covenants. As of September 30, 2021, we were in compliance with all such covenants.

Senior Notes

On July 14, 2021, we issued $ 400.0 million of 3.625 % Senior Notes due 2026 (the “2026 Senior Notes”). The 2026 Senior Notes mature on July 15, 2026. Prior to January 15, 2026, we may redeem some or all of the 2026 Senior Notes at a price equal to 100 % of the principal amount thereof, plus the applicable “make-whole” premium as of the applicable date of redemption. On and after January 15, 2026, we may redeem some or all of the 2026 Senior Notes at a price equal to 100 % of the principal amount thereof. In addition, prior to July 15, 2023, we may redeem up to 40 % of the 2026 Senior Notes at the applicable redemption price using the proceeds of certain equity offerings.

Convertible Senior Notes

On March 29, 2017, we issued $ 250.0 million of 4.375 % Convertible Senior Notes due 2023 (the “2023 Convertible Notes”) which remain outstanding at September 30, 2021 and mature on April 1, 2023.

We recognized interest expense of $ 2.9 million and $ 8.7 million during the three and nine months ended September 30, 2021, respectively, from our Convertible Notes. We recognized interest expense of $ 3.1 million and $ 9.2 million during the three and nine months ended September 30, 2020, respectively, from our Convertible Notes.

The following table details the conversion attributes of our Convertible Notes outstanding as of September 30, 2021 (amounts in thousands, except rates):


	September 30, 2021
	Conversion	Conversion
	Rate (1)	Price (2)
2023 Convertible Notes	38.5959	$	25.91

______________________________________________________________________________________________________________________

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(1) The conversion rate represents the number of shares of common stock issuable per $ 1,000 principal amount of 2023 Convertible Notes converted, as adjusted in accordance with the indenture governing the 2023 Convertible Notes (including the applicable supplemental indenture).

(2) As of September 30, 2021, the market price of the Company’s common stock was $ 24.41 .

The if-converted value of the 2023 Convertible Notes was less than their principal amount by $ 14.5 million at September 30, 2021 as the closing market price of the Company’s common stock of $ 24.41 was less than the implicit conversion price of $ 25.91 per share. The if-converted value of the principal amount of the 2023 Convertible Notes was $ 235.5 million as of September 30, 2021. As of September 30, 2021, the net carrying amount and fair value of the 2023 Convertible Notes was $ 249.0 million and $ 255.6 million, respectively.

Upon conversion of the 2023 Convertible Notes, settlement may be made in common stock, cash or a combination of both, at the option of the Company.

Conditions for Conversion

Prior to October 1, 2022, the 2023 Convertible Notes will be convertible only upon satisfaction of one or more of the following conditions: (1) the closing market price of the Company’s common stock is at least 110 % of the conversion price of the 2023 Convertible Notes for at least 20 out of 30 trading days prior to the end of the preceding fiscal quarter, (2) the trading price of the 2023 Convertible Notes is less than 98 % of the product of (i) the conversion rate and (ii) the closing price of the Company’s common stock during any five consecutive trading day period, (3) the Company issues certain equity instruments at less than the 10 -day average closing market price of its common stock or the per-share value of certain distributions exceeds the market price of the Company’s common stock by more than 10 % or (4) certain other specified corporate events (significant consolidation, sale, merger, share exchange, fundamental change, etc.) occur.

On or after October 1, 2022, holders of the 2023 Convertible Notes may convert each of their notes at the applicable conversion rate at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date.

11. Loan Securitization/Sale Activities

As described below, we regularly sell loans and notes under various strategies. We evaluate such sales as to whether they meet the criteria for treatment as a sale—legal isolation, ability of transferee to pledge or exchange the transferred assets without constraint and transfer of control.

Loan Securitizations

Within the Investing and Servicing Segment, we originate commercial mortgage loans with the intent to sell these mortgage loans to VIEs for the purposes of securitization. These VIEs then issue CMBS that are collateralized in part by these assets, as well as other assets transferred to the VIE by third parties. Within the Commercial and Residential Lending Segment, we acquire residential loans with the intent to sell these mortgage loans to VIEs for the purpose of securitization. These VIEs then issue RMBS that are collateralized by these assets.

In certain instances, we retain an interest in the CMBS or RMBS VIE and serve as special servicer or servicing administrator for the VIE. In these circumstances, we generally consolidate the VIE into which the loans were sold. The securitizations are subject to optional redemption after a certain period of time or when the pool balance falls below a specified threshold.

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The following summarizes the face amount and proceeds of commercial and residential loans securitized for the three and nine months ended September 30, 2021 and 2020 (amounts in thousands):


	Commercial Loans				Residential Loans
	Face Amount		Proceeds		Face Amount		Proceeds
For the Three Months Ended September 30,
2021	$	349,225	$	364,287	$	469,663	$	491,901
2020	151,295		157,497		478,911		499,321
For the Nine Months Ended September 30,
2021	$	738,866	$	775,374	$	1,417,641	$	1,465,576
2020	487,130		509,890		1,443,691		1,487,761

The securitization of these commercial and residential loans does not result in a discrete gain or loss since they are carried under the fair value option.

Our securitizations have each been structured as bankruptcy-remote entities whose assets are not intended to be available to the creditors of any other party.

Commercial and Residential Loan Sales

Within the Commercial and Residential Lending Segment, we originate or acquire commercial mortgage loans, subsequently selling all or a portion thereof. Typically, our motivation for entering into these transactions is to effectively create leverage on the subordinated position that we will retain and hold for investment. We also may sell certain of our previously-acquired residential loans to third parties outside a securitization. The following table summarizes our loans sold by the Commercial and Residential Lending Segment, net of expenses (amounts in thousands):


	Loan Transfers Accounted for as Sales
	Commercial Loans				Residential Loans
	Face amount (1)		Proceeds (1)		Face Amount		Proceeds
For the Three Months Ended September 30,
2021	$	35,700	$	35,356	$	—	$	—
2020	—		—		—		—
For the Nine Months Ended September 30,
2021	$	268,370	$	264,846	$	89,801	$	92,817
2020	399,132		396,078		550		604

______________________________________________________________________________________________________________________

(1) During the nine months ended September 30, 2021, we sold $ 245.8 million of senior interests in first mortgage loans and $ 22.6 million of whole loan interests for proceeds of $ 243.3 million and $ 21.5 million, respectively. During the three months ended September 30, 2021, we sold $ 35.7 million of senior interests in first mortgage loans for proceeds of $ 35.4 million. During the nine months ended September 30, 2020, we sold $ 230.9 million of senior interests in first mortgage loans and $ 168.2 million of whole loan interests for proceeds of $ 224.1 million and $ 172.0 million, respectively.

During the nine months ended September 30, 2021, losses recognized by the Commercial and Residential Lending Segment on sales of commercial loans were $ 1.1 million. During the three months ended September 30, 2021, losses recognized by the Commercial and Residential Lending Segment on sales of commercial loans were no t material. During the nine months ended September 30, 2020, losses recognized by the Commercial and Residential Lending Segment on sales of commercial loans were $ 1.0 million. There were no sales of commercial loans during the three months ended September 30, 2020.

Infrastructure Loan Sales

During the nine months ended September 30, 2021, the Infrastructure Lending Segment sold loans held-for-sale with an aggregate face amount of $ 2.5 million, for proceeds of $ 2.5 million, recognizing immaterial gains. During the nine months ended September 30, 2020, the Infrastructure Lending Segment sold loans held-for-sale with an aggregate face amount of $ 38.7 million for proceeds of $ 38.4 million, recognizing gains of $ 0.3 million. There were no sales of loans by the Infrastructure Lending Segment during the three months ended September 30, 2021 or 2020.

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12. Derivatives and Hedging Activity

Risk Management Objective of Using Derivatives

We are exposed to certain risks arising from both our business operations and economic conditions. Refer to Note 13 to the consolidated financial statements included in our Form 10-K for further discussion of our risk management objectives and policies.

Designated Hedges

The Company does not generally elect to apply the hedge accounting designation to its hedging instruments. As of September 30, 2021 and December 31, 2020, the Company did not have any designated hedges.

Non-designated Hedges and Derivatives

We have entered into the following types of non-designated hedges and derivatives:

• Foreign exchange (“Fx”) forwards whereby we agree to buy or sell a specified amount of foreign currency for a specified amount of USD at a future date, economically fixing the USD amounts of foreign denominated cash flows we expect to receive or pay related to certain foreign denominated loan investments and properties;

• Interest rate contracts which hedge a portion of our exposure to changes in interest rates;

• Credit index instruments which hedge a portion of our exposure to the credit risk of our commercial loans held-for-sale; and

• Interest rate swap guarantees whereby we guarantee the interest rate swap obligations of certain Infrastructure Lending borrowers. Our interest rate swap guarantees were assumed in connection with the acquisition of the Infrastructure Lending Segment.

The following table summarizes our non-designated derivatives as of September 30, 2021 (notional amounts in thousands):

Type of Derivative

Number of Contracts

Aggregate Notional Amount

Notional Currency

Maturity

Fx contracts – Buy Euros ("EUR")

52,389

EUR

October 2021 - March 2023

Fx contracts – Buy Pounds Sterling ("GBP")

9,935

GBP

November 2021 - October 2024

Fx contracts – Sell EUR

131

255,128

EUR

October 2021 - November 2025

Fx contracts – Sell GBP

131

534,811

GBP

October 2021 - February 2025

Fx contracts – Sell Australian dollar ("AUD")

259,803

AUD

October 2021 - October 2024

Interest rate swaps – Paying fixed rates

2,469,098

USD

May 2023 - October 2031

Interest rate swaps – Receiving fixed rates

473,200

USD

March 2025 - October 2031

Interest rate caps

939,893

USD

November 2021 - April 2025

Interest rate caps

61,000

GBP

April 2024

Credit index instruments

49,000

USD

September 2058 - August 2061

Interest rate swap guarantees

309,443

USD

May 2022 - June 2025

Total

418

The table below presents the fair value of our derivative financial instruments as well as their classification on the condensed consolidated balance sheets as of September 30, 2021 and December 31, 2020 (amounts in thousands):


	Fair Value of Derivatives in an Asset Position (1) as of				Fair Value of Derivatives in a Liability Position (2) as of
	September 30, 2021		December 31, 2020		September 30, 2021		December 31, 2020
Interest rate contracts	$	22,684	$	33,841	$	2,054	$	4
Interest rate swap guarantees	—		—		417		849
Foreign exchange contracts	29,882		6,585		12,896		39,951
Credit index instruments	—		129		248		520
Total derivatives	$	52,566	$	40,555	$	15,615	$	41,324

___________________________________________________

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(1) Classified as derivative assets in our condensed consolidated balance sheets.

(2) Classified as derivative liabilities in our condensed consolidated balance sheets.

The table below presents the effect of our derivative financial instruments on the condensed consolidated statements of operations for the three and nine months ended September 30, 2021 and 2020 (amounts in thousands):


Derivatives Not Designated as Hedging Instruments	Location of Gain (Loss) Recognized in Income	Amount of Gain (Loss) Recognized in Income for the Three Months Ended September 30,				Amount of Gain (Loss) Recognized in Income for the Nine Months Ended September 30,
		2021		2020		2021		2020
Interest rate contracts	Gain (loss) on derivative financial instruments	$	7,993	$	259	$	20,808	$	( 52,129 )
Interest rate swap guarantees	Gain (loss) on derivative financial instruments	( 65 )		260		431		( 345 )
Foreign exchange contracts	Gain (loss) on derivative financial instruments	33,796		( 28,514 )		44,857		17,644
Credit index instruments	Gain (loss) on derivative financial instruments	88		( 102 )		( 304 )		345
		$	41,812	$	( 28,097 )	$	65,792	$	( 34,485 )

13. Offsetting Assets and Liabilities

The following tables present the potential effects of netting arrangements on our financial position for financial assets and liabilities within the scope of ASC 210-20, Balance Sheet—Offsetting , which for us are derivative assets and liabilities as well as repurchase agreement liabilities (amounts in thousands):


			(ii) Gross Amounts Offset in the Statement of Financial Position		(iii) = (i) - (ii) Net Amounts Presented in the Statement of Financial Position		(iv) Gross Amounts Not Offset in the Statement of Financial Position
	(i) Gross Amounts Recognized						Financial Instruments		Cash Collateral Received / Pledged		(v) = (iii) - (iv) Net Amount
As of September 30, 2021
Derivative assets	$	52,566	$	—	$	52,566	$	12,912	$	30,023	$	9,631
Derivative liabilities	$	15,615	$	—	$	15,615	$	12,912	$	2,286	$	417
Repurchase agreements	8,004,910		—		8,004,910		8,004,910		—		—
	$	8,020,525	$	—	$	8,020,525	$	8,017,822	$	2,286	$	417
As of December 31, 2020
Derivative assets	$	40,555	$	—	$	40,555	$	6,716	$	33,772	$	67
Derivative liabilities	$	41,324	$	—	$	41,324	$	6,716	$	27,416	$	7,192
Repurchase agreements	5,808,807		—		5,808,807		5,808,807		—		—
	$	5,850,131	$	—	$	5,850,131	$	5,815,523	$	27,416	$	7,192

14. Variable Interest Entities

Investment Securities

As discussed in Note 2, we evaluate all of our investments and other interests in entities for consolidation, including our investments in CMBS, RMBS and our retained interests in securitization transactions we initiated, all of which are generally considered to be variable interests in VIEs.

Securitization VIEs consolidated in accordance with ASC 810 are structured as pass through entities that receive principal and interest on the underlying collateral and distribute those payments to the certificate holders. The assets and other instruments held by these securitization entities are restricted and can only be used to fulfill the obligations of the entity. Additionally, the obligations of the securitization entities do not have any recourse to the general credit of any other consolidated entities, nor to us as the primary beneficiary. The VIE liabilities initially represent investment securities on our balance sheet (pre-consolidation). Upon consolidation of these VIEs, our associated investment securities are eliminated, as is the interest income related to those securities. Similarly, the fees we earn in our roles as special servicer of the bonds issued by the consolidated VIEs or as collateral administrator of the consolidated VIEs are also eliminated. Finally, a portion of the identified servicing intangible associated with the eliminated fee streams is eliminated in consolidation.

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VIEs in which we are the Primary Beneficiary

The inclusion of the assets and liabilities of securitization VIEs in which we are deemed the primary beneficiary has no economic effect on us. Our exposure to the obligations of securitization VIEs is generally limited to our investment in these entities. We are not obligated to provide, nor have we provided, any financial support for any of these consolidated structures.

As discussed in Note 9, we have refinanced various pools of our commercial and infrastructure loans held-for-investment through three CLOs and one SASB, which are considered to be VIEs. We are the primary beneficiary of, and therefore consolidate, the CLOs and SASB in our financial statements as we have both (i) the power to direct the activities in our role as collateral manager, collateral advisor, or controlling class representative that most significantly impact the CLOs’ and SASB's economic performance, and (ii) the obligation to absorb losses and the right to receive benefits from the CLOs and SASB that could be potentially significant through the subordinate interests we own.

The following table details the assets and liabilities of our consolidated CLOs and SASB as of September 30, 2021 and December 31, 2020 (amounts in thousands):


	September 30, 2021		December 31, 2020
Assets:
Cash and cash equivalents	$	22,018	$	96,998
Loans held-for-investment	3,014,891		1,002,441
Investment securities	11,950		—
Accrued interest receivable	8,796		5,454
Other assets	66,003		557
Total Assets	$	3,123,658	$	1,105,450
Liabilities
Accounts payable, accrued expenses and other liabilities	$	5,501	$	663
Collateralized loan obligations and single asset securitization, net	2,614,230		930,554
Total Liabilities	$	2,619,731	$	931,217

Assets held by the CLOs and SASB are restricted and can be used only to settle obligations of the CLOs and SASB, including the subordinate interests owned by us. The liabilities of the CLOs and SASB are non-recourse to us and can only be satisfied from the assets of the CLOs and SASB.

We also hold controlling interests in other non-securitization entities that are considered VIEs. SPT Dolphin Intermediate LLC (“SPT Dolphin”), the entity which holds the Woodstar II Portfolio, is a VIE because the third party interest holders do not carry kick-out rights or substantive participating rights. We were deemed to be the primary beneficiary of the VIE because we possess both the power to direct the activities of the VIE that most significantly impact its economic performance and a significant economic interest in the entity. This VIE had total assets of $ 659.6 million and liabilities of $ 523.1 million as of September 30, 2021.

We also hold a 51 % controlling interest in a joint venture (the “CMBS JV”) within our Investing and Servicing Segment, which is considered a VIE because the third party interest holder does not carry kick-out rights or substantive participating rights. We are deemed the primary beneficiary of the CMBS JV. This VIE had total assets of $ 326.5 million and liabilities of $ 73.6 million as of September 30, 2021. Refer to Note 16 for further discussion.

In addition to the above non-securitization entities, we have smaller VIEs with total assets of $ 102.0 million and liabilities of $ 53.5 million as of September 30, 2021.

VIEs in which we are not the Primary Beneficiary

In certain instances, we hold a variable interest in a VIE in the form of CMBS, but either (i) we are not appointed, or do not serve as, special servicer or servicing administrator or (ii) an unrelated third party has the rights to unilaterally remove us as special servicer without cause. In these instances, we do not have the power to direct activities that most significantly impact the VIE’s economic performance. In other cases, the variable interest we hold does not obligate us to absorb losses or provide us with the right to receive benefits from the VIE which could potentially be significant. For these structures, we are not deemed to be the primary beneficiary of the VIE, and we do not consolidate these VIEs.

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As noted above, we are not obligated to provide, nor have we provided, any financial support for any of our securitization VIEs, whether or not we are deemed to be the primary beneficiary. As such, the risk associated with our involvement in these VIEs is limited to the carrying value of our investment in the entity. As of September 30, 2021, our maximum risk of loss related to securitization VIEs in which we were not the primary beneficiary was $ 23.5 million on a fair value basis.

As of September 30, 2021, the securitization VIEs which we do not consolidate had debt obligations to beneficial interest holders with unpaid principal balances, excluding the notional value of interest-only securities, of $ 4.9 billion. The corresponding assets are comprised primarily of commercial mortgage loans with unpaid principal balances corresponding to the amounts of the outstanding debt obligations.

We also hold passive non-controlling interests in certain unconsolidated entities that are considered VIEs. We are not the primary beneficiaries of these VIEs as we do not possess the power to direct the activities of the VIEs that most significantly impact their economic performance and therefore report our interests, which totaled $ 26.6 million as of September 30, 2021, within investment in unconsolidated entities on our condensed consolidated balance sheet. Our maximum risk of loss is limited to our carrying value of the investments.

15. Related-Party Transactions

Management Agreement

We are party to a management agreement (the “Management Agreement”) with our Manager. Under the Management Agreement, our Manager, subject to the oversight of our board of directors, is required to manage our day to day activities, for which our Manager receives a base management fee and is eligible for an incentive fee and stock awards. Our Manager’s personnel perform certain due diligence, legal, management and other services that outside professionals or consultants would otherwise perform. As such, in accordance with the terms of our Management Agreement, our Manager is paid or reimbursed for the documented costs of performing such tasks, provided that such costs and reimbursements are in amounts no greater than those which would be payable to outside professionals or consultants engaged to perform such services pursuant to agreements negotiated on an arm’s-length basis. Refer to Note 16 to the consolidated financial statements included in our Form 10-K for further discussion of this agreement.

Base Management Fee. For both the three months ended September 30, 2021 and 2020, approximately $ 19.2 million was incurred for base management fees. For the nine months ended September 30, 2021 and 2020, approximately $ 57.5 million and $ 57.4 million, respectively, was incurred for base management fees. As of both September 30, 2021 and December 31, 2020, there were $ 19.2 million of unpaid base management fees included in related-party payable in our condensed consolidated balance sheets.

Incentive Fee. For the three months ended September 30, 2021, approximately $ 1.0 million was incurred for incentive fees. There were no incentive fees incurred during the three months ended September 30, 2020. For the nine months ended September 30, 2021 and 2020, approximately $ 19.1 million and $ 15.8 million, respectively, was incurred for incentive fees. As of September 30, 2021 and December 31, 2020, there were $ 1.0 million and $ 15.0 million of unpaid incentive fees included in related-party payable in our condensed consolidated balance sheets.

Expense Reimbursement. For the three months ended September 30, 2021 and 2020, approximately $ 1.8 million and $ 1.5 million, respectively, was incurred for executive compensation and other reimbursable expenses and recognized within general and administrative expenses in our condensed consolidated statements of operations. For the nine months ended September 30, 2021 and 2020, approximately $ 4.8 million and $ 5.2 million, respectively, was incurred for executive compensation and other reimbursable expenses. As of September 30, 2021 and December 31, 2020, there were $ 3.2 million and $ 5.0 million, respectively, of unpaid reimbursable executive compensation and other expenses included in related-party payable in our condensed consolidated balance sheets.

Equity Awards. In certain instances, we issue RSAs to certain employees of affiliates of our Manager who perform services for us. During the nine months ended September 30, 2021 and 2020, we granted 981,951 and 341,635 RSAs, respectively, at grant date fair values of $ 19.6 million and $ 3.9 million, respectively. There were no RSAs granted during the three months ended September 30, 2021 or 2020. Expenses related to the vesting of awards to employees of affiliates of our Manager were $ 2.2 million and $ 0.1 million during the three months ended September 30, 2021 and 2020, respectively, and are reflected in general and administrative expenses in our condensed consolidated statements of operations. Expenses related to the vesting of such awards were $ 6.7 million and $ 2.5 million during the nine months ended September 30, 2021 and 2020, respectively. These shares generally vest over a three-year period.

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Manager Equity Plan

In May 2017, the Company’s shareholders approved the Starwood Property Trust, Inc. 2017 Manager Equity Plan (the “2017 Manager Equity Plan”), which replaced the Starwood Property Trust, Inc. Manager Equity Plan (“Manager Equity Plan”). In November 2020, we granted 1,800,000 RSUs to our Manager under the 2017 Manager Equity Plan. In September 2019, we granted 1,200,000 RSUs to our Manager under the 2017 Manager Equity Plan. In April 2018, we granted 775,000 RSUs to our Manager under the 2017 Manager Equity Plan. In March 2017, we granted 1,000,000 RSUs to our Manager under the Manager Equity Plan. In connection with these grants and prior similar grants, we recognized share-based compensation expense of $ 4.5 million and $ 3.4 million within management fees in our condensed consolidated statements of operations for the three months ended September 30, 2021 and 2020, respectively. For the nine months ended September 30, 2021 and 2020, we recognized $ 14.9 million and $ 12.0 million, respectively, related to these awards. Refer to Note 16 for further discussion of these grants.

Investments in Loans

In June 2021, collateral was released from an existing loan which was originated in November 2019 with SEREF, an affiliate of our Manager, for the acquisition of an office portfolio located in Spain. Financing for the released collateral was provided by the Company and the proceeds were used to partially repay € 11.5 million of the existing loan, of which SEREF's portion was € 5.7 million.

In July 2021, a € 55.0 million loan participation acquired in March 2018 from SEREF, an affiliate of our Manager, which was secured by a luxury resort in Estepona, Spain, was paid in full.

During the three and nine months ended September 30, 2021, the Company acquired $ 395.3 million and $ 719.9 million, respectively, of loans from a residential mortgage originator in which it holds an equity interest. Additionally, as of September 30, 2021, the Company had outstanding residential mortgage loan purchase commitments of $ 144.0 million to this residential mortgage originator. Refer to Note 7 for further discussion.

Lease Arrangements

In March 2020, we entered into an office lease agreement with an entity which is controlled by our Chairman and CEO through majority equity ownership of the entity. The leased premises are currently under construction and will serve as our new Miami Beach office when our existing lease in Miami Beach expires on December 31, 2021. The lease will commence after delivery of the office space to us. The lease is for approximately 74,000 square feet of office space, has an initial term of 15 years and requires monthly lease payments starting in the tenth month after lease commencement. The lease payments are based on an annual base rate of $ 52.00 per square foot that increases by 3 % each anniversary following commencement, plus our pro rata share of building operating expenses. Prior to the execution of this lease, we engaged an independent third party leasing firm and external counsel to advise the independent directors of our board of directors on market terms for the lease. The terms of the lease were approved by our independent directors. In April 2020 we provided a $ 1.9 million cash security deposit to the landlord. During the three and nine months ended September 30, 2021, we made payments to the landlord of $ 3.0 million and $ 7.8 million, respectively, for reimbursements relating to tenant improvements under the terms of the lease.

Other Related-Party Arrangements

Highmark Residential (“Highmark”), an affiliate of our Manager, provides property management services for properties within our Woodstar I and Woodstar II Portfolios. Fees paid to Highmark are calculated as a percentage of gross receipts and are at market terms. During the three months ended September 30, 2021 and 2020, property management fees to Highmark of $ 1.3 million and $ 0.4 million, respectively, were recognized in our condensed consolidated statements of operations. During the nine months ended September 30, 2021 and 2020, property management fees to Highmark were $ 2.8 million and $ 1.4 million, respectively.

Refer to Note 16 to the consolidated financial statements included in our Form 10-K for further discussion of related-party agreements.

