STWD 10-Q Quarterly Report March 31, 2023

STARWOOD PROPERTY TRUST, INC.

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stwd-20230331

Table of Contents

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 March 31, 2023


☐			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 April 28, 2023 was 312,090,273 .

Table of Contents

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, 2022 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”;

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

• the duration and extent of the ongoing effects of the COVID-19 pandemic, including variants and resurgences, or any future pandemic or similar outbreak, on the global economy, our operations and financial performance and the operations and financial performance of the borrowers underlying our real estate-related assets and infrastructure loans and tenants of our owned properties;

• national and local economic and business conditions, including as a result of the ongoing impact of the COVID-19 pandemic;

• the occurrence of certain geo-political events (such as wars, terrorist attacks and tensions between states) that affect the normal and peaceful course of international relations (such as the war between Russian and Ukraine);

• 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.

Table of Contents

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	8
	Notes to Condensed Consolidated Financial Statements	10
	Note 1 Business and Organization	10
	Note 2 Summary of Significant Accounting Policies	11
	Note 3 Acquisitions and Divestitures	17
	Note 4 Loans	18
	Note 5 Investment Securities	23
	Note 6 Properties	26
	Note 7 Investments of Consolidated Affordable Housing Fund	28
	Note 8 Investments in Unconsolidated Entities	29
	Note 9 Goodwill and Intangibles	30
	Note 10 Secured Borrowings	32
	Note 11 Unsecured Senior Notes	36
	Note 12 Loan Securitization/Sale Activities	38
	Note 13 Derivatives and Hedging Activity	39
	Note 14 Offsetting Assets and Liabilities	40
	Note 15 Variable Interest Entities	41
	Note 16 Related-Party Transactions	42
	Note 17 Stockholders’ Equity and Non-Controlling Interests	44
	Note 18 Earnings per Share	46
	Note 19 Accumulated Other Comprehensive Income	47
	Note 20 Fair Value	48
	Note 21 Income Taxes	55
	Note 22 Commitments and Contingencies	56
	Note 23 Segment Data	57
	Note 24 Subsequent Events	61
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	62
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	95
Item 4.	Controls and Procedures	97
Part II	Other Information
Item 1.	Legal Proceedings	98
Item 1A.	Risk Factors	98
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	98
Item 3.	Defaults Upon Senior Securities	98
Item 4.	Mine Safety Disclosures	98
Item 5.	Other Information	98
Item 6.	Exhibits	99

Table of Contents

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 March 31,		As of December 31,
	2023		2022
Assets:
Cash and cash equivalents	$	395,799	$	261,061
Restricted cash	135,637		121,072
Loans held-for-investment, net of credit loss allowances of $ 134,430 and $ 99,413	18,452,424		18,401,439
Loans held-for-sale, at fair value	2,810,889		2,784,594
Investment securities, net of credit loss allowances of $ 10,240 and $ 3,182 ($ 140,148 and $ 142,334 held at fair value)	772,887		815,804
Properties, net	1,443,979		1,449,986
Investments of consolidated affordable housing fund, at fair value	1,762,162		1,761,002
Investments in unconsolidated entities	93,069		91,892
Goodwill	259,846		259,846
Intangible assets ($ 18,094 and $ 17,790 held at fair value)	66,796		68,773
Derivative assets	96,619		108,621
Accrued interest receivable	181,807		168,521
Other assets	356,076		297,477
Variable interest entity (“VIE”) assets, at fair value	50,526,390		52,453,041
Total Assets	$	77,354,380	$	79,043,129
Liabilities and Equity
Liabilities:
Accounts payable, accrued expenses and other liabilities	$	277,330	$	298,999
Related-party payable	39,583		41,186
Dividends payable	152,267		151,511
Derivative liabilities	78,407		91,404
Secured financing agreements, net	14,846,988		14,501,532
Collateralized loan obligations and single asset securitization, net	3,672,783		3,676,224
Unsecured senior notes, net	2,331,445		2,329,211
VIE liabilities, at fair value	48,838,686		50,754,355
Total Liabilities	70,237,489		71,844,422
Commitments and contingencies (Note 22)
Temporary Equity: Redeemable non-controlling interests	364,418		362,790
Permanent 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, 319,669,537 issued and 312,220,846 outstanding as of March 31, 2023 and 318,123,861 issued and 310,675,170 outstanding as of December 31, 2022	3,197		3,181
Additional paid-in capital	5,826,509		5,807,087
Treasury stock ( 7,448,691 shares)	( 138,022 )		( 138,022 )
Retained earnings	670,690		769,237
Accumulated other comprehensive income	19,851		20,955
Total Starwood Property Trust, Inc. Stockholders’ Equity	6,382,225		6,462,438
Non-controlling interests in consolidated subsidiaries	370,248		373,479
Total Permanent Equity	6,752,473		6,835,917
Total Liabilities and Equity	$	77,354,380	$	79,043,129

________________________________________________________

Note: In addition to the VIE assets and liabilities which are separately presented, our condensed consolidated balance sheets as of both March 31, 2023 and December 31, 2022 include assets of $ 4.5 billion and liabilities of $ 3.7 billion, 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 15 for additional discussion of VIEs.

See notes to condensed consolidated financial statements.

Table of Contents

Starwood Property Trust, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

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


	For the Three Months Ended March 31,
	2023		2022
Revenues:
Interest income from loans	$	430,908	$	233,619
Interest income from investment securities	18,637		13,983
Servicing fees	7,256		9,992
Rental income	32,289		31,580
Other revenues	1,324		4,818
Total revenues	490,414		293,992
Costs and expenses:
Management fees	39,540		55,295
Interest expense	335,301		126,451
General and administrative	42,108		44,321
Acquisition and investment pursuit costs	269		422
Costs of rental operations	11,666		9,290
Depreciation and amortization	12,416		11,647
Credit loss provision (reversal), net	43,194		( 3,658 )
Other expense	848		55
Total costs and expenses	485,342		243,823
Other income (loss):
Change in net assets related to consolidated VIEs	41,138		26,749
Change in fair value of servicing rights	304		1,084
Change in fair value of investment securities, net	82		( 355 )
Change in fair value of mortgage loans, net	8,901		( 125,783 )
Income from affordable housing fund investments	12,965		234,041
Earnings (loss) from unconsolidated entities	2,725		( 910 )
Gain on sale of investments and other assets, net	190		98,468
(Loss) gain on derivative financial instruments, net	( 32,828 )		127,268
Foreign currency gain (loss), net	15,019		( 27,281 )
Loss on extinguishment of debt	( 61 )		( 823 )
Other loss, net	( 2,541 )		( 763 )
Total other income	45,894		331,695
Income before income taxes	50,966		381,864
Income tax benefit	8,795		2,450
Net income	59,761		384,314
Net income attributable to non-controlling interests	( 7,787 )		( 59,715 )
Net income attributable to Starwood Property Trust, Inc.	$	51,974	$	324,599

Earnings per share data attributable to Starwood Property Trust, Inc.:
Basic	$	0.16	$	1.04
Diluted	$	0.16	$	1.02

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 March 31,
	2023		2022
Net income	$	59,761	$	384,314
Other comprehensive income (loss) (net change by component):
Available-for-sale securities	( 1,104 )		( 5,284 )

Other comprehensive loss	( 1,104 )		( 5,284 )
Comprehensive income	58,657		379,030
Less: Comprehensive income attributable to non-controlling interests	( 7,787 )		( 59,715 )
Comprehensive income attributable to Starwood Property Trust, Inc .	$	50,870	$	319,315

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 March 31, 2023 and 2022

(Unaudited, amounts in thousands, except share data)


	Temporary Equity		Common stock			Additional Paid-in Capital		Treasury Stock			Retained Earnings		Accumulated Other Comprehensive Income		Total Starwood Property Trust, Inc. Stockholders’ Equity		Non- Controlling Interests		Total Permanent Equity
			Shares	Par Value				Shares	Amount
Balance, December 31, 2022	$	362,790	318,123,861	$	3,181	$	5,807,087	7,448,691	$	( 138,022 )	$	769,237	$	20,955	$	6,462,438	$	373,479	$	6,835,917

Proceeds from DRIP Plan	—		15,657	—		299		—	—		—		—		299		—		299
Proceeds from employee stock purchase plan	—		65,026	1		969		—	—		—		—		970		—		970


Share-based compensation	—		1,091,789	11		10,925		—	—		—		—		10,936		—		10,936
Manager fees paid in stock	—		373,204	4		7,229		—	—		—		—		7,233		—		7,233
Net income	2,287		—	—		—		—	—		51,974		—		51,974		5,500		57,474
Dividends declared, $ 0.48 per share	—		—	—		—		—	—		( 150,521 )		—		( 150,521 )		—		( 150,521 )
Other comprehensive loss, net	—		—	—		—		—	—		—		( 1,104 )		( 1,104 )		—		( 1,104 )


Distributions to non-controlling interests	( 659 )		—	—		—		—	—		—		—		—		( 8,731 )		( 8,731 )
Balance, March 31, 2023	$	364,418	319,669,537	$	3,197	$	5,826,509	7,448,691	$	( 138,022 )	$	670,690	$	19,851	$	6,382,225	$	370,248	$	6,752,473

Balance, December 31, 2021	$	214,915	312,268,944	$	3,123	$	5,673,376	7,448,691	$	( 138,022 )	$	493,106	$	40,953	$	6,072,536	$	361,356	$	6,433,892


Proceeds from DRIP Plan	—		10,261	—		251		—	—		—		—		251		—		251


Equity offering costs	—		—	—		( 89 )		—	—		—		—		( 89 )		—		( 89 )
Share-based compensation	—		1,012,963	10		10,083		—	—		—		—		10,093		—		10,093
Manager fees paid in stock	—		1,068,828	11		25,406		—	—		—		—		25,417		—		25,417
Net income	47,720		—	—		—		—	—		324,599		—		324,599		11,995		336,594
Dividends declared, $ 0.48 per share	—		—	—		—		—	—		( 147,828 )		—		( 147,828 )		—		( 147,828 )
Other comprehensive loss, net	—		—	—		—		—	—		—		( 5,284 )		( 5,284 )		—		( 5,284 )

Contributions from non-controlling interests	—		—	—		—		—	—		—		—		—		4,690		4,690
Distributions to non-controlling interests	( 950 )		—	—		—		—	—		—		—		—		( 9,768 )		( 9,768 )
Balance, March 31, 2022	$	261,685	314,360,996	$	3,144	$	5,709,027	7,448,691	$	( 138,022 )	$	669,877	$	35,669	$	6,279,695	$	368,273	$	6,647,968

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 Three Months Ended March 31,
	2023		2022
Cash Flows from Operating Activities:
Net income	$	59,761	$	384,314
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of deferred financing costs, premiums and discounts on secured borrowings	13,205		11,816
Amortization of discounts and deferred financing costs on unsecured senior notes	2,234		2,151
Accretion of net discount on investment securities	( 2,094 )		( 3,475 )
Accretion of net deferred loan fees and discounts	( 15,180 )		( 16,600 )
Share-based compensation	10,936		10,093
Manager fees paid in stock	7,233		25,417
Change in fair value of investment securities	( 82 )		355
Change in fair value of consolidated VIEs	( 4,245 )		11,928
Change in fair value of servicing rights	( 304 )		( 1,084 )
Change in fair value of loans	( 8,901 )		125,783
Change in fair value of affordable housing fund investments	( 1,160 )		( 223,851 )
Change in fair value of derivatives	48,431		( 129,343 )
Foreign currency (gain) loss, net	( 15,019 )		27,281
Gain on sale of investments and other assets	( 190 )		( 98,468 )
Impairment charges on properties and related intangibles	—		55
Credit loss provision (reversal), net	43,194		( 3,658 )
Depreciation and amortization	13,635		12,757
(Earnings) loss from unconsolidated entities	( 2,725 )		910
Distributions of earnings from unconsolidated entities	243		280
Loss on extinguishment of debt	61		624
Origination and purchase of loans held-for-sale, net of principal collections	( 28,333 )		( 2,206,360 )
Proceeds from sale of loans held-for-sale	13,439		2,278,467
Changes in operating assets and liabilities:
Related-party payable	( 1,603 )		( 19,756 )
Accrued and capitalized interest receivable, less purchased interest	( 41,541 )		( 35,342 )
Other assets	( 89,667 )		( 64,229 )
Accounts payable, accrued expenses and other liabilities	( 29,886 )		64,309
Net cash (used in) provided by operating activities	( 28,558 )		154,374
Cash Flows from Investing Activities:
Origination, purchase and funding of loans held-for-investment	( 431,615 )		( 1,557,821 )
Proceeds from principal collections on loans	407,199		798,969

Purchase and funding of investment securities	( 591 )		( 18,139 )

Proceeds from principal collections on investment securities	40,778		7,784
Proceeds from sales of real estate	543		147,334
Purchases and additions to properties and other assets	( 5,839 )		( 6,604 )
Investments in unconsolidated entities	—		( 461 )

Distribution of capital from unconsolidated entities	277		121


Payments for purchase or termination of derivatives	( 3,340 )		( 8,541 )
Proceeds from termination of derivatives	5,605		82,596
Net cash provided by (used in) investing activities	13,017		$	( 554,762 )

See notes to condensed consolidated financial statements.

Table of Contents

Starwood Property Trust, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Continued)

(Unaudited, amounts in thousands)


	For the Three Months Ended March 31,
	2023		2022
Cash Flows from Financing Activities:
Proceeds from borrowings	$	1,202,077	$	5,843,167
Principal repayments on and repurchases of borrowings	( 892,238 )		( 5,153,638 )
Payment of deferred financing costs	( 2,924 )		( 21,998 )
Proceeds from common stock issuances	1,269		251
Payment of equity offering costs	—		( 89 )
Payment of dividends	( 149,765 )		( 146,709 )
Contributions from non-controlling interests	—		4,690
Distributions to non-controlling interests	( 9,390 )		( 10,718 )


Repayment of debt of consolidated VIEs	( 108 )		( 84,460 )
Distributions of cash from consolidated VIEs	15,329		22,014
Net cash provided by financing activities	164,250		452,510
Net increase in cash, cash equivalents and restricted cash	148,709		52,122
Cash, cash equivalents and restricted cash, beginning of period	382,133		321,914
Effect of exchange rate changes on cash	594		( 262 )
Cash, cash equivalents and restricted cash, end of period	$	531,436	$	373,774
Supplemental disclosure of cash flow information:
Cash paid for interest	$	322,932	$	102,300
Income taxes paid, net	42		566
Supplemental disclosure of non-cash investing and financing activities:
Dividends declared, but not yet paid	$	152,551	$	148,998
Consolidation of VIEs (VIE asset/liability additions)	—		1,109,614
Deconsolidation of VIEs (VIE asset/liability reductions)	—		730,012




Loan principal collections temporarily held at master servicer	15,197		42,225
Reclassification of loans held-for-investment to loans held-for-sale	—		346

See notes to condensed consolidated financial statements.