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16. Stockholders’ Equity and Non-Controlling Interests

During the nine months ended September 30, 2021, our board of directors declared the following dividends:

Declaration Date

Record Date

Ex-Dividend Date

Payment Date

Amount

Frequency

9/15/21

9/30/21

9/29/21

10/15/21

0.48

Quarterly

6/14/21

6/30/21

6/29/21

7/15/21

0.48

Quarterly

3/11/21

3/31/21

3/30/21

4/15/21

0.48

Quarterly

During the nine months ended September 30, 2021 and 2020, there were no shares issued under our At-The-Market Equity Offering Sales Agreement. During the nine months ended September 30, 2021 and 2020, shares issued under the Starwood Property Trust, Inc. Dividend Reinvestment and Direct Stock Purchase Plan (the “DRIP Plan”) were not material.

Equity Incentive Plans

In May 2017, the Company’s shareholders approved the 2017 Manager Equity Plan and the Starwood Property Trust, Inc. 2017 Equity Plan (the “2017 Equity Plan”), which allow for the issuance of up to 11,000,000 stock options, stock appreciation rights, RSAs, RSUs or other equity-based awards or any combination thereof to the Manager, directors, employees, consultants or any other party providing services to the Company. The 2017 Manager Equity Plan succeeds and replaces the Manager Equity Plan and the 2017 Equity Plan succeeds and replaces the Starwood Property Trust, Inc. Equity Plan (the “Equity Plan”) and the Starwood Property Trust, Inc. Non-Executive Director Stock Plan (the “Non-Executive Director Stock Plan”).

The table below summarizes our share awards granted or vested under the Manager Equity Plan and the 2017 Manager Equity Plan during the nine months ended September 30, 2021 and 2020 (dollar amounts in thousands):

Grant Date

Type

Amount Granted

Grant Date Fair Value

Vesting Period

November 2020

RSU

1,800,000

30,078

3 years

September 2019

RSU

1,200,000

29,484

(1)

April 2018

RSU

775,000

16,329

3 years

March 2017

RSU

1,000,000

22,240

3 years

______________________________________________________________________________________________________________________

(1) Of the amount granted, 218,898 vested immediately on the grant date and the remaining amount vests over a three-year period.

Schedule of Non-Vested Shares and Share Equivalents


	2017 Equity Plan	2017 Manager Equity Plan	Total	Weighted Average Grant Date Fair Value (per share)
Balance as of January 1, 2021	1,594,605	2,286,896	3,881,501	$	17.26
Granted	1,677,654	—	1,677,654	22.09
Vested	( 733,500 )	( 759,860 )	( 1,493,360 )	18.14
Forfeited	( 36,568 )	—	( 36,568 )	19.79
Balance as of September 30, 2021	2,502,191	1,527,036	4,029,227	18.93

As of September 30, 2021, there were 3.1 million shares of common stock available for future grants under the 2017 Manager Equity Plan and the 2017 Equity Plan.

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Non-Controlling Interests in Consolidated Subsidiaries

In connection with our Woodstar II Portfolio acquisitions, we issued 10.2 million Class A Units in our consolidated subsidiary, SPT Dolphin, and rights to receive an additional 1.9 million Class A Units if certain contingent events occur. As of September 30, 2021, all of the 1.9 million contingent Class A Units were issued. The Class A Units are redeemable for consideration equal to the current share price of the Company’s common stock on a one-for-one basis, with the consideration paid in either cash or the Company’s common stock, at the determination of the Company. During the nine months ended September 30, 2021, redemptions of 0.9 million of the Class A Units were received and settled in common stock, leaving 9.8 million Class A Units outstanding as of September 30, 2021. In consolidation, the outstanding Class A Units are reflected as non-controlling interests in consolidated subsidiaries on our condensed consolidated balance sheets, the balance of which was $ 208.5 million and $ 226.7 million as of September 30, 2021 and December 31, 2020, respectively.

To the extent SPT Dolphin has sufficient cash available, the Class A Units earn a preferred return indexed to the dividend rate of the Company’s common stock. Any distributions made pursuant to this waterfall are recognized within net income attributable to non-controlling interests in our condensed consolidated statements of operations. During the three and nine months ended September 30, 2021, we recognized net income attributable to non-controlling interests of $ 4.7 million and $ 14.7 million, respectively, associated with these Class A Units. During the three and nine months ended September 30, 2020, we recognized net income attributable to non-controlling interests of $ 5.1 million and $ 15.3 million, respectively, associated with these Class A Units.

As discussed in Note 14, we hold a 51 % controlling interest in the CMBS JV within our Investing and Servicing Segment. Because the CMBS JV is deemed a VIE for which we are the primary beneficiary, the 49 % interest of our joint venture partner is reflected as a non-controlling interest in consolidated subsidiaries on our condensed consolidated balance sheets, and any net income attributable to this 49 % joint venture interest is reflected within net income attributable to non-controlling interests in our consolidated statement of operations. The non-controlling interests in the CMBS JV were $ 129.6 million and $ 126.7 million as of September 30, 2021 and December 31, 2020, respectively. During the three and nine months ended September 30, 2021, net income attributable to non-controlling interests was $ 6.7 million and $ 16.7 million, respectively. During the three and nine months ended September 30, 2020, net income attributable to non-controlling interests was $ 6.8 million and $ 7.6 million, respectively.

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17. Earnings per Share

The following table provides a reconciliation of net income and the number of shares of common stock used in the computation of basic EPS and diluted EPS (amounts in thousands, except per share amounts):


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2021		2020		2021		2020
Basic Earnings
Income attributable to STWD common stockholders	$	128,602	$	151,834	$	356,290	$	224,721
Less: Income attributable to participating shares not already deducted as non-controlling interests	( 1,635 )		( 1,721 )		( 5,351 )		( 3,422 )
Basic earnings	$	126,967	$	150,113	$	350,939	$	221,299

Diluted Earnings
Income attributable to STWD common stockholders	$	128,602	$	151,834	$	356,290	$	224,721
Less: Income attributable to participating shares not already deducted as non-controlling interests	( 1,635 )		( 1,721 )		( 5,351 )		( 3,422 )
Add: Interest expense on Convertible Notes	2,901		3,055		8,717		*
Add: Undistributed earnings to participating shares	—		663		$	—	—
Less: Undistributed earnings reallocated to participating shares	—		( 642 )		$	—	—
Diluted earnings	$	129,868	$	153,189	$	359,656	$	221,299

Number of Shares:
Basic — Average shares outstanding	285,676		282,596		284,577		281,686
Effect of dilutive securities — Convertible Notes	9,649		9,649		9,649		*
Effect of dilutive securities — Contingently issuable shares	19		—		19		—
Effect of dilutive securities — Unvested non-participating shares	104		213		148		182
Diluted — Average shares outstanding	295,448		292,458		294,393		281,868

Earnings Per Share Attributable to STWD Common Stockholders:
Basic	$	0.44	$	0.53	$	1.23	$	0.79
Diluted	$	0.44	$	0.52	$	1.22	$	0.79

______________________________________________________________________________________________________________________

* Our Convertible Notes were not dilutive for the nine months ended September 30, 2020.

As of September 30, 2021 and 2020, participating shares of 13.3 million and 12.8 million, respectively, were excluded from the computation of diluted shares as their effect was already considered under the more dilutive two-class method used above. Such participating shares at September 30, 2021 and 2020 included 9.8 million and 10.5 million potential shares, respectively, of our common stock issuable upon redemption of the Class A Units in SPT Dolphin, as discussed in Note 16.

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18. Accumulated Other Comprehensive Income

The changes in AOCI by component are as follows (amounts in thousands):


	Cumulative Unrealized Gain (Loss) on Available-for- Sale Securities		Foreign Currency Translation		Total
Three Months Ended September 30, 2021
Balance at July 1, 2021	$	41,310	$	—	$	41,310
OCI before reclassifications	( 822 )		—		( 822 )
Amounts reclassified from AOCI	( 2 )		—		( 2 )
Net period OCI	( 824 )		—		( 824 )
Balance at September 30, 2021	$	40,486	$	—	$	40,486
Three Months Ended September 30, 2020
Balance at July 1, 2020	$	42,930	$	( 64 )	$	42,866
OCI before reclassifications	( 581 )		—		( 581 )
Amounts reclassified from AOCI	—		—		—
Net period OCI	( 581 )		—		( 581 )
Balance at September 30, 2020	$	42,349	$	( 64 )	$	42,285
Nine Months Ended September 30, 2021
Balance at January 1, 2021	$	44,057	$	( 64 )	$	43,993
OCI before reclassifications	( 3,569 )		—		( 3,569 )
Amounts reclassified from AOCI	( 2 )		64		62
Net period OCI	( 3,571 )		64		( 3,507 )
Balance at September 30, 2021	$	40,486	$	—	$	40,486
Nine Months Ended September 30, 2020
Balance at January 1, 2020	$	50,996	$	( 64 )	$	50,932
OCI before reclassifications	( 8,647 )		—		( 8,647 )
Amounts reclassified from AOCI	—		—		—
Net period OCI	( 8,647 )		—		( 8,647 )
Balance at September 30, 2020	$	42,349	$	( 64 )	$	42,285

19. Fair Value

GAAP establishes a hierarchy of valuation techniques based on the observability of inputs utilized in measuring financial assets and liabilities at fair value. GAAP establishes market-based or observable inputs as the preferred source of values, followed by valuation models using management assumptions in the absence of market inputs. The three levels of the hierarchy are described below:

Level I —Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

Level II —Inputs (other than quoted prices included in Level I) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.

Level III —Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

Valuation Process

We have valuation control processes in place to validate the fair value of the Company’s financial assets and liabilities measured at fair value including those derived from pricing models. These control processes are designed to assure that the

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values used for financial reporting are based on observable inputs wherever possible. In the event that observable inputs are not available, the control processes are designed to assure that the valuation approach utilized is appropriate and consistently applied and the assumptions are reasonable.

Pricing Verification —We use recently executed transactions, other observable market data such as exchange data, broker/dealer quotes, third party pricing vendors and aggregation services for validating the fair values generated using valuation models. Pricing data provided by approved external sources is evaluated using a number of approaches; for example, by corroborating the external sources’ prices to executed trades, analyzing the methodology and assumptions used by the external source to generate a price and/or by evaluating how active the third party pricing source (or originating sources used by the third party pricing source) is in the market.

Unobservable Inputs —Where inputs are not observable, we review the appropriateness of the proposed valuation methodology to ensure it is consistent with how a market participant would arrive at the unobservable input. The valuation methodologies utilized in the absence of observable inputs may include extrapolation techniques and the use of comparable observable inputs.

Any changes to the valuation methodology will be reviewed by our management to ensure the changes are appropriate. The methods used may produce a fair value calculation that is not indicative of net realizable value or reflective of future fair values. Furthermore, while we anticipate that our valuation methods are appropriate and consistent with other market participants, the use of different methodologies, or assumptions, to determine the fair value could result in a different estimate of fair value at the reporting date.

Fair Value on a Recurring Basis

We determine the fair value of our financial assets and liabilities measured at fair value on a recurring basis as follows:

Loans held-for-sale, commercial

We measure the fair value of our commercial mortgage loans held-for-sale using a discounted cash flow analysis unless observable market data (i.e., securitized pricing) is available. A discounted cash flow analysis requires management to make estimates regarding future interest rates and credit spreads. The most significant of these inputs relates to credit spreads and is unobservable. Thus, we have determined that the fair values of mortgage loans valued using a discounted cash flow analysis should be classified in Level III of the fair value hierarchy, while mortgage loans valued using securitized pricing should be classified in Level II of the fair value hierarchy. Mortgage loans classified in Level III are transferred to Level II if securitized pricing becomes available.

Loans held-for-sale and loans held-for-investment, residential

We measure the fair value of our residential loans held-for-sale and held-for-investment based on the net present value of expected future cash flows using a combination of observable and unobservable inputs. Observable market participant assumptions include pricing related to trades of residential loans with similar characteristics. Unobservable inputs include the expectation of future cash flows, which involves judgments about the underlying collateral, the creditworthiness of the borrower, estimated prepayment speeds, estimated future credit losses, forward interest rates, investor yield requirements and certain other factors. At each measurement date, we consider both the observable and unobservable valuation inputs in the determination of fair value. However, given the significance of the unobservable inputs, these loans have been classified within Level III.

RMBS

RMBS are valued utilizing observable and unobservable market inputs. The observable market inputs include recent transactions, broker quotes and vendor prices (“market data”). However, given the implied price dispersion amongst the market data, the fair value determination for RMBS has also utilized significant unobservable inputs in discounted cash flow models including prepayments, default and severity estimates based on the recent performance of the collateral, the underlying collateral characteristics, industry trends, as well as expectations of macroeconomic events (e.g., housing price curves, interest rate curves, etc.). At each measurement date, we consider both the observable and unobservable valuation inputs in the determination of fair value. However, given the significance of the unobservable inputs these securities have been classified within Level III.

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CMBS

CMBS are valued utilizing both observable and unobservable market inputs. These factors include projected future cash flows, ratings, subordination levels, vintage, remaining lives, credit issues, recent trades of similar securities and the spreads used in the prior valuation. We obtain current market spread information where available and use this information in evaluating and validating the market price of all CMBS. Depending upon the significance of the fair value inputs used in determining these fair values, these securities are classified in either Level II or Level III of the fair value hierarchy. CMBS may shift between Level II and Level III of the fair value hierarchy if the significant fair value inputs used to price the CMBS become or cease to be observable.

Equity security

The equity security is publicly registered and traded in the U.S. and its market price is listed on the London Stock Exchange. The security has been classified within Level I.

Domestic servicing rights

The fair value of this intangible is determined using discounted cash flow modeling techniques which require management to make estimates regarding future net servicing cash flows, including forecasted loan defeasance, control migration, delinquency and anticipated maturity defaults which are calculated assuming a debt yield at which default occurs. Since the most significant of these inputs are unobservable, we have determined that the fair values of this intangible in its entirety should be classified in Level III of the fair value hierarchy.

Derivatives

The valuation of derivative contracts are determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market based inputs, including interest rate curves, spot and market forward points and implied volatilities. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves.

We incorporate credit valuation adjustments to appropriately reflect both our own non-performance risk and the respective counterparty’s non-performance risk in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of non-performance risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.

The valuation of over the counter derivatives are determined using discounted cash flows based on Overnight Index Swap (“OIS”) rates. Fully collateralized trades are discounted using OIS with no additional economic adjustments to arrive at fair value. Uncollateralized or partially collateralized trades are also discounted at OIS, but include appropriate economic adjustments for funding costs (i.e., a LIBOR OIS basis adjustment to approximate uncollateralized cost of funds) and credit risk. For credit index instruments, fair value is determined based on changes in the relevant indices from the date of initiation of the instrument to the reporting date, as these changes determine the amount of any future cash settlement between us and the counterparty. These indices are considered Level II inputs as they are directly observable.

Although we have determined that the majority of the inputs used to value our derivatives fall within Level II of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level III inputs, such as estimates of current credit spreads to evaluate the likelihood of default by us and our counterparties. However, as of September 30, 2021 and December 31, 2020, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and have determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives. As a result, we have determined that our derivative valuations in their entirety are classified in Level II of the fair value hierarchy.

Liabilities of consolidated VIEs

Our consolidated VIE liabilities generally represent bonds that are not owned by us. The majority of these are either traded in the marketplace or can be analogized to similar securities that are traded in the marketplace. For these liabilities, pricing is considered to be Level II, where the valuation is based upon quoted prices for similar instruments traded in active

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markets. We generally utilize third party pricing service providers for valuing these liabilities. In order to determine whether to utilize the valuations provided by third parties, we conduct an ongoing evaluation of their valuation methodologies and processes, as well as a review of the individual valuations themselves. In evaluating third party pricing for reasonableness, we consider a variety of factors, including market transaction information for the particular bond, market transaction information for bonds within the same trust, market transaction information for similar bonds, the bond’s ratings and the bond’s subordination levels.

For the minority portion of our consolidated VIE liabilities which consist of unrated or non-investment grade bonds that are not owned by us, pricing may be either Level II or Level III. If independent third party pricing similar to that noted above is available, we consider the valuation to be Level II. If such third party pricing is not available, the valuation is generated from model-based techniques that use significant unobservable assumptions, and we consider the valuation to be Level III. For VIE liabilities classified as Level III, valuation is determined based on discounted expected future cash flows which take into consideration expected duration and yields based on market transaction information, ratings, subordination levels, vintage and current market spread. VIE liabilities may shift between Level II and Level III of the fair value hierarchy if the significant fair value inputs used to price the VIE liabilities become or cease to be observable.

Assets of consolidated VIEs

The securitization VIEs in which we invest are “static”; that is, no reinvestment is permitted, and there is no active management of the underlying assets. In determining the fair value of the assets of the VIE, we maximize the use of observable inputs over unobservable inputs. The individual assets of a VIE are inherently incapable of precise measurement given their illiquid nature and the limitations on available information related to these assets. Because our methodology for valuing these assets does not value the individual assets of a VIE, but rather uses the value of the VIE liabilities as an indicator of the fair value of VIE assets as a whole, we have determined that our valuations of VIE assets in their entirety should be classified in Level III of the fair value hierarchy.

Fair Value Only Disclosed

We determine the fair value of our financial instruments and assets where fair value is disclosed as follows:

Loans held-for-investment and loans held-for-sale

We estimate the fair values of our loans not carried at fair value on a recurring basis by discounting their expected cash flows at a rate we estimate would be demanded by the market participants that are most likely to buy our loans. The expected cash flows used are generally the same as those used to calculate our level yield income in the financial statements. Since these inputs are unobservable, we have determined that the fair value of these loans in their entirety would be classified in Level III of the fair value hierarchy.

HTM debt securities

We estimate the fair value of our mandatorily redeemable preferred equity interests in commercial real estate companies and infrastructure bonds using the same methodology described for our loans held-for-investment. We estimate the fair value of our HTM CMBS using the same methodology described for our CMBS carried at fair value on a recurring basis.

Secured financing agreements, CLOs and SASB

The fair value of the secured financing agreements, CLOs and SASB are determined by discounting the contractual cash flows at the interest rate we estimate such arrangements would bear if executed in the current market. We have determined that our valuation of these instruments should be classified in Level III of the fair value hierarchy.

Unsecured senior notes

The fair value of our unsecured senior notes is determined based on the last available bid price for the respective notes in the current market. As these prices represent observable market data, we have determined that the fair value of these instruments would be classified in Level II of the fair value hierarchy.

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Fair Value Disclosures

The following tables present our financial assets and liabilities carried at fair value on a recurring basis in the condensed consolidated balance sheets by their level in the fair value hierarchy as of September 30, 2021 and December 31, 2020 (amounts in thousands):


	September 30, 2021
	Total		Level I		Level II		Level III
Financial Assets:
Loans under fair value option	$	2,190,765	$	—	$	384,549	$	1,806,216
RMBS	148,583		—		—		148,583
CMBS	23,503		—		—		23,503
Equity security	12,067		12,067		—		—
Domestic servicing rights	15,942		—		—		15,942
Derivative assets	52,566		—		52,566		—
VIE assets	62,346,480		—		—		62,346,480
Total	$	64,789,906	$	12,067	$	437,115	$	64,340,724
Financial Liabilities:
Derivative liabilities	$	15,615	$	—	$	15,615	$	—
VIE liabilities	60,894,975		—		56,364,386		4,530,589
Total	$	60,910,590	$	—	$	56,380,001	$	4,530,589


	December 31, 2020
	Total		Level I		Level II		Level III
Financial Assets:
Loans under fair value option	$	1,022,979	$	—	$	—	$	1,022,979
RMBS	167,349		—		—		167,349
CMBS	19,457		—		—		19,457
Equity security	11,247		11,247		—		—
Domestic servicing rights	13,202		—		—		13,202
Derivative assets	40,555		—		40,555		—
VIE assets	64,238,328		—		—		64,238,328
Total	$	65,513,117	$	11,247	$	40,555	$	65,461,315
Financial Liabilities:
Derivative liabilities	$	41,324	$	—	$	41,324	$	—
VIE liabilities	62,776,371		—		60,756,495		2,019,876
Total	$	62,817,695	$	—	$	60,797,819	$	2,019,876

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The changes in financial assets and liabilities classified as Level III are as follows for the three and nine months ended September 30, 2021 and 2020 (amounts in thousands):


Three Months Ended September 30, 2021	Loans at Fair Value		RMBS		CMBS		Domestic Servicing Rights		VIE Assets		VIE Liabilities		Total
July 1, 2021 balance	$	767,821	$	154,704	$	18,965	$	13,705	$	63,493,796	$	( 4,836,192 )	$	59,612,799
Total realized and unrealized gains (losses):
Included in earnings:
Change in fair value / gain on sale	31,727		—		( 790 )		2,237		( 1,601,734 )		580,581		( 987,979 )
Net accretion	—		2,584		—		—		—		—		2,584
Included in OCI	—		( 824 )		—		—		—		—		( 824 )
Purchases / Originations	1,783,772		—		—		—		—		—		1,783,772
Sales	( 856,187 )		—		—		—		—		—		( 856,187 )
Issuances	—		—		—		—		—		( 27,112 )		( 27,112 )
Cash repayments / receipts	( 50,395 )		( 7,881 )		( 356 )		—		—		( 351 )		( 58,983 )
Transfers into Level III	4,414		—		—		—		—		( 112,562 )		( 108,148 )
Transfers out of Level III	( 133,863 )		—		—		—		—		349,922		216,059
Transfers within Level III	258,927		—		—		—		( 258,927 )		—		—
Consolidation of VIEs	—		—		—		—		1,649,200		( 520,325 )		1,128,875
Deconsolidation of VIEs balance	—		—		5,684		—		( 935,855 )		35,450		( 894,721 )
September 30, 2021 balance	$	1,806,216	$	148,583	$	23,503	$	15,942	$	62,346,480	$	( 4,530,589 )	$	59,810,135
Amount of unrealized gains (losses) attributable to assets still held at September 30, 2021:
Included in earnings	$	12,571	$	2,582	$	409	$	2,237	$	( 1,601,734 )	$	580,581	$	( 1,003,354 )
Included in OCI	$	—	$	( 822 )	$	—	$	—	$	—	$	—	$	( 822 )


Three Months Ended September 30, 2020	Loans at Fair Value		RMBS		CMBS		Domestic Servicing Rights		VIE Assets		VIE Liabilities		Total
July 1, 2020 balance	$	894,613	$	174,281	$	21,891	$	13,955	$	64,175,387	$	( 2,129,529 )	$	63,150,598
Total realized and unrealized gains (losses):
Included in earnings:
Change in fair value / gain on sale	61,384		—		( 56 )		634		( 202,560 )		( 30,577 )		( 171,175 )
Net accretion	—		2,633		—		—		—		—		2,633
Included in OCI	—		( 581 )		—		—		—		—		( 581 )
Purchases / Originations	1,013,158		—		—		—		—		—		1,013,158
Sales	( 656,818 )		—		—		—		—		—		( 656,818 )
Cash repayments / receipts	( 43,257 )		( 6,063 )		( 213 )		—		—		( 329 )		( 49,862 )
Transfers into Level III	—		—		—		—		—		( 485,332 )		( 485,332 )
Transfers out of Level III	—		—		—		—		—		322,888		322,888
Consolidation of VIEs	—		—		—		—		512,300		—		512,300
Deconsolidation of VIEs	—		—		227		—		( 7,652 )		7,573		148
September 30, 2020 balance	$	1,269,080	$	170,270	$	21,849	$	14,589	$	64,477,475	$	( 2,315,306 )	$	63,637,957
Amount of unrealized gains (losses) attributable to assets still held at September 30, 2020:
Included in earnings	$	8,864	$	2,633	$	( 56 )	$	634	$	( 194,147 )	$	( 30,577 )	$	( 212,649 )
Included in OCI	$	—	$	( 581 )	$	—	$	—	$	—	$	—	$	( 581 )

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Nine Months Ended September 30, 2021	Loans at Fair Value		RMBS		CMBS		Domestic Servicing Rights		VIE Assets		VIE Liabilities		Total
January 1, 2021 balance	$	1,022,979	$	167,349	$	19,457	$	13,202	$	64,238,328	$	( 2,019,876 )	$	63,441,439
Total realized and unrealized gains (losses):
Included in earnings:
Change in fair value / gain on sale	68,116		—		( 98 )		2,740		( 4,952,071 )		647,555		( 4,233,758 )
Net accretion	—		7,800		—		—		—		—		7,800
Included in OCI	—		( 3,571 )		—		—		—		—		( 3,571 )
Purchases / Originations	3,151,346		—		—		—		—		—		3,151,346
Sales	( 2,333,767 )		—		—		—		—		—		( 2,333,767 )
Issuances	—		—		—		—		—		( 38,715 )		( 38,715 )
Cash repayments / receipts	( 153,723 )		( 22,995 )		( 1,540 )		—		—		( 2,889 )		( 181,147 )
Transfers into Level III	4,413		—		—		—		—		( 2,953,709 )		( 2,949,296 )
Transfers out of Level III	( 384,549 )		—		—		—		—		864,153		479,604
Transfers within Level III	431,401		—		—		—		( 431,401 )		—		—
Consolidation of VIEs	—		—		—		—		4,427,479		( 1,062,558 )		3,364,921
Deconsolidation of VIEs	—		—		5,684		—		( 935,855 )		35,450		( 894,721 )
September 30, 2021 balance	$	1,806,216	$	148,583	$	23,503	$	15,942	$	62,346,480	$	( 4,530,589 )	$	59,810,135
Amount of unrealized gains (losses) attributable to assets still held at September 30, 2021:
Included in earnings	$	13,234	$	7,793	$	1,102	$	2,740	$	( 4,952,071 )	$	647,555	$	( 4,279,647 )
Included in OCI	$	—	$	( 3,563 )	$	—	$	—	$	—	$	—	$	( 3,563 )


Nine Months Ended September 30, 2020	Loans at Fair Value		RMBS		CMBS		Domestic Servicing Rights		VIE Assets		VIE Liabilities		Total
January 1, 2020 balance	$	1,436,194	$	189,576	$	25,008	$	16,917	$	62,187,175	$	( 2,537,392 )	$	61,317,478
Total realized and unrealized gains (losses):
Included in earnings:
Change in fair value / gain on sale	79,700		—		5,331		( 2,328 )		( 1,291,705 )		107,019		( 1,101,983 )
Net accretion	—		7,967		—		—		—		—		7,967
Included in OCI	—		( 8,647 )		—		—		—		—		( 8,647 )
Purchases / Originations	1,900,738		—		—		—		—		—		1,900,738
Sales	( 1,998,255 )		—		( 7,940 )		—		—		—		( 2,006,195 )
Issuances	—		—		—		—		—		( 24,376 )		( 24,376 )
Cash repayments / receipts	( 149,297 )		( 18,626 )		( 777 )		—		—		( 9,589 )		( 178,289 )
Transfers into Level III	—		—		—		—		—		( 1,242,539 )		( 1,242,539 )
Transfers out of Level III	—		—		—		—		—		1,455,093		1,455,093
Consolidation of VIEs	—		—		—		—		3,589,657		( 71,095 )		3,518,562
Deconsolidation of VIEs	—		—		227		—		( 7,652 )		7,573		148
September 30, 2020 balance	$	1,269,080	$	170,270	$	21,849	$	14,589	$	64,477,475	$	( 2,315,306 )	$	63,637,957
Amount of unrealized gains (losses) attributable to assets still held at September 30, 2020:
Included in earnings	$	8,551	$	7,967	$	( 1,055 )	$	( 2,328 )	$	( 1,213,498 )	$	107,019	$	( 1,093,344 )
Included in OCI	$	—	$	( 8,647 )	$	—	$	—	$	—	$	—	$	( 8,647 )

Amounts were transferred from Level II to Level III due to a decrease in the observable relevant market activity and amounts were transferred from Level III to Level II due to an increase in the observable relevant market activity.