Table of Contents

Starwood Property Trust, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

As of March 31, 2023

(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 the United States (“U.S.”), Europe and Australia. 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 March 31, 2023 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 the U.S., Europe and Australia (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 Global L.P., 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 23 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, 2022 (our “Form 10-K”), as filed with the Securities and Exchange Commission (“SEC”). The results of operations for the three months ended March 31, 2023 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, 2022 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 Accounting Standard Update (“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, investments of consolidated affordable housing fund, 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 20 for further discussion regarding our fair value measurements.

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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.

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. We periodically enter into derivative financial instruments to hedge unpredictable changes in fair value of loans held-for-sale, including changes resulting from both interest rates and credit quality. Because these derivatives are not designated, changes in their fair value are recorded in earnings. In order to best reflect the results of the hedged loan portfolio in earnings, we have elected the fair value option for these loans. As a result, changes in the fair value of the loans are also recorded in earnings.

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 sheets), but rather write off in a timely manner by reversing interest income and/or cease accruing interest that would likely be uncollectible.

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. See Note 4 for further discussion of our methodologies.

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.

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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.

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.

Investments of Consolidated Affordable Housing Fund

On November 5, 2021, we established Woodstar Portfolio Holdings, LLC (the “Woodstar Fund”), an investment fund which holds our Woodstar multifamily affordable housing portfolios consisting of 59 properties with 15,057 units located in Central and South Florida. As managing member of the Woodstar 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 Woodstar Fund equity; and (ii) an incentive distribution if the Woodstar Fund’s returns exceed an established threshold. In connection with the establishment of the Woodstar Fund, 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 Woodstar Fund for an initial aggregate subscription price of $ 216.0 million, which was adjusted to $ 214.2 million post-closing. The Woodstar Fund has an initial term of eight years .

Effective with the third party interest sale, the Woodstar Fund has the characteristics of an investment company under ASC 946, Financial Services – Investment Companies. Accordingly, the Woodstar Fund is required to carry the investments in its properties at fair value, with a cumulative effect adjustment between the fair value and previous carrying value of its investments recognized in stockholders’ equity as of November 5, 2021, the date of the Woodstar Fund’s change in status to an investment company. Because we are the primary beneficiary of the Woodstar Fund, which is a VIE (as discussed in Note 15), we consolidate the accounts of the Woodstar Fund into our consolidated financial statements, retaining the fair value basis of accounting for its investments. Realized and unrealized changes in the fair value of the Woodstar Fund’s property investments, and distributions thereon, are recognized in the “Income from affordable housing fund investments” caption within the other income (loss) section of our condensed consolidated statements of operations. See Note 7 for further details regarding the Woodstar Fund’s investments and related income and Note 17 with respect to its contingently redeemable non-controlling interests which are classified as “Temporary Equity” in our condensed consolidated balance sheets.

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

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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 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.

Foreign Currency Translation

Our assets and liabilities denominated in foreign currencies are translated into U.S. dollars using foreign currency exchange rates at the end of the reporting period. Income and expenses are translated at the average exchange rates for each reporting period. The effects of translating the assets, liabilities and income of our foreign investments held by entities with a U.S. dollar functional currency are included in foreign currency gain (loss) in the consolidated statements of operations. Realized foreign currency gains and losses and changes in the value of foreign currency denominated monetary assets and liabilities are included in the determination of net income and are reported as foreign currency gain (loss) in our condensed consolidated statements of operations.

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 awards (“RSAs”) and restricted stock units (“RSUs and any outstanding discounted share purchase options under the Employee Stock Purchase Program (“ESPP”) , (ii) shares contingently issuable to our Manager, (iii) the conversion options associated with our senior convertible notes (the “Convertible Notes”) (see Notes 11 and 18) and (iv) non-controlling interests that are redeemable with our common stock (see Note 17). 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 17). 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 months ended March 31, 2023 and 2022, the two-class method resulted in the most dilutive EPS calculation.

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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 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. Amounts ultimately realized from our investments may vary significantly from the fair values presented.

We believe the estimates and assumptions underlying our consolidated financial statements are reasonable and supportable based on the information available as of March 31, 2023. 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, 2024, as extended by ASU 2022-06, Deferral of the Sunset Date of Topic 848, issued by the FASB on December 21, 2022. The Company has not adopted any of the optional expedients or exceptions through March 31, 2023.

3. Acquisitions and Divestitures

Investing and Servicing Segment Property Portfolio ( “ REIS Equity Portfolio ” )

During the three months ended March 31, 2023, there were no material sales of property within the REIS Equity Portfolio. During the three months ended March 31, 2022, we sold an operating property for $ 34.5 million. In connection with this sale, we recognized a gain of $ 11.7 million within gain on sale of investments and other assets in our condensed consolidated statement of operations.

Commercial and Residential Lending Segment

During the three months ended March 31, 2023, there were no sales of property within the Commercial and Residential Lending Segment. During the three months ended March 31, 2022, we sold a distribution facility located in Orlando, Florida that was previously acquired in April 2019 through foreclosure of a loan with a carrying value of $ 18.5 million. The property was sold for $ 114.8 million and we recognized a gain of $ 86.6 million within gain on sale of investments and other assets in our condensed consolidated statement of operations.

During the three months ended March 31, 2023 and 2022, 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 March 31, 2023 and December 31, 2022 (dollars in thousands):


March 31, 2023	Carrying Value		Face Amount		Weighted Average Coupon (1)		Weighted Average Life (“WAL”) (years)(2)
Loans held-for-investment:
Commercial loans:
First mortgages (3)	$	15,610,218	$	15,684,751	8.4	%	1.6
Subordinated mortgages (4)	72,379		73,244		14.1	%	1.5
Mezzanine loans (3)	472,404		469,176		13.2	%	1.1
Other	58,071		58,927		8.2	%	1.2
Total commercial loans	16,213,072		16,286,098
Infrastructure first priority loans	2,373,782		2,405,700		9.1	%	3.9

Total loans held-for-investment	18,586,854		18,691,798
Loans held-for-sale:
Residential, fair value option	2,733,358		3,054,552		4.5	%	N/A	(5)
Commercial, fair value option	77,531		85,450		6.0	%	9.5

Total loans held-for-sale	2,810,889		3,140,002
Total gross loans	21,397,743		$	21,831,800
Credit loss allowances:
Commercial loans held-for-investment	( 118,479 )
Infrastructure loans held-for-investment	( 15,951 )
Total allowances	( 134,430 )
Total net loans	$	21,263,313

December 31, 2022
Loans held-for-investment:
Commercial loans:
First mortgages (3)	$	15,562,452	$	15,648,358	7.9	%	1.7
Subordinated mortgages (4)	71,100		72,118		13.6	%	1.8
Mezzanine loans (3)	445,363		442,339		12.9	%	1.0
Other	58,393		59,393		8.2	%	1.4
Total commercial loans	16,137,308		16,222,208
Infrastructure first priority loans	2,363,544		2,395,762		8.6	%	3.9

Total loans held-for-investment	18,500,852		18,617,970
Loans held-for-sale:
Residential, fair value option	2,763,458		3,092,915		4.5	%	N/A	(5)
Commercial, fair value option	21,136		23,900		5.7	%	8.6

Total loans held-for-sale	2,784,594		3,116,815
Total gross loans	21,285,446		$	21,734,785
Credit loss allowances:
Commercial loans held-for-investment	( 88,801 )
Infrastructure loans held-for-investment	( 10,612 )
Total allowances	( 99,413 )
Total net loans	$	21,186,033

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______________________________________________________________________________________________________________________

(1) Calculated using applicable index rates as of March 31, 2023 and December 31, 2022 for variable rate loans and excludes loans for which interest income is not recognized.

(2) Represents the WAL of each respective group of loans, excluding loans for which interest income is not recognized, 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 $ 1.3 billion being classified as first mortgages as of both March 31, 2023 and December 31, 2022.

(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) Residential loans have a weighted average remaining contractual life of 28.5 years and 28.8 years as of March 31, 2023 and December 31, 2022, respectively.

As of March 31, 2023, our variable rate loans held-for-investment, excluding loans for which interest income is not recognized, were as follows (dollars in thousands):


March 31, 2023	Carrying Value		Weighted-average Spread Above Index
Commercial loans	$	15,526,655	4.0	%
Infrastructure loans	2,360,875		4.0	%
Total variable rate loans held-for-investment	$	17,887,530	4.0	%

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. For instance, although the office sector has been adversely affected by the increase in remote working arrangements and the retail sector has been adversely affected by electronic commerce, the broad macroeconomic forecasts do not account for such differentiation. Accordingly, we have selected a more adverse macroeconomic recovery forecast related to office and retail properties in determining our credit loss allowance.

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 principally between the

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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 March 31, 2023 (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 March 31, 2023	2023		2022		2021		2020		2019		Prior
Commercial loans:
Credit quality indicator:
LTV < 60%	$	—	$	1,923,695	$	2,893,448	$	209,003	$	1,049,495	$	806,693	$	—	$	6,882,334	$	11,562
LTV 60% - 70%	—		1,891,000		3,732,239		177,795		852,640		550,494		—		7,204,168		45,830
LTV > 70%	42,443		102,019		479,021		416,130		478,570		545,391		—		2,063,574		56,162
Credit deteriorated	—		—		—		—		—		4,925		—		4,925		4,925
Defeased and other	—		42,138		—		—		—		15,933		—		58,071		—
Total commercial	$	42,443	$	3,958,852	$	7,104,708	$	802,928	$	2,380,705	$	1,923,436	$	—	$	16,213,072	$	118,479
Infrastructure loans:
Credit quality indicator:
Power	$	—	$	89,428	$	208,091	$	83,415	$	284,346	$	733,327	$	18,677	$	1,417,284	$	4,304
Oil and gas	108,732		108,040		355,589		—		185,551		134,776		2,008		894,696		4,721
Other	48,895		—		—		—		—		—		—		48,895		202
Credit deteriorated	—		—		—		—		—		12,907		—		12,907		6,724
Total infrastructure	$	157,627	$	197,468	$	563,680	$	83,415	$	469,897	$	881,010	$	20,685	$	2,373,782	$	15,951

Loans held-for-sale															2,810,889		—
Total gross loans															$	21,397,743	$	134,430

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Non-Credit Deteriorated Loans

As of March 31, 2023, we had the following loans with a combined amortized cost basis of $ 280.4 million that were 90 days or greater past due at March 31, 2023: (i) a $ 156.4 million mortgage loan on an office complex in Brooklyn, New York; (ii) a $ 41.6 million mortgage loan on the retail portion of a hotel located in Chicago; (iii) a $ 37.8 million leasehold mortgage loan on a luxury resort in California destroyed by wildfire; (iv) $ 35.4 million of residential loans; and (v) a $ 9.2 million loan on a hospitality asset in New York City that our Investing and Servicing Segment acquired as nonperforming in October 2021. All of these loans were on nonaccrual as of March 31, 2023 with the exception of (i).

We also had the following loans on nonaccrual that were not 90 days or greater past due as of March 31, 2023: (i) a $ 216.6 million senior loan on a retail and entertainment project in New Jersey, of which $ 7.3 million was previously converted into equity interests (see Note 8); and (ii) a $ 120.8 million senior mortgage loan on an office building in Washington, DC. None of these loans are considered credit deteriorated as we presently expect to recover all amounts due.

Credit Deteriorated Loans

As of March 31, 2023, we had a $ 12.9 million infrastructure loan participation collateralized by a first priority lien on two natural gas fired power plants near Chicago for which we provided a $ 6.7 million specific credit loss allowance during the three months ended March 31, 2023. The loan participation was deemed credit deteriorated when the borrower filed for bankruptcy. We also had a $ 4.9 million commercial subordinated loan secured by a department store in Chicago which was deemed credit deteriorated and was fully reserved in prior years. Both loans are on nonaccrual under the cost recovery method.

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
Three Months Ended March 31, 2023	Commercial		Infrastructure
Credit loss allowance at December 31, 2022	$	88,801	$	10,612	$	99,413
Credit loss provision, net	29,678		5,339		35,017



Credit loss allowance at March 31, 2023	$	118,479	$	15,951	$	134,430


	Unfunded Commitments Credit Loss Allowance (1)
	Loans Held-for-Investment
Three Months Ended March 31, 2023	Commercial		Infrastructure		CMBS (2)		Total
Credit loss allowance at December 31, 2022	$	9,749	$	72	$	52	$	9,873
Credit loss provision (reversal), net	1,145		( 11 )		( 15 )		1,119
Credit loss allowance at March 31, 2023	$	10,894	$	61	$	37	$	10,992
Memo: Unfunded commitments as of March 31, 2023 (3)	$	1,956,436	$	15,500	$	33,523	$	2,005,459

______________________________________________________________________________________________________________________

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

(2) See Note 5 for further details.

(3) Represents amounts expected to be funded (see Note 22).

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Loan Portfolio Activity

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


	Held-for-Investment Loans
Three Months Ended March 31, 2023	Commercial		Infrastructure		Residential		Held-for-Sale Loans		Total Loans
Balance at December 31, 2022	$	16,048,507	$	2,352,932	$	—	$	2,784,594	$	21,186,033
Acquisitions/originations/additional funding	259,113		172,502		—		69,200		500,815
Capitalized interest (1)	27,924		130		—		—		28,054
Basis of loans sold (2)	—		—		—		( 13,439 )		( 13,439 )
Loan maturities/principal repayments	( 256,644 )		( 165,323 )		—		( 38,367 )		( 460,334 )
Discount accretion/premium amortization	12,551		2,629		—		—		15,180
Changes in fair value	—		—		—		8,901		8,901
Foreign currency translation gain, net	32,820		300		—		—		33,120
Credit loss provision, net	( 29,678 )		( 5,339 )		—		—		( 35,017 )


Balance at March 31, 2023	$	16,094,593	$	2,357,831	$	—	$	2,810,889	$	21,263,313


	Held-for-Investment Loans
Three Months Ended March 31, 2022	Commercial		Infrastructure		Residential		Held-for-Sale Loans		Total Loans
Balance at December 31, 2021	$	13,450,198	$	2,027,426	$	59,225	$	2,876,800	$	18,413,649
Acquisitions/originations/additional funding	1,359,483		198,338		—		2,266,699		3,824,520
Capitalized interest (1)	26,697		113		—		93		26,903
Basis of loans sold (2)	—		—		—		( 2,278,467 )		( 2,278,467 )
Loan maturities/principal repayments	( 715,665 )		( 91,853 )		( 1,995 )		( 56,439 )		( 865,952 )
Discount accretion/premium amortization	14,093		2,507		—		—		16,600
Changes in fair value	—		—		( 1,263 )		( 124,520 )		( 125,783 )
Foreign currency translation loss, net	( 71,909 )		( 802 )		—		—		( 72,711 )
Credit loss (provision) reversal, net	( 1,379 )		389		—		—		( 990 )

Transfer to/from other asset classifications or between segments	—		—		( 346 )		346		—
Balance at March 31, 2022	$	14,061,518	$	2,136,118	$	55,621	$	2,684,512	$	18,937,769

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

(2) See Note 12 for additional disclosure on these transactions.