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The following table presents the fair values of our financial instruments not carried at fair value on the condensed consolidated balance sheets (amounts in thousands):


	September 30, 2021				December 31, 2020
	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial assets not carried at fair value:
Loans held-for-investment and loans held-for-sale	$	13,285,752	$	13,355,441	$	11,116,929	$	11,107,316
HTM debt securities	486,734		467,157		538,605		515,253
Financial liabilities not carried at fair value:
Secured financing agreements, CLOs and SASB	$	14,116,282	$	14,220,699	$	11,076,744	$	11,108,364
Unsecured senior notes	1,733,684		1,805,826		1,732,520		1,786,667

The following is quantitative information about significant unobservable inputs in our Level III measurements for those assets and liabilities measured at fair value on a recurring basis (dollars in thousands):


	Carrying Value at September 30, 2021		Valuation Technique	Unobservable Input	Range (Weighted Average) as of (1)
					September 30, 2021	December 31, 2020
Loans under fair value option	$	1,806,216	Discounted cash flow, market pricing	Coupon (d)	3.3 % - 6.1 % ( 4.4 %)	3.3 % - 9.7 % ( 5.9 %)
				Remaining contractual term (d)	5.0 - 39.9 years - ( 29.0 years)	7.3 - 39.3 years ( 26.3 years)
				FICO score (a)	582 - 823 ( 746 )	519 - 823 ( 727 )
				LTV (b)	7 % - 94 % ( 67 %)	5 % - 94 % ( 68 %)
				Purchase price (d)	80.0 % - 106.8 % ( 99.4 %)	84.4 % - 104.8 % ( 99.8 %)
RMBS	148,583		Discounted cash flow	Constant prepayment rate (a)	4.1 % - 17.3 % ( 8.8 %)	3.6 % - 19.4 % ( 7.6 %)
				Constant default rate (b)	0.5 % - 5.2 % ( 2.2 %)	0.7 % - 5.4 % ( 2.4 %)
				Loss severity (b)	0 % - 83 % ( 11 %) (f)	0 % - 85 % ( 20 %) (f)
				Delinquency rate (c)	7 % - 35 % ( 19 %)	10 % - 32 % ( 19 %)
				Servicer advances (a)	21 % - 83 % ( 52 %)	23 % - 82 % ( 54 %)
				Annual coupon deterioration (b)	0 % - 1.5 % ( 0.1 %)	0 % - 0.9 % ( 0.1 %)
				Putback amount per projected total collateral loss (e)	0 % - 8 % ( 0.4 %)	0 % - 17 % ( 0.8 %)
CMBS	23,503		Discounted cash flow	Yield (b)	0 % - 301.3 % ( 8.5 %)	0 % - 536.6 % ( 7.1 %)
				Duration (c)	0 - 8.0 years ( 5.3 years)	0 - 7.6 years ( 5.3 years)
Domestic servicing rights	15,942		Discounted cash flow	Debt yield (a)	7.25 % ( 7.25 %)	7.50 % ( 7.50 %)
				Discount rate (b)	15 % ( 15 %)	15 % ( 15 %)
VIE assets	62,346,480		Discounted cash flow	Yield (b)	0 % - 340.7 % ( 12.1 %)	0 % - 312.2 % ( 14.3 %)
				Duration (c)	0 - 19.1 years ( 3.3 years)	0 - 16.3 years ( 3.8 years)
VIE liabilities	4,530,589		Discounted cash flow	Yield (b)	0 % - 340.7 % ( 6.3 %)	0 % - 312.2 % ( 14.4 %)
				Duration (c)	0 - 13.4 years ( 2.6 years)	0 - 10.8 years ( 3.8 years)

______________________________________________________________________________________________________________________

(1) Unobservable inputs were weighted by the relative carrying value of the instruments as of September 30, 2021 and December 31, 2020.

Information about Uncertainty of Fair Value Measurements

(a) Significant increase (decrease) in the unobservable input in isolation would result in a significantly higher (lower) fair value measurement.

(b) Significant increase (decrease) in the unobservable input in isolation would result in a significantly lower (higher) fair value measurement.

(c) Significant increase (decrease) in the unobservable input in isolation would result in either a significantly lower or higher (higher or lower) fair value measurement depending on the structural features of the security in question.

(d) This unobservable input is not subject to variability as of the respective reporting dates.

(e) Any delay in the putback recovery date leads to a decrease in fair value for the majority of securities in our RMBS portfolio.

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(f) 9 % and 23 % of the portfolio falls within a range of 45 % - 80 % as of September 30, 2021 and December 31, 2020, respectively.

20. Income Taxes

Certain of our domestic subsidiaries have elected to be treated as taxable REIT subsidiaries (“TRSs”). TRSs permit us to participate in certain activities from which REITs are generally precluded, as long as these activities meet specific criteria, are conducted within the parameters of certain limitations established by the Code and are conducted in entities which elect to be treated as taxable subsidiaries under the Code. To the extent these criteria are met, we will continue to maintain our qualification as a REIT.

Our TRSs engage in various real estate related operations, including special servicing of commercial real estate, originating and securitizing mortgage loans, and investing in entities which engage in real estate-related operations. As of September 30, 2021 and December 31, 2020, approximately $ 2.5 billion and $ 1.4 billion, respectively, of assets were owned by TRS entities. Our TRSs are not consolidated for U.S. federal income tax purposes, but are instead taxed as corporations. For financial reporting purposes, a provision for current and deferred taxes is established for the portion of earnings recognized by us with respect to our interest in TRSs.

The following table is a reconciliation of our U.S. federal income tax provision determined using our statutory federal tax rate to our reported income tax provision for the three and nine months ended September 30, 2021 and 2020 (dollars in thousands):


	For the Three Months Ended September 30,								For the Nine Months Ended September 30,
	2021				2020				2021				2020
Federal statutory tax rate	$	31,078	21.0	%	$	37,711	21.0	%	$	83,113	21.0	%	$	54,231	21.0	%
REIT and other non-taxable loss	( 24,527 )		( 16.6 )	%	( 24,688 )		( 13.7 )	%	( 73,046 )		( 18.5 )	%	( 41,697 )		( 16.2 )	%
State income taxes	2,153		1.5	%	4,278		2.4	%	3,308		0.8	%	4,118		1.6	%
Federal benefit of state tax deduction	( 452 )		( 0.3 )	%	( 899 )		( 0.5 )	%	( 695 )		( 0.2 )	%	( 865 )		( 0.3 )	%
Net operating loss carryback rate differential	—		—	%	( 1,569 )		( 0.9 )	%	—		—	%	( 5,286 )		( 2.0 )	%
Intra-entity transfers	( 312 )		( 0.2 )	%	—		—	%	( 6,364 )		( 1.5 )	%	( 3,781 )		( 1.5 )	%
Other	( 439 )		( 0.3 )	%	10		—	%	62		—	%	96		—	%
Effective tax rate	$	7,501	5.1	%	$	14,843	8.3	%	$	6,378	1.6	%	$	6,816	2.6	%

In response to the COVID-19 pandemic, the U.S. and many other governments have enacted, or are contemplating enacting, measures to provide aid and economic stimulus. These measures included deferring the due dates of tax payments and other changes to their income and non-income-based tax laws. The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was enacted on March 27, 2020 in the U.S., included measures to assist companies, including temporary changes to income and non-income-based tax laws, and allowed companies to carry back tax net operating losses (“NOLs”) generated in 2018 to 2020 to the five preceding tax years. The Company plans to carry back its NOL generated in 2020 to a year in which the federal tax rate was 35 %. We continue to monitor additional guidance issued by the U.S. Treasury Department, the Internal Revenue Service and others.

The Company used the discrete tax approach in calculating the tax provision for the three and nine months ended September 30, 2020 due to the fact that a relatively small change in the Company’s projected pre-tax net income could have resulted in a volatile effective tax rate. Under the discrete method, the tax provision was determined based upon actual results as if the interim period was an annual period.

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21. Commitments and Contingencies

As of September 30, 2021, our Commercial and Residential Lending Segment had future commercial loan funding commitments totaling $ 1.6 billion, of which we expect to fund $ 1.4 billion. These future funding commitments primarily relate to construction projects, capital improvements, tenant improvements and leasing commissions. Additionally, as of September 30, 2021, our Commercial and Residential Lending Segment had outstanding residential loan purchase commitments of $ 877.7 million.

As of September 30, 2021, our Infrastructure Lending Segment had future infrastructure loan funding commitments totaling $ 150.4 million, including $ 118.3 million under revolvers and letters of credit (“LCs”), and $ 32.1 million under delayed draw term loans. As of September 30, 2021, $ 13.5 million of revolvers and LCs were outstanding.

In connection with the Infrastructure Lending Segment acquisition, we assumed guarantees of certain borrowers’ performance under existing interest rate swaps. As of September 30, 2021, we had five outstanding guarantees on interest rate swaps maturing between May 2022 and June 2025. Refer to Note 12 for further discussion.

Generally, funding commitments are subject to certain conditions that must be met, such as customary construction draw certifications, minimum debt service coverage ratios or executions of new leases before advances are made to the borrower.

Management is not aware of any other contractual obligations, legal proceedings, or any other contingent obligations incurred in the normal course of business that would have a material adverse effect on our condensed consolidated financial statements.

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22. Segment Data

In its operation of the business, management, including our chief operating decision maker, who is our Chief Executive Officer, reviews certain financial information, including segmented internal profit and loss statements prepared on a basis prior to the impact of consolidating securitization VIEs under ASC 810. The segment information within this Note is reported on that basis.

The table below presents our results of operations for the three months ended September 30, 2021 by business segment (amounts in thousands):


	Commercial and Residential Lending Segment		Infrastructure Lending Segment		Property Segment		Investing and Servicing Segment		Corporate		Subtotal		Securitization VIEs		Total
Revenues:
Interest income from loans	$	179,486	$	21,566	$	—	$	2,200	$	—	$	203,252	$	—	$	203,252
Interest income from investment securities	16,043		540		—		25,140		—		41,723		( 31,026 )		10,697
Servicing fees	99		—		—		15,447		—		15,546		( 5,073 )		10,473
Rental income	1,358		—		66,673		9,481		—		77,512		—		77,512
Other revenues	59		66		54		173		—		352		—		352
Total revenues	197,045		22,172		66,727		52,441		—		338,385		( 36,099 )		302,286
Costs and expenses:
Management fees	286		—		—		( 1,239 )		24,680		23,727		—		23,727
Interest expense	52,066		9,381		17,002		5,652		31,651		115,752		( 221 )		115,531
General and administrative	9,178		3,307		913		21,022		4,372		38,792		72		38,864
Acquisition and investment pursuit costs	158		—		—		56		—		214		—		214
Costs of rental operations	438		—		26,634		4,444		—		31,516		—		31,516
Depreciation and amortization	312		101		17,882		3,746		—		22,041		—		22,041
Credit loss provision (reversal), net	19		( 582 )		—		—		—		( 563 )		—		( 563 )
Other expense	—		—		—		23		—		23		—		23
Total costs and expenses	62,457		12,207		62,431		33,704		60,703		231,502		( 149 )		231,353
Other income (loss):
Change in net assets related to consolidated VIEs	—		—		—		—		—		—		28,049		28,049
Change in fair value of servicing rights	—		—		—		( 410 )		—		( 410 )		2,647		2,237
Change in fair value of investment securities, net	( 8,682 )		—		—		2,870		—		( 5,812 )		5,513		( 299 )
Change in fair value of mortgage loans, net	22,464		—		—		9,263		—		31,727		—		31,727
Earnings (loss) from unconsolidated entities	1,666		399		—		153		—		2,218		( 176 )		2,042
Loss on sale of investments and other assets, net	( 47 )		—		—		—		—		( 47 )		—		( 47 )
Gain (loss) on derivative financial instruments, net	38,016		87		( 318 )		3,992		35		41,812		—		41,812
Foreign currency (loss) gain, net	( 26,820 )		( 168 )		( 16 )		1		—		( 27,003 )		—		( 27,003 )
Loss on extinguishment of debt	—		( 18 )		—		—		( 481 )		( 499 )		—		( 499 )
Other loss, net	( 964 )		—		—		—		—		( 964 )		—		( 964 )
Total other income (loss)	25,633		300		( 334 )		15,869		( 446 )		41,022		36,033		77,055
Income (loss) before income taxes	160,221		10,265		3,962		34,606		( 61,149 )		147,905		83		147,988
Income tax (provision) benefit	( 5,652 )		488		—		( 2,337 )		—		( 7,501 )		—		( 7,501 )
Net income (loss)	154,569		10,753		3,962		32,269		( 61,149 )		140,404		83		140,487
Net income attributable to non-controlling interests	( 3 )		—		( 4,691 )		( 7,108 )		—		( 11,802 )		( 83 )		( 11,885 )
Net income (loss) attributable to Starwood Property Trust, Inc .	$	154,566	$	10,753	$	( 729 )	$	25,161	$	( 61,149 )	$	128,602	$	—	$	128,602

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The table below presents our results of operations for the three months ended September 30, 2020 by business segment (amounts in thousands):


	Commercial and Residential Lending Segment		Infrastructure Lending Segment		Property Segment		Investing and Servicing Segment		Corporate		Subtotal		Securitization VIEs		Total
Revenues:
Interest income from loans	$	149,972	$	17,835	$	—	$	1,597	$	—	$	169,404	$	—	$	169,404
Interest income from investment securities	21,385		635		—		23,587		—		45,607		( 33,421 )		12,186
Servicing fees	110		—		—		13,749		—		13,859		( 4,311 )		9,548
Rental income	2,014		—		63,925		10,039		—		75,978		—		75,978
Other revenues	66		101		48		98		—		313		( 2 )		311
Total revenues	173,547		18,571		63,973		49,070		—		305,161		( 37,734 )		267,427
Costs and expenses:
Management fees	297		—		—		221		22,596		23,114		13		23,127
Interest expense	38,422		8,914		16,180		5,425		27,040		95,981		—		95,981
General and administrative	12,483		3,568		1,094		18,813		3,436		39,394		84		39,478
Acquisition and investment pursuit costs	757		62		—		65		—		884		—		884
Costs of rental operations	643		—		24,302		4,577		—		29,522		—		29,522
Depreciation and amortization	430		87		19,130		3,934		—		23,581		—		23,581
Credit loss provision (reversal), net	782		( 4,369 )		—		—		—		( 3,587 )		—		( 3,587 )
Other expense	77		—		95		—		—		172		—		172
Total costs and expenses	53,891		8,262		60,801		33,035		53,072		209,061		97		209,158
Other income (loss):
Change in net assets related to consolidated VIEs	—		—		—		—		—		—		58,585		58,585
Change in fair value of servicing rights	—		—		—		3,960		—		3,960		( 3,326 )		634
Change in fair value of investment securities, net	13,611		—		—		3,249		—		16,860		( 17,059 )		( 199 )
Change in fair value of mortgage loans, net	59,402		—		—		1,982		—		61,384		—		61,384
Earnings (loss) from unconsolidated entities	3,253		( 80 )		—		358		—		3,531		( 339 )		3,192

(Loss) gain on derivative financial instruments, net	( 28,577 )		110		( 313 )		38		645		( 28,097 )		—		( 28,097 )
Foreign currency gain, net	25,302		110		14		26		—		25,452		—		25,452

Other (loss) income, net	—		—		( 1 )		358		—		357		—		357
Total other income (loss)	72,991		140		( 300 )		9,971		645		83,447		37,861		121,308
Income (loss) before income taxes	192,647		10,449		2,872		26,006		( 52,427 )		179,547		30		179,577
Income tax (provision) benefit	( 16,700 )		( 86 )		—		1,943		—		( 14,843 )		—		( 14,843 )
Net income (loss)	175,947		10,363		2,872		27,949		( 52,427 )		164,704		30		164,734
Net income attributable to non-controlling interests	( 3 )		—		( 5,072 )		( 7,795 )		—		( 12,870 )		( 30 )		( 12,900 )
Net income (loss) attributable to Starwood Property Trust, Inc .	$	175,944	$	10,363	$	( 2,200 )	$	20,154	$	( 52,427 )	$	151,834	$	—	$	151,834

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The table below presents our results of operations for the nine months ended September 30, 2021 by business segment (amounts in thousands):


	Commercial and Residential Lending Segment		Infrastructure Lending Segment		Property Segment		Investing and Servicing Segment		Corporate		Subtotal		Securitization VIEs		Total
Revenues:
Interest income from loans	$	515,776	$	61,545	$	—	$	5,778	$	—	$	583,099	$	—	$	583,099
Interest income from investment securities	51,618		1,659		—		71,748		—		125,025		( 92,070 )		32,955
Servicing fees	333		—		—		44,268		—		44,601		( 14,862 )		29,739
Rental income	4,116		—		197,187		29,666		—		230,969		—		230,969
Other revenues	223		228		138		3,032		—		3,621		—		3,621
Total revenues	572,066		63,432		197,325		154,492		—		987,315		( 106,932 )		880,383
Costs and expenses:
Management fees	901		—		—		( 793 )		91,584		91,692		21		91,713
Interest expense	144,717		27,916		49,697		16,890		89,970		329,190		( 632 )		328,558
General and administrative	30,922		10,281		2,964		65,182		13,172		122,521		244		122,765
Acquisition and investment pursuit costs	522		249		—		35		—		806		—		806
Costs of rental operations	1,348		—		76,516		13,128		—		90,992		—		90,992
Depreciation and amortization	930		301		53,883		11,878		—		66,992		—		66,992
Credit loss (reversal) provision, net	( 12,957 )		594		—		—		—		( 12,363 )		—		( 12,363 )
Other expense	31		—		583		94		—		708		—		708
Total costs and expenses	166,414		39,341		183,643		106,414		194,726		690,538		( 367 )		690,171
Other income (loss):
Change in net assets related to consolidated VIEs	—		—		—		—		—		—		80,303		80,303
Change in fair value of servicing rights	—		—		—		795		—		795		1,945		2,740
Change in fair value of investment securities, net	( 20,134 )		—		—		( 2,545 )		—		( 22,679 )		23,582		903
Change in fair value of mortgage loans, net	24,079		—		—		44,037		—		68,116		—		68,116
Earnings from unconsolidated entities	5,415		75		—		235		—		5,725		277		6,002
Gain on sale of investments and other assets, net	16,627		27		—		9,723		—		26,377		—		26,377
Gain (loss) on derivative financial instruments, net	59,212		883		4,034		7,544		( 5,881 )		65,792		—		65,792
Foreign currency loss, net	( 35,699 )		( 279 )		( 16 )		( 63 )		—		( 36,057 )		—		( 36,057 )
Loss on extinguishment of debt	( 289 )		( 1,264 )		( 141 )		( 22 )		( 481 )		( 2,197 )		—		( 2,197 )
Other (loss) income, net	( 6,468 )		23		—		29		—		( 6,416 )		—		( 6,416 )
Total other income (loss)	42,743		( 535 )		3,877		59,733		( 6,362 )		99,456		106,107		205,563
Income (loss) before income taxes	448,395		23,556		17,559		107,811		( 201,088 )		396,233		( 458 )		395,775
Income tax benefit (provision)	886		338		—		( 7,602 )		—		( 6,378 )		—		( 6,378 )
Net income (loss)	449,281		23,894		17,559		100,209		( 201,088 )		389,855		( 458 )		389,397
Net (income) loss attributable to non-controlling interests	( 10 )		—		( 14,682 )		( 18,873 )		—		( 33,565 )		458		( 33,107 )
Net income (loss) attributable to Starwood Property Trust, Inc .	$	449,271	$	23,894	$	2,877	$	81,336	$	( 201,088 )	$	356,290	$	—	$	356,290

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The table below presents our results of operations for the nine months ended September 30, 2020 by business segment (amounts in thousands):


	Commercial and Residential Lending Segment		Infrastructure Lending Segment		Property Segment		Investing and Servicing Segment		Corporate		Subtotal		Securitization VIEs		Total
Revenues:
Interest income from loans	$	492,489	$	59,374	$	—	$	6,071	$	—	$	557,934	$	—	$	557,934
Interest income from investment securities	57,358		2,019		—		73,311		—		132,688		( 90,618 )		42,070
Servicing fees	424		—		—		28,782		—		29,206		( 8,207 )		20,999
Rental income	2,782		—		191,452		28,600		—		222,834		—		222,834
Other revenues	298		344		228		891		—		1,761		( 5 )		1,756
Total revenues	553,351		61,737		191,680		137,655		—		944,423		( 98,830 )		845,593
Costs and expenses:
Management fees	987		—		—		680		85,257		86,924		46		86,970
Interest expense	134,243		31,709		49,243		18,796		83,670		317,661		( 162 )		317,499
General and administrative	29,230		12,328		3,453		54,490		11,105		110,606		251		110,857
Acquisition and investment pursuit costs	2,195		1,179		12		( 3 )		—		3,383		—		3,383
Costs of rental operations	2,409		—		71,857		13,102		—		87,368		—		87,368
Depreciation and amortization	1,275		246		57,571		11,890		—		70,982		—		70,982
Credit loss provision, net	52,293		2,991		—		—		—		55,284		—		55,284
Other expense	230		—		432		—		—		662		—		662
Total costs and expenses	222,862		48,453		182,568		98,955		180,032		732,870		135		733,005
Other income (loss):
Change in net assets related to consolidated VIEs	—		—		—		—		—		—		64,353		64,353
Change in fair value of servicing rights	—		—		—		9,606		—		9,606		( 11,934 )		( 2,328 )
Change in fair value of investment securities, net	( 8,814 )		—		—		( 36,026 )		—		( 44,840 )		47,972		3,132
Change in fair value of mortgage loans, net	56,895		—		—		22,805		—		79,700		—		79,700
Earnings (loss) from unconsolidated entities	3,975		( 1,198 )		—		30,504		—		33,281		( 1,216 )		32,065
(Loss) gain on sale of investments and other assets, net	( 961 )		296		—		7,433		—		6,768		—		6,768
(Loss) gain on derivative financial instruments, net	( 9,508 )		( 1,328 )		( 35,150 )		( 22,896 )		34,397		( 34,485 )		—		( 34,485 )
Foreign currency (loss) gain, net	( 1,757 )		( 53 )		( 53 )		2		—		( 1,861 )		—		( 1,861 )
Loss on extinguishment of debt	( 22 )		( 170 )		( 2,185 )		—		—		( 2,377 )		—		( 2,377 )
Other income, net	—		—		240		447		—		687		—		687
Total other income (loss)	39,808		( 2,453 )		( 37,148 )		11,875		34,397		46,479		99,175		145,654
Income (loss) before income taxes	370,297		10,831		( 28,036 )		50,575		( 145,635 )		258,032		210		258,242
Income tax (provision) benefit	( 15,535 )		3		—		8,716		—		( 6,816 )		—		( 6,816 )
Net income (loss)	354,762		10,834		( 28,036 )		59,291		( 145,635 )		251,216		210		251,426
Net income attributable to non-controlling interests	( 10 )		—		( 15,294 )		( 11,191 )		—		( 26,495 )		( 210 )		( 26,705 )
Net income (loss) attributable to Starwood Property Trust, Inc .	$	354,752	$	10,834	$	( 43,330 )	$	48,100	$	( 145,635 )	$	224,721	$	—	$	224,721

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The table below presents our condensed consolidated balance sheet as of September 30, 2021 by business segment (amounts in thousands):


	Commercial and Residential Lending Segment		Infrastructure Lending Segment		Property Segment		Investing and Servicing Segment		Corporate		Subtotal		Securitization VIEs		Total
Assets:
Cash and cash equivalents	$	19,626	$	16,695	$	32,162	$	29,027	$	175,197	$	272,707	$	609	$	273,316
Restricted cash	60,183		23,628		6,807		19,854		—		110,472		—		110,472
Loans held-for-investment, net	11,603,370		1,688,847		—		781		—		13,292,998		—		13,292,998
Loans held-for-sale	1,813,458		84,253		—		285,808		—		2,183,519		—		2,183,519
Investment securities	927,411		33,323		—		1,128,921		—		2,089,655		( 1,418,768 )		670,887
Properties, net	124,691		—		1,928,853		175,318		—		2,228,862		—		2,228,862
Intangible assets	—		—		35,958		68,596		—		104,554		( 39,432 )		65,122
Investment in unconsolidated entities	45,129		25,170		—		38,239		—		108,538		( 14,538 )		94,000
Goodwill	—		119,409		—		140,437		—		259,846		—		259,846
Derivative assets	31,835		36		96		78		20,521		52,566		—		52,566
Accrued interest receivable	101,539		4,372		—		1,887		447		108,245		( 119 )		108,126
Other assets	159,296		4,186		77,928		34,054		19,298		294,762		( 92 )		294,670
VIE assets, at fair value	—		—		—		—		—		—		62,346,480		62,346,480
Total Assets	$	14,886,538	$	1,999,919	$	2,081,804	$	1,923,000	$	215,463	$	21,106,724	$	60,874,140	$	81,980,864
Liabilities and Equity
Liabilities:
Accounts payable, accrued expenses and other liabilities	$	55,572	$	10,064	$	48,663	$	44,405	$	51,321	$	210,025	$	55	$	210,080
Related-party payable	—		—		—		—		23,378		23,378		—		23,378
Dividends payable	—		—		—		—		139,738		139,738		—		139,738
Derivative liabilities	14,924		419		—		272		—		15,615		—		15,615
Secured financing agreements, net	7,206,946		905,343		1,873,053		763,555		774,812		11,523,709		( 21,657 )		11,502,052
Collateralized loan obligations and single asset securitization, net	2,209,270		404,960		—		—		—		2,614,230		—		2,614,230
Unsecured senior notes, net	—		—		—		—		1,733,684		1,733,684		—		1,733,684
VIE liabilities, at fair value	—		—		—		—		—		—		60,894,975		60,894,975
Total Liabilities	9,486,712		1,320,786		1,921,716		808,232		2,722,933		16,260,379		60,873,373		77,133,752
Equity:
Starwood Property Trust, Inc. Stockholders’ Equity:
Common stock	—		—		—		—		2,961		2,961		—		2,961
Additional paid-in capital	929,932		636,911		17,137		( 377,386 )		4,063,671		5,270,265		—		5,270,265
Treasury stock	—		—		—		—		( 138,022 )		( 138,022 )		—		( 138,022 )
Accumulated other comprehensive income	40,486		—		—		—		—		40,486		—		40,486
Retained earnings (accumulated deficit)	4,429,290		42,222		( 65,568 )		1,342,156		( 6,436,080 )		( 687,980 )		—		( 687,980 )
Total Starwood Property Trust, Inc. Stockholders’ Equity	5,399,708		679,133		( 48,431 )		964,770		( 2,507,470 )		4,487,710		—		4,487,710
Non-controlling interests in consolidated subsidiaries	118		—		208,519		149,998		—		358,635		767		359,402
Total Equity	5,399,826		679,133		160,088		1,114,768		( 2,507,470 )		4,846,345		767		4,847,112
Total Liabilities and Equity	$	14,886,538	$	1,999,919	$	2,081,804	$	1,923,000	$	215,463	$	21,106,724	$	60,874,140	$	81,980,864

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The table below presents our condensed consolidated balance sheet as of December 31, 2020 by business segment (amounts in thousands):


	Commercial and Residential Lending Segment		Infrastructure Lending Segment		Property Segment		Investing and Servicing Segment		Corporate		Subtotal		Securitization VIEs		Total
Assets:
Cash and cash equivalents	$	160,007	$	4,440	$	32,080	$	19,546	$	346,372	$	562,445	$	772	$	563,217
Restricted cash	93,445		45,113		7,192		13,195		—		158,945		—		158,945
Loans held-for-investment, net	9,673,625		1,412,440		—		1,008		—		11,087,073		—		11,087,073
Loans held-for-sale	841,963		120,540		—		90,332		—		1,052,835		—		1,052,835
Investment securities	1,014,402		35,681		—		1,112,145		—		2,162,228		( 1,425,570 )		736,658
Properties, net	103,896		—		1,969,414		197,843		—		2,271,153		—		2,271,153
Intangible assets	—		—		40,370		71,123		—		111,493		( 41,376 )		70,117
Investment in unconsolidated entities	54,407		25,095		—		44,664		—		124,166		( 16,112 )		108,054
Goodwill	—		119,409		—		140,437		—		259,846		—		259,846
Derivative assets	6,595		—		41		147		33,772		40,555		—		40,555
Accrued interest receivable	87,922		2,091		—		123		5,978		96,114		( 134 )		95,980
Other assets	61,638		4,531		69,859		44,579		10,148		190,755		( 7 )		190,748
VIE assets, at fair value	—		—		—		—		—		—		64,238,328		64,238,328
Total Assets	$	12,097,900	$	1,769,340	$	2,118,956	$	1,735,142	$	396,270	$	18,117,608	$	62,755,901	$	80,873,509
Liabilities and Equity
Liabilities:
Accounts payable, accrued expenses and other liabilities	$	41,104	$	12,144	$	43,630	$	45,309	$	64,583	$	206,770	$	75	$	206,845
Related-party payable	—		—		—		5		39,165		39,170		—		39,170
Dividends payable	—		—		—		—		137,959		137,959		—		137,959
Derivative liabilities	39,082		1,718		—		524		—		41,324		—		41,324
Secured financing agreements, net	5,893,999		1,240,763		1,794,609		606,100		632,719		10,168,190		( 22,000 )		10,146,190
Collateralized loan obligations, net	930,554		—		—		—		—		930,554		—		930,554
Unsecured senior notes, net	—		—		—		—		1,732,520		1,732,520		—		1,732,520
VIE liabilities, at fair value	—		—		—		—		—		—		62,776,371		62,776,371
Total Liabilities	6,904,739		1,254,625		1,838,239		651,938		2,606,946		13,256,487		62,754,446		76,010,933
Equity:
Starwood Property Trust, Inc. Stockholders’ Equity:
Common stock	—		—		—		—		2,921		2,921		—		2,921
Additional paid-in capital	1,192,584		496,387		98,882		( 322,992 )		3,744,878		5,209,739		—		5,209,739
Treasury stock	—		—		—		—		( 138,022 )		( 138,022 )		—		( 138,022 )
Accumulated other comprehensive income (loss)	44,057		—		—		( 64 )		—		43,993		—		43,993
Retained earnings (accumulated deficit)	3,956,405		18,328		( 44,832 )		1,260,819		( 5,820,453 )		( 629,733 )		—		( 629,733 )
Total Starwood Property Trust, Inc. Stockholders’ Equity	5,193,046		514,715		54,050		937,763		( 2,210,676 )		4,488,898		—		4,488,898
Non-controlling interests in consolidated subsidiaries	115		—		226,667		145,441		—		372,223		1,455		373,678
Total Equity	5,193,161		514,715		280,717		1,083,204		( 2,210,676 )		4,861,121		1,455		4,862,576
Total Liabilities and Equity	$	12,097,900	$	1,769,340	$	2,118,956	$	1,735,142	$	396,270	$	18,117,608	$	62,755,901	$	80,873,509

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23. Subsequent Events

Our significant events subsequent to September 30, 2021 were as follows:

Woodstar Refinancing

In October 2021, we entered into a loan agreement with total borrowings of $ 380.0 million, secured by mortgages on certain properties within our Woodstar I Portfolio. The loan carries a two-year term, with three one-year extension options, and has an annual interest rate of LIBOR + 2.11 %. A portion of the net proceeds was used to repay $ 217.1 million of outstanding mortgage loans on those properties with a weighted average annual interest rate of LIBOR + 2.71 %.

Sale of Non-Controlling Interests in Woodstar Fund

Subsequent to quarter end, we established Woodstar Portfolio Holdings, LLC (the “Fund”), an investment fund which holds the Woodstar I and Woodstar II affordable housing portfolios. As managing member of the Fund, we manage interests purchased by third party investors seeking capital appreciation and an ongoing return, for which we earn (i) a management fee based on each investor’s share of total Fund equity; and (ii) an incentive distribution if the Fund’s returns exceed an established threshold. On November 5, 2021, we entered into subscription and other related agreements with certain third-party institutional investors to sell, through a feeder fund structure, an aggregate 20.6 % interest in the Fund for an aggregate subscription price of $ 216.0 million, subject to certain post-closing adjustments. The Fund carries an initial eight-year term.

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

This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” should be read in conjunction with the information included elsewhere in this Quarterly Report on Form 10-Q and in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (our “Form 10-K”). This discussion contains forward-looking statements that involve risks and uncertainties. Actual results could differ significantly from the results discussed in the forward-looking statements. See “Special Note Regarding Forward-Looking Statements” at the beginning of this Quarterly Report on Form 10-Q.

Overview

We have four reportable business segments as of September 30, 2021 and we refer to the investments within these segments as our target assets:

• Infrastructure lending (the “Infrastructure Lending Segment”)—engages primarily in originating, acquiring, financing and managing infrastructure debt investments.

Our segments exclude the consolidation of securitization variable interest entities (“VIEs”).

Refer to Note 1 of our condensed consolidated financial statements included herein (the “Condensed Consolidated Financial Statements”) for further discussion of our business and organization.

COVID-19 Pandemic

The full extent of the impact and effects of COVID-19 will depend on future developments, including, among other factors, the duration, spread and resurgences of the virus, including certain variants thereof, along with related travel advisories and restrictions, the recovery time of the disrupted supply chains and industries, the impact of labor market interruptions, the impact of government interventions, the pace, scope and efficacy of vaccination programs, and general uncertainty as to the impact of COVID-19, including related variants, on the global economy.

Goodwill is tested for impairment annually in the fourth quarter, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Future changes in the expectations of the impact of COVID-19 on our operations, financial performance and cash flows could cause our goodwill to be impaired.

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Further discussion of the potential impacts on our business, financial condition, results of operations, liquidity, the market price of our common stock and our ability to make distributions to our stockholders from the COVID-19 pandemic is provided in the section entitled “Risk Factors” in Part I, Item 1A of our Form 10-K.

Developments During the Third Quarter of 2021

Commercial and Residential Lending Segment

• In July 2021, we contributed into a single asset securitization ("SASB"), STWD 2021-HTS, a previously originated $230.0 million first mortgage and mezzanine loan on a portfolio of 41 extended stay hotels with $210.1 million of third party financing at a weighted average cost of financing of LIBOR + 2.47%, inclusive of the amortization of deferred issuance costs.

• Originated $1.7 billion of commercial loans during the quarter, including the following:

◦ $245.1 million first mortgage loan for the refinancing of an existing construction loan for a mixed-use property located in Texas, of which the Company funded $229.1 million.

◦ $235.1 million first mortgage and mezzanine loan for the refinancing of a 55-story office property located in Texas, of which the Company funded $200.3 million.

◦ AU$240.3 million ($178.4 million) first mortgage loan for the acquisition and development of industrial and logistics assets located in Australia, of which the Company funded $102.8 million.

◦ £122.0 million ($168.9 million) first mortgage loan for the acquisition and refurbishment of an office building located in the United Kingdom, of which the Company funded $80.7 million.

◦ $148.3 million first mortgage loan for the refinancing of a 455-unit multifamily property located in Virginia, of which the Company funded $138.0 million.

◦ $125.0 million first mortgage and mezzanine loan for the refinancing of an existing loan on a 26-story, multifamily building located in Pennsylvania, which the Company fully funded.

• Funded $171.9 million of previously originated commercial loan commitments.

• Received gross proceeds of $872.0 million ($399.5 million, net of debt repayments) from maturities and principal repayments on our commercial loans.

• Received gross proceeds of $35.4 million ($9.1 million, net of debt repayments) from sales of senior interests in first mortgage loans.

• Acquired $1.8 billion of residential loans, of which $262.2 million related to principal acquired upon redemption of a consolidated RMBS trust.

• Received proceeds of $491.9 million, including retained RMBS of $33.0 million, from the securitization of $469.7 million of residential loans.

• Amended residential loan repurchase facilities to increase the available borrowings by $650.0 million.

Infrastructure Lending Segment

• Amended a repurchase facility that provides for a temporary increase to available borrowings from $500.0 million to $650.0 million, with available capacity decreasing to $600.0 million in September 2022, $550.0 million in December 2022 and back to $500.0 million in March 2023. The amendment also extends the current maturity from February 2022 to September 2024, with two one-year extension options. In connection with this amendment, we terminated the Infrastructure Acquisition Facility and transferred the related financing to the amended repurchase facility. The facility carries an annual interest rate of LIBOR + 2.00%.

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• Acquired $89.9 million of infrastructure loans and funded $16.2 million of pre-existing infrastructure loan commitments.

• Received gross proceeds of $113.2 million from principal repayments on our infrastructure loans and bonds.

Investing and Servicing Segment

• Originated commercial conduit loans of $259.3 million.

• Received proceeds of $364.3 million from sales of previously originated commercial conduit loans and priced $239.4 million of previously originated commercial conduit loans in a securitization that settled subsequent to September 30, 2021.

• Sold CMBS for total gross proceeds of $27.1 million, of which $10.6 million related to non-controlling interests, and acquired CMBS for a purchase price of $8.4 million.

• Obtained 17 new special servicing assignments for CMBS trusts with a total unpaid principal balance of $14.9 billion, bringing our total named special servicing portfolio to $91.4 billion.

Corporate

• Issued $400.0 million of 3.625% Senior Notes due 2026 (the “2026 Senior Notes”).

• Redeemed $400.0 million of 5.00% Senior Notes due December 2021 (the "2021 Senior Notes").

• Amended the term loan facility to increase the incremental borrowings by $150.0 million and reduce the annual interest rate by 0.25% to LIBOR + 3.25% on all the incremental borrowings, subject to a 0.75% LIBOR floor. Additionally, we increased the maximum facility size of the revolver by $30.0 million to $150.0 million, reduced the annual interest rate by 0.50% to SOFR + 2.50% and extended the maturity from July 2024 to April 2026.

Developments During the Nine Months Ended September 30, 2021

Commercial and Residential Lending Segment

• In May 2021, we refinanced a pool of our commercial loans held-for-investment through a collateralized loan obligation (“CLO”), STWD 2021-FL2. The CLO has a contractual maturity of April 2038 and a weighted average cost of financing of LIBOR + 1.78%, inclusive of the amortization of deferred issuance costs. On the closing date, the CLO issued $1.3 billion of notes and preferred shares, of which $1.1 billion of notes was purchased by third party investors. We retained $70.1 million of notes, along with preferred shares with a liquidation preference of $127.5 million. The CLO contains a reinvestment feature that, subject to certain eligibility criteria, allows us to contribute new loans or participation interests in loans to the CLO in exchange for cash.

• Originated or acquired $5.6 billion of commercial loans during the period, including the following:

◦ £360.0 million ($504.5 million) first mortgage loan to finance the acquisition of a portfolio of vacation cottages, caravan homes and resorts across the United Kingdom, which the Company fully funded.

◦ $460.0 million first mortgage, mezzanine loan and preferred equity interest for the refinancing of a five asset portfolio that includes four multifamily properties ($298.0 million) and an office property ($162.0 million) located in New York and Connecticut, of which the Company funded $297.9 million.

◦ £227.6 million ($317.5 million) first mortgage loan for the refinancing of 14 assisted living facilities located across the United Kingdom, which the Company fully funded.

◦ $295.0 million first mortgage and mezzanine loan for the refinancing of a 666 unit Class A high-rise multifamily property and 70,873 square foot office building located in California, of which the Company funded $280.0 million.

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◦ $253.0 million first mortgage and mezzanine loan for the refinancing of a 495 unit, three tower multifamily property located in Florida, of which the Company funded $211.6 million.

◦ $245.1 million first mortgage loan for the refinancing of an existing construction loan for a mixed-use property located in Texas, of which the Company funded $229.1 million.

◦ $235.1 million first mortgage and mezzanine loan for the refinancing of a 55-story office property located in Texas, of which the Company funded $200.3 million.

◦ $230.0 million first mortgage and mezzanine loan on a 41 property extended stay portfolio located across the U.S., which the Company fully funded. In July 2021, we contributed this loan into a single asset securitization, STWD 2021-HTS, with $210.1 million of third party financing at a weighted average cost of financing of LIBOR + 2.47%, inclusive of the amortization of deferred issuance costs.

◦ $231.1 million first mortgage and mezzanine loan for the refinancing of a luxury residential project located in California, of which the Company funded $181.6 million and sold the $147.9 million senior interest in the first mortgage.

• Funded $468.9 million of previously originated commercial loan commitments.

• Received gross proceeds of $3.1 billion ($1.2 billion, net of debt repayments) from maturities and principal repayments on our commercial loans.

• Received gross proceeds of $243.3 million and $21.5 million ($39.0 million and $2.5 million, net of debt repayments) from sales of senior interests in first mortgage loans and whole loan interests, respectively.

• Sold commercial real estate in Montgomery, Alabama that was previously acquired through foreclosure in March 2019 for gross proceeds of $30.6 million and recognized a gain of $17.7 million. At the foreclosure date, the loan had a carrying value of $9.0 million ($20.9 million unpaid principal balance net of an $8.3 million allowance and $3.6 million of unamortized discount).

• Acquired $2.7 billion of residential loans, of which $434.6 million related to principal acquired upon redemption of two consolidated RMBS trusts.

• Received proceeds of $1.5 billion, including retained RMBS of $112.7 million, from the securitization of $1.4 billion of residential loans.

• Received proceeds of $30.7 million from the sale of retained RMBS.

• Entered into or amended residential loan repurchase facilities to increase the available borrowings by $1.8 billion.

Infrastructure Lending Segment

• In April 2021, we refinanced a pool of our infrastructure loans held-for-investment through a CLO, STWD 2021-SIF1. The CLO has a contractual maturity of April 2032 and a weighted average cost of financing of LIBOR + 2.15%, inclusive of the amortization of deferred issuance costs. On the closing date, the CLO issued $500.0 million of notes and preferred shares, of which $410.0 million of notes was purchased by third party investors. We retained preferred shares with a liquidation preference of $90.0 million. The CLO contains a reinvestment feature that, subject to certain eligibility criteria, allows us to contribute new loans or participation interests in loans to the CLO in exchange for cash.

• Acquired $344.3 million of infrastructure loans and funded $53.4 million of pre-existing infrastructure loan commitments.

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• Received $217.1 million from principal repayments on our infrastructure loans and bonds.

Property Segment

• Refinanced our Woodstar II Portfolio by entering into mortgage loans with total borrowings of $82.9 million. The loans carry seven-year terms and a weighted average fixed annual interest rate of 4.36%. A portion of the net proceeds from the mortgage loans was used to repay $4.9 million of outstanding government sponsored mortgage loans.

Investing and Servicing Segment

• Originated commercial conduit loans of $927.2 million.

• Received proceeds of $775.4 million from sales of previously originated commercial conduit loans and priced $239.4 million of previously originated commercial conduit loans in a securitization that settled subsequent to September 30, 2021.

• Acquired CMBS for a purchase price of $62.5 million, of which $2.5 million related to non-controlling interests, and sold CMBS for total gross proceeds of $38.7 million, of which $10.6 million related to non-controlling interests.

• Obtained 20 new special servicing assignments for CMBS trusts with a total unpaid principal balance of $16.1 billion, bringing our total named special servicing portfolio to $91.4 billion.

• Sold commercial real estate for gross proceeds of $30.9 million and recognized a gain of $9.7 million.

Corporate

• Issued $400.0 million of 3.625% Senior Notes due 2026.

• Redeemed $400.0 million of 5.00% Senior Notes due December 2021.

Subsequent Events

Refer to Note 23 to the Condensed Consolidated Financial Statements for disclosure regarding significant transactions that occurred subsequent to September 30, 2021.

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Results of Operations

The discussion below is based on accounting principles generally accepted in the United States of America (“GAAP”) and therefore reflects the elimination of certain key financial statement line items related to the consolidation of securitization variable interest entities (“VIEs”), particularly within revenues and other income, as discussed in Note 2 to the Condensed Consolidated Financial Statements. For a discussion of our results of operations excluding the impact of Accounting Standards Codification (“ASC”) Topic 810 as it relates to the consolidation of securitization VIEs, refer to the section captioned “Non-GAAP Financial Measures”.

We have elected to present a comparison of our results of operations for the current quarter with that of the immediately preceding quarter, as permitted under the recently amended SEC disclosure guidelines. Because our business is not seasonal, we believe this results in a more meaningful comparison of quarterly results than a comparison to the same quarter of the prior year. We continue to present the required comparison of current year-to-date results with the same period of the prior year. The following table compares our summarized results of operations for the three months ended September 30, 2021 and June 30, 2021 and for the nine months ended September 30, 2021 and 2020 by business segment (amounts in thousands):


	For the Three Months Ended						For the Nine Months Ended
Revenues:	September 30, 2021		June 30, 2021		$ Change		September 30, 2021		September 30, 2020		$ Change
Commercial and Residential Lending Segment	$	197,045	$	184,490	$	12,555	$	572,066	$	553,351	$	18,715
Infrastructure Lending Segment	22,172		21,795		377		63,432		61,737		1,695
Property Segment	66,727		65,454		1,273		197,325		191,680		5,645
Investing and Servicing Segment	52,441		57,504		(5,063)		154,492		137,655		16,837
Corporate	—		—		—		—		—		—
Securitization VIE eliminations	(36,099)		(38,376)		2,277		(106,932)		(98,830)		(8,102)
	302,286		290,867		11,419		880,383		845,593		34,790
Costs and expenses:
Commercial and Residential Lending Segment	62,457		47,543		14,914		166,414		222,862		(56,448)
Infrastructure Lending Segment	12,207		14,178		(1,971)		39,341		48,453		(9,112)
Property Segment	62,431		61,714		717		183,643		182,568		1,075
Investing and Servicing Segment	33,704		40,253		(6,549)		106,414		98,955		7,459
Corporate	60,703		62,376		(1,673)		194,726		180,032		14,694
Securitization VIE eliminations	(149)		(125)		(24)		(367)		135		(502)
	231,353		225,939		5,414		690,171		733,005		(42,834)
Other income (loss):
Commercial and Residential Lending Segment	25,633		(4,051)		29,684		42,743		39,808		2,935
Infrastructure Lending Segment	300		(930)		1,230		(535)		(2,453)		1,918
Property Segment	(334)		(397)		63		3,877		(37,148)		41,025
Investing and Servicing Segment	15,869		24,904		(9,035)		59,733		11,875		47,858
Corporate	(446)		927		(1,373)		(6,362)		34,397		(40,759)
Securitization VIE eliminations	36,033		37,650		(1,617)		106,107		99,175		6,932
	77,055		58,103		18,952		205,563		145,654		59,909
Income (loss) before income taxes:
Commercial and Residential Lending Segment	160,221		132,896		27,325		448,395		370,297		78,098
Infrastructure Lending Segment	10,265		6,687		3,578		23,556		10,831		12,725
Property Segment	3,962		3,343		619		17,559		(28,036)		45,595
Investing and Servicing Segment	34,606		42,155		(7,549)		107,811		50,575		57,236
Corporate	(61,149)		(61,449)		300		(201,088)		(145,635)		(55,453)
Securitization VIE eliminations	83		(601)		684		(458)		210		(668)
	147,988		123,031		24,957		395,775		258,242		137,533
Income tax (provision) benefit	(7,501)		3,353		(10,854)		(6,378)		(6,816)		438
Net income attributable to non-controlling interests	(11,885)		(10,074)		(1,811)		(33,107)		(26,705)		(6,402)
Net income attributable to Starwood Property Trust, Inc.	$	128,602	$	116,310	$	12,292	$	356,290	$	224,721	$	131,569

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Three Months Ended September 30, 2021 Compared to the Three Months Ended June 30, 2021

Commercial and Residential Lending Segment

Revenues

For the three months September 30, 2021, revenues of our Commercial and Residential Lending Segment increased $12.5 million to $197.0 million, compared to $184.5 million for the three months ended June 30, 2021. This increase was primarily due to an increase in interest income from loans of $13.8 million, slightly offset by a decrease in interest income from investment securities of $1.1 million. The increase in interest income from loans was principally due to (i) higher prepayment related income on commercial loans and (ii) higher average balances of both commercial and residential loans, reflecting for residential loans the timing of purchases and securitizations. The decrease in interest income from investment securities was primarily due to lower average RMBS investment balances reflecting net repayments and liquidations.