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5. Investment Securities

Investment securities were comprised of the following as of March 31, 2023 and December 31, 2022 (amounts in thousands):


	Carrying Value as of
	March 31, 2023		December 31, 2022
RMBS, available-for-sale	$	111,069	$	113,386
RMBS, fair value option (1)	427,629		423,183
CMBS, fair value option (1), (2)	1,247,152		1,262,846
HTM debt securities, amortized cost net of credit loss allowance of $ 10,240 and $ 3,182	632,739		673,470
Equity security, fair value	10,134		9,840
Subtotal — Investment securities	2,428,723		2,482,725
VIE eliminations (1)	( 1,655,836 )		( 1,666,921 )
Total investment securities	$	772,887	$	815,804

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

(2) Includes $ 197.0 million and $ 198.9 million of non-controlling interests in the consolidated entities which hold certain of these CMBS as of March 31, 2023 and December 31, 2022, 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 March 31, 2023
Purchases/fundings	$	—	$	—	$	—	$	591	$	—	$	591
Sales	—		—		—		—		—		—
Principal collections	2,435		14,220		1,254		38,198		( 15,329 )		40,778

Three Months Ended March 31, 2022
Purchases	$	—	$	84,357	$	—	$	18,139	$	( 84,357 )	$	18,139
Sales	—		—		—				—		—
Principal collections	6,895		21,604		635		664		( 22,014 )		7,784

_________________________________________________________________________________________________________________

(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 consolidated statements of cash flows.

RMBS, Available-for-Sale

The Company classified all of its RMBS not eliminated in consolidation as available-for-sale as of March 31, 2023 and December 31, 2022. 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 March 31, 2023 and December 31, 2022 (amounts in thousands):

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							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
March 31, 2023
RMBS	$	91,218	$	—	$	91,218	$	21,697	$	( 1,846 )	$	19,851	$	111,069
December 31, 2022
RMBS	$	92,431	$	—	$	92,431	$	21,765	$	( 810 )	$	20,955	$	113,386


	Weighted Average Coupon (1)		WAL (Years) (2)
March 31, 2023
RMBS	5.2	%	7.3

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(1) Calculated using the March 31, 2023 LIBOR rate of 4.858 % 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 March 31, 2023, approximately $ 97.7 million, or 88 %, 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 $ 0.2 million and $ 0.3 million for the three months ended March 31, 2023 and 2022, 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 March 31, 2023 and December 31, 2022, 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 March 31, 2023
RMBS	$	12,818	$	2,205	$	( 1,241 )	$	( 605 )
As of December 31, 2022
RMBS	$	6,961	$	1,889	$	( 502 )	$	( 308 )

As of March 31, 2023 and December 31, 2022, there were eleven securities and ten securities, respectively, with unrealized losses reflected in the table above. After evaluating the securities, we concluded that the 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, if any, 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.

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 March 31, 2023, 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 March 31, 2023, 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,

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were $ 427.6 million and $ 326.3 million, respectively. The $ 1.7 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 $ 18.9 million at March 31, 2023) is eliminated against VIE liabilities before arriving at our GAAP balance for fair value option investment securities.

As of March 31, 2023, $ 97.2 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 March 31, 2023 and December 31, 2022 (amounts in thousands):


	Amortized Cost Basis		Credit Loss Allowance		Net Carrying Amount		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses		Fair Value
March 31, 2023
CMBS	$	581,525	$	( 154 )	$	581,371	$	95	$	( 30,190 )	$	551,276
Preferred interests	30,527		—		30,527		125		( 5,424 )		25,228
Infrastructure bonds	30,927		( 10,086 )		20,841		37		( 22 )		20,856
Total	$	642,979	$	( 10,240 )	$	632,739	$	257	$	( 35,636 )	$	597,360

December 31, 2022
CMBS	$	577,681	$	( 172 )	$	577,509	$	30	$	( 30,424 )	$	547,115
Preferred interests	29,757		—		29,757		125		( 4,863 )		25,019
Infrastructure bonds	69,214		( 3,010 )		66,204		47		( 1,110 )		65,141
Total	$	676,652	$	( 3,182 )	$	673,470	$	202	$	( 36,397 )	$	637,275

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


	CMBS		Infrastructure Bonds		Total HTM Credit Loss Allowance
Three Months Ended March 31, 2023
Credit loss allowance at December 31, 2022	$	172	$	3,010	$	3,182
Credit loss (reversal) provision, net	( 18 )		7,076		7,058
Credit loss allowance at March 31, 2023	$	154	$	10,086	$	10,240

The table below summarizes the maturities of our HTM debt securities by type as of March 31, 2023 (amounts in thousands):


	CMBS		Preferred Interests		Infrastructure Bonds		Total
Less than one year	$	339,465	$	30,527	$	—	$	369,992
One to three years	190,459		—		—		190,459
Three to five years	51,447		—		11,727		63,174
Thereafter	—		—		9,114		9,114
Total	$	581,371	$	30,527	$	20,841	$	632,739

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During the three months ended March 31, 2023, we provided an additional $ 7.2 million specific credit loss allowance, bringing the total to $ 10.0 million, on a $ 19.2 million infrastructure bond that is collateralized by a first priority lien on a coal-fired power plant in Mississippi. It was deemed credit deteriorated when we acquired the Infrastructure Lending Segment in 2018. It has now been placed on nonaccrual under the cost recovery method due to a forbearance and restructuring plan recently agreed between the lenders and borrower that was necessitated by operating shortfalls at the plant.

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 $ 10.1 million and $ 9.8 million as of March 31, 2023 and December 31, 2022, respectively. As of March 31, 2023, our shares represent an approximate 2 % interest in SEREF.

6. Properties

Our properties are held within the following portfolios:

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 $ 770.8 million and debt of $ 596.9 million as of March 31, 2023.

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 $ 193.4 million as of March 31, 2023.

Investing and Servicing Segment Property Portfolio

The REIS Equity Portfolio is comprised of 10 commercial real estate properties and one equity interest in an unconsolidated commercial real estate property which were acquired from CMBS trusts over time. The REIS Equity Portfolio includes total gross properties and lease intangibles of $ 186.3 million and debt of $ 129.8 million as of March 31, 2023.

Commercial and Residential Lending Segment Property Portfolio

The Commercial and Residential Lending Segment Portfolio represents properties acquired through loan foreclosure or exercise of control over a mezzanine loan borrower’s pledged equity interests. This portfolio includes total gross properties and lease intangibles of $ 481.3 million and debt of $ 204.4 million as of March 31, 2023.

Woodstar Portfolios

Refer to Note 7 for a discussion of our Woodstar I and Woodstar II Portfolios which are not included in the table below.

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The table below summarizes our properties held as of March 31, 2023 and December 31, 2022 (dollars in thousands):


	Depreciable Life	March 31, 2023		December 31, 2022
Property Segment
Land and land improvements	0 - 15 years	$	176,006	$	176,029
Buildings and building improvements	0 - 45 years	858,880		856,411
Furniture & fixtures	3 - 5 years	530		446
Investing and Servicing Segment
Land and land improvements	0 - 15 years	34,565		34,613
Buildings and building improvements	3 - 40 years	122,138		122,384
Furniture & fixtures	2 - 5 years	3,250		3,207
Commercial and Residential Lending Segment
Land and land improvements	N/A	99,043		99,043
Buildings and building improvements	0 - 24 years	79,661		79,661
Construction in progress	N/A	289,515		287,701
Properties, cost		1,663,588		1,659,495
Less: accumulated depreciation		( 219,609 )		( 209,509 )
Properties, net		$	1,443,979	$	1,449,986

During the three months ended March 31, 2023, there were no material sales of property within the REIS Equity Portfolio. During the three months ended March 31, 2022, we sold an operating property within the REIS Equity Portfolio for $ 34.5 million and recognized a gain of $ 11.7 million within gain on sale of investments and other assets in our condensed consolidated statement of operations.

During the three months ended March 31, 2023, there were no sales of property within the Commercial and Residential Lending Segment. During the three months ended March 31, 2022, we sold an operating property within the Commercial and Residential Lending Segment for $ 114.8 million and recognized a gain of $ 86.6 million within gain on sale of investments and other assets in our condensed consolidated statement of operations. Refer to Note 3 for further discussion.

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7. Investments of Consolidated Affordable Housing Fund

As discussed in Note 2, we established the Woodstar Fund effective November 5, 2021, an investment fund which holds our Woodstar multifamily affordable housing portfolios. The Woodstar portfolios consist of the following:

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 properties at fair value of $ 1.6 billion and debt at fair value of $ 728.6 million as of March 31, 2023.

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 properties at fair value of $ 1.3 billion and debt at fair value of $ 478.4 million as of March 31, 2023.

Income from the Woodstar Fund’s investments reflects the following components for the three months ended March 31, 2023 and 2022 (in thousands):


	Three Months Ended March 31,
	2023		2022
Distributions from affordable housing fund investments	$	11,805	$	10,190
Unrealized change in fair value of investments (1)	1,160		223,851
Income from affordable housing fund investments	$	12,965	$	234,041

______________________________________________________________________________________________________________________

(1) The fair value of the Woodstar Fund’s investments are dependent upon the real estate and capital markets, which are cyclical in nature. Property and investment values are affected by, among other things, capitalization rates, the availability of capital, occupancy, rental rates and interest and inflation rates.

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8. Investments in Unconsolidated Entities

The table below summarizes our investments in unconsolidated entities as of March 31, 2023 and December 31, 2022 (dollars in thousands):


	Participation / Ownership % (1)	Carrying value as of
		March 31, 2023		December 31, 2022
Equity method investments:
Equity interest in two natural gas power plants	10 % - 12 %	$	48,359	$	46,618
Investor entity which owns equity in an online real estate company	50 %	5,486		5,457
Equity interest in a residential mortgage originator (2)	N/A	—		1,449
Various	25 % - 50 %	16,233		15,377
		70,078		68,901
Other equity investments:
Equity interest in a servicing and advisory business	2 %	12,955		12,955
Investment funds which own equity in a loan servicer and other real estate assets	4 % - 6 %	940		940
Investor entities which own equity interests in two entertainment and retail centers (3)	15 %	7,322		7,322
Various	1 % - 3 %	1,774		1,774
		22,991		22,991
		$	93,069	$	91,892

______________________________________________________________________________________________________________________

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

(2) In January 2023, we sold our ownership interest to an unaffiliated third party.

(3) In March 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.

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 March 31, 2023.

During the three months ended March 31, 2023, 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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9. 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.

Infrastructure Lending Segment

The Infrastructure Lending Segment’s goodwill of $ 119.4 million at both March 31, 2023 and December 31, 2022 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 March 31, 2023 and December 31, 2022 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 March 31, 2023 and December 31, 2022, the balance of the domestic servicing intangible was net of $ 38.7 million and $ 39.1 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 both March 31, 2023 and December 31, 2022, the domestic servicing intangible had a balance of $ 56.8 million, 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 March 31, 2023 and December 31, 2022 (amounts in thousands):


	As of March 31, 2023						As of December 31, 2022
	Gross Carrying Value		Accumulated Amortization		Net Carrying Value		Gross Carrying Value		Accumulated Amortization		Net Carrying Value
Domestic servicing rights, at fair value	$	18,094	$	—	$	18,094	$	17,790	$	—	$	17,790
In-place lease intangible assets	98,622		( 66,064 )		32,558		98,622		( 64,246 )		34,376
Favorable lease intangible assets	26,649		( 10,505 )		16,144		26,649		( 10,042 )		16,607
Total net intangible assets	$	143,365	$	( 76,569 )	$	66,796	$	143,061	$	( 74,288 )	$	68,773

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The following table summarizes the activity within intangible assets for the three months ended March 31, 2023 (amounts in thousands):


	Domestic Servicing Rights		In-place Lease Intangible Assets		Favorable Lease Intangible Assets		Total
Balance as of January 1, 2023	$	17,790	$	34,376	$	16,607	$	68,773

Amortization	—		( 1,818 )		( 463 )		( 2,281 )


Changes in fair value due to changes in inputs and assumptions	304		—		—		304
Balance as of March 31, 2023	$	18,094	$	32,558	$	16,144	$	66,796

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):


2023 (remainder of)	$	6,170
2024	6,754
2025	5,649
2026	4,123
2027	3,630
Thereafter	22,376
Total	$	48,702

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10. Secured Borrowings

Secured Financing Agreements

The following table is a summary of our secured financing agreements in place as of March 31, 2023 and December 31, 2022 (dollars in thousands):


													Outstanding Balance at
	Current Maturity		Extended Maturity (a)		Weighted Average Pricing		Pledged Asset Carrying Value			Maximum Facility Size			March 31, 2023			December 31, 2022
Repurchase Agreements:
Commercial Loans	Jun 2023 to Jun 2027	(b)	Oct 2025 to Dec 2030	(b)	Index + 2.06 %	(c)	$	11,206,590		$	12,212,382	(d)	$	7,818,505		$	7,746,867
Residential Loans	Oct 2023 to Apr 2024		N/A		SOFR + 2.22 %		2,204,038			3,064,671			1,967,984			1,912,774
Infrastructure Loans	Sep 2024		Sep 2026		SOFR + 2.07 %		333,957			650,000			274,817			290,431
Conduit Loans	Dec 2023 to Jun 2025		Feb 2024 to Jun 2027		SOFR + 2.35 %		66,572			375,000			57,960			8,423
CMBS/RMBS	Oct 2023 to Apr 2032	(e)	Oct 2023 to Oct 2032	(e)	(f)		1,488,626			1,083,841			824,912		(g)	840,625
Total Repurchase Agreements							15,299,783			17,385,894			10,944,178			10,799,120
Other Secured Financing:
Borrowing Base Facility	Nov 2024		Oct 2026		SOFR + 2.11 %		12,018			750,000		(h)	9,234			—
Commercial Financing Facilities	Dec 2023 to Aug 2025		Jul 2025 to Dec 2030		Index + 1.98 %		354,323			458,074		(i)	256,247			311,825
Residential Financing Facility	Mar 2024		Mar 2027		SOFR + 2.45 %		525,297			500,000			474,660			244,418
Infrastructure Financing Facilities	Jun 2025 to Oct 2025		Jun 2027 to Jul 2032		Index + 2.08 %		1,020,629			1,550,000			776,024			765,265
Property Mortgages - Fixed rate	Nov 2024 to Sep 2029	(j)	N/A		4.46 %		364,090			260,891			260,891			261,100
Property Mortgages - Variable rate	Nov 2023 to Dec 2027		N/A		(k)		1,001,298			850,387			847,625			847,633
Term Loans and Revolver	(l)		N/A		(l)		N/A		(l)	1,527,269			1,377,269			1,380,766
Total Other Secured Financing							3,277,655			5,896,621			4,001,950			3,811,007
							$	18,577,438		$	23,282,515		14,946,128			14,610,127
Unamortized net discount													( 28,897 )			( 30,320 )
Unamortized deferred financing costs													( 70,243 )			( 78,275 )
													$	14,846,988		$	14,501,532

______________________________________________________________________________________________________________________

(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 $ 2.9 billion as of March 31, 2023 are indexed to EURIBOR, BBSY, SARON and SONIA. The remainder are indexed to USD LIBOR or SOFR.

(d) Certain facilities with an aggregate initial maximum facility size of $ 12.1 billion may be increased to $ 12.2 billion, subject to certain conditions. The $ 12.2 billion amount includes such upsizes.

(e) Certain facilities with an outstanding balance of $ 356.2 million as of March 31, 2023 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 $ 261.8 million as of March 31, 2023 has a weighted average fixed annual interest rate of 3.25 %. All other facilities are variable rate with a weighted average rate of SOFR + 2.15 %.

(g) Includes: (i) $ 261.8 million outstanding on a repurchase facility that is not subject to margin calls; and (ii) $ 42.2 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 15).

(h) The maximum facility size as of March 31, 2023 of $ 450.0 million may be increased to $ 750.0 million, subject to certain conditions.

(i) Certain facilities with an aggregate initial maximum facility size of $ 358.1 million may be increased to $ 458.1 million, subject to certain conditions. The $ 458.1 million amount includes such upsizes.

(j) The weighted average maturity is 4.2 years as of March 31, 2023.

(k) 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 Index + 3.35 %.

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(l) Consists of: (i) a $ 778.8 million term loan facility that matures in July 2026, of which $ 386.0 million has an annual interest rate of LIBOR + 2.50 % and $ 392.8 million has an annual interest rate of LIBOR + 3.25 %, subject to a 0.75 % LIBOR floor, (ii) a $ 150.0 million revolving credit facility that matures in April 2026 with an annual interest rate of SOFR + 2.50 % and (iii) a $ 598.5 million term loan facility that matures in November 2027, with an annual interest rate of SOFR + 3.25 %, subject to a 0.50 % SOFR floor. These facilities are secured by the equity interests in certain of our subsidiaries which totaled $ 5.4 billion as of March 31, 2023.

The above table no longer reflects property mortgages of the Woodstar Portfolios which, as discussed in Notes 2 and 7, are now reflected within “Investments of consolidated affordable housing fund” on our condensed consolidated balance sheets.

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.

During the three months ended March 31, 2023, we amended a commercial credit facility resulting in an upsize of $ 200.0 million.

Our secured financing agreements contain certain financial tests and covenants. As of March 31, 2023, 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 69 % 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 31 % of repurchase agreements which do permit valuation adjustments based on capital market events, approximately 6 % of these pertain to our loans held-for-sale, for which we manage credit risk through the purchase of credit 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 months ended March 31, 2023 and 2022, approximately $ 10.2 million and $ 9.6 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 March 31, 2023, Morgan Stanley Bank, N.A. and JPMorgan Chase Bank, N.A. held collateral sold under certain of our repurchase agreements with carrying values that exceeded the respective repurchase obligations by $ 814.5 million and $ 692.2 million, respectively. The weighted average extended maturity of those repurchase agreements is 3.2 years and 4.7 years, respectively.

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Collateralized Loan Obligations and Single Asset Securitization

Commercial and Residential Lending Segment

In February 2022, we refinanced a pool of our commercial loans held-for-investment through a CLO, STWD 2022-FL3. On the closing date, the CLO issued $ 1.0 billion of notes and preferred shares, of which $ 842.5 million of notes were purchased by third party investors. We retained $ 82.5 million of notes along with preferred shares with a liquidation preference of $ 75.0 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 for a period of two years . During the three months ended March 31, 2023, we utilized the reinvestment feature, contributing $ 0.5 million of additional interests into the CLO.

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.

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 were 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 three months ended March 31, 2023, we utilized the reinvestment feature, contributing $ 18.9 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 were 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, allowed us to contribute new loans or participation interests in loans to the CLO in exchange for cash. The reinvestment period expired during 2022 and during the three months ended March 31, 2023, we repaid CLO debt in the amount of $ 5.0 million.

Infrastructure Lending Segment

In January 2022, we refinanced a pool of our infrastructure loans held-for-investment through a CLO, STWD 2021-SIF2. On the closing date, the CLO issued $ 500.0 million of notes and preferred shares, of which $ 410.0 million of notes were 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 for a period of three years . During the three months ended March 31, 2023, we utilized the reinvestment feature, contributing $ 33.2 million of additional interests into the CLO.

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 were 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 for a period of three years . During the three months ended March 31, 2023, we utilized the reinvestment feature, contributing $ 53.4 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 March 31, 2023 and December 31, 2022 (amounts in thousands):

March 31, 2023

Count

Face
Amount

Carrying
Value

Weighted
Average Spread

Maturity

STWD 2022-FL3

Collateral assets

1,000,000

1,010,710

Index + 3.48 %

(a)

March 2026

(b)

Financing

842,500

841,721

SOFR + 1.93 %

(c)

November 2038

(d)

STWD 2021-HTS

Collateral assets

230,000

231,239

LIBOR + 3.87 %

(a)

April 2026

(b)

Financing

210,091

209,187

LIBOR + 2.71 %

(c)

April 2034

(d)

STWD 2021-FL2

Collateral assets

1,278,175

1,286,362

Index + 3.90 %

(a)

August 2025

(b)

Financing

1,077,375

1,073,081

LIBOR + 1.80 %

(c)

April 2038

(d)

STWD 2019-FL1

Collateral assets

897,821

902,795

Index + 3.42 %

(a)

December 2024

(b)

Financing

734,196

SOFR + 1.64 %

(c)

July 2038

(d)

STWD 2021-SIF2

Collateral assets

499,317

511,809

Index + 3.81 %

(a)

June 2027

(b)

Financing

410,000

407,487

SOFR + 2.11 %

(c)

January 2033

(d)

STWD 2021-SIF1

Collateral assets

498,843

512,634

Index + 3.98 %

(a)

March 2027

(b)

Financing

410,000

407,111

LIBOR + 2.15 %

(c)

April 2032

(d)

Total

Collateral assets

4,404,156

4,455,549

Financing

3,684,162

3,672,783

December 31, 2022

Count

Face
Amount

Carrying
Value

Weighted
Average Spread

Maturity

STWD 2022-FL3

Collateral assets

1,000,000

1,010,051

Index + 3.52 %

(a)

February 2026

(b)

Financing

842,500

842,374

SOFR + 1.93 %

(c)

November 2038

(d)

STWD 2021-HTS

Collateral assets

230,000

231,186

LIBOR + 3.85 %

(a)

April 2026

(b)

Financing

210,091

208,961

LIBOR + 2.71 %

(c)

April 2034

(d)

STWD 2021-FL2

Collateral assets

1,277,474

1,284,240

Index + 4.04 %

(a)

June 2025

(b)

Financing

1,077,375

1,072,403

LIBOR + 1.80 %

(c)

April 2038

(d)

STWD 2019-FL1

Collateral assets

902,799

906,409

Index + 3.67 %

(a)

December 2024

(b)

Financing

739,174

738,473

SOFR + 1.64 %

(c)

July 2038

(d)

STWD 2021-SIF2

Collateral assets

495,587

510,730

Index + 3.73 %

(a)

February 2027

(b)

Financing

410,000

407,260

SOFR + 2.11 %

(c)

January 2033

(d)

STWD 2021-SIF1

Collateral assets

495,781

511,471

Index + 3.76 %

(a)

November 2026

(b)

Financing

410,000

406,753

LIBOR + 2.15 %

(c)

April 2032

(d)

Total

Collateral assets

4,401,641

4,454,087

Financing

3,689,140

3,676,224

______________________________________________________________________________________________________________________________

(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 March 31, 2023, 7 % earned fixed-rate weighted average interest of 7.44 %. Of the investments financed by the STWD 2021-SIF1 CLO as of March 31, 2023, 2 % earned fixed-rate weighted average interest of 5.69 %.

(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 CLOs and SASB are tied to timing of the related collateral asset repayments. The term of the CLOs and SASB financing obligations represents the legal final maturity date.

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We incurred $ 37.9 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 months ended March 31, 2023 and 2022, approximately $ 2.7 million and $ 2.4 million, respectively, of amortization of deferred financing costs was included in interest expense on our condensed consolidated statements of operations. As of March 31, 2023 and December 31, 2022, our unamortized issuance costs were $ 15.5 million and $ 18.2 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 15 for further discussion.

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
2023 (remainder of)	$	1,525,152	$	116,078	$	622,627	$	2,263,857
2024	2,067,428		669,794		382,949		3,120,171
2025	1,214,463		285,997		828,283		2,328,743
2026	2,439,183		932,082		1,582,383		4,953,648
2027	3,436,146		1,794,367		115,264		5,345,777
Thereafter	261,806		203,632		152,656		618,094
Total	$	10,944,178	$	4,001,950	$	3,684,162	$	18,630,290

______________________________________________________________________________________________________________________

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

11. Unsecured Senior Notes

The following table is a summary of our unsecured senior notes outstanding as of March 31, 2023 and December 31, 2022 (dollars in thousands):


	Coupon Rate			Effective Rate (1)		Maturity Date	Remaining Period of Amortization	Carrying Value at
								March 31, 2023		December 31, 2022
2023 Convertible Notes	4.38	%		4.57	%	4/1/2023	0.0 years	250,000		250,000
2023 Senior Notes	5.50	%		5.71	%	11/1/2023	0.6 years	300,000		300,000
2024 Senior Notes	3.75	%		3.94	%	12/31/2024	1.8 years	400,000		400,000
2025 Senior Notes	4.75	%	(2)	5.04	%	3/15/2025	2.0 years	500,000		500,000
2026 Senior Notes	3.63	%		3.77	%	7/15/2026	3.3 years	400,000		400,000
2027 Senior Notes	4.38	%	(3)	4.49	%	1/15/2027	3.8 years	500,000		500,000
Total principal amount								2,350,000		2,350,000
Unamortized discount—Convertible Notes								—		( 118 )
Unamortized discount—Senior Notes								( 8,137 )		( 9,051 )
Unamortized deferred financing costs								( 10,418 )		( 11,620 )
Total carrying amount								$	2,331,445	$	2,329,211

______________________________________________________________________________________________________________________

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

(2) 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 %.

(3) The coupon on the 2027 Senior Notes is 4.375 %. At closing, we swapped the notes to a floating rate of SOFR + 2.95 %.

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Our unsecured senior notes contain certain financial tests and covenants. As of March 31, 2023, we were in compliance with all such covenants.

Convertible Senior Notes

On March 29, 2017, we issued $ 250.0 million of 4.375 % Convertible Senior Notes due 2023 (the “Convertible Notes”) which were outstanding at March 31, 2023. The entire $ 250.0 million principal balance of the Convertible Notes matured and was repaid in cash on April 1, 2023.

For both the three months ended March 31, 2023 and 2022, we recognized interest expense of $ 2.9 million from our Convertible Notes.

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12. 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.

The following summarizes the face amount and proceeds of commercial and residential loans securitized for the three months ended March 31, 2023 and 2022 (amounts in thousands):


	Commercial Loans				Residential Loans
	Face Amount		Proceeds		Face Amount		Proceeds
For the Three Months Ended March 31,
2023	$	12,196	$	13,439	$	—	$	—
2022	347,442		342,067		1,077,958		1,100,284

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
	Residential Loans
For the Three Months Ended March 31,		Face Amount		Proceeds
2023		$	—	$	—
2022		835,760		836,116

There were no sales of commercial loans within the Commercial and Residential Lending Segment during the three months ended March 31, 2023 and 2022.

Infrastructure Loan Sales

There were no sales of loans by the Infrastructure Lending Segment during the three months ended March 31, 2023 and 2022.

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13. 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 14 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 March 31, 2023 and December 31, 2022, 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;

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

• Credit 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 March 31, 2023 (notional amounts in thousands):

Type of Derivative

Number of Contracts

Aggregate Notional Amount

Notional Currency

Maturity

Fx contracts – Buy Euros (“EUR”)

7,549

EUR

May 2023 - April 2026

Fx contracts – Buy Pounds Sterling (“GBP”)

17,733

GBP

October 2023 - October 2024

Fx contracts – Buy Australian dollar (“AUD”)

25,095

AUD

August 2023 - January 2025

Fx contracts – Sell EUR

209

725,395

EUR

April 2023 - October 2026

Fx contracts – Sell GBP

174

573,883

GBP

April 2023 - April 2027

Fx contracts – Sell AUD

654,011

AUD

April 2023 - January 2026

Fx contracts – Sell Swiss Franc (“CHF”)

21,138

CHF

May 2023 - November 2025

Interest rate swaps – Paying fixed rates

4,344,250

USD

April 2024 - March 2033

Interest rate swaps – Receiving fixed rates

970,000

USD

March 2025 - January 2027

Interest rate caps

625,000

USD

November 2023 - April 2025

Interest rate caps

61,000

GBP

April 2024

Credit instruments

49,000

USD

September 2058 - August 2061

Interest rate swap guarantees

147,019

USD

June 2023 - June 2025

Total

632

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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 March 31, 2023 and December 31, 2022 (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
	March 31, 2023		December 31, 2022		March 31, 2023		December 31, 2022
Interest rate contracts	$	10,849	$	10,756	$	56,978	$	69,776

Foreign exchange contracts	84,652		97,289		21,429		21,628
Credit instruments	1,118		576		—		—
Total derivatives	$	96,619	$	108,621	$	78,407	$	91,404

___________________________________________________

(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 months ended March 31, 2023 and 2022 (amounts in thousands):


Derivatives Not Designated as Hedging Instruments	Location of (Loss) Gain Recognized in Income	Amount of (Loss) Gain Recognized in Income for the Three Months Ended March 31,
		2023		2022
Interest rate contracts	(Loss) gain on derivative financial instruments	$	( 22,950 )	$	102,933
Interest rate swap guarantees	(Loss) gain on derivative financial instruments	—		159
Foreign exchange contracts	(Loss) gain on derivative financial instruments	( 10,344 )		24,142
Credit instruments	(Loss) gain on derivative financial instruments	466		34
		$	( 32,828 )	$	127,268

14. 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 March 31, 2023
Derivative assets	$	96,619	$	—	$	96,619	$	63,650	$	—	$	32,969
Derivative liabilities	$	78,407	$	—	$	78,407	$	63,650	$	14,757	$	—
Repurchase agreements	10,944,178		—		10,944,178		10,944,178		—		—
	$	11,022,585	$	—	$	11,022,585	$	11,007,828	$	14,757	$	—
As of December 31, 2022
Derivative assets	$	108,621	$	—	$	108,621	$	69,221	$	—	$	39,400
Derivative liabilities	$	91,404	$	—	$	91,404	$	69,221	$	22,183	$	—
Repurchase agreements	10,799,120		—		10,799,120		10,799,120		—		—
	$	10,890,524	$	—	$	10,890,524	$	10,868,341	$	22,183	$	—

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15. 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.