Costs and Expenses

For the three months ended September 30, 2021, costs and expenses of our Commercial and Residential Lending Segment increased $14.9 million to $62.4 million, compared to $47.5 million for the three months ended June 30, 2021. This increase was primarily due to the nonrecurrence of a $12.4 million credit loss reversal in the second quarter of 2021 and a $3.7 million increase in interest expense associated with the various secured financing facilities used to fund a portion of this segment’s investment portfolio, partially offset by a $1.2 million decrease in general and administrative expenses. The $12.4 million credit loss reversal in the second quarter of 2021 was primarily due to an improvement in macroeconomic forecasts and the effect on our then estimate of current expected credit losses (“CECL”). In comparison, there was a nominal credit loss provision in the third quarter of 2021. The increase in interest expense was primarily due to higher average borrowings outstanding.

Net Interest Income (amounts in thousands)


	For the Three Months Ended
	September 30, 2021		June 30, 2021		Change
Interest income from loans	$	179,486	$	165,697	$	13,789
Interest income from investment securities	16,043		17,190		(1,147)
Interest expense	(52,066)		(48,356)		(3,710)
Net interest income	$	143,463	$	134,531	$	8,932

For the three months ended September 30, 2021, net interest income of our Commercial and Residential Lending Segment increased $8.9 million to $143.4 million, compared to $134.5 million for the three months ended June 30, 2021. This increase reflects the net increase in interest income, partially offset by the decrease in interest expense on our secured financing facilities, both as discussed in the sections above.

During the three months ended September 30, 2021 and June 30, 2021, the weighted average unlevered yields on the Commercial and Residential Lending Segment’s loans and investment securities, excluding retained RMBS, were as follows:


	For the Three Months Ended
	September 30, 2021		June 30, 2021
Commercial	5.5	%	5.6	%
Residential	5.0	%	5.5	%
Overall	5.5	%	5.7	%

The overall weighted average unlevered yield was slightly lower primarily due to lower average interest rates on our newer loans, parti ally offset by the higher prepayment related income on commercial loans.

During the three months ended September 30, 2021 and June 30, 2021, the Commercial and Residential Lending Segment’s weighted average secured borrowing rates, inclusive of interest rate hedging costs and the amortization of deferred financing fees, were 2.4% and 2.5%, respectively.

Other Income (Loss)

For the three months ended September 30, 2021, other income (loss) of our Commercial and Residential Lending Segment improved $29.7 million to income of $25.6 million compared to a loss of $4.1 million for the three months ended June 30, 2021. This improvement was primarily due to (i) a $42.9 million favorable change in gain (loss) on derivatives, (ii) a $10.1

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million favorable change in fair value of residential loans and (iii) the nonrecurrence of $4.6 million of transfer taxes related to the foreclosure of a residential conversion project in the second quarter of 2021, all partially offset by (iv) a $29.5 million unfavorable change in foreign currency gain (loss). The favorable change in gain (loss) on derivatives in the third quarter of 2021 reflects a $36.2 million favorable change in gain (loss) on foreign currency hedges and a $6.7 million favorable change in gain (loss) on interest rate swaps. The foreign currency hedges are used to fix the U.S. dollar amounts of cash flows (both interest and principal payments) we expect to receive from our foreign currency denominated loans and investments. The favorable change in gain (loss) on foreign currency hedges and the unfavorable change in foreign currency gain (loss) reflect the strengthening of the U.S. dollar against the pound sterling (“GBP”), Euro (“EUR”) and Australian dollar (“AUD”) in the third quarter of 2021 compared to a weakening of the U.S. dollar against the GBP and EUR, partially offset by a strengthening against the AUD, in the second quarter of 2021. The interest rate swaps are used primarily to fix our interest rate payments on certain variable rate borrowings which fund fixed rate investments and to hedge our interest rate risk on residential loans held-for-sale.

Infrastructure Lending Segment

Revenues

For the three months ended September 30, 2021, revenues of our Infrastructure Lending Segment increased $0.4 million to $22.2 million, compared to $21.8 million for the three months ended June 30, 2021. This was primarily due to an increase in interest income from loans reflecting higher prepayment related income.

Costs and Expense s

For the three months ended September 30, 2021, costs and expenses of our Infrastructure Lending Segment decreased $2.0 million to $12.2 million, compared to $14.2 million for the three months ended June 30, 2021. The decrease was primarily due to a $1.2 million decrease in credit loss provision and a $0.3 million decrease in interest expense associated with the various secured financing facilities used to fund a portion of this segment’s investment portfolio. There was a $0.6 million credit loss reversal in the third quarter of 2021 compared to a provision of $0.6 million in the second quarter of 2021. The decrease in interest expense was primarily due to lower average borrowings outstanding.

Net Interest Income (amounts in thousands)


	For the Three Months Ended
	September 30, 2021		June 30, 2021		Change
Interest income from loans	$	21,566	$	21,171	$	395
Interest income from investment securities	540		555		(15)
Interest expense	(9,381)		(9,694)		313
Net interest income	$	12,725	$	12,032	$	693

For the three months ended September 30, 2021, net interest income of our Infrastructure Lending Segment increased $0.7 million to $12.7 million, compared to $12.0 million for the three months ended June 30, 2021. The increase reflects the increase in interest income from loans and the decrease in interest expense on the secured financing facilities, both as discussed in the sections above.

During the three months ended September 30, 2021 and June 30, 2021, the weighted average unlevered yields on the Infrastructure Lending Segment’s investments were as follows:


	For the Three Months Ended
	September 30, 2021		June 30, 2021
Loans and investment securities held-for-investment	4.9	%	4.9	%
Loans held-for-sale	2.8	%	2.9	%

During the three months ended September 30, 2021 and June 30, 2021, the Infrastructure Lending Segment’s weighted average secured borrowing rates, inclusive of the amortization of deferred financing fees, were 2.8% and 2.9%, respectively.

Other Income (Loss)

For the three months ended September 30, 2021, other income (loss) of our Infrastructure Lending Segment improved $1.2 million to income of $0.3 million, compared to a loss of $0.9 million for the three months ended June 30, 2021. This improvement was primarily due to a $0.9 million lower loss on extinguishment of debt.

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Property Segment

Change in Results by Portfolio (amounts in thousands)


	$ Change from prior period
	Revenues		Costs and expenses		Gain (loss) on derivative financial instruments		Other income (loss)		Income (loss) before income taxes
Master Lease Portfolio	$	—	$	—	$	—	$	—	$	—
Medical Office Portfolio	423		359		44		—		108
Woodstar I Portfolio	682		107		10		—		585
Woodstar II Portfolio	168		297		—		—		(129)
Other/Corporate	—		(46)		—		9		55
Total	$	1,273	$	717	$	54	$	9	$	619

See Note 6 to the Condensed Consolidated Financial Statements for a description of the above-referenced Property Segment portfolios.

Revenues

For the three months ended September 30, 2021, revenues of our Property Segment increased $1.3 million to $66.7 million, compared to $65.4 million for the three months ended June 30, 2021.

Costs and Expenses

For the three months ended September 30, 2021, costs and expenses of our Property Segment increased $0.7 million to $62.4 million, compared to $61.7 million for the three months ended June 30, 2021.

Other Loss

For the three months ended September 30, 2021, other loss of our Property Segment decreased $0.1 million to $0.3 million, compared to $0.4 million for the three months ended June 30, 2021.

Investing and Servicing Segment

Revenues

For the three months ended September 30, 2021, revenues of our Investing and Servicing Segment decreased $5.1 million to $52.4 million, compared to $57.5 million for the three months ended June 30, 2021. The decrease primarily reflects (i) the nonrecurrence of a $2.3 million origination fee on a loan that we co-originated in the second quarter of 2021 for the purpose of contributing into a single-asset single-borrower CMBS transaction, (ii) a $0.9 million decrease in servicing fees, (iii) a $0.8 million decrease in rental income primarily due to the sale of a property in the second quarter of 2021 and (iv) a $0.7 million decrease in interest income from CMBS and conduit loans.

Costs and Expenses

For the three months ended September 30, 2021, costs and expenses of our Investing and Servicing Segment decreased $6.6 million to $33.7 million, compared to $40.3 million for the three months ended June 30, 2021. The decrease in costs and expenses was primarily due to a $4.7 million decrease in general and administrative expenses reflecting decreased incentive compensation principally due to lower securitization volume.

Other Income

For the three months ended September 30, 2021, other income of our Investing and Servicing Segment decreased $9.0 million to $15.9 million, compared to $24.9 million for the three months ended June 30, 2021. The decrease in other income was primarily due to (i) a $24.3 million lesser increase in fair value of conduit loans and (ii) the nonrecurrence of a $9.7 million gain on sale of an operating property in the second quarter of 2021, partially offset by (iii) a $15.5 million favorable change in fair value of CMBS investments and (iii) a $9.7 million favorable change in gain (loss) on derivatives which primarily hedge our interest rate risk on conduit loans and CMBS investments.

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Corporate and Other Items

Corporate Costs and Expenses

For the three months ended September 30, 2021, corporate expenses decreased $1.7 million to $60.7 million, compared to $62.4 million for the three months ended June 30, 2021. This was primarily due to a decrease of $4.1 million in incentive management fees, partially offset by a $2.5 million increase in interest expense primarily due to our issuance of the 2026 Senior Notes during the third quarter of 2021.

Corporate Other Income (Loss)

For the three months ended September 30, 2021, corporate other income decreased $1.3 million to a loss of $0.4 million, compared to income of $0.9 million for the three months ended June 30, 2021. This was due to (i) a $0.9 million lesser gain on interest rate swaps which hedge a portion of our unsecured senior notes used to repay variable-rate secured financing and (ii) a $0.4 million loss on extinguishment of a portion of our 2021 Senior Notes during the third quarter of 2021.

Securitization VIE Eliminations

Securitization VIE eliminations primarily reclassify interest income and servicing fee revenues to other income (loss) for the CMBS and RMBS VIEs that we consolidate as primary beneficiary. Such eliminations have no overall effect on net income (loss) attributable to Starwood Property Trust. The reclassified revenues, along with applicable changes in fair value of investment securities and servicing rights, comprise the other income (loss) caption “Change in net assets related to consolidated VIEs,” which represents our beneficial interest in those consolidated VIEs. The magnitude of the securitization VIE eliminations is merely a function of the number of CMBS and RMBS trusts consolidated in any given period, and as such, is not a meaningful indicator of operating results. The eliminations primarily relate to CMBS trusts for which the Investing and Servicing Segment is deemed the primary beneficiary and, to a much lesser extent, some CMBS and RMBS trusts for which the Commercial and Residential Lending Segment is deemed the primary beneficiary.

Income Tax (Provision) Benefit

Our consolidated income taxes principally relate to the taxable nature of our loan servicing and loan securitization businesses which are housed in taxable REIT subsidiaries (“TRSs”). For the three months ended September 30, 2021 our income tax provision increased $10.9 million to a provision of $7.5 million compared to a benefit of $3.4 million for the three months ended June 30, 2021 due to taxable income of our TRSs in the third quarter of 2021 compared to a loss in the second quarter of 2021.

Net Income Attributable to Non-controlling Interests

During the three months ended September 30, 2021, net income attributable to non-controlling interests increased $1.8 million to $11.9 million, compared to $10.1 million during the three months ended June 30, 2021. The increase was primarily due to non-controlling interests in increased earnings of a consolidated CMBS joint venture in which we hold a 51% interest.

Nine Months Ended September 30, 2021 Compared to the Nine Months Ended September 30, 2020

Commercial and Residential Lending Segment

Revenues

For the nine months ended September 30, 2021, revenues of our Commercial and Residential Lending Segment increased $18.7 million to $572.1 million, compared to $553.4 million for the nine months ended September 30, 2020. This increase was primarily due to increases in interest income from loans of $23.3 million and rental income from foreclosed properties of $1.3 million, partially offset by a decrease in interest income from investment securities of $5.7 million. The increase in interest income from loans reflects a $29.7 million increase from commercial loans reflecting higher average balances partially offset by lower prepayment related income and average LIBOR rates (partly mitigated by the LIBOR floors on most of our commercial loans) and a $6.4 million decrease from residential loans principally due to lower average balances reflecting the timing of purchases and securitizations. The decrease in interest income from investment securities was primarily due to lower commercial and residential average investment balances, reflecting net repayments and liquidations, and lower average LIBOR rates affecting certain commercial investments.

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Costs and Expenses

For the nine months ended September 30, 2021, costs and expenses of our Commercial and Residential Lending Segment decreased $56.5 million to $166.4 million, compared to $222.9 million for the nine months ended September 30, 2020. This decrease was primarily due to a $65.3 million decrease in credit loss provision, partially offset by a $10.5 million increase in interest expense associated with the various secured financing facilities used to fund a portion of this segment’s investment portfolio. The credit loss provision decreased from a provision of $52.3 million in the nine months of 2020 to a $13.0 million reversal in the nine months of 2021. The large provision in the nine months of 2020 was due to the significant deterioration in macroeconomic forecasts due to the initial disruption caused by the COVID-19 pandemic and its effect on our then estimate of CECL. The credit loss reversal in the nine months of 2021 was primarily due to an improvement in macroeconomic forecasts. The increase in interest expense was primarily due to higher average borrowings outstanding, partially offset by lower average LIBOR rates.

Net Interest Income (amounts in thousands)


	For the Nine Months Ended September 30,
	2021		2020		Change
Interest income from loans	$	515,776	$	492,489	$	23,287
Interest income from investment securities	51,618		57,358		(5,740)
Interest expense	(144,717)		(134,243)		(10,474)
Net interest income	$	422,677	$	415,604	$	7,073

For the nine months ended September 30, 2021, net interest income of our Commercial and Residential Lending Segment increased $7.1 million to $422.7 million, compared to $415.6 million for the nine months ended September 30, 2020. This increase reflects the net increase in interest income, partially offset by the increase in interest expense on our secured financing facilities, both as discussed in the sections above.

During the nine months ended September 30, 2021 and 2020, the weighted average unlevered yields on the Commercial and Residential Lending Segment’s loans and investment securities, excluding retained RMBS, were as follows:


	For the Nine Months Ended September 30,
	2021		2020
Commercial	5.8	%	6.5	%
Residential	5.0	%	5.7	%
Overall	5.8	%	6.5	%

The overall weighted average unlevered yield was lower primarily due to lower prepayment related income and LIBOR rates affecting our commercial yields as well as lower average interest rates on our newer loans.

During the nine months ended September 30, 2021 and 2020, the Commercial and Residential Lending Segment’s weighted average secured borrowing rates, inclusive of interest rate hedging costs and the amortization of deferred financing fees, were 2.5% and 2.9%, respectively. The decrease in borrowing rates primarily reflects decreases in LIBOR.

Other Income

For the nine months ended September 30, 2021, other income of our Commercial and Residential Lending Segment increased $2.9 million to $42.7 million, compared to $39.8 million for the nine months ended September 30, 2020. This increase primarily reflects (i) a $68.7 favorable change in gain (loss) on derivatives and (ii) a $17.7 million gain on sale of a foreclosed property in the first quarter of 2021, partially offset by (iii) a $33.9 million increase in foreign currency loss, (iv) a $32.8 million lesser increase in fair value of residential loans, (v) an $11.3 million greater decrease in fair value of investment securities and (vi) $4.6 million of transfer taxes related to the foreclosure of a residential conversion project. The favorable change in gain (loss) on derivatives in the nine months of 2021 reflects a $41.8 million favorable change in gain (loss) on interest rate swaps and a $26.9 million higher gain on foreign currency hedges. The foreign currency hedges are used to fix the U.S. dollar amounts of cash flows (both interest and principal payments) we expect to receive from our foreign currency denominated loans and investments. The increases in foreign currency loss and foreign currency hedge gains reflect the strengthening of the U.S. dollar against the GBP, EUR and AUD in the nine months of 2021 compared to a strengthening of the U.S. dollar against the GBP, partially offset by a weakening against the EUR and AUD, in the nine months of 2020. The interest rate swaps are used primarily to fix our interest rate payments on certain variable rate borrowings which fund fixed rate investments and to hedge our interest rate risk on residential loans held-for-sale.

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Infrastructure Lending Segment

Revenues

For the nine months ended September 30, 2021, revenues of our Infrastructure Lending Segment increased $1.7 million to $63.4 million, compared to $61.7 million for the nine months ended September 30, 2020. This was primarily due to an increase in interest income from loans of $2.2 million principally due to higher average balances outstanding, partially offset by lower average LIBOR rates.

Costs and Expense s

For the nine months ended September 30, 2021, costs and expenses of our Infrastructure Lending Segment decreased $9.1 million to $39.3 million, compared to $48.4 million for the nine months ended September 30, 2020. The decrease was primarily due to (i) a $3.8 million decrease in interest expense associated with the various secured financing facilities used to fund a portion of this segment’s investment portfolio, (ii) a $2.4 million decrease in credit loss provision and (iii) a $2.0 million decrease in general and administrative expenses. The credit loss provision in the first nine months of 2020 was magnified by the significant deterioration of macroeconomic forecasts due to the initial economic disruption caused by the COVID-19 pandemic. The decrease in interest expense was primarily due to lower average LIBOR rates.

Net Interest Income (amounts in thousands)


	For the Nine Months Ended September 30,
	2021		2020		Change
Interest income from loans	$	61,545	$	59,374	$	2,171
Interest income from investment securities	1,659		2,019		(360)
Interest expense	(27,916)		(31,709)		3,793
Net interest income	$	35,288	$	29,684	$	5,604

For the nine months ended September 30, 2021, net interest income of our Infrastructure Lending Segment increased $5.6 million to $35.3 million, compared to $29.7 million for the nine months ended September 30, 2020. The increase reflects the increase in interest income from loans and the decrease in interest expense on the secured financing facilities, both as discussed in the sections above.

During the nine months ended September 30, 2021 and 2020, the weighted average unlevered yields on the Infrastructure Lending Segment’s investments were as follows:


	For the Nine Months Ended September 30,
	2021		2020
Loans and investment securities held-for-investment	4.9	%	5.3	%
Loans held-for-sale	2.8	%	3.7	%

During the nine months ended September 30, 2021 and 2020, the Infrastructure Lending Segment’s weighted average secured borrowing rates, inclusive of the amortization of deferred financing fees, were 2.8% and 3.5%, respectively.

Other Loss

For the nine months ended September 30, 2021 and 2020, other loss of our Infrastructure Lending Segment decreased $1.9 million to $0.5 million, compared to $2.4 million for the nine months ended September 30, 2020. The decrease in other loss primarily reflects a $2.2 million favorable change in gain (loss) on interest rate and other derivatives.

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Property Segment

Change in Results by Portfolio (amounts in thousands)


	$ Change from prior period
	Revenues		Costs and expenses		Gain (loss) on derivative financial instruments		Other income (loss)		Income (loss) before income taxes
Master Lease Portfolio	$	(11)	$	(125)	$	—	$	—	$	114
Medical Office Portfolio	799		(3,037)		38,846		—		42,682
Woodstar I Portfolio	2,848		255		338		1,702		4,633
Woodstar II Portfolio	2,023		4,535		—		(141)		(2,653)
Other/Corporate	(14)		(553)		—		280		819
Total	$	5,645	$	1,075	$	39,184	$	1,841	$	45,595

Revenues

For the nine months ended September 30, 2021, revenues of our Property Segment increased $5.6 million to $197.3 million, compared to $191.7 million for the nine months ended September 30, 2020, primarily reflecting increased rental rates in the Woodstar Portfolios.

Costs and Expenses

For the nine months ended September 30, 2021, costs and expenses of our Property Segment increased $1.0 million to $183.6 million, compared to $182.6 million for the nine months ended September 30, 2020.

Other Income (Loss)

For the nine months ended September 30, 2021, other income (loss) of our Property Segment improved $41.0 million to income of $3.9 million, compared to a loss of $37.1 million for the nine months ended September 30, 2020. The improvement in other income (loss) was primarily due to a $39.2 million favorable change in gain (loss) on derivatives which primarily hedge our interest rate risk on borrowings secured by our Medical Office Portfolio.

Investing and Servicing Segment

Revenues

For the nine months ended September 30, 2021, revenues of our Investing and Servicing Segment increased $16.8 million to $154.5 million, compared to $137.7 million for the nine months ended September 30, 2020. The increase in revenues was primarily due to a $15.5 million increase in servicing fees reflecting an increased volume of COVID-19 related loan resolutions.

Costs and Expenses

For the nine months ended September 30, 2021, costs and expenses of our Investing and Servicing Segment increased $7.4 million to $106.4 million, compared to $99.0 million for the nine months ended September 30, 2020. The increase in costs and expenses was primarily due to an increase of $10.7 million in general and administrative expenses reflecting increased incentive compensation principally due to higher securitization volume, partially offset by a $1.9 million decrease in interest expense on borrowings related to CMBS, conduit loans and properties held.

Other Income

For the nine months ended September 30, 2021, other income of our Investing and Servicing Segment increased $47.8 million to $59.7 million, compared to $11.9 million for the nine months ended September 30, 2020. The increase in other income was primarily due to (i) a $33.5 million lesser decrease in fair value of CMBS investments, (ii) a $30.4 million favorable change in gain (loss) on derivatives which primarily hedge our interest rate risk on conduit loans and CMBS investments and (iii) a $21.2 million greater increase in fair value of conduit loans, partially offset by (iv) a $30.3 million decrease in earnings of unconsolidated entities and (v) an $8.8 million lesser increase in fair value of servicing rights. The fair value of our CMBS investments was adversely affected in the nine months of 2020 by widening credit spreads resulting from market disruption and dislocation caused by the initial impacts of COVID-19. The decrease in earnings of unconsolidated entities reflects the nonrecurrence of realized and unrealized gains totaling $27.9 million resulting from the sale in April 2020 of a portion of our unconsolidated equity interest in a servicing and advisory business.

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Corporate and Other Items

Corporate Costs and Expenses

For the nine months ended September 30, 2021, corporate expenses increased $14.7 million to $194.7 million, compared to $180.0 million for the nine months ended September 30, 2020. This increase was primarily due to increases of $6.3 million in interest expense on higher average outstanding term loan and unsecured senior note balances, $6.2 million in incentive management fees and amortization of manager equity plan awards and $2.1 million in general and administrative expenses.

Corporate Other Income (Loss)

For the nine months ended September 30, 2021, corporate other income decreased $40.8 million to a loss of $6.4 million, compared to income of $34.4 million for the nine months ended September 30, 2020. This decrease was primarily due to a $40.3 million unfavorable change in gain (loss) on interest rate swaps which hedge a portion of our unsecured senior notes used to repay variable-rate secured financing.

Securitization VIE Eliminations

Refer to the preceding comparison of the three months ended September 30, 2021 to the three months ended June 30, 2021 for a discussion of the effect of securitization VIE eliminations.

Income Tax Provision

Our consolidated income taxes principally relate to the taxable nature of our loan servicing and loan securitization businesses which are housed in TRSs. For the nine months ended September 30, 2021, our income tax provision decreased $0.4 million to $6.4 million, compared to $6.8 million for the nine months ended September 30, 2020 due to a decrease in overall taxable income of our TRSs in the nine months of 2021.

Net Income Attributable to Non-controlling Interests

During the nine months ended September 30, 2021, net income attributable to non-controlling interests increased $6.4 million to $33.1 million, compared to $26.7 million during the nine months ended September 30, 2020. The increase was primarily due to non-controlling interests in increased earnings of a consolidated CMBS joint venture in which we hold a 51% interest.

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Non-GAAP Financial Measures

Distributable Earnings is a non-GAAP financial measure. We calculate Distributable Earnings as GAAP net income (loss) excluding the following:

(i) non-cash equity compensation expense;

(ii) incentive fees due under our management agreement;

(iii) depreciation and amortization of real estate and associated intangibles;

(iv) acquisition costs associated with successful acquisitions;

(v) any unrealized gains, losses or other non-cash items recorded in net income (loss) for the period, regardless of whether such items are included in other comprehensive income or loss, or in net income (loss); and

(vi) any deductions for distributions payable with respect to equity securities of subsidiaries issued in exchange for properties or interests therein.

The CECL reserve has been excluded from Distributable Earnings consistent with other unrealized gains (losses) pursuant to our existing policy for reporting Distributable Earnings. We expect to only recognize such potential credit losses in Distributable Earnings if and when such amounts are deemed nonrecoverable upon a realization event. This is generally at the time a loan is repaid, or in the case of foreclosure, when the underlying asset is sold, but non-recoverability may also be determined if, in our determination, it is nearly certain that all amounts due will not be collected. The realized loss amount reflected in Distributable Earnings will equal the difference between the cash received, or expected to be received, and the book value of the asset, and is reflective of our economic experience as it relates to the ultimate realization of the loan.

We believe that Distributable Earnings provides meaningful information to consider in addition to our net income (loss) and cash flow from operating activities determined in accordance with GAAP. We believe Distributable Earnings is a useful financial metric for existing and potential future holders of our common stock as historically, over time, Distributable Earnings has been a strong indicator of our dividends per share. As a REIT, we generally must distribute annually at least 90% of our net taxable income, subject to certain adjustments, and therefore we believe our dividends are one of the principal reasons stockholders may invest in our common stock. Further, Distributable Earnings helps us to evaluate our performance excluding the effects of certain transactions and GAAP adjustments that we believe are not necessarily indicative of our current loan portfolio and operations, and is a performance metric we consider when declaring our dividends. We also use Distributable Earnings (previously defined as “Core Earnings”) to compute the incentive fee due under our management agreement.