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 10, we have refinanced various pools of our commercial and infrastructure loans held-for-investment through five 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 March 31, 2023 and December 31, 2022 (amounts in thousands):


	March 31, 2023		December 31, 2022
Assets:
Cash and cash equivalents	$	30,673	$	31,611
Loans held-for-investment	4,389,899		4,365,791
Investment securities	11,747		36,466
Accrued interest receivable	23,132		20,088
Other assets	98		131
Total Assets	$	4,455,549	$	4,454,087
Liabilities
Accounts payable, accrued expenses and other liabilities	$	19,256	$	17,737
Collateralized loan obligations and single asset securitization, net	3,672,783		3,676,224
Total Liabilities	$	3,692,039	$	3,693,961

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. The Woodstar Fund, Woodstar Feeder Fund, L.P. and one of the Woodstar Fund’s indirect investees, SPT Dolphin Intermediate LLC (“SPT Dolphin”), the entity which holds the Woodstar II Portfolio, are each VIEs 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 those VIEs because we possess both the power to direct the activities of the VIEs that most significantly impact their economic performance and a significant economic interest in each entity. The Woodstar Fund had total assets of $ 1.8 billion, including its indirect

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investment in SPT Dolphin, and no significant liabilities as of March 31, 2023. As of March 31, 2023, Woodstar Feeder Fund, L.P. and its consolidated subsidiary which is also considered a VIE, Woodstar Feeder REIT, LLC, had a $ 0.5 billion investment in the Woodstar Fund, had no significant liabilities and had temporary equity of $ 0.4 billion consisting of the contingently redeemable non-controlling interests of the third party investors (see Note 17).

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 $ 360.3 million and liabilities of $ 87.4 million as of March 31, 2023. Refer to Note 17 for further discussion.

In addition to the above non-securitization entities, we have smaller VIEs with total assets of $ 75.4 million and liabilities of $ 35.3 million as of March 31, 2023.

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.

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 March 31, 2023, our maximum risk of loss related to securitization VIEs in which we were not the primary beneficiary was $ 18.9 million on a fair value basis.

As of March 31, 2023, 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 $ 4.6 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 $ 0.9 million as of March 31, 2023, within investments in unconsolidated entities on our consolidated balance sheet. Our maximum risk of loss is limited to our carrying value of the investments.

16. 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 17 to the consolidated financial statements included in our Form 10-K for further discussion of this agreement.

Base Management Fee. For the three months ended March 31, 2023 and 2022, approximately $ 21.8 million and $ 21.5 million, respectively, was incurred for base management fees. As of March 31, 2023 and December 31, 2022, there were $ 21.8 million and $ 21.8 million, respectively, of unpaid base management fees included in related-party payable in our condensed consolidated balance sheets.

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Incentive Fee. For the three months ended March 31, 2023 and 2022, approximately $ 12.4 million and $ 29.0 million, respectively, was incurred for incentive fees. As of March 31, 2023 and December 31, 2022, there were $ 12.4 million and $ 14.5 million of unpaid incentive fees included in related-party payable in our condensed consolidated balance sheets.

Expense Reimbursement. For both the three months ended March 31, 2023 and 2022, approximately $ 1.7 million was incurred for executive compensation and other reimbursable expenses and recognized within general and administrative expenses in our condensed consolidated statements of operations. As of March 31, 2023 and December 31, 2022, there were $ 5.4 million and $ 4.9 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 three months ended March 31, 2023 and 2022, we granted 226,955 and 200,972 RSAs, respectively, at a grant date fair values of $ 4.3 million and $ 4.8 million, respectively. Expenses related to the vesting of awards to employees of affiliates of our Manager were $ 2.2 million and $ 2.7 million during the three months ended March 31, 2023 and 2022, respectively, and are reflected in general and administrative expenses in our condensed consolidated statements of operations. These shares generally vest over a three-year period. Compensation expense related to the ESPP (refer to Note 17) for employees of affiliates of our Manager were not material during the three months ended March 31, 2023, and are reflected in general and administrative expenses in our condensed consolidated statement of operations.

Manager Equity Plan

In April 2022, the Company’s shareholders approved the Starwood Property Trust, Inc. 2022 Manager Equity Plan (the “2022 Manager Equity Plan”) which replaces the Starwood Property Trust, Inc. 2017 Manager Equity Plan (the “2017 Manager Equity Plan”). In November 2022, we granted 1,500,000 RSUs to our Manager under the 2022 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 connection with these grants and prior similar grants, we recognized share-based compensation expense of $ 5.1 million and $ 4.5 million within management fees in our condensed consolidated statements of operations for the three months ended March 31, 2023 and 2022, respectively. Refer to Note 17 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 serve as our new Miami Beach office following the expiration of our former lease in Miami Beach. The lease, as amended in September 2022, is for 64,424 square feet of office space, commenced July 1, 2022 and has an initial term of 15 years from the monthly lease payment commencement date of November 1, 2022. 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 and subsequent amendment were approved by our independent directors. In April 2020, we provided a $ 1.9 million cash security deposit to the landlord. During the three months ended March 31, 2023, we made payments to the landlord under the terms of the lease of $ 0.3 million for reimbursements relating to tenant improvements and $ 1.4 million for rent, parking and our pro rata share of building operating expenses. During the three months ended March 31, 2023, we recognized $ 1.6 million of expenses with respect to this lease within general and administrative expenses in our condensed consolidated statement of operations.

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 March 31, 2023 and 2022, property management fees to Highmark of $ 1.5 million and $ 1.4 million, respectively, were recognized within our Woodstar Portfolios.

Refer to Note 17 to the consolidated financial statements included in our Form 10-K for further discussion of related-party agreements.

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17. Stockholders’ Equity and Non-Controlling Interests

During the three months ended March 31, 2023, our board of directors declared the following dividends:

Declaration Date

Record Date

Ex-Dividend Date

Payment Date

Amount

Frequency

3/16/23

3/31/23

3/30/23

4/14/23

0.48

Quarterly

ATM Agreement

In May 2022, we entered into a Starwood Property Trust, Inc. Common Stock Sales Agreement (the “ATM Agreement”) with a syndicate of financial institutions to sell shares of the Company’s common stock of up to $ 500.0 million from time to time, through an “at the market” equity offering program. Sales of shares under the ATM Agreement are made by means of ordinary brokers’ transactions on the New York Stock Exchange or otherwise at market prices prevailing at the time of sale or at negotiated prices. The ATM Agreement replaces a similar agreement previously entered into in May 2014 with a financial institution. There were no shares issued under the current or previous ATM Agreement during the three months ended March 31, 2023 and 2022.

Dividend Reinvestment and Direct Stock Purchase Plan

During the three months ended March 31, 2023 and 2022, shares issued under the Starwood Property Trust, Inc. Dividend Reinvestment and Direct Stock Purchase Plan (the “DRIP Plan”) were not material.

Employee Stock Purchase Plan

In April 2022, the Company’s shareholders approved the ESPP which allows eligible employees to purchase common stock of the Company at a discounted purchase price. The discounted purchase price of a share of the Company's common stock is 85 % of the fair market value (closing market price) at the lower of the beginning or the end of the quarterly offering period. Participants may purchase shares not exceeding an aggregate fair market value of $ 25,000 in any calendar year. The maximum aggregate number of shares subject to issuance in accordance with the ESPP is 2,000,000 shares.

During the three months ended March 31, 2023, 65,026 shares of common stock were purchased by participants at a weighted average discounted purchase price of $ 14.91 per share. The Company recognized $ 0.2 million of compensation expense related to its ESPP during such period based on the estimated fair value of the discounted purchase options granted to the participants as of the beginning of the quarterly offering period determined using the Black-Scholes option pricing model.

As of March 31, 2023, there were 1.9 million shares of common stock available for future issuance through the ESPP.

Equity Incentive Plans

In April 2022, the Company’s shareholders approved the 2022 Manager Equity Plan and the Starwood Property Trust, Inc. 2022 Equity Plan (the “2022 Equity Plan”), which allow for the issuance of up to 18,700,000 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 2022 Manager Equity Plan succeeds and replaces the 2017 Manager Equity Plan and the 2022 Equity Plan succeeds and replaces the Starwood Property Trust, Inc. 2017 Equity Plan (the “2017 Equity Plan”).

The table below summarizes our share awards granted or vested under the 2017 and 2022 Manager Equity Plans during the three months ended March 31, 2023 and 2022 (dollar amounts in thousands):


Grant Date	Type	Amount Granted	Grant Date Fair Value		Vesting Period

November 2022	RSU	1,500,000	$	31,605	3 years
November 2020	RSU	1,800,000	$	30,078	3 years
September 2019	RSU	1,200,000	29,484		(1)

______________________________________________________________________________________________________________________

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

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Schedule of Non-Vested Shares and Share Equivalents (1)


	Equity Plan	Manager Equity Plan	Total	Weighted Average Grant Date Fair Value (per share)
Balance as of January 1, 2022	2,513,847	1,825,000	4,338,847	$	20.65
Granted	863,888	—	863,888	18.91
Vested	( 646,421 )	( 275,000 )	( 921,421 )	18.14
Forfeited	( 18,509 )	—	( 18,509 )	24.67
Balance as of March 31, 2023	2,712,805	1,550,000	4,262,805	20.82

(1) Equity-based award activity for awards granted under the 2017 and 2022 Equity Plans is reflected within the Equity Plan column, and for awards granted under the 2017 and 2022 Manager Equity Plans, within the Manager Equity Plan column.

As of March 31, 2023, there were 16.4 million shares of common stock available for future grants under the 2022 Manager Equity Plan and the 2022 Equity Plan.

Non-Controlling Interests in Consolidated Subsidiaries

As discussed in Note 2, on November 5, 2021 we sold a 20.6 % non-controlling interest in the Woodstar Fund to third party investors for net cash proceeds of $ 214.2 million. Under the Woodstar Fund operating agreement, such interests are contingently redeemable by us, at the option of the interest holder, for cash at liquidation fair value if any assets remain upon termination of the Woodstar Fund. The Woodstar Fund operating agreement specifies an eight-year term with two one-year extension options, the first at our option and the second subject to consent of an advisory committee representing the non-controlling interest holders. Accordingly, these contingently redeemable non-controlling interests have been classified as “Temporary Equity” in our condensed consolidated balance sheets and represent the fair value of the Woodstar Fund’s net assets allocable to those interests. During the three months ended March 31, 2023 and 2022, net income attributable to these non-controlling interests was $ 2.3 million and $ 47.7 million, respectively.

In connection with our Woodstar II Portfolio acquisitions, we issued 10.2 million Class A Units in our subsidiary, SPT Dolphin, and rights to receive an additional 1.9 million Class A Units if certain contingent events occur. As of March 31, 2023, 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. There were 9.8 million Class A Units outstanding as of March 31, 2023. The outstanding Class A Units are reflected as non-controlling interests in consolidated subsidiaries on our consolidated balance sheets, the balance of which was $ 208.5 million as of March 31, 2023 and December 31, 2022.

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 both the three months ended March 31, 2023 and 2022, we recognized net income attributable to non-controlling interests of $ 4.7 million associated with these Class A Units.

As discussed in Note 15, 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 condensed consolidated statement of operations. The non-controlling interests in the CMBS JV were $ 143.0 million and $ 144.3 million as of March 31, 2023 and December 31, 2022, respectively. During the three months ended March 31, 2023 and 2022, net income attributable to these non-controlling interests was $ 0.7 million and $ 3.6 million, respectively.

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18. 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 March 31,
	2023		2022
Basic Earnings
Income attributable to STWD common stockholders	$	51,974	$	324,599
Less: Income attributable to participating shares not already deducted as non-controlling interests	( 1,811 )		( 8,869 )
Basic earnings	$	50,163	$	315,730

Diluted Earnings
Income attributable to STWD common stockholders	$	51,974	$	324,599
Less: Income attributable to participating shares not already deducted as non-controlling interests	( 1,811 )		( 8,869 )
Add: Interest expense on Convertible Notes	—		2,904
Add: Undistributed earnings to participating shares	—		7,342
Less: Undistributed earnings reallocated to participating shares	—		( 7,109 )
Diluted earnings	$	50,163	$	318,867

Number of Shares:
Basic — Average shares outstanding	308,408		302,944
Effect of dilutive securities — Convertible Notes	—		9,649
Effect of dilutive securities — Contingently issuable shares	357		605
Effect of dilutive securities — Unvested non-participating shares	231		131
Diluted — Average shares outstanding	308,996		313,329

Earnings Per Share Attributable to STWD Common Stockholders:
Basic	$	0.16	$	1.04
Diluted	$	0.16	$	1.02

As of March 31, 2023 and 2022, participating shares of 13.5 million and 13.0 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 both March 31, 2023 and 2022 included 9.8 million potential shares of our common stock issuable upon redemption of the Class A Units in SPT Dolphin, as discussed in Note 17.