Distributable Earnings does not represent net income (loss) or cash generated from operating activities and should not be considered as an alternative to GAAP net income (loss), or an indication of our GAAP cash flows from operations, a measure of our liquidity, taxable income, or an indication of funds available for our cash needs. In addition, our methodology for calculating Distributable Earnings may differ from the methodologies employed by other companies to calculate the same or similar supplemental performance measures, and accordingly, our reported Distributable Earnings may not be comparable to the Distributable Earnings reported by other companies.

The weighted average diluted share count applied to Distributable Earnings for purposes of determining Distributable Earnings per share (“EPS”) is computed using the GAAP diluted share count, adjusted for the following:

(i) Unvested stock awards – Currently, unvested stock awards are excluded from the denominator of GAAP EPS. The related compensation expense is also excluded from Distributable Earnings. In order to effectuate dilution from these awards in the Distributable Earnings computation, we adjust the GAAP diluted share count to include these shares.

(ii) Convertible Notes – Conversion of our Convertible Notes is an event that is contingent upon numerous factors, none of which are in our control, and is an event that may or may not occur. Consistent with the treatment of other unrealized adjustments to Distributable Earnings, we adjust the GAAP diluted share count to exclude the potential shares issuable upon conversion until a conversion occurs.

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(iii) Subsidiary equity – The intent of a February 2018 amendment to our management agreement (the “Amendment”) is to treat subsidiary equity in the same manner as if parent equity had been issued. The Class A Units issued in connection with the acquisition of assets in our Woodstar II Portfolio are currently excluded from our GAAP diluted share count, with the subsidiary equity represented as non-controlling interests in consolidated subsidiaries on our GAAP balance sheet. Consistent with the Amendment, we adjust GAAP diluted share count to include these subsidiary units.

The following table presents our diluted weighted average shares used in our GAAP EPS calculation reconciled to our diluted weighted average shares used in our Distributable EPS calculation (amounts in thousands):


	For the Three Months Ended		For the Nine Months Ended September 30,
	September 30, 2021	June 30, 2021	2021	2020
Diluted weighted average shares - GAAP EPS	295,448	294,571	294,393	281,868
Add: Unvested stock awards	4,167	4,398	4,274	2,587
Add: Woodstar II Class A Units	9,849	10,383	10,282	10,676
Less: Convertible Notes dilution	(9,649)	(9,649)	(9,649)	—
Diluted weighted average shares - Distributable EPS	299,815	299,703	299,300	295,131

The definition of Distributable Earnings allows management to make adjustments, subject to the approval of a majority of our independent directors, in situations where such adjustments are considered appropriate in order for Distributable Earnings to be calculated in a manner consistent with its definition and objective. No adjustments to the definition of Distributable Earnings became effective during the nine months ended September 30, 2021.

The following table summarizes our quarterly Distributable Earnings per weighted average diluted share for the nine months ended September 30, 2021 and 2020:


	Distributable Earnings For the Three-Month Periods Ended
	March 31,		June 30,		September 30,
2021	$	0.50	$	0.51	$	0.52
2020	0.55		0.43		0.50

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The following table presents our summarized results of operations and reconciliation to Distributable Earnings for the three months ended September 30, 2021, by business segment (amounts in thousands, except per share data):


	Commercial and Residential Lending Segment		Infrastructure Lending Segment		Property Segment		Investing and Servicing Segment		Corporate		Total
Revenues	$	197,045	$	22,172	$	66,727	$	52,441	$	—	$	338,385
Costs and expenses	(62,457)		(12,207)		(62,431)		(33,704)		(60,703)		(231,502)
Other income (loss)	25,633		300		(334)		15,869		(446)		41,022
Income (loss) before income taxes	160,221		10,265		3,962		34,606		(61,149)		147,905
Income tax (provision) benefit	(5,652)		488		—		(2,337)		—		(7,501)
Income attributable to non-controlling interests	(3)		—		(4,691)		(7,108)		—		(11,802)
Net income (loss) attributable to Starwood Property Trust, Inc.	154,566		10,753		(729)		25,161		(61,149)		128,602
Add / (Deduct):
Non-controlling interests attributable to Woodstar II Class A Units	—		—		4,691		—		—		4,691
Non-cash equity compensation expense	1,787		423		54		1,108		6,080		9,452
Management incentive fee	—		—		—		—		953		953
Acquisition and investment pursuit costs	(98)		—		(89)		—		—		(187)
Depreciation and amortization	252		91		17,950		3,884		—		22,177
Credit loss provision (reversal), net	19		(582)		—		—		—		(563)
Interest income adjustment for securities	(171)		—		—		3,748		—		3,577
Extinguishment of debt, net	—		—		—		—		(246)		(246)
Other non-cash items	3		—		(282)		173		(2)		(108)
Reversal of GAAP unrealized (gains) / losses on:
Loans	(22,464)		—		—		(9,263)		—		(31,727)
Securities	8,682		—		—		(2,870)		—		5,812
Derivatives	(40,473)		(150)		(1,495)		(4,660)		2,406		(44,372)
Foreign currency	26,820		168		16		(1)		—		27,003
(Earnings) loss from unconsolidated entities	(1,666)		(399)		—		(153)		—		(2,218)
Sales of properties	—		—		—		—		—		—
Recognition of Distributable realized gains / (losses) on:
Loans	19,010		—		—		9,141		—		28,151
Securities	(11,093)		—		—		3,642		—		(7,451)
Derivatives	6,129		—		(35)		4,183		—		10,277
Foreign currency	(1,171)		(13)		(16)		1		—		(1,199)
Earnings (loss) from unconsolidated entities	1,806		399		—		261		—		2,466
Sales of properties	—		—		—		—		—		—
Distributable Earnings (Loss)	$	141,938	$	10,690	$	20,065	$	34,355	$	(51,958)	$	155,090
Distributable Earnings (Loss) per Weighted Average Diluted Share	$	0.47	$	0.04	$	0.07	$	0.11	$	(0.17)	$	0.52

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The following table presents our summarized results of operations and reconciliation to Distributable Earnings for the three months ended June 30, 2021, by business segment (amounts in thousands, except per share data):


	Commercial and Residential Lending Segment		Infrastructure Lending Segment		Property Segment		Investing and Servicing Segment		Corporate		Total
Revenues	$	184,490	$	21,795	$	65,454	$	57,504	$	—	$	329,243
Costs and expenses	(47,543)		(14,178)		(61,714)		(40,253)		(62,376)		(226,064)
Other income (loss)	(4,051)		(930)		(397)		24,904		927		20,453
Income (loss) before income taxes	132,896		6,687		3,343		42,155		(61,449)		123,632
Income tax benefit (provision)	8,043		(58)		—		(4,632)		—		3,353
Income attributable to non-controlling interests	(4)		—		(4,914)		(5,757)		—		(10,675)
Net income (loss) attributable to Starwood Property Trust, Inc.	140,935		6,629		(1,571)		31,766		(61,449)		116,310
Add / (Deduct):
Non-controlling interests attributable to Woodstar II Class A Units	—		—		4,914		—		—		4,914
Non-cash equity compensation expense	1,859		440		57		1,190		6,051		9,597
Management incentive fee	—		—		—		—		5,031		5,031
Acquisition and investment pursuit costs	(196)		—		(88)		(58)		—		(342)
Depreciation and amortization	251		90		17,969		3,812		—		22,122
Credit loss (reversal) provision, net	(12,447)		603		—		—		—		(11,844)
Interest income adjustment for securities	(861)		—		—		3,662		—		2,801
Extinguishment of debt, net	—		—		—		—		(247)		(247)

Other non-cash items	6		—		(262)		205		—		(51)
Reversal of GAAP unrealized (gains) / losses on:
Loans	(12,329)		—		—		(33,538)		—		(45,867)
Securities	9,402		—		—		12,585		—		21,987
Derivatives	3,594		(173)		(1,401)		4,927		1,532		8,479
Foreign currency	(2,715)		62		25		1		—		(2,627)
(Earnings) loss from unconsolidated entities	(1,996)		70		—		507		—		(1,419)
Sales of properties	—		—		—		(9,723)		—		(9,723)
Recognition of Distributable realized gains / (losses) on:
Loans	11,062		—		—		30,623		—		41,685

Securities	(18,088)		—		—		(2,779)		—		(20,867)
Derivatives	(2,546)		—		(34)		(718)		—		(3,298)
Foreign currency	6,518		(31)		(25)		(1)		—		6,461
Earnings (loss) from unconsolidated entities	4,444		(70)		—		776		—		5,150
Sales of properties	—		—		—		4,975		—		4,975
Distributable Earnings (Loss)	$	126,893	$	7,620	$	19,584	$	48,212	$	(49,082)	$	153,227
Distributable Earnings (Loss) per Weighted Average Diluted Share	$	0.42	$	0.02	$	0.07	$	0.16	$	(0.16)	$	0.51

Three Months Ended September 30, 2021 Compared to the Three Months Ended June 30, 2021

Commercial and Residential Lending Segment

The Commercial and Residential Lending Segment’s Distributable Earnings increased by $15.0 million, from $126.9 million during the second quarter of 2021 to $141.9 million in the third quarter of 2021. After making adjustments for the calculation of Distributable Earnings, revenues were $196.9 million, costs and expenses were $60.5 million, other income was $11.2 million and income tax provision was $5.7 million.

Revenues, consisting principally of interest income on loans, increased by $13.2 million in the third quarter of 2021, primarily due to an increase in interest income from loans of $13.8 million, slightly offset by a decrease in interest income from investment securities of $0.5 million. The increase in interest income from loans was principally due to (i) higher prepayment related income on commercial loans and (ii) higher average balances of both commercial and residential loans, reflecting for

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residential loans the timing of purchases and securitizations. The decrease in interest income from investment securities was primarily due to lower average RMBS investment balances reflecting net repayments and liquidations.

Costs and expenses increased by $2.4 million in the third quarter of 2021, primarily due to a $3.7 million increase in interest expense associated with the various secured financing facilities used to fund a portion of this segment’s investment portfolio, partially offset by a $1.2 million decrease in general and administrative expenses.

Other income increased by $17.9 million in the third quarter of 2021, primarily due to (i) a $14.5 million decrease in recognized losses on RMBS investments, (ii) a $4.7 million increase in residential loan sale and securitization gains, including an unfavorable change in realized gains (losses) on related interest rate derivatives, (iii) the nonrecurrence of $4.6 million of transfer taxes related to the foreclosure of a residential conversion project in the second quarter of 2021 and (iv) a $3.1 million favorable change in realized gains (losses) on interest rate and foreign currency derivatives, net of related foreign currency gains (losses), associated with commercial loan activity, all partially offset by (v) the nonrecurrence of $7.5 million of gains on sales of RMBS in the second quarter of 2021.

Income taxes, which principally relate to the taxable nature of this segment’s residential loan securitization activities which are housed in TRSs, increased $13.7 million from a benefit of $8.0 million to a provision of $5.7 million primarily due to taxable income of those TRSs in the third quarter of 2021 compared to losses in the second quarter of 2021.

Infrastructure Lending Segment

The Infrastructure Lending Segment’s Distributable Earnings increased by $3.1 million, from $7.6 million during the second quarter of 2021 to $10.7 million in the third quarter of 2021. After making adjustments for the calculation of Distributable Earnings, revenues were $22.2 million, costs and expenses were $12.3 million and other income was $0.3 million.

Revenues, consisting principally of interest income on loans, increased by $0.4 million in the third quarter of 2021, primarily due to an increase in interest income from loans reflecting higher prepayment related income.

Costs and expenses decreased by $0.8 million in the third quarter of 2021, primarily due to a $0.3 million decrease in interest expense on the secured debt facilities used to finance this segment’s investments.

Other income (loss) improved by $1.4 million in the third quarter of 2021 primarily due to a $0.9 million lower loss on extinguishment of debt.

Property Segment

Distributable Earnings by Portfolio (amounts in thousands)


	For the Three Months Ended
	September 30, 2021		June 30, 2021		Change
Master Lease Portfolio	$	4,307	$	4,306	$	1
Medical Office Portfolio	4,902		4,968		(66)
Woodstar I Portfolio	6,449		5,846		603
Woodstar II Portfolio	5,156		5,262		(106)
Other/Corporate	(749)		(798)		49
Distributable Earnings	$	20,065	$	19,584	$	481

The Property Segment’s Distributable Earnings increased by $0.5 million, from $19.6 million during the second quarter of 2021 to $20.1 million in the third quarter of 2021. After making adjustments for the calculation of Distributable Earnings, revenues were $66.5 million, costs and expenses were $44.6 million and other loss was $1.8 million.

Revenues increased by $1.2 million in the third quarter of 2021.

Costs and expenses increased by $0.7 million in the second quarter of 2021.

Other loss was relatively unchanged in the third quarter of 2021.

Investing and Servicing Segment

The Investing and Servicing Segment’s Distributable Earnings decreased by $13.8 million, from $48.2 million during the second quarter of 2021 to $34.4 million in the third quarter of 2021. After making adjustments for the calculation of

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Distributable Earnings, revenues were $56.5 million, costs and expenses were $28.8 million, other income was $15.6 million, income tax provision was $2.3 million and the deduction of income attributable to non-controlling interests was $6.6 million.

Revenues decreased by $5.0 million in the third quarter of 2021, primarily due to (i) the nonrecurrence of a $2.3 million origination fee on a loan that we co-originated in the second quarter of 2021 for the purpose of contributing into a single-asset single-borrower CMBS transaction, (ii) a $0.9 million decrease in servicing fees, (iii) a $0.8 million decrease in rental income primarily due to the sale of a property in the second quarter of 2021 and (iv) a $0.6 million decrease in interest income from CMBS and conduit loans. The treatment of CMBS interest income on a GAAP basis is complicated by our application of the ASC 810 consolidation rules. In an attempt to treat these securities similar to the trust’s other investment securities, we compute distributable interest income pursuant to an effective yield methodology. In doing so, we segregate the portfolio into various categories based on the components of the bonds’ cash flows and the volatility related to each of these components. We then accrete interest income on an effective yield basis using the components of cash flows that are reliably estimable. Other minor adjustments are made to reflect management’s expectations for other components of the projected cash flow stream. The decrease in interest income reflects decreases of $0.4 million from CMBS and $0.2 million from conduit loans held-for-sale.

Costs and expenses decreased by $6.6 million in the third quarter of 2021, primarily due to a decrease in general and administrative expenses reflecting decreased incentive compensation, principally due to lower securitization volume.

Other income includes profit realized upon securitization of loans by our conduit business, gains on sales of CMBS and operating properties, gains and losses on derivatives that were either effectively terminated or novated, and earnings from unconsolidated entities. These items are typically offset by a decrease in the fair value of our domestic servicing rights intangible which reflects the expected amortization of this deteriorating asset, net of increases in fair value due to the attainment of new servicing contracts. Derivatives include instruments which hedge interest rate risk and credit risk on our conduit loans and CMBS investments. For GAAP purposes, the loans, CMBS and derivatives are accounted for at fair value, with all changes in fair value (realized or unrealized) recognized in earnings. The adjustments to Distributable Earnings outlined above are also applied to the GAAP earnings of our unconsolidated entities. Other income decreased by $14.6 million in the third quarter of 2021 primarily due to a decrease in realized gains on conduit loans of $21.5 million, partially offset by a $5.0 million favorable change in realized gains (losses) on related interest rate derivatives.

Income taxes, which principally relate to the taxable nature of this segment’s loan servicing and loan securitization businesses which are housed in TRSs, decreased $2.3 million due to lower taxable income of those TRSs in the third quarter of 2021.

Income attributable to non-controlling interests increased $3.1 million in the third quarter of 2021, primarily due to non-controlling interests in increased distributable earnings of a consolidated CMBS joint venture in which we hold a 51% interest.

Corporate

Corporate loss increased by $2.9 million, from $49.1 million during the second quarter of 2021 to $52.0 million in the third quarter of 2021, primarily due to a $2.5 million increase in interest expense mainly due to our issuance of the 2026 Senior Notes during the third quarter of 2021.

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The following table presents our summarized results of operations and reconciliation to Distributable Earnings for the nine months ended September 30, 2021, by business segment (amounts in thousands, except per share data):


	Commercial and Residential Lending Segment		Infrastructure Lending Segment		Property Segment		Investing and Servicing Segment		Corporate		Total
Revenues	$	572,066	$	63,432	$	197,325	$	154,492	$	—	$	987,315
Costs and expenses	(166,414)		(39,341)		(183,643)		(106,414)		(194,726)		(690,538)
Other income (loss)	42,743		(535)		3,877		59,733		(6,362)		99,456
Income (loss) before income taxes	448,395		23,556		17,559		107,811		(201,088)		396,233
Income tax benefit (provision)	886		338		—		(7,602)		—		(6,378)
Income attributable to non-controlling interests	(10)		—		(14,682)		(18,873)		—		(33,565)
Net income (loss) attributable to Starwood Property Trust, Inc.	449,271		23,894		2,877		81,336		(201,088)		356,290
Add / (Deduct):
Non-controlling interests attributable to Woodstar II Class A Units	—		—		14,682		—		—		14,682
Non-cash equity compensation expense	5,427		1,163		142		3,179		19,448		29,359
Management incentive fee	—		—		—		—		19,107		19,107
Acquisition and investment pursuit costs	(458)		—		(266)		(58)		—		(782)
Depreciation and amortization	750		272		54,080		11,299		—		66,401
Credit loss (reversal) provision, net	(12,957)		594		—		—		—		(12,363)
Interest income adjustment for securities	(2,332)		—		—		11,405		—		9,073
Extinguishment of debt, net	—		—		—		—		(739)		(739)
Income tax (provision) benefit associated with realized (gains) losses	(6,495)		—		—		405		—		(6,090)
Other non-cash items	12		—		(881)		585		413		129
Reversal of GAAP unrealized (gains) / losses on:
Loans	(24,079)		—		—		(44,037)		—		(68,116)
Securities	20,134		—		—		2,545		—		22,679
Derivatives	(64,050)		(1,068)		(9,342)		(9,452)		13,251		(70,661)
Foreign currency	35,699		279		16		63		—		36,057
(Earnings) loss from unconsolidated entities	(5,415)		(75)		—		(235)		—		(5,725)
Sales of properties	(17,693)		—		—		(9,723)		—		(27,416)
Recognition of Distributable realized gains / (losses) on:
Loans	44,625		—		—		44,436		—		89,061
Realized credit loss	(7,757)		—		—		—		—		(7,757)
Securities	(32,042)		—		—		2,639		—		(29,403)
Derivatives	5,533		—		(104)		5,060		—		10,489
Foreign currency	10,131		(54)		(16)		(63)		—		9,998
Earnings (loss) from unconsolidated entities	9,468		75		—		2,001		—		11,544
Sales of properties	8,298		—		—		4,975		—		13,273
Distributable Earnings (Loss)	$	416,070	$	25,080	$	61,188	$	106,360	$	(149,608)	$	459,090
Distributable Earnings (Loss) per Weighted Average Diluted Share	$	1.39	$	0.08	$	0.20	$	0.36	$	(0.50)	$	1.53

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The following table presents our summarized results of operations and reconciliation to Distributable Earnings for the nine months ended September 30, 2020, by business segment (amounts in thousands, except per share data):


	Commercial and Residential Lending Segment		Infrastructure Lending Segment		Property Segment		Investing and Servicing Segment		Corporate		Total
Revenues	$	553,351	$	61,737	$	191,680	$	137,655	$	—	$	944,423
Costs and expenses	(222,862)		(48,453)		(182,568)		(98,955)		(180,032)		(732,870)
Other (loss) income	39,808		(2,453)		(37,148)		11,875		34,397		46,479
Income (loss) before income taxes	370,297		10,831		(28,036)		50,575		(145,635)		258,032
Income tax (provision) benefit	(15,535)		3		—		8,716		—		(6,816)
Income attributable to non-controlling interests	(10)		—		(15,294)		(11,191)		—		(26,495)
Net income (loss) attributable to Starwood Property Trust, Inc.	354,752		10,834		(43,330)		48,100		(145,635)		224,721
Add / (Deduct):
Non-controlling interests attributable to Woodstar II Class A Units	—		—		15,294		—		—		15,294
Non-cash equity compensation expense	3,563		821		185		3,725		14,147		22,441
Management incentive fee	—		—		—		—		15,799		15,799
Acquisition and investment pursuit costs	401		—		(266)		(72)		—		63
Depreciation and amortization	1,095		208		57,808		10,669		—		69,780
Credit loss provision, net	51,252		2,991		—		—		—		54,243
Interest income adjustment for securities	238		—		—		9,856		—		10,094
Extinguishment of debt, net	—		—		—		—		(739)		(739)
Income tax provision (benefit) associated with fair value adjustments	1,612		—		—		(955)		—		657
Other non-cash items	10		—		(1,689)		703		470		(506)
Reversal of GAAP unrealized (gains) / losses on:
Loans	(56,895)		—		—		(22,805)		—		(79,700)
Securities	8,814		—		—		36,026		—		44,840
Derivatives	8,816		1,260		32,593		21,986		(23,509)		41,146
Foreign currency	1,757		53		53		(2)		—		1,861
(Earnings) loss from unconsolidated entities	(3,975)		1,198		—		(30,504)		—		(33,281)
Recognition of Distributable realized gains / (losses) on:
Loans	45,742		(62)		—		22,759		—		68,439
Securities	—		—		—		(8,711)		—		(8,711)
Derivatives	(3,853)		118		(439)		(13,438)		—		(17,612)
Foreign currency	(5,441)		(147)		(53)		2		—		(5,639)
Earnings (loss) from unconsolidated entities	2,772		(813)		—		17,502		—		19,461
Sales of properties	—		—		—		(5,789)		—		(5,789)
Distributable Earnings (Loss)	$	410,660	$	16,461	$	60,156	$	89,052	$	(139,467)	$	436,862
Distributable Earnings (Loss) per Weighted Average Diluted Share	$	1.39	$	0.06	$	0.20	$	0.30	$	(0.47)	$	1.48

Nine Months Ended September 30, 2021 Compared to the Nine Months Ended September 30, 2020

Commercial and Residential Lending Segment

The Commercial and Residential Lending Segment’s Distributable Earnings increased by $5.4 million, from $410.7 million during the nine months of 2020 to $416.1 million in the nine months of 2021. After making adjustments for the

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calculation of Distributable Earnings, revenues were $569.7 million, costs and expenses were $181.4 million, other income was $33.4 million and income tax provision was $5.6 million.

Revenues, consisting principally of interest income on loans, increased by $16.1 million in the nine months of 2021, primarily due to increases in interest income from loans of $23.3 million and rental income from foreclosed properties of $1.3 million, partially offset by a decrease in interest income from investment securities of $8.3 million. The increase in interest income from loans reflects a $29.7 million increase from commercial loans reflecting higher average balances partially offset by lower prepayment related income and average LIBOR rates (partly mitigated by the LIBOR floors on most of our commercial loans) and a $6.4 million decrease from residential loans principally due to lower average balances reflecting the timing of purchases and securitizations. The decrease in interest income from investment securities was primarily due to lower commercial and residential average investment balances, reflecting net repayments and liquidations, and lower average LIBOR rates affecting certain commercial investments.

Costs and expenses increased by $14.8 million in the nine months of 2021, primarily due to (i) a $10.5 million increase in interest expense associated with the various secured financing facilities used to fund a portion of this segment’s investment portfolio and (ii) a $7.8 million write-off of an unsecured commercial loan. The increase in interest expense was primarily due to higher average borrowings outstanding, partially offset by lower average LIBOR rates.

Other income decreased by $4.2 million in the nine months of 2021, primarily due to (i) recognized losses of $39.5 million on RMBS investments primarily due to higher than projected prepayment rates on the underlying residential loans, (ii) $4.6 million of transfer taxes relating to the foreclosure of a residential conversion project, both partially offset by (iii) a $20.8 million favorable change in realized gains (losses) on derivatives and foreign currency transactions, (iv) an $8.3 million gain on sale of a foreclosed property, (v) gains of $7.5 million on sales of RMBS and (vi) a $6.7 million increase in earnings from unconsolidated entities primarily reflecting equity in higher distributable earnings of a residential mortgage originator.

Income taxes, which principally relate to the taxable nature of this segment’s residential loan securitization activities which are housed in TRSs, decreased $8.3 million primarily due to lower taxable income of those TRSs in the nine months of 2021 compared to the nine months of 2020. During 2020, we recorded a GAAP net tax provision related to unrealized fair value increases in our residential loans. Because the net fair value increases were unrealized in 2020, they along with their corresponding income tax provision were previously adjusted in our reconciliation to Distributable Earnings. Upon recognition of the realized gains in the first quarter of 2021 for Distributable Earnings purposes, the corresponding income tax provision was likewise recognized.

Infrastructure Lending Segment

The Infrastructure Lending Segment’s Distributable Earnings increased by $8.6 million, from $16.5 million during the nine months of 2020 to $25.1 million in the nine months of 2021. After making adjustments for the calculation of Distributable Earnings, revenues were $63.4 million, costs and expenses were $37.3 million and other loss was $1.4 million.

Revenues, consisting principally of interest income on loans, increased by $1.7 million in the nine months of 2021, primarily due to an increase in interest income from loans of $2.2 million principally due to higher average balances outstanding, partially offset by lower average LIBOR rates.