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19. 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
Three Months Ended March 31, 2023
Balance at January 1, 2023	$	20,955
OCI before reclassifications	( 1,104 )
Amounts reclassified from AOCI	—
Net period OCI	( 1,104 )
Balance at March 31, 2023	$	19,851
Three Months Ended March 31, 2022
Balance at January 1, 2022	$	40,953
OCI before reclassifications	( 5,284 )
Amounts reclassified from AOCI	—
Net period OCI	( 5,284 )
Balance at March 31, 2022	$	35,669

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20. 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 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.

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Loans held-for-sale, residential

We measure the fair value of our residential loans held-for-sale 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.

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.

Woodstar Fund Investments

The fair value of investments held by the Woodstar Fund is determined based on observable and unobservable market inputs. The initial fair value of the Woodstar Fund's investments at its November 5, 2021 establishment date was determined by reference to the purchase price paid by third party investors, which was consistent with both a recent external appraisal as well as our extensive marketing efforts to sell interests in the Woodstar Fund, plus working capital. The fair value of the Woodstar Fund's investments as of December 31, 2022 was determined by reference to an external appraisal as of that date.

For the properties, the third party appraisals applied the income capitalization approach with corroborative support from the sales comparison approach. The cost approach was not employed, as it is typically not emphasized by potential investors in the multifamily affordable housing sector. The income capitalization approach estimates an income stream for a property over a 10-year period and discounts this income plus a reversion (presumed sale) into a present value at a risk adjusted discount rate. Terminal capitalization rates and discount rates utilized in this approach are derived from market transactions as well as other financial and industry data.

For secured financing, the third party appraisal discounted the contractual cash flows at the interest rate at which such arrangements would bear if executed in the current market. The fair value of investment level working capital is assumed to approximate carrying value due to its primarily short-term monetary nature. The fair value of interest rate derivatives is determined using the methodology described in the Derivatives discussion below.

Internal valuations at interim quarter ends, including March 31, 2023, are prepared by management. The valuation of properties is based on a direct income capitalization approach, whereby a direct capitalization market rate is applied to annualized in-place net operating income at the portfolio level. The direct capitalization rate is initially calibrated to the

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implied rate from the latest appraisal and adjusted for subsequent changes in current market capitalization rates for sales of comparable multifamily properties. The valuations of secured financing agreements, working capital and interest rate derivatives are consistent with the methodologies described in the paragraph above.

Given the significance of the unobservable inputs used in the respective valuations, the Woodstar Fund’s investments have been classified within Level III of the fair value hierarchy.

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 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 March 31, 2023 and December 31, 2022, 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 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.

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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

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 consolidated balance sheets by their level in the fair value hierarchy as of March 31, 2023 and December 31, 2022 (amounts in thousands):


	March 31, 2023
	Total		Level I		Level II		Level III
Financial Assets:
Loans under fair value option	$	2,810,889	$	—	$	—	$	2,810,889
RMBS	111,069		—		—		111,069
CMBS	18,945		—		—		18,945
Equity security	10,134		10,134		—		—
Woodstar Fund investments	1,762,162		—		—		1,762,162
Domestic servicing rights	18,094		—		—		18,094
Derivative assets	96,619		—		96,619		—
VIE assets	50,526,390		—		—		50,526,390
Total	$	55,354,302	$	10,134	$	96,619	$	55,247,549
Financial Liabilities:
Derivative liabilities	$	78,407	$	—	$	78,407	$	—
VIE liabilities	48,838,686		—		44,005,146		4,833,540
Total	$	48,917,093	$	—	$	44,083,553	$	4,833,540


	December 31, 2022
	Total		Level I		Level II		Level III
Financial Assets:
Loans under fair value option	$	2,784,594	$	—	$	—	$	2,784,594
RMBS	113,386		—		—		113,386
CMBS	19,108		—		—		19,108
Equity security	9,840		9,840		—		—
Woodstar Fund investments	1,761,002		—		—		1,761,002
Domestic servicing rights	17,790		—		—		17,790
Derivative assets	108,621		—		108,621		—
VIE assets	52,453,041		—		—		52,453,041
Total	$	57,267,382	$	9,840	$	108,621	$	57,148,921
Financial Liabilities:
Derivative liabilities	$	91,404	$	—	$	91,404	$	—
VIE liabilities	50,754,355		—		45,248,412		5,505,943
Total	$	50,845,759	$	—	$	45,339,816	$	5,505,943

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The changes in financial assets and liabilities classified as Level III are as follows for the three months ended March 31, 2023 and 2022 (amounts in thousands):


Three Months Ended March 31, 2023	Loans at Fair Value		RMBS		CMBS		Woodstar Fund Investments		Domestic Servicing Rights		VIE Assets		VIE Liabilities		Total
January 1, 2023 balance	$	2,784,594	$	113,386	$	19,108	$	1,761,002	$	17,790	$	52,453,041	$	( 5,505,943 )	$	51,642,978
Total realized and unrealized gains (losses):
Included in earnings:
Change in fair value / gain on sale	8,901		—		( 19 )		1,160		304		( 1,926,651 )		153,053		( 1,763,252 )
Net accretion	—		1,222		—		—		—		—		—		1,222
Included in OCI	—		( 1,104 )		—		—		—		—		—		( 1,104 )
Purchases / Originations	69,200		—		—		—		—		—		—		69,200
Sales	( 13,439 )		—		—		—		—		—		—		( 13,439 )

Cash repayments / receipts	( 38,367 )		( 2,435 )		( 144 )		—		—		—		( 1,109 )		( 42,055 )

Transfers out of Level III	—		—		—		—		—		—		520,459		520,459



March 31, 2023 balance	$	2,810,889	$	111,069	$	18,945	$	1,762,162	$	18,094	$	50,526,390	$	( 4,833,540 )	$	50,414,009
Amount of unrealized gains (losses) attributable to assets still held at March 31, 2023:
Included in earnings	$	6,205	$	1,222	$	( 19 )	$	1,160	$	304	$	( 1,926,651 )	$	153,053	$	( 1,764,726 )
Included in OCI	$	—	$	( 1,104 )	$	—	$	—	$	—	$	—	$	—	$	( 1,104 )


Three Months Ended March 31, 2022	Loans at Fair Value		RMBS		CMBS		Woodstar Fund Investments		Domestic Servicing Rights		VIE Assets		VIE Liabilities		Total
January 1, 2022 balance	$	2,936,025	$	143,980	$	22,244	$	1,040,309	$	16,780	$	61,280,543	$	( 4,780,221 )	$	60,659,660
Total realized and unrealized gains (losses):
Included in earnings:
Change in fair value / gain on sale	( 125,783 )		—		( 692 )		223,851		1,084		( 3,896,602 )		474,911		( 3,323,231 )
Net accretion	—		2,605		—		—		—		—		—		2,605
Included in OCI	—		( 5,284 )		—		—		—		—		—		( 5,284 )
Purchases / Originations	2,266,699		—		—		—		—		—		—		2,266,699
Sales	( 2,278,467 )		—		—		—		—		—		—		( 2,278,467 )

Cash repayments / receipts	( 58,434 )		( 6,895 )		( 224 )		—		—		—		( 410 )		( 65,963 )
Transfers into Level III	93		—		—		—		—		—		( 203,880 )		( 203,787 )
Transfers out of Level III	( 373,111 )		—		—		—		—		—		54,610		( 318,501 )

Consolidation of VIEs	—		—		—		—		—		1,109,614		( 1,025,257 )		84,357
Deconsolidation of VIEs	—		—		530		—		—		( 730,012 )		959		( 728,523 )
March 31, 2022 balance	$	2,367,022	$	134,406	$	21,858	$	1,264,160	$	17,864	$	57,763,543	$	( 5,479,288 )	$	56,089,565
Amount of unrealized gains (losses) attributable to assets still held at March 31, 2022:
Included in earnings	$	( 82,883 )	$	2,605	$	( 162 )	$	223,851	$	1,084	$	( 3,896,602 )	$	474,911	$	( 3,277,196 )
Included in OCI	$	—	$	( 5,284 )	$	—	$	—	$	—	$	—	$	—	$	( 5,284 )

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 consolidated balance sheets (amounts in thousands):


	March 31, 2023				December 31, 2022
	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial assets not carried at fair value:
Loans	$	18,452,424	$	18,241,160	$	18,401,439	$	18,215,072
HTM debt securities	632,739		597,360		673,470		637,275
Financial liabilities not carried at fair value:
Secured financing agreements, CLOs and SASB	$	18,519,771	$	18,264,505	$	18,177,756	$	18,017,651
Unsecured senior notes	2,331,445		2,164,549		2,329,211		2,199,135

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 March 31, 2023		Valuation Technique	Unobservable Input	Range (Weighted Average) as of (1)
					March 31, 2023	December 31, 2022
Loans under fair value option	$	2,810,889	Discounted cash flow, market pricing	Coupon (d)	2.8 % - 9.3 % ( 4.5 %)	2.8 % - 9.3 % ( 4.5 %)
				Remaining contractual term (d)	5.0 - 39.3 years ( 28.0 years)	5.3 - 39.5 years ( 28.6 years)
				FICO score (a)	585 - 900 ( 749 )	585 - 900 ( 749 )
				LTV (b)	0 % - 92 % ( 67 %)	4 % - 92 % ( 67 %)
				Purchase price (d)	80.0 % - 108.6 % ( 101.4 %)	80.0 % - 108.6 % ( 101.4 %)
RMBS	111,069		Discounted cash flow	Constant prepayment rate (a)	2.8 % - 12.0 % ( 5.4 %)	2.8 % - 12.0 % ( 5.5 %)
				Constant default rate (b)	1.0 % - 4.7 % ( 2.0 %)	1.1 % - 4.4 % ( 2.0 %)
				Loss severity (b)	0 % - 115 % ( 24 %) (f)	0 % - 109 % ( 24 %) (f)
				Delinquency rate (c)	6 % - 27 % ( 15 %)	6 % - 29 % ( 16 %)
				Servicer advances (a)	30 % - 81 % ( 52 %)	31 % - 77.7 % ( 53 %)
				Annual coupon deterioration (b)	0 % - 2.7 % ( 0.1 %)	0 % - 2.6 % ( 0.1 %)
				Putback amount per projected total collateral loss (e)	0 % - 8 % ( 0.5 %)	0 % - 8 % ( 0.5 %)
CMBS	18,945		Discounted cash flow	Yield (b)	0 % - 515.8 % ( 10.9 %)	0 % - 117.5 % ( 10.1 %)
				Duration (c)	0 - 7.4 years ( 2.9 years)	0 - 7.7 years ( 3.0 years)
Woodstar Fund investments	1,762,162		Discounted cash flow	Discount rate - properties (b)	N/A	6.3 % - 6.8 % ( 6.5 %)
				Discount rate - debt (a)	5.4 % - 7.2 % ( 6.0 %)	5.6 % - 6.7 % ( 6.1 %)
				Terminal capitalization rate (b)	N/A	5.0 % - 5.5 % ( 5.1 %)
				Direct capitalization rate (b)	4.2 % ( 4.2 %)	4.2 % ( 4.2 %) (Implied)
Domestic servicing rights	18,094		Discounted cash flow	Debt yield (a)	8.25 % ( 8.25 %)	8.25 % ( 8.25 %)
				Discount rate (b)	15 % ( 15 %)	15 % ( 15 %)
VIE assets	50,526,390		Discounted cash flow	Yield (b)	0 % - 508.4 % ( 15.8 %)	0 % - 453.6 % ( 15.3 %)
				Duration (c)	0 - 10.7 years ( 2.4 years)	0 - 11.0 years ( 2.4 years)
VIE liabilities	4,833,540		Discounted cash flow	Yield (b)	0 % - 508.4 % ( 10.3 %)	0 % - 453.6 % ( 10.4 %)
				Duration (c)	0 - 10.7 years ( 2.0 years)	0 - 11.0 years ( 1.8 years)

______________________________________________________________________________________________________________________

(1) Unobservable inputs were weighted by the relative carrying value of the instruments as of March 31, 2023 and December 31, 2022.

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.

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(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.

(f) 11 % and 10 % of the portfolio falls within a range of 45 % - 80 % as of March 31, 2023 and December 31, 2022, respectively.

21. 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 both March 31, 2023 and December 31, 2022, approximately $ 3.2 billion 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 (benefit) for the three months ended March 31, 2023 and 2022 (dollars in thousands):


	For the Three Months Ended March 31,
	2023				2022
Federal statutory tax rate	$	10,703	21.0	%	$	80,191	21.0	%
REIT and other non-taxable income	( 17,727 )		( 34.8 )	%	( 79,198 )		( 20.7 )	%
State income taxes	( 2,308 )		( 4.5 )	%	326		0.1	%
Federal benefit of state tax deduction	485		1.0	%	( 69 )		—	%

Intra-entity transfers	—		—	%	( 3,868 )		( 1.0 )	%
Other	52		—	%	168		—	%
Effective tax rate	$	( 8,795 )	( 17.3 )	%	$	( 2,450 )	( 0.6 )	%

For the three months ended March 31, 2023, we have utilized the discrete effective tax rate method, as allowed by ASC 740-270-30-18, “Income Taxes—Interim Reporting,” to calculate our interim income tax benefit. The discrete method is applied when the application of the estimated annual effective tax rate is impractical because it is not possible to reliably estimate the annual effective tax rate. The discrete method treats the year to date period as if it was the annual period and determines the income tax expense or benefit on that basis. We believe that due to market dislocation and volatility, particularly with respect to the Company's residential assets that are housed in TRSs, the use of the discrete method is more appropriate at this time than the annual effective tax rate method due to the high degree of uncertainty in estimating annual pretax earnings.

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22. Commitments and Contingencies

As of March 31, 2023, our Commercial and Residential Lending Segment had future commercial loan funding commitments totaling $ 2.3 billion, of which we expect to fund $ 2.0 billion. These future funding commitments primarily relate to construction projects, capital improvements, tenant improvements and leasing commissions.

As of March 31, 2023, our Infrastructure Lending Segment had future infrastructure loan funding commitments totaling $ 136.8 million, including $ 121.3 million under revolvers and letters of credit (“LCs”), and $ 15.5 million under delayed draw term loans. As of March 31, 2023, $ 21.8 million of revolvers and LCs were outstanding. Additionally, as of March 31, 2023, our Infrastructure Lending Segment had outstanding loan purchase commitments of $ 18.0 million.

In connection with the Infrastructure Lending Segment acquisition, we assumed guarantees of certain borrowers’ performance under existing interest rate swaps. As of March 31, 2023, we had two outstanding guarantees on interest rate swaps maturing between June 2023 and June 2025. Refer to Note 13 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 consolidated financial statements.