Costs and expenses decreased by $7.1 million in the nine months of 2021, primarily due to (i) a $3.8 million decrease in interest expense on the secured debt facilities used to finance this segment’s investment portfolio principally due to lower average LIBOR rates and (ii) a $2.4 million decrease in general and administrative expenses reflecting lower compensation costs and professional fees.

Other loss increased by $0.5 million in the nine months of 2021, primarily due to an increased loss on extinguishment of debt resulting from the write-off of deferred financing fees relating to partial debt prepayments from CLO and other loan refinancings.

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Property Segment

Distributable Earnings by Portfolio (amounts in thousands)


	For the Nine Months Ended September 30,
	2021		2020		Change
Master Lease Portfolio	$	12,925	$	12,811	$	114
Medical Office Portfolio	15,382		14,526		856
Woodstar I Portfolio	18,633		17,129		1,504
Woodstar II Portfolio	16,518		18,736		(2,218)
Other/Corporate	(2,270)		(3,046)		776
Distributable Earnings	$	61,188	$	60,156	$	1,032

The Property Segment’s Distributable Earnings increased by $1.0 million, from $60.2 million during the nine months of 2020 to $61.2 million in the nine months of 2021. After making adjustments for the calculation of Distributable Earnings, revenues were $196.6 million, costs and expenses were $129.9 million and other loss was $5.5 million.

Revenues increased by $6.1 million in the nine months of 2021, primarily reflecting increased rental rates in the Woodstar Portfolios.

Costs and expenses increased by $4.2 million in the nine months of 2021, primarily due to a $2.5 million increase in repairs and maintenance.

Other loss increased by $0.9 million in the nine months of 2021 primarily due to a $2.8 million increase in realized losses on certain interest rate derivatives, partially offset by a $2.0 million decreased loss on extinguishment of debt.

Investing and Servicing Segment

The Investing and Servicing Segment’s Distributable Earnings increased by $17.3 million from $89.1 million during the nine months of 2020 to $106.4 million in the nine months of 2021. After making adjustments for the calculation of Distributable Earnings, revenues were $166.8 million, costs and expenses were $92.3 million, other income was $52.9 million, income tax provision was $7.2 million and the deduction of income attributable to non-controlling interests was $13.8 million.

Revenues increased by $18.3 million in the nine months of 2021, primarily due to (i) a $15.5 million increase in servicing fees reflecting an increased volume of COVID-19 related loan resolutions and (ii) a $2.3 million origination fee on a loan that we co-originated for the purpose of contributing into a single-asset single-borrower CMBS transaction.

Costs and expenses increased by $7.4 million in the nine months of 2021, primarily due to an increase of $10.7 million in general and administrative expenses reflecting increased incentive compensation principally due to higher securitization volume, partially offset by a $1.9 million decrease in interest expense on borrowings related to CMBS, conduit loans and properties held.

Other income increased by $20.7 million in the nine months of 2021, primarily due to (i) a $21.7 million increase in realized gains on conduit loans, (ii) a $17.8 million favorable change in realized gains (losses) on related interest rate derivatives and (iii) a $5.6 million decrease in recognized losses on CMBS, all partially offset by (iv) a $15.5 million decrease in distributable earnings of unconsolidated entities, mostly representing nonrecurring gains in the nine months of 2020, and (v) an $8.8 million lesser increase in fair value of servicing rights.

Income taxes, which principally relate to the taxable nature of this segment’s loan servicing and loan securitization businesses which are housed in TRSs, increased $15.0 million from a benefit of $7.8 million to a provision of $7.2 million due to taxable income of those TRSs in the nine months of 2021 compared to losses in the nine months of 2020.

Income attributable to non-controlling interests decreased $0.7 million primarily relating to lower distributable earnings of a consolidated CMBS joint venture in which we hold a 51% interest.

Corporate

Corporate loss increased by $10.1 million, from $139.5 million during the nine months of 2020 to $149.6 million in the nine months of 2021, primarily due to (i) a $6.4 million increase in interest expense on higher average outstanding term loan and unsecured senior note balances and (ii) a $3.5 million decrease in realized gains on interest rate swaps which hedge a portion of our unsecured senior notes used to repay variable-rate secured financing.

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Liquidity and Capital Resources

Liquidity is a measure of our ability to meet our cash requirements, including ongoing commitments to repay borrowings, fund and maintain our assets and operations, make new investments where appropriate, pay dividends to our stockholders, and other general business needs. We closely monitor our liquidity position and believe that we have sufficient current liquidity and access to additional liquidity to meet our financial obligations for at least the next 12 months. Our strategy for managing liquidity and capital resources has not changed since December 31, 2020. Refer to our Form 10-K for a description of these strategies.

COVID-19 Pandemic

We are continuing to monitor the COVID-19 pandemic, including its variants and resurgences, along with the resulting impact on us, the borrowers underlying our commercial and residential real estate-related loans and infrastructure loans (and their tenants), the tenants in the properties we own, our financing sources, and the economy as a whole. Because the ultimate severity, magnitude and duration of the COVID-19 pandemic and its economic consequences are uncertain, rapidly changing and difficult to predict, the pandemic’s impact on our operations and liquidity remains uncertain and difficult to predict. Further discussion of the potential impacts on us from the COVID-19 pandemic is provided in the section entitled “Risk Factors” in Part I, Item 1A of our Form 10-K.

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Sources of Liquidity

Our primary sources of liquidity are as follows:

Cash Flows for the Nine Months Ended September 30, 2021 (amounts in thousands)


	GAAP		VIE Adjustments		Excluding Investing and Servicing VIEs
Net cash used in operating activities	$	(461,753)	$	(409,435)	$	(871,188)
Cash Flows from Investing Activities:
Origination, purchase and funding of loans held-for-investment	(5,635,707)		(23,874)		(5,659,581)
Proceeds from principal collections and sale of loans	3,441,113		—		3,441,113
Purchase and funding of investment securities	—		(175,158)		(175,158)
Proceeds from sales and collections of investment securities	77,855		153,183		231,038
Proceeds from sales of real estate	60,969		—		60,969
Purchases and additions to properties and other assets	(17,259)		—		(17,259)
Net cash flows from other investments and assets	55,598		308		55,906
Net cash used in investing activities	(2,017,431)		(45,541)		(2,062,972)
Cash Flows from Financing Activities:
Proceeds from borrowings	11,654,848		—		11,654,848
Principal repayments on and repurchases of borrowings	(8,566,856)		(343)		(8,567,199)
Payment of deferred financing costs	(46,196)		—		(46,196)
Proceeds from common stock issuances, net of offering costs	670		—		670
Payment of dividends	(414,977)		—		(414,977)
Contributions from non-controlling interests	5,590		—		5,590
Distributions to non-controlling interests	(35,235)		231		(35,004)
Issuance of debt of consolidated VIEs	69,399		(69,399)		—
Repayment of debt of consolidated VIEs	(608,435)		608,435		—
Distributions of cash from consolidated VIEs	83,785		(83,785)		—
Net cash provided by financing activities	2,142,593		455,139		2,597,732
Net decrease in cash, cash equivalents and restricted cash	(336,591)		163		(336,428)
Cash, cash equivalents and restricted cash, beginning of period	722,162		(772)		721,390
Effect of exchange rate changes on cash	(1,783)		—		(1,783)
Cash, cash equivalents and restricted cash, end of period	$	383,788	$	(609)	$	383,179

The discussion below is on a non-GAAP basis, after removing adjustments principally resulting from the consolidation of the securitization VIEs under ASC 810. These adjustments principally relate to (i) the purchase of CMBS, RMBS, loans and real estate from consolidated VIEs, which are reflected as repayments of VIE debt on a GAAP basis and (ii) sales and principal collections of CMBS and RMBS related to consolidated VIEs, which are reflected as VIE distributions on a GAAP basis. There is no significant net impact to overall cash resulting from these consolidations. Refer to Note 2 to the Condensed Consolidated Financial Statements for further discussion.

Cash and cash equivalents decreased by $336.4 million during the nine months ended September 30, 2021, reflecting net cash used in investing activities of $2.1 billion, and operating activities of $871.2 million, partially offset by net cash provided by financing activities of $2.6 billion.

Net cash used in operating activities of $871.2 million during the nine months ended September 30, 2021 related primarily to $1.1 billion in originations and purchases of loans held-for-sale, net of sales and principal collections, cash interest expense of $276.8 million, general and administrative expenses of $83.2 million, management fees of $74.8 million and a net change in operating assets and liabilities of $55.2 million. Offsetting these cash outflows was cash interest income of $432.4 million from our loans and $115.5 million from our investment securities. Net rental income provided cash of $142.6 million and servicing fees provided cash of $44.3 million.

Net cash used in investing activities of $2.1 billion for the nine months ended September 30, 2021 related primarily to the origination and acquisition of loans held-for-investment of $5.7 billion and the purchase and funding of investment

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securities of $175.2 million, partially offset by proceeds received from principal collections and sales of loans of $3.4 billion and investment securities of $231.0 million and sales of operating properties for $61.0 million.

Net cash provided by financing activities of $2.6 billion for the nine months ended September 30, 2021 related primarily to borrowings on our debt, net of repayments and deferred loan costs, of $3.0 billion, partially offset by dividend distributions of $415.0 million.

Our Investment Portfolio

The following is a review of our investment portfolio by segment.

Commercial and Residential Lending Segment

The following table sets forth the amount of each category of investments we owned across various property types within our Commercial and Residential Lending Segment as of September 30, 2021 and December 31, 2020 (dollars in thousands):


	Face Amount		Carrying Value			Asset Specific Financing		Net Investment		Unlevered Return on Asset
September 30, 2021
First mortgages (1)	$	11,042,430	$	10,984,155		$	7,622,692	$	3,361,463	5.6	%
Subordinated mortgages (2)	82,916		81,159			—		81,159		9.9	%
Mezzanine loans (1)	474,105		477,227			—		477,227		11.1	%
Residential loans, fair value option	91,280		91,499			46,130		45,369		6.1	%
Other loans	19,450		17,689			—		17,689		13.3	%
Loans held-for-sale, fair value option, residential	1,758,342		1,813,458			1,394,585		418,873		4.2	%
RMBS, available-for-sale	229,843		148,583			102,868		45,715		11.3	%
RMBS, fair value option	119,472		215,152		(3)	37,672		177,480		10.6	%
CMBS, fair value option	102,900		98,197		(3)	49,798		48,399		5.5	%
HTM debt securities (4)	454,283		456,882			113,143		343,739		6.6	%
Credit loss allowance	—		(51,829)			—		(51,829)
Equity security	12,313		12,067			—		12,067
Investment in unconsolidated entities	N/A		45,129			—		45,129
Properties, net	N/A		124,691			49,328		75,363
	$	14,387,334	$	14,514,059		$	9,416,216	$	5,097,843

December 31, 2020
First mortgages (1)	$	8,977,365	$	8,930,764		$	5,892,684	$	3,038,080	6.4	%
Subordinated mortgages (2)	72,257		71,185			—		71,185		8.7	%
Mezzanine loans (1)	619,352		620,319			—		620,319		11.5	%
Residential loans, fair value option	86,796		90,684			58,885		31,799		5.8	%
Other loans	33,626		30,284			—		30,284		9.8	%
Loans held-for-sale, fair value option, residential	820,807		841,963			573,584		268,379		5.9	%
RMBS, available-for-sale	252,738		167,349			110,724		56,625		11.0	%
RMBS, fair value option	142,288		235,997		(3)	30,267		205,730		6.3	%
CMBS, fair value option	102,900		96,885		(3)	25,313		71,572		5.6	%
HTM debt securities (4)	505,247		505,673			84,233		421,440		6.8	%
Credit loss allowance	—		(72,360)			—		(72,360)
Equity security	12,497		11,247			—		11,247
Investment in unconsolidated entities	N/A		54,407			—		54,407
Properties, net	N/A		103,896			48,863		55,033
	$	11,625,873	$	11,688,293		$	6,824,553	$	4,863,740

__________________________________________

(1) First mortgages include first mortgage loans and any contiguous mezzanine loan components because as a whole, the expected credit quality of these loans is more similar to that of a first mortgage loan. The application of this

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methodology resulted in mezzanine loans with carrying values of $1.2 billion and $877.3 million being classified as first mortgages as of September 30, 2021 and December 31, 2020, respectively.

(2) Subordinated mortgages include B-Notes and junior participation in first mortgages where we do not own the senior A-Note or senior participation. If we own both the A-Note and B-Note, we categorize the loan as a first mortgage loan.

(3) Eliminated in consolidation against VIE liabilities pursuant to ASC 810.

(4) CMBS held-to-maturity (“HTM”) and mandatorily redeemable preferred equity interests in commercial real estate entities.

As of September 30, 2021 and December 31, 2020, our Commercial and Residential Lending Segment’s investment portfolio, excluding residential loans, RMBS, properties and other investments, had the following characteristics based on carrying values:


Collateral Property Type	September 30, 2021		December 31, 2020
Office	29.6	%	35.2	%
Multifamily	23.3	%	16.1	%
Hotel	19.7	%	21.6	%
Mixed Use	13.1	%	8.2	%
Residential	3.0	%	6.7	%
Industrial	3.7	%	3.0	%
Retail	2.5	%	2.8	%
Other	5.1	%	6.4	%
	100.0	%	100.0	%


Geographic Location	September 30, 2021		December 31, 2020
U.S. Regions:
North East	18.9	%	22.7	%
West	16.8	%	19.0	%
South West	12.4	%	11.1	%
South East	10.5	%	7.3	%
Mid Atlantic	10.7	%	9.5	%
Midwest	4.4	%	4.4	%
International:
United Kingdom	18.3	%	17.5	%
Other Europe	3.4	%	4.7	%
Bahamas/Bermuda	2.5	%	2.7	%
Australia	2.1	%	1.1	%
	100.0	%	100.0	%

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Infrastructure Lending Segment

The following table sets forth the amount of each category of investments we owned within our Infrastructure Lending Segment as of September 30, 2021 and December 31, 2020 (dollars in thousands):


	Face Amount		Carrying Value		Asset Specific Financing		Net Investment		Unlevered Return on Asset
September 30, 2021
First priority infrastructure loans and HTM securities	$	1,766,259	$	1,734,303	$	1,239,412	$	494,891	4.9	%
Loans held-for-sale, infrastructure	84,457		84,253		70,891		13,362		2.8	%
Credit loss allowance	N/A		(12,133)		—		(12,133)
Investment in unconsolidated entities	N/A		25,170		—		25,170
	$	1,850,716	$	1,831,593	$	1,310,303	$	521,290

December 31, 2020
First priority infrastructure loans and HTM securities	$	1,488,614	$	1,458,880	$	1,140,608	$	318,272	5.2	%
Loans held-for-sale, infrastructure	120,900		120,540		100,155		20,385		3.5	%
Credit loss allowance	N/A		(10,759)		—		(10,759)
Investment in unconsolidated entities	N/A		25,095		—		25,095
	$	1,609,514	$	1,593,756	$	1,240,763	$	352,993

As of September 30, 2021 and December 31, 2020, our Infrastructure Lending Segment’s investment portfolio had the following characteristics based on carrying values:


Collateral Type	September 30, 2021		December 31, 2020
Natural gas power	62.5	%	65.8	%
Midstream/downstream oil & gas	25.3	%	21.9	%
Renewable power	6.5	%	9.0	%
Other thermal power	5.7	%	3.3	%
	100.0	%	100.0	%


Geographic Location	September 30, 2021		December 31, 2020
U.S. Regions:
North East	42.2	%	43.1	%
Midwest	22.5	%	20.8	%
South West	13.2	%	15.3	%
South East	9.4	%	9.6	%
West	5.7	%	4.3	%
Mid-Atlantic	1.5	%	3.2	%
Other	2.5	%	—	%
International:
Mexico	2.3	%	2.7	%
Other	0.7	%	1.0	%
	100.0	%	100.0	%

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Property Segment

The following table sets forth the amount of each category of investments held within our Property Segment as of September 30, 2021 and December 31, 2020 (amounts in thousands):


	September 30, 2021		December 31, 2020
Properties, net	$	1,928,853	$	1,969,414
Lease intangibles, net	34,399		38,511
	$	1,963,252	$	2,007,925

The following table sets forth our net investment and other information regarding the Property Segment’s properties and lease intangibles as of September 30, 2021 (dollars in thousands):


	Carrying Value		Asset Specific Financing		Net Investment		Occupancy Rate		Weighted Average Remaining Lease Term
Office—Medical Office Portfolio	$	762,071	$	593,852	$	168,219	93.9	%	5.4 years
Multifamily residential—Woodstar I Portfolio	640,886		573,368		67,518		98.1	%	0.5 years
Multifamily residential—Woodstar II Portfolio	611,819		512,870		98,949		97.8	%	0.5 years
Retail—Master Lease Portfolio	343,790		192,963		150,827		100.0	%	20.6 years
Subtotal—undepreciated carrying value	2,358,566		1,873,053		485,513
Accumulated depreciation and amortization	(395,313)		—		(395,313)
Net carrying value	$	1,963,253	$	1,873,053	$	90,200

As of September 30, 2021 and December 31, 2020, our Property Segment’s investment portfolio had the following geographic characteristics based on carrying values:


Geographic Location	September 30, 2021		December 31, 2020
South East	62.2	%	62.1	%
South West	10.3	%	10.3	%
Midwest	10.0	%	10.1	%
North East	9.6	%	9.6	%
West	7.9	%	7.9	%
	100.0	%	100.0	%

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Investing and Servicing Segment

The following table sets forth the amount of each category of investments we owned within our Investing and Servicing Segment as of September 30, 2021 and December 31, 2020 (amounts in thousands):


	Face Amount		Carrying Value			Asset Specific Financing			Net Investment
September 30, 2021
CMBS, fair value option	$	2,678,039	$	1,128,921	(1)	$	394,886	(2)	$	734,035
Intangible assets - servicing rights	N/A		55,374		(3)	—			55,374
Lease intangibles, net	N/A		12,362			—			12,362
Loans held-for-sale, fair value option, commercial	278,736		285,808			191,947			93,861
Loans held-for-investment	781		781			—			781
Investment in unconsolidated entities	N/A		38,239		(4)	—			38,239
Properties, net	N/A		175,318			176,722			(1,404)
	$	2,957,556	$	1,696,803		$	763,555		$	933,248
December 31, 2020
CMBS, fair value option	$	2,652,459	$	1,112,145	(1)	$	360,221	(2)	$	751,924
Intangible assets - servicing rights	N/A		54,578		(3)	—			54,578
Lease intangibles, net	N/A		15,548			—			15,548
Loans held-for-sale, fair value option, commercial	90,789		90,332			53,040			37,292
Loans held-for-investment	1,008		1,008			—			1,008
Investment in unconsolidated entities	N/A		44,664		(4)	—			44,664
Properties, net	N/A		197,843			192,839			5,004
	$	2,744,256	$	1,516,118		$	606,100		$	910,018

______________________________________________

(1) Includes $1.11 billion and $1.09 billion of CMBS eliminated in consolidation against VIE liabilities pursuant to ASC 810 as of September 30, 2021 and December 31, 2020. Also includes $179.8 million and $179.5 million of non-controlling interests in the consolidated entities which hold certain of these CMBS as of September 30, 2021 and December 31, 2020, respectively.

(2) Includes $35.8 million and $41.3 million of non-controlling interests in the consolidated entities which hold certain debt balances as of September 30, 2021 and December 31, 2020, respectively.

(3) Includes $39.4 million and $41.4 million of servicing rights intangibles eliminated in consolidation against VIE assets pursuant to ASC 810 as of September 30, 2021 and December 31, 2020, respectively.

(4) Includes $14.5 million and $16.1 million of investment in unconsolidated entities eliminated in consolidation against VIE assets pursuant to ASC 810 as of September 30, 2021 and December 31, 2020, respectively.

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Our REIS Equity Portfolio, as described in Note 6 to the Condensed Consolidated Financial Statements, had the following characteristics based on carrying values of $172.8 million and $198.2 million as of September 30, 2021 and December 31, 2020, respectively:


Property Type	September 30, 2021		December 31, 2020
Office	45.1	%	50.6	%
Retail	33.1	%	29.9	%
Mixed Use	7.9	%	6.9	%
Self-storage	7.0	%	6.2	%
Multifamily	4.8	%	4.2	%
Hotel	2.1	%	2.2	%
	100.0	%	100.0	%


Geographic Location	September 30, 2021		December 31, 2020
North East	28.1	%	24.8	%
South West	17.4	%	25.1	%
South East	16.6	%	15.4	%
West	16.2	%	14.8	%
Mid Atlantic	12.7	%	11.5	%
Midwest	9.0	%	8.4	%
	100.0	%	100.0	%

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New Credit Facilities and Amendments

Refer to Note 9 of our Condensed Consolidated Financial Statements for a detailed discussion of new credit facilities and amendments to existing credit facilities executed since December 31, 2020.

Secured Borrowings

The following table is a summary of our secured borrowings as of September 30, 2021 (dollars in thousands):


	Current Maturity		Extended Maturity (a)		Weighted Average Pricing	Pledged Asset Carrying Value			Maximum Facility Size			Outstanding Balance			Approved but Undrawn Capacity (b)		Unallocated Financing Amount (c)
Repurchase Agreements:
Commercial Loans	Mar 2022 to Jul 2026	(d)	Jun 2025 to Mar 2029	(d)	(e)	$	7,750,853		$	9,980,380	(f)	$	5,294,281		$	213,935	$	4,472,164
Residential Loans	Jun 2022 to Oct 2023		N/A		LIBOR + 2.01%	1,755,161			2,550,000			1,440,018			28,719		1,081,263
Infrastructure Loans	Sep 2024		Sep 2026		LIBOR + 2.00%	467,921			650,000			368,442			—		281,558
Conduit Loans	Feb 2022 to Jun 2024		Feb 2023 to Jun 2025		LIBOR + 1.99%	259,155			350,000			192,829			—		157,171
CMBS/RMBS	Dec 2021 to May 2031	(g)	Sep 2022 to Nov 2031	(g)	(h)	1,193,808			835,850			709,340		(i)	—		126,510
Total Repurchase Agreements						11,426,898			14,366,230			8,004,910			242,654		6,118,666
Other Secured Financing:
Borrowing Base Facility	Apr 2022		Apr 2024		LIBOR + 2.25%	73,502			650,000		(j)	2,000			53,125		594,875
Commercial Financing Facility	Mar 2022		Mar 2029		GBP LIBOR + 1.75%	177,424			142,872			142,872			—		—
Residential Financing Facility	Sep 2022		Sep 2025		3.50%	149,604			250,000			2,018			103,229		144,753
Infrastructure Financing Facilities	Jul 2022 to Oct 2022		Oct 2024 to Jul 2027		LIBOR + 2.03%	688,488			1,250,000			544,582			—		705,418
Property Mortgages - Fixed rate	Nov 2024 to Aug 2052	(k)	N/A		4.03%	1,254,141			1,154,763			1,154,763			—		—
Property Mortgages - Variable rate	Nov 2021 to Jul 2030		N/A		(l)	898,634			969,790			945,311			—		24,479
Term Loan and Revolver	(m)		N/A		(m)	N/A		(m)	940,750			790,750			150,000		—
STWD 2019-FL1 CLO	Jul 2038		N/A		LIBOR + 1.34%	1,103,259			936,375			936,375			—		—
STWD 2021-FL2 CLO	Apr 2038		N/A		LIBOR + 1.50%	1,279,245			1,077,375			1,077,375			—		—
STWD 2021-SIF1 CLO	Apr 2032		N/A		LIBOR + 1.81%	510,592			410,000			410,000			—		—
STWD 2021-HTS SASB	Apr 2034		N/A		LIBOR + 2.22%	230,562			210,091			210,091			—		—
Total Other Secured Financing						6,365,451			7,992,016			6,216,137			306,354		1,469,525
						$	17,792,349		$	22,358,246		$	14,221,047		$	549,008	$	7,588,191
Unamortized net discount												(14,603)
Unamortized deferred financing costs												(90,162)
												$	14,116,282

___________________________________________

(a) Subject to certain conditions as defined in the respective facility agreement.

(b) Approved but undrawn capacity represents the total draw amount that has been approved by the lenders related to those assets that have been pledged as collateral, less the drawn amount.

(c) Unallocated financing amount represents the maximum facility size less the total draw capacity that has been approved by the lenders.

(d) For certain facilities, borrowings collateralized by loans existing at maturity may remain outstanding until such loan collateral matures, subject to certain specified conditions.

(e) Certain facilities with an outstanding balance of $1.9 billion as of September 30, 2021 are indexed to GBP LIBOR, EURIBOR, BBSY and SONIA. The remainder have a weighted average rate of LIBOR + 1.94%.

(f) Certain facilities with an aggregate initial maximum facility size of $9.1 billion may be increased to $10.0 billion, subject to certain conditions. The $10.0 billion amount includes such upsizes.

(g) Certain facilities with an outstanding balance of $292.8 million as of September 30, 2021 carry a rolling 11-month or 12-month term which may reset monthly or quarterly with the lender's consent. These facilities carry no maximum facility size.

(h) A facility with an outstanding balance of $243.0 million as of September 30, 2021 has a weighted average fixed annual interest rate of 3.21%. All other facilities are variable rate with a weighted average rate of LIBOR + 1.76%.