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23. 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 March 31, 2023 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	$	375,601	$	54,760	$	—	$	547	$	—	$	430,908	$	—	$	430,908
Interest income from investment securities	32,521		1,338		—		22,785		—		56,644		( 38,007 )		18,637
Servicing fees	159		—		—		9,834		—		9,993		( 2,737 )		7,256
Rental income	1,981		—		23,695		6,613		—		32,289		—		32,289
Other revenues	344		216		103		383		278		1,324		—		1,324
Total revenues	410,606		56,314		23,798		40,162		278		531,158		( 40,744 )		490,414
Costs and expenses:
Management fees	218		—		—		—		39,322		39,540		—		39,540
Interest expense	226,393		32,818		12,599		7,429		56,272		335,511		( 210 )		335,301
General and administrative	11,893		3,964		952		20,047		5,252		42,108		—		42,108
Acquisition and investment pursuit costs	207		8		—		54		—		269		—		269
Costs of rental operations	2,451		—		5,549		3,666		—		11,666		—		11,666
Depreciation and amortization	1,631		30		8,108		2,647		—		12,416		—		12,416
Credit loss provision, net	30,790		12,404		—		—		—		43,194		—		43,194
Other expense	832		—		—		16		—		848		—		848
Total costs and expenses	274,415		49,224		27,208		33,859		100,846		485,552		( 210 )		485,342
Other income (loss):
Change in net assets related to consolidated VIEs	—		—		—		—		—		—		41,138		41,138
Change in fair value of servicing rights	—		—		—		( 50 )		—		( 50 )		354		304
Change in fair value of investment securities, net	14,866		—		—		( 14,459 )		—		407		( 325 )		82
Change in fair value of mortgage loans, net	8,262		—		—		639		—		8,901		—		8,901
Income from affordable housing fund investments	—		—		12,965		—		—		12,965		—		12,965
Earnings (loss) from unconsolidated entities	939		1,740		—		679		—		3,358		( 633 )		2,725
Gain on sale of investments and other assets, net	—		—		—		190		—		190		—		190
(Loss) gain on derivative financial instruments, net	( 34,363 )		( 51 )		( 1,217 )		( 3,467 )		6,270		( 32,828 )		—		( 32,828 )
Foreign currency gain, net	14,930		75		14		—		—		15,019		—		15,019
Loss on extinguishment of debt	( 61 )		—		—		—		—		( 61 )		—		( 61 )
Other loss, net	( 2,541 )		—		—		—		—		( 2,541 )		—		( 2,541 )
Total other income (loss)	2,032		1,764		11,762		( 16,468 )		6,270		5,360		40,534		45,894
Income (loss) before income taxes	138,223		8,854		8,352		( 10,165 )		( 94,298 )		50,966		—		50,966
Income tax benefit	6,557		46		—		2,192		—		8,795		—		8,795
Net income (loss)	144,780		8,900		8,352		( 7,973 )		( 94,298 )		59,761		—		59,761
Net income attributable to non-controlling interests	( 3 )		—		( 6,978 )		( 806 )		—		( 7,787 )		—		( 7,787 )
Net income (loss) attributable to Starwood Property Trust, Inc .	$	144,777	$	8,900	$	1,374	$	( 8,779 )	$	( 94,298 )	$	51,974	$	—	$	51,974

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The table below presents our results of operations for the three months ended March 31, 2022 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	$	202,470	$	26,983	$	—	$	4,166	$	—	$	233,619	$	—	$	233,619
Interest income from investment securities	20,836		747		—		27,389		—		48,972		( 34,989 )		13,983
Servicing fees	136		—		—		14,071		—		14,207		( 4,215 )		9,992
Rental income	1,686		—		22,365		7,529		—		31,580		—		31,580
Other revenues	52		68		50		4,654		—		4,824		( 6 )		4,818
Total revenues	225,180		27,798		22,415		57,809		—		333,202		( 39,210 )		293,992
Costs and expenses:
Management fees	277		—		—		—		55,018		55,295		—		55,295
Interest expense	68,602		11,930		6,081		6,210		33,842		126,665		( 214 )		126,451
General and administrative	11,602		3,511		1,056		23,443		4,628		44,240		81		44,321
Acquisition and investment pursuit costs	499		1		5		( 83 )		—		422		—		422
Costs of rental operations	519		—		5,001		3,770		—		9,290		—		9,290
Depreciation and amortization	294		105		8,219		3,029		—		11,647		—		11,647
Credit loss reversal, net	( 3,299 )		( 359 )		—		—		—		( 3,658 )		—		( 3,658 )
Other expense	—		—		55		—		—		55		—		55
Total costs and expenses	78,494		15,188		20,417		36,369		93,488		243,956		( 133 )		243,823
Other income (loss):
Change in net assets related to consolidated VIEs	—		—		—		—		—		—		26,749		26,749
Change in fair value of servicing rights	—		—		—		( 217 )		—		( 217 )		1,301		1,084
Change in fair value of investment securities, net	( 2,105 )		—		—		( 9,291 )		—		( 11,396 )		11,041		( 355 )
Change in fair value of mortgage loans, net	( 116,228 )		—		—		( 9,555 )		—		( 125,783 )		—		( 125,783 )
Income from affordable housing fund investments	—		—		234,041		—		—		234,041		—		234,041
(Loss) earnings from unconsolidated entities	( 1,340 )		345		—		151		—		( 844 )		( 66 )		( 910 )
Gain on sale of investments and other assets, net	86,610		—		—		11,858		—		98,468		—		98,468
Gain (loss) on derivative financial instruments, net	118,395		632		17,546		27,863		( 37,168 )		127,268		—		127,268
Foreign currency (loss) gain, net	( 27,254 )		( 28 )		1		—		—		( 27,281 )		—		( 27,281 )
Loss on extinguishment of debt	( 206 )		( 469 )		—		( 148 )		—		( 823 )		—		( 823 )
Other (loss) income, net	( 788 )		—		—		—		—		( 788 )		25		( 763 )
Total other income (loss)	57,084		480		251,588		20,661		( 37,168 )		292,645		39,050		331,695
Income (loss) before income taxes	203,770		13,090		253,586		42,101		( 130,656 )		381,891		( 27 )		381,864
Income tax benefit (provision)	5,140		4		—		( 2,694 )		—		2,450		—		2,450
Net income (loss)	208,910		13,094		253,586		39,407		( 130,656 )		384,341		( 27 )		384,314
Net income attributable to non-controlling interests	( 3 )		—		( 52,411 )		( 7,328 )		—		( 59,742 )		27		( 59,715 )
Net income (loss) attributable to Starwood Property Trust, Inc .	$	208,907	$	13,094	$	201,175	$	32,079	$	( 130,656 )	$	324,599	$	—	$	324,599

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The table below presents our consolidated balance sheet as of March 31, 2023 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	$	13,903	$	30,948	$	27,742	$	16,910	$	306,296	$	395,799	$	—	$	395,799
Restricted cash	9,872		33,848		943		4,632		86,342		135,637		—		135,637
Loans held-for-investment, net	16,085,101		2,357,831		—		9,492		—		18,452,424		—		18,452,424
Loans held-for-sale	2,733,358		—		—		77,531		—		2,810,889		—		2,810,889
Investment securities	1,257,966		20,841		—		1,149,916		—		2,428,723		( 1,655,836 )		772,887
Properties, net	464,183		—		860,220		119,576		—		1,443,979		—		1,443,979
Investments of consolidated affordable housing fund	—		—		1,762,162		—		—		1,762,162		—		1,762,162
Investments in unconsolidated entities	24,955		48,819		—		33,178		—		106,952		( 13,883 )		93,069
Goodwill	—		119,409		—		140,437		—		259,846		—		259,846
Intangible assets	11,273		—		28,442		65,785		—		105,500		( 38,704 )		66,796
Derivative assets	90,967		219		3,025		2,408		—		96,619		—		96,619
Accrued interest receivable	171,304		8,408		967		1,356		60		182,095		( 288 )		181,807
Other assets	218,197		3,658		57,323		20,850		56,048		356,076		—		356,076
VIE assets, at fair value	—		—		—		—		—		—		50,526,390		50,526,390
Total Assets	$	21,081,079	$	2,623,981	$	2,740,824	$	1,642,071	$	448,746	$	28,536,701	$	48,817,679	$	77,354,380
Liabilities and Equity
Liabilities:
Accounts payable, accrued expenses and other liabilities	$	154,121	$	19,433	$	13,601	$	23,093	$	67,082	$	277,330	$	—	$	277,330
Related-party payable	—		—		—		—		39,583		39,583		—		39,583
Dividends payable	—		—		—		—		152,267		152,267		—		152,267
Derivative liabilities	21,283		146		—		—		56,978		78,407		—		78,407
Secured financing agreements, net	11,097,202		1,048,486		790,299		591,279		1,340,784		14,868,050		( 21,062 )		14,846,988
Collateralized loan obligations and single asset securitization, net	2,858,185		814,598		—		—		—		3,672,783		—		3,672,783
Unsecured senior notes, net	—		—		—		—		2,331,445		2,331,445		—		2,331,445
VIE liabilities, at fair value	—		—		—		—		—		—		48,838,686		48,838,686
Total Liabilities	14,130,791		1,882,663		803,900		614,372		3,988,139		21,419,865		48,817,624		70,237,489
Temporary Equity: Redeemable non-controlling interests	—		—		364,418		—		—		364,418		—		364,418
Permanent Equity:
Starwood Property Trust, Inc. Stockholders’ Equity:
Common stock	—		—		—		—		3,197		3,197		—		3,197
Additional paid-in capital	1,702,444		631,627		( 415,147 )		( 639,082 )		4,546,667		5,826,509		—		5,826,509
Treasury stock	—		—		—		—		( 138,022 )		( 138,022 )		—		( 138,022 )
Retained earnings (accumulated deficit)	5,227,875		109,691		1,779,019		1,505,340		( 7,951,235 )		670,690		—		670,690
Accumulated other comprehensive income	19,851		—		—		—		—		19,851		—		19,851
Total Starwood Property Trust, Inc. Stockholders’ Equity	6,950,170		741,318		1,363,872		866,258		( 3,539,393 )		6,382,225		—		6,382,225
Non-controlling interests in consolidated subsidiaries	118		—		208,634		161,441		—		370,193		55		370,248
Total Permanent Equity	6,950,288		741,318		1,572,506		1,027,699		( 3,539,393 )		6,752,418		55		6,752,473
Total Liabilities and Equity	$	21,081,079	$	2,623,981	$	2,740,824	$	1,642,071	$	448,746	$	28,536,701	$	48,817,679	$	77,354,380

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The table below presents our consolidated balance sheet as of December 31, 2022 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	$	68,593	$	31,153	$	31,194	$	39,023	$	91,098	$	261,061	$	—	$	261,061
Restricted cash	18,556		31,133		981		5,259		65,143		121,072		—		121,072
Loans held-for-investment, net	16,038,930		2,352,932		—		9,577		—		18,401,439		—		18,401,439
Loans held-for-sale	2,763,458		—		—		21,136		—		2,784,594		—		2,784,594
Investment securities	1,250,893		66,204		—		1,165,628		—		2,482,725		( 1,666,921 )		815,804
Properties, net	463,492		—		864,778		121,716		—		1,449,986		—		1,449,986
Investments of consolidated affordable housing fund	—		—		1,761,002		—		—		1,761,002		—		1,761,002
Investments in unconsolidated entities	25,326		47,078		—		33,030		—		105,434		( 13,542 )		91,892
Goodwill	—		119,409		—		140,437		—		259,846		—		259,846
Intangible assets	11,908		—		29,613		66,310		—		107,831		( 39,058 )		68,773
Derivative assets	101,082		122		1,803		5,614		—		108,621		—		108,621
Accrued interest receivable	151,852		9,856		863		1,105		5,120		168,796		( 275 )		168,521
Other assets	170,177		3,614		54,313		12,929		56,444		297,477		—		297,477
VIE assets, at fair value	—		—		—		—		—		—		52,453,041		52,453,041
Total Assets	$	21,064,267	$	2,661,501	$	2,744,547	$	1,621,764	$	217,805	$	28,309,884	$	50,733,245	$	79,043,129
Liabilities and Equity
Liabilities:
Accounts payable, accrued expenses and other liabilities	$	146,897	$	20,656	$	11,716	$	46,377	$	73,353	$	298,999	$	—	$	298,999
Related-party payable	—		—		—		—		41,186		41,186		—		41,186
Dividends payable	—		—		—		—		151,511		151,511		—		151,511
Derivative liabilities	21,523		105		—		—		69,776		91,404		—		91,404
Secured financing agreements, net	10,804,970		1,042,679		789,719		543,256		1,342,074		14,522,698		( 21,166 )		14,501,532
Collateralized loan obligations and single asset securitization, net	2,862,211		814,013		—		—		—		3,676,224		—		3,676,224
Unsecured senior notes, net	—		—		—		—		2,329,211		2,329,211		—		2,329,211
VIE liabilities, at fair value	—		—		—		—		—		—		50,754,355		50,754,355
Total Liabilities	13,835,601		1,877,453		801,435		589,633		4,007,111		21,111,233		50,733,189		71,844,422
Temporary Equity: Redeemable non-controlling interests	—		—		362,790		—		—		362,790		—		362,790
Permanent Equity:
Starwood Property Trust, Inc. Stockholders’ Equity:
Common stock	—		—		—		—		3,181		3,181		—		3,181
Additional paid-in capital	2,124,496		683,258		( 405,955 )		( 646,662 )		4,051,950		5,807,087		—		5,807,087
Treasury stock	—		—		—		—		( 138,022 )		( 138,022 )		—		( 138,022 )
Retained earnings (accumulated deficit)	5,083,100		100,790		1,777,643		1,514,119		( 7,706,415 )		769,237		—		769,237
Accumulated other comprehensive income	20,955		—		—		—		—		20,955		—		20,955
Total Starwood Property Trust, Inc. Stockholders’ Equity	7,228,551		784,048		1,371,688		867,457		( 3,789,306 )		6,462,438		—		6,462,438
Non-controlling interests in consolidated subsidiaries	115		—		208,634		164,674		—		373,423		56		373,479
Total Permanent Equity	7,228,666		784,048		1,580,322		1,032,131		( 3,789,306 )		6,835,861		56		6,835,917
Total Liabilities and Equity	$	21,064,267	$	2,661,501	$	2,744,547	$	1,621,764	$	217,805	$	28,309,884	$	50,733,245	$	79,043,129

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24. Subsequent Events

Our significant events subsequent to March 31, 2023 were as follows:

Convertible Senior Notes

On April 1, 2023, the entirety of our $ 250.0 million of 4.375 % Convertible Senior Notes matured and was repaid in cash.