(i) Includes: (i) $243.0 million outstanding on a repurchase facility that is not subject to margin calls; and (ii) $35.8 million outstanding on one of our repurchase facilities that represents the 49% pro rata share owed by a non-controlling partner in a consolidated joint venture (see Note 14 to the Condensed Consolidated Financial Statements).

(j) The initial maximum facility size of $300.0 million may be increased to $650.0 million, subject to certain conditions.

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(k) The weighted average maturity is 6.0 years as of September 30, 2021.

(l) Includes a $600.0 million first mortgage and mezzanine loan secured by our Medical Office Portfolio. This debt has a weighted average interest rate of LIBOR + 2.07% that we swapped to a fixed rate of 3.34%. The remainder have a weighted average rate of LIBOR + 2.61%.

(m) Consists of: (i) a $790.8 million term loan facility that matures in July 2026, of which $392.0 million (the "Initial Borrowings") has an annual interest rate of LIBOR + 2.50% and $398.8 million (the "Incremental Borrowings") has an annual interest rate of LIBOR + 3.25%, subject to a 0.75% LIBOR floor, and (ii) a $150.0 million revolving credit facility that matures in April 2026 with an annual interest rate of SOFR + 2.50%. These facilities are secured by the equity interests in certain of our subsidiaries which totaled $4.7 billion as of September 30, 2021.

Refer to Note 9 of the Condensed Consolidated Financial Statements for further disclosure regarding the terms of our secured financing arrangements.

Variance between Average and Quarter-End Credit Facility Borrowings Outstanding

The following table compares the average amount outstanding under our secured financing agreements during each quarter and the amount outstanding as of the end of each quarter, together with an explanation of significant variances (amounts in thousands):


Quarter Ended	Quarter-End Balance	Weighted-Average Balance During Quarter	Variance	Explanations for Significant Variances
December 31, 2020	11,169,964	10,945,199	224,765	(a)
March 31, 2021	11,913,568	11,274,970	638,598	(b)
June 30, 2021	12,436,034	12,403,163	32,871	(c)
September 30, 2021	14,221,047	13,099,170	1,121,877	(d)

_____________________________________________

(a) Variance primarily due to the following: (i) late quarter timing of fundings on commercial loan facilities and (ii) borrowings on the Residential Financing Facility.

(b) Variance primarily due to late quarter timing of fundings on commercial loan facilities and the Borrowing Base Facility.

(d) Variance primarily due to draws: (i) on approved undrawn capacity in our commercial loan portfolio in order to early redeem a portion of our 2021 Senior Notes on September 15, 2021; (ii) on commercial loan facilities due to loan closings which occurred during the last month of the quarter; and (iii) on residential loan facilities to fund loan purchases which occurred during the last month of the quarter.

Borrowings under Unsecured Senior Notes

During the three months ended September 30, 2021 and 2020, the weighted average effective borrowing rate on our unsecured senior notes was 5.0% and 4.9%, respectively. During the nine months ended September 30, 2021 and 2020, the weighted average effective borrowing rate on our unsecured senior notes was 5.2% and 5.0%, respectively. The effective borrowing rate includes the effects of underwriter purchase discount and, during the 2020 period, the adjustment for the conversion option on the Convertible Notes, the initial value of which reduced the balance of the notes.

Refer to Note 10 of the Condensed Consolidated Financial Statements for further disclosure regarding the terms of our unsecured senior notes.

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Scheduled Principal Repayments on Investments and Overhang on Financing Facilities

The following scheduled and/or projected principal repayments on our investments were based on amounts outstanding and extended contractual maturities of those investments as of September 30, 2021. The projected and/or required repayments of financing were based on the earlier of (i) the extended contractual maturity of each credit facility or (ii) the extended contractual maturity of each of the investments that have been pledged as collateral under the respective credit facility (amounts in thousands):


	Scheduled Principal Repayments on Loans and HTM Securities		Scheduled/Projected Principal Repayments on RMBS and CMBS		Projected/Required Repayments of Financing		Scheduled Principal Inflows Net of Financing Outflows
Fourth Quarter 2021	$	710,058	$	7,920	$	(593,437)	$	124,541
First Quarter 2022	421,401		6,677		(268,503)		159,575
Second Quarter 2022	242,599		10,628		(345,472)		(92,245)		(1)
Third Quarter 2022	218,028		13,000		(1,332,689)		(1,101,661)		(2)
Total	$	1,592,086	$	38,225	$	(2,540,101)	$	(909,790)

__________________________________________________

(1) Shortfall primarily relates to: (i) $290.9 million of repayments under a Residential Loans repurchase facility that we intend to extend with the lender's consent, the current balance of which will be repaid with securitization proceeds.

(2) Shortfall primarily relates to: (i) $981.7 million of repayments under a Residential Loans repurchase facility that carries a one-year term which we can extend every three months, the current balance of which will be repaid with securitization proceeds; and (ii) $264.1 million of repayments under a securities facility which carries a rolling 12-month term that we have historically extended, and intend to continue to extend with lender’s consent.

In the normal course of business, the Company is in discussions with its lenders to extend, amend or replace any financing facilities which contain near term expirations.

Issuances of Equity Securities

We may raise funds through capital market transactions by issuing capital stock. There can be no assurance, however, that we will be able to access the capital markets at any particular time or on any particular terms. We have authorized 100,000,000 shares of preferred stock and 500,000,000 shares of common stock. At September 30, 2021, we had 100,000,000 shares of preferred stock available for issuance and 211,376,601 shares of common stock available for issuance.

Other Potential Sources of Financing

In the future, we may also use other sources of financing to fund the acquisition of our target assets and maturities of our unsecured senior notes, including other secured as well as unsecured forms of borrowing and sale of senior loan interests and other assets.

Leverage Policies

Our strategies with regards to use of leverage have not changed significantly since December 31, 2020. Refer to our Form 10-K for a description of our strategies regarding use of leverage.

Cash Requirements

Dividends

U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains, and that it pay tax at regular corporate rates to the extent that it annually distributes less than 100% of its net taxable income. We generally intend to distribute substantially all of our taxable income (which does not necessarily equal our GAAP net income) to our stockholders each year, if and to the extent authorized by our board of directors. Before we pay any dividend, whether for U.S. federal income tax purposes or otherwise, we must first meet both our operating and debt service requirements. If our cash available for distribution is less than our net taxable income, we could be required to sell assets or borrow funds to make cash distributions or we may make a portion of the required distribution in the form of a taxable stock distribution or distribution of debt securities. Refer to our Form 10-K for a detailed dividend history.

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The Company’s board of directors declared the following dividends during the nine months ended September 30, 2021:

Declare Date

Record Date

Payment Date

Amount

Frequency

9/15/2021

9/30/2021

10/15/2021

0.48

Quarterly

6/14/2021

6/30/2021

7/15/2021

0.48

Quarterly

3/11/2021

3/31/2021

4/15/2021

0.48

Quarterly

Contractual Obligations and Commitments

Our material contractual obligations and commitments as of September 30, 2021 are as follows (amounts in thousands):


	Total		Less than 1 year		1 to 3 years		3 to 5 years		More than 5 years
Secured financings (a)	$	11,587,206	$	1,653,932	$	1,525,361	$	5,830,378	$	2,577,535
CLOs and SASB (b)	2,633,841		125,998		993,829		1,494,263		19,751
Unsecured senior notes	1,750,000		300,000		550,000		900,000		—
Future loan commitments:
Commercial Lending (c)	1,352,772		1,000,526		342,434		9,812		—
Residential Lending (d)	877,689		877,689		—		—		—
Infrastructure Lending (e)	150,432		144,484		5,948		—		—

__________________________________________________

(a) Represents the contractual maturity of the respective credit facility, inclusive of available extension options. If investments that have been pledged as collateral repay earlier than the contractual maturity of the debt, the related portion of the debt would likewise require earlier repayment. Refer to Note 9 to the Condensed Consolidated Financial Statements for the expected maturities by year.

(b) Represents the fully extended maturity of the underlying collateral.

(c) Excludes $234.1 million of loan funding commitments in which management projects the Company will not be obligated to fund in the future due to repayments made by the borrower earlier than, or in excess of, expectations.

(d) Represents outstanding residential loan purchase commitments.

(e) Represents contractual commitments of $ 118.3 million under revolvers and letters of credit and $ 32.1 million under delayed draw term loans.

The table above does not include interest payable, amounts due under our management agreement, amounts due under our derivative agreements or amounts due under guarantees as those contracts do not have fixed and determinable payments.

Our secured financings, CLOs and SASB consist primarily of matched-term funding for our loans and investment securities and long-term mortgages on our owned properties. Repayments of such facilities are generally made from proceeds from maturities, prepayments or sales of such investments and operating cash flows from owned properties. In the normal course of business, we are in discussions with our lenders to extend, amend or replace any financing facilities which contain near term expirations.

Our unsecured senior notes are expected to be repaid from a combination of available cash on hand, approved but undrawn capacity under our secured financing agreements, and/or equity issuances or other potential sources of financing, as discussed above, including issuances of new unsecured senior notes.

Our future loan commitments are expected to be primarily matched-term funded under secured financing agreements with any difference funded from available cash on hand or other potential sources of financing discussed above.

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Critical Accounting Estimates

Our financial statements are prepared in accordance with GAAP, which requires the use of 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 revenues and expenses during the reporting period. We believe that all of the decisions and assessments upon which our financial statements are based were reasonable at the time made, based upon information available to us at that time. The following discussion describes the critical accounting estimates that apply to our operations and require complex management judgment. This summary should be read in conjunction with a more complete discussion of our accounting policies included in Note 2 to the Condensed Consolidated Financial Statements.

Credit Losses

Loans and Debt Securities Measured at Amortized Cost

As discussed in Note 2 to the Condensed Consolidated Financial Statements, ASC 326 , Financial Instruments – Credit Losses , became effective for the Company on January 1, 2020. ASC 326 mandates the use of a current expected credit loss model (“CECL”) for estimating future credit losses of certain financial instruments measured at amortized cost, instead of the “incurred loss” credit model previously required under GAAP. The CECL model requires the consideration of possible credit losses over the life of an instrument as opposed to only estimating credit losses upon the occurrence of a discrete loss event under the previous “incurred loss” methodology. The CECL model applies to our loans held-for-investment (“HFI”) and our held-to-maturity (“HTM”) debt securities which are carried at amortized cost, including future funding commitments and accrued interest receivable related to those loans and securities.

As we do not have a history of realized credit losses on our HFI loans and HTM securities, we have subscribed to third party database services to provide us with historical industry losses for both commercial real estate and infrastructure loans. Using these losses as a benchmark, we determine expected credit losses for our loans and securities on a collective basis within our commercial real estate and infrastructure portfolios. Such determination also incorporates significant assumptions and estimates regarding, among other things, prepayments, future fundings and economic forecasts. See Note 4 to the Condensed Consolidated Financial Statements for further discussion of our methodologies.

Significant judgment is required when estimating future credit losses; therefore, actual results over time could be materially different. As of September 30, 2021, we held $13.8 billion of loans and HTM securities measured at amortized cost with expected future funding commitments of $1.4 billion. During the nine months ended September 30, 2021, we recognized a $12.4 million credit loss reversal and the related credit loss allowance was $69.1 million as of September 30, 2021. During the nine months ended September 30, 2020 and the year ended December 31, 2020, we recognized credit loss provisions of $55.3 million and $43.2 million, respectively, and the related credit loss allowance was $89.2 million as of December 31, 2020.

Available-for-Sale Debt Securities

Separate provisions of ASC 326 apply to our available-for-sale (“AFS”) debt securities which are carried at fair value with unrealized gains and losses reported as a component of accumulated other comprehensive income (“AOCI”). We are required to establish an initial credit loss allowance for those securities that are purchased with credit deterioration by grossing up the amortized cost basis of each security and providing an offsetting credit loss allowance for the difference between expected cash flows and contractual cash flows, both on a present value basis.

Subsequently, cumulative adverse changes in expected cash flows on our available-for-sale debt securities are recognized currently as an increase to the credit loss allowance. However, the allowance is limited to the amount by which the AFS debt security’s amortized cost exceeds its fair value. Favorable changes in expected cash flows are first recognized as a decrease to the allowance for credit losses (recognized currently in earnings). Such changes would be recognized as a prospective yield adjustment only when the allowance for credit losses is reduced to zero. A change in expected cash flows that

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is attributable solely to a change in a variable interest reference rate does not result in a credit loss and is accounted for as a prospective yield adjustment.

Significant judgment is required when estimating expected cash flows used in determining the credit loss allowance for AFS debt securities; therefore, actual results over time could be materially different. As of September 30, 2021, we held $148.6 million of AFS debt securities. We did not recognize any provision for credit losses with respect to our AFS debt securities during the nine months ended September 30, 2021 or during the year ended December 31, 2020. There was no related credit loss allowance as of September 30, 2021 and December 31, 2020.

Valuation of Financial Assets and Liabilities Carried at Fair Value

We measure our VIE assets and liabilities, mortgage-backed securities, derivative assets and liabilities, domestic servicing rights intangible asset and any assets or liabilities where we have elected the fair value option at fair value. When actively quoted observable prices are not available, we either use implied pricing from similar assets and liabilities or valuation models based on net present values of estimated future cash flows, adjusted as appropriate for liquidity, credit, market and/or other risk factors. See Note 19 to the Condensed Consolidated Financial Statements for details regarding the various methods and inputs we use in measuring the fair value of our financial assets and liabilities. As of September 30, 2021, we had $64.8 billion and $60.9 billion of financial assets and liabilities, respectively, that are measured at fair value, including $62.3 billion of VIE assets and $60.9 billion of VIE liabilities we consolidate pursuant to ASC 810.

We measure the assets and liabilities of consolidated securitization VIEs at fair value pursuant to our election of the fair value option. The securitization VIEs in which we invest are “static”; that is, no reinvestment is permitted, and there is no active management of the underlying assets. In determining the fair value of the assets and liabilities of the VIE, we maximize the use of observable inputs over unobservable inputs. As a result, the methods and inputs we use in measuring the fair value of the assets and liabilities of our VIEs affect our earnings only to the extent of their impact on our direct investment in the VIEs.

Goodwill Impairment

Our goodwill at September 30, 2021 of $259.8 million represents the excess of consideration transferred over the fair value of net assets acquired in connection with the acquisitions of LNR in April 2013 and the Infrastructure Lending Segment in September 2018 and October 2018. In testing goodwill for impairment, we follow ASC 350, Intangibles—Goodwill and Other , which permits a qualitative assessment of whether it is more likely than not that the fair value of a reporting unit is less than its carrying value including goodwill. If the qualitative assessment determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying value including goodwill, then no impairment is determined to exist for the reporting unit. However, if the qualitative assessment determines that it is more likely than not that the fair value of the reporting unit is less than its carrying value including goodwill, or we choose not to perform the qualitative assessment, then we compare the fair value of that reporting unit with its carrying value, including goodwill, in a quantitative assessment. If the carrying value of a reporting unit exceeds its fair value, goodwill is considered impaired with the impairment loss measured as the excess of the reporting unit’s carrying value (inclusive of goodwill) over its fair value.

Based on our qualitative assessment during the fourth quarter of 2020, we believe that the Investing and Servicing Segment reporting unit to which the LNR acquisition goodwill was attributed is not currently at risk of failing a quantitative assessment. This qualitative assessment required judgment to be applied in evaluating the effects of multiple factors, including actual and projected financial performance of the reporting unit, macroeconomic conditions, industry and market conditions, and relevant entity specific events in determining whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount, including goodwill.

Based on our quantitative assessment during the fourth quarter of 2020, we determined that the fair value of the Infrastructure Lending Segment reporting unit to which goodwill is attributed exceeded its carrying value including goodwill. This quantitative assessment required judgment to be applied in determining the fair value of our equity in the Infrastructure Lending Segment, which included estimates of future cash flows, terminal equity multiple and market discount rate.

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Recent Accounting Developments

Refer to Note 2 to the Condensed Consolidated Financial Statements for a discussion of recent accounting developments and the expected impact to the Company.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We seek to manage our risks related to the credit quality of our assets, interest rates, liquidity, prepayment speeds and market value while, at the same time, seeking to provide an opportunity to stockholders to realize attractive risk-adjusted returns through ownership of our capital stock. While we do not seek to avoid risk completely, we believe the risk can be quantified from historical experience and seek to actively manage that risk, to earn sufficient compensation to justify taking those risks and to maintain capital levels consistent with the risks we undertake. Our strategies for managing risk and our exposure to such risks, as described in Item 7A of our Form 10-K, have not changed materially since December 31, 2020 except as described below.

Credit Risk

Our loans and investments are subject to credit risk. The performance and value of our loans and investments depend upon the owners’ ability to operate the properties that serve as our collateral so that they produce cash flows adequate to pay interest and principal due to us. To monitor this risk, our asset management team reviews our investment portfolios and is in regular contact with our borrowers, monitoring performance of the collateral and enforcing our rights as necessary.

We seek to further manage credit risk associated with our Investing and Servicing Segment loans held-for-sale through the purchase of credit index instruments. The following table presents our credit index instruments as of September 30, 2021 and December 31, 2020 (dollars in thousands):


	Face Value of Loans Held-for-Sale		Aggregate Notional Value of Credit Index Instruments		Number of Credit Index Instruments
September 30, 2021	$	39,300	$	49,000	3
December 31, 2020	$	90,789	$	69,000	4

Interest Rate Risk

Interest rates are highly sensitive to many factors, including fiscal and monetary policies and domestic and international economic and political considerations, as well as other factors beyond our control. We are subject to interest rate risk in connection with our investments and the related financing obligations. In general, we seek to match the interest rate characteristics of our investments with the interest rate characteristics of any related financing obligations such as repurchase agreements, bank credit facilities, term loans, revolving facilities and securitizations. In instances where the interest rate characteristics of an investment and the related financing obligation are not matched, we mitigate such interest rate risk through the utilization of interest rate derivatives of the same duration. The following table presents financial instruments where we have utilized interest rate derivatives to hedge interest rate risk and the related interest rate derivatives as of September 30, 2021 and December 31, 2020 (dollars in thousands):

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	Face Value of Hedged Instruments		Aggregate Notional Value of Credit Index Instruments		Number of Credit Index Instruments
Instrument hedged as of September 30, 2021
Loans held-for-sale	$	1,797,642	$	1,660,200	38
RMBS, available-for-sale	229,843		85,000		2
CMBS, fair value option	126,864		71,000		2
HTM debt securities	14,937		14,937		1
Secured financing agreements	995,657		1,663,233		23
Unsecured senior notes	500,000		470,000		1
	$	3,664,943	$	3,964,370	67
Instrument hedged as of December 31, 2020
Loans held-for-sale	$	911,596	$	557,000	25
RMBS, available-for-sale	252,738		421,000		4
CMBS, fair value option	125,985		71,000		2
HTM debt securities	16,554		16,554		1
Secured financing agreements	1,008,909		1,633,357		24
Unsecured senior notes	500,000		470,000		1
	$	2,815,782	$	3,168,911	57

The following table summarizes the estimated annual change in net investment income for our variable rate investments and our variable rate debt assuming increases or decreases in LIBOR or other applicable index rates and adjusted for the effects of our interest rate hedging activities (amounts in thousands, except per share data):


Income (Expense) Subject to Interest Rate Sensitivity	Variable rate investments and indebtedness (1)		1.0% Increase		0.5% Increase		0.5% Decrease		1.0% Decrease
Investment income from variable rate investments	$	13,244,542	$	75,698	$	32,159	$	(3,482)	$	(3,609)
Interest expense from variable rate debt, net of interest rate derivatives	(9,646,375)		(97,853)		(46,840)		1,991		(3,599)
Net investment income from variable rate instruments	$	3,598,167	$	(22,155)	$	(14,681)	$	(1,491)	$	(7,208)

______________________________________________________________________________________________________________________

(1) Includes the notional value of interest rate derivatives.

Foreign Currency Risk

We intend to hedge our currency exposures in a prudent manner. However, our currency hedging strategies may not eliminate all of our currency risk due to, among other things, uncertainties in the timing and/or amount of payments received on the related investments, and/or unequal, inaccurate, or unavailable hedges to perfectly offset changes in future exchange rates. Additionally, we may be required under certain circumstances to collateralize our currency hedges for the benefit of the hedge counterparty, which could adversely affect our liquidity.

Consistent with our strategy of hedging foreign currency exposure on certain investments, we typically enter into a series of forwards to fix the U.S. dollar amount of foreign currency denominated cash flows (interest income and principal payments) we expect to receive from our foreign currency denominated investments. Accordingly, the notional values and expiration dates of our foreign currency hedges approximate the amounts and timing of future payments we expect to receive on the related investments.

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The following table represents our current currency hedge exposure as it relates to our investments denominated in foreign currencies, along with the aggregate notional amount of the hedges in place (amounts in thousands except for number of contracts) using the September 30, 2021 GBP closing rate of 1.3472, EUR closing rate of 1.15848 and AUD closing rate of 0.7226.


Carrying Value of Net Investment		Local Currency	Number of Foreign Exchange Contracts	Aggregate Notional Value of Hedges Applied		Expiration Range of Contracts
$	19,401	GBP	5	$	25,942	October 2021 - December 2023
36,733		GBP	4	41,571		July 2022 - July 2023
14,508		GBP	14	23,329		October 2021 - February 2025
25,055		EUR	13	24,967		October 2021 - October 2022
20,519		EUR	9	30,892		November 2021 - November 2023
102,888		GBP	21	103,711		October 2021 - August 2022
52,422		GBP	15	62,804		November 2021 - May 2024
28,248		GBP	10	36,496		October 2021 - January 2024
3,124		GBP	1	3,583		October 2021
28,222		EUR	24	27,389		November 2021 - August 2022
18,115		GBP	11	24,431		November 2021 - May 2024
115,376		GBP	35	153,977		October 2021 - January 2024
5,232		EUR	4	6,480		November 2021 - July 2022
353		GBP	12	26,933		November 2021 - July 2022
117,048		GBP	9	155,375		November 2021 - November 2023
5,914		AUD	2	4,092		August 2022 - August 2023
17,731		EUR	16	20,266		November 2021 - June 2023
32,333		EUR	13	61,782		November 2021 - November 2022
36,386		EUR	18	43,321		December 2021 - November 2025
11,825		EUR	3	14,346		November 2021 - November 2023
61,311		GBP	4	63,016		November 2021
27,381		AUD	26	33,856		October 2021 - October 2024
148,635		AUD	23	149,786		November 2021 - June 2022
24,091		EUR	16	24,108		June 2022 - April 2023
12,067		GBP	3	12,714		December 2021 - April 2022
—		EUR	32	102,704		October 2021 - March 2023
$	964,918		343	$	1,277,871

Item 4. Controls and Procedures.

Disclosure Controls and Procedures. We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer, as appropriate, to allow timely decisions regarding required disclosures.

As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

Changes in Internal Control Over Financial Reporting. No change in internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) occurred during the quarter ended September 30, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

Currently, no material legal proceedings are pending or, to our knowledge, threatened or contemplated against us, that could have a material adverse effect on our business, financial position or results of operations.

Item 1A. Risk Factors.

There have been no material changes to the risk factors previously disclosed in our Form 10-K.

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

There were no unregistered sales of securities during the three months ended September 30, 2021.

Issuer Purchases of Equity Securities

There were no purchases of common stock during the three months ended September 30, 2021.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

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Item 6. Exhibits.

(a) Index to Exhibits

INDEX TO EXHIBITS


Exhibit No.						Description

4.1						Indenture, dated as of July 14, 2021, between Starwood Property Trust, Inc. and The Bank of New York Mellon, as trustee (including the form of Starwood Property Trust, Inc.’s 3.625% Senior Notes due 2026) (Incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed July 14, 2021).

31.1						Certification pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002

31.2						Certification pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002

32.1						Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2						Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS						XBRL Instance Document – the instance document does not appear in the Interactive Data File because its 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)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	STARWOOD PROPERTY TRUST, INC.

Date: November 9, 2021	By:	/s/ BARRY S. STERNLICHT
		Barry S. Sternlicht Chief Executive Officer Principal Executive Officer

Date: November 9, 2021	By:	/s/ RINA PANIRY
		Rina Paniry Chief Financial Officer, Treasurer, Chief Accounting Officer and Principal Financial Officer

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Part I - Financial Information Item 1. Financial Statements Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk Item 4. Controls and Procedures Part II Other Information Item 1. Legal Proceedings Item 1A. Risk Factors Item 2. Unregistered Sales Of Equity Securities and Use Of Proceeds Item 2. Unregistered Sales Of Equity Item 3. Defaults Upon Senior Securities Item 4. Mine Safety Disclosures Item 5. Other Information Item 6. Exhibits

Exhibits

4.1 Indenture, dated as of July 14, 2021, between Starwood Property Trust, Inc. and The Bank of New York Mellon, as trustee (including the form of Starwood Property Trust, Inc.s 3.625% Senior Notes due 2026) (Incorporated by reference to Exhibit 4.1 of the Companys Current Report on Form 8-K filed July 14, 2021). 31.1 Certification pursuant to Section302(a)of the Sarbanes-Oxley Act of 2002 31.2 Certification pursuant to Section302(a)of the Sarbanes-Oxley Act of 2002 32.1 Certification pursuant to Section906 of the Sarbanes-Oxley Act of 2002 32.2 Certification pursuant to Section906 of the Sarbanes-Oxley Act of 2002

STWD 10-Q Quarter ended Sept. 30, 2021

Exhibits