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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, 2022 (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 March 31, 2023 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.

Economic Environment

The three months ended March 31, 2023 have been characterized by continued volatility in global markets, driven by investor concerns over inflation, rising interest rates, slowing economic growth, and geopolitical uncertainty. Recent bank failures and consolidations, and other events affecting financial institutions, have also contributed to volatility in global markets and resulted in diminished liquidity and credit availability in the market broadly.

Continued inflation has prompted the Federal Reserve to take monetary policy tightening actions, including repeatedly raising interest rates, which has created further uncertainty for the economy and challenges for our borrowers. Although our business model is such that rising interest rates will, all else equal, correlate to increases in our net income, increases in interest rates may adversely affect our existing borrowers and lead to nonperformance. Additionally, rising rates and increasing costs

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may dampen consumer spending and slow income growth, which may negatively impact the collateral underlying certain of our loans. It remains difficult to predict the full impact of recent events and any future changes in interest rates or inflation.

In addition, following the onset of the COVID-19 pandemic, the U.S. office sector has been adversely affected by the increase in remote working arrangements and, over the past several years, the retail sector has been adversely affected by electronic commerce. These negative factors have been considered in the determination of our current expected credit loss (“CECL”) allowance as discussed in Note 4 to the Condensed Consolidated Financial Statements.

Developments During the First Quarter of 2023

Commercial and Residential Lending Segment

• Originated a $58.5 million mezzanine loan for the acquisition and residential conversion of a property located in Hawaii, of which the Company funded $37.5 million.

• Funded $222.2 million of previously originated commercial loan commitments.

• Received gross proceeds of $256.6 million ($127.2 million, net of debt repayments) from maturities and principal repayments on our commercial loans.

• Amended a commercial credit facility resulting in an upsize of $200.0 million.

Infrastructure Lending Segment

• Acquired $160.0 million of infrastructure loans and funded $14.8 million of pre-existing infrastructure loan commitments.

• Received proceeds of $203.5 million from principal repayments on our infrastructure loans and bonds.

Investing and Servicing Segment

• Originated commercial conduit loans of $73.8 million.

• Received proceeds of $13.4 million from sales of previously originated commercial conduit loans.

• Obtained two new special servicing assignments for CMBS trusts with a total unpaid principal balance of $1.5 billion, bringing our total named special servicing portfolio to $106.7 billion.

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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.”

The following table compares our summarized results of operations for the three months ended March 31, 2023, December 31, 2022 and March 31, 2022 by business segment (amounts in thousands):


							$ Change		$ Change
	For the Three Months Ended						March 31, 2023 vs.		March 31, 2023 vs.
Revenues:	March 31, 2023		December 31, 2022		March 31, 2022		December 31, 2022		March 31, 2022
Commercial and Residential Lending Segment	$	410,606	$	376,426	$	225,180	$	34,180	$	185,426
Infrastructure Lending Segment	56,314		50,854		27,798		5,460		28,516
Property Segment	23,798		23,801		22,415		(3)		1,383
Investing and Servicing Segment	40,162		44,544		57,809		(4,382)		(17,647)
Corporate	278		66		—		212		278
Securitization VIE eliminations	(40,744)		(41,094)		(39,210)		350		(1,534)
	490,414		454,597		293,992		35,817		196,422
Costs and expenses:
Commercial and Residential Lending Segment	274,415		244,276		78,494		30,139		195,921
Infrastructure Lending Segment	49,224		33,021		15,188		16,203		34,036
Property Segment	27,208		26,635		20,417		573		6,791
Investing and Servicing Segment	33,859		32,632		36,369		1,227		(2,510)
Corporate	100,846		93,812		93,488		7,034		7,358
Securitization VIE eliminations	(210)		(193)		(133)		(17)		(77)
	485,342		430,183		243,823		55,159		241,519
Other income (loss):
Commercial and Residential Lending Segment	2,032		(28,867)		57,084		30,899		(55,052)
Infrastructure Lending Segment	1,764		1,611		480		153		1,284
Property Segment	11,762		97,790		251,588		(86,028)		(239,826)
Investing and Servicing Segment	(16,468)		21,800		20,661		(38,268)		(37,129)
Corporate	6,270		(968)		(37,168)		7,238		43,438
Securitization VIE eliminations	40,534		40,900		39,050		(366)		1,484
	45,894		132,266		331,695		(86,372)		(285,801)
Income (loss) before income taxes:
Commercial and Residential Lending Segment	138,223		103,283		203,770		34,940		(65,547)
Infrastructure Lending Segment	8,854		19,444		13,090		(10,590)		(4,236)
Property Segment	8,352		94,956		253,586		(86,604)		(245,234)
Investing and Servicing Segment	(10,165)		33,712		42,101		(43,877)		(52,266)
Corporate	(94,298)		(94,714)		(130,656)		416		36,358
Securitization VIE eliminations	—		(1)		(27)		1		27
	50,966		156,680		381,864		(105,714)		(330,898)
Income tax benefit	8,795		12,524		2,450		(3,729)		6,345
Net income attributable to non-controlling interests	(7,787)		(29,177)		(59,715)		21,390		51,928
Net income attributable to Starwood Property Trust, Inc.	$	51,974	$	140,027	$	324,599	$	(88,053)	$	(272,625)

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Three Months Ended March 31, 2023 Compared to the Three Months Ended December 31, 2022

Commercial and Residential Lending Segment

Revenues

For the three months March 31, 2023, revenues of our Commercial and Residential Lending Segment increased $34.2 million to $410.6 million, compared to $376.4 million for the three months ended December 31, 2022. This increase was primarily due to an increase in interest income from loans of $31.5 million and investment securities of $2.4 million. The increase in interest income from loans reflects (i) a $32.2 million increase from commercial loans reflecting higher average index rates, slightly offset by (ii) a $0.7 million decrease from residential loans. The increase in interest income from investment securities was primarily due to higher average index rates on certain commercial investments and higher RMBS yields.

Costs and Expenses

For the three months ended March 31, 2023, costs and expenses of our Commercial and Residential Lending Segment increased $30.1 million to $274.4 million, compared to $244.3 million for the three months ended December 31, 2022. This increase was primarily due to a $27.2 million increase in interest expense associated with the various secured financing facilities used to fund a portion of this segment’s investment portfolio and a $4.0 million increase in the credit loss provision. The increase in interest expense was primarily due to higher average index rates and borrowings outstanding.

Net Interest Income (amounts in thousands)


	For the Three Months Ended
	March 31, 2023		December 31, 2022		Change
Interest income from loans	$	375,601	$	344,104	$	31,497
Interest income from investment securities	32,521		30,138		2,383
Interest expense	(226,393)		(199,191)		(27,202)
Net interest income	$	181,729	$	175,051	$	6,678

For the three months ended March 31, 2023, net interest income of our Commercial and Residential Lending Segment increased $6.6 million to $181.7 million, compared to $175.1 million for the three months ended December 31, 2022. This increase reflects the 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 three months ended March 31, 2023 and December 31, 2022, the weighted average unlevered yields on the Commercial and Residential Lending Segment’s loans and investment securities, excluding retained RMBS and loans for which interest income is not recognized, were as follows:


	For the Three Months Ended
	March 31, 2023		December 31, 2022
Commercial	8.6	%	8.0	%
Residential	4.9	%	4.9	%
Overall	8.1	%	7.6	%

The weighted average unlevered yield on our commercial loans increased primarily due to higher average index rates while the weighted average unlevered yield on our residential loans was relatively unchanged during the three months ended March 31, 2023.

During the three months ended March 31, 2023 and December 31, 2022, the Commercial and Residential Lending Segment’s weighted average secured borrowing rates, inclusive of the amortization of deferred financing fees, were 6.7% and 5.8%, respectively. The increase in borrowing rates primarily reflects higher average index rates. Interest rate hedges had the effect of reducing these weighted average borrowing costs to 6.2% and 5.5% during the three months ended March 31, 2023 and December 31, 2022, respectively.

Other Income (Loss)

For the three months ended March 31, 2023, other income (loss) of our Commercial and Residential Lending Segment improved $30.9 million to income of $2.0 million compared to a loss of $28.9 million for the three months ended December 31, 2022. This improvement was primarily due to (i) a $92.5 million decreased loss on derivatives, (ii) a $32.9 million favorable

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change in fair value of residential loans and (iii) a $9.4 million decreased loss from an unconsolidated mortgage originator sold in January 2023, partially offset by (iv) a $101.1 million decrease in foreign currency gains. The decreased loss on derivatives in the first quarter of 2023 reflects a $115.3 million decreased loss on foreign currency hedges, partially offset by a $22.8 million increased loss on interest rate swaps principally related to residential loans. The interest rate swaps are used primarily to hedge our interest rate risk on residential loans held-for-sale and to fix our interest rate payments on certain variable rate borrowings which fund fixed rate investments. 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 decreased loss on foreign currency hedges and the decrease in foreign currency gains reflect the weakening of the U.S. dollar against the pound sterling (“GBP”) and Euro (“EUR”), partially offset by a strengthening against the Australian dollar (“AUD”), in the first quarter of 2023 compared to a lesser overall weakening of the U.S. dollar against each of those currencies in the fourth quarter of 2022.

Infrastructure Lending Segment

Revenues

For the three months ended March 31, 2023, revenues of our Infrastructure Lending Segment increased $5.4 million to $56.3 million, compared to $50.9 million for the three months ended December 31, 2022. This was primarily due to an increase in interest income from loans of $4.6 million reflecting higher average index rates.

Costs and Expense s

For the three months ended March 31, 2023, costs and expenses of our Infrastructure Lending Segment increased $16.2 million to $49.2 million, compared to $33.0 million for the three months ended December 31, 2022. The increase was primarily due to a $12.6 million increase in credit loss provision and a $3.1 million increase in interest expense associated with the various secured financing facilities used to fund this segment’s investment portfolio. The increase in the credit loss provision was primarily due to specific allowances for a credit-deteriorated loan and investment security provided during the first quarter of 2023. The increase in interest expense was primarily due to higher average index rates.

Net Interest Income (amounts in thousands)


	For the Three Months Ended
	March 31, 2023		December 31, 2022		Change
Interest income from loans	$	54,760	$	50,133	$	4,627
Interest income from investment securities	1,338		557		781
Interest expense	(32,818)		(29,706)		(3,112)
Net interest income	$	23,280	$	20,984	$	2,296

For the three months ended March 31, 2023, net interest income of our Infrastructure Lending Segment increased $2.3 million to $23.3 million, compared to $21.0 million for the three months ended December 31, 2022. The increase reflects the increase in interest income, partially offset by the increase in interest expense on the secured financing facilities, both as discussed in the sections above.

During the three months ended March 31, 2023 and December 31, 2022, the weighted average unlevered yields on the Infrastructure Lending Segment’s loans and investment securities, excluding those for which interest income is not recognized, were 9.4% and 8.2%, respectively.

During the three months ended March 31, 2023 and December 31, 2022, the Infrastructure Lending Segment’s weighted average secured borrowing rates, inclusive of the amortization of deferred financing fees, were 7.1% and 6.2%, respectively.

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Other Income

For the three months ended March 31, 2023, other income of our Infrastructure Lending Segment increased $0.2 million to $1.8 million, compared to $1.6 million for the three months ended December 31, 2022.

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	$	—	$	(41)	$	—	$	—	$	41
Medical Office Portfolio	(40)		722		(3,136)		—		(3,898)


Woodstar Fund	12		(81)		—		(84,037)		(83,944)
Other/Corporate	25		(27)		—		1,145		1,197
Total	$	(3)	$	573	$	(3,136)	$	(82,892)	$	(86,604)

See Notes 6 and 7 to the Condensed Consolidated Financial Statements for a description of the above-referenced Property Segment portfolios and fund.

Revenues

For the three months ended March 31, 2023, revenues of our Property Segment were relatively unchanged at $23.8 million for both the three months ended March 31, 2023 and December 31, 2022.

Costs and Expenses

For the three months ended March 31, 2023, costs and expenses of our Property Segment increased $0.6 million to $27.2 million, compared to $26.6 million for the three months ended December 31, 2022. The increase is primarily due to an increase of $1.1 million in interest expense reflecting higher index rates on variable rate borrowings of the Medical Office Portfolio.

Other Income

For the three months ended March 31, 2023, other income of our Property Segment decreased $86.0 million to $11.8 million compared to $97.8 million for the three months ended December 31, 2022. The decrease is primarily due to (i) an $84.0 million decrease in income attributable to investments of the Woodstar Fund, mainly reflecting lower unrealized increases in fair value during the first quarter of 2023, and (ii) a $3.1 million unfavorable change in (loss) gain on derivatives which primarily hedge our interest rate risk on borrowings secured by our Medical Office Portfolio.

Investing and Servicing Segment

Revenues

For the three months ended March 31, 2023, revenues of our Investing and Servicing Segment decreased $4.3 million to $40.2 million, compared to $44.5 million for the three months ended December 31, 2022. The decrease primarily reflects a $3.5 million decrease in servicing fees.

Costs and Expenses

For the three months ended March 31, 2023, costs and expenses of our Investing and Servicing Segment increased $1.3 million to $33.9 million, compared to $32.6 million for the three months ended December 31, 2022.

Other (Loss) Income

For the three months ended March 31, 2023, other income of our Investing and Servicing Segment decreased $38.3 million to a loss of $16.5 million, compared to income of $21.8 million for the three months ended December 31, 2022. The decrease in other income was primarily due to (i) a $25.3 million decreased gain on sales of operating properties, (ii) a $10.1 million greater decrease in fair value of CMBS investments and (iii) a $4.5 million lesser increase in fair value of conduit loans.

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Corporate and Other Items

Corporate Costs and Expenses

For the three months ended March 31, 2023, corporate expenses increased $7.0 million to $100.8 million, compared to $93.8 million for the three months ended December 31, 2022. This increase was primarily due to an $8.3 million increase in interest expense attributable to higher index rates on our term loans.

Corporate Other Income (Loss)

For the three months ended March 31, 2023, corporate other income (loss) improved $7.3 million to income of $6.3 million, compared to a loss of $1.0 million for the three months ended December 31, 2022. This improvement was due to a favorable change in the gain (loss) on our fixed-to-floating interest rate swaps which hedge a portion of our unsecured senior notes.

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 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 March 31, 2023, our income tax benefit decreased $3.7 million to $8.8 million compared to $12.5 million for the three months ended December 31, 2022 due to lower tax losses of our TRSs in the first quarter of 2023. The tax losses in both quarters were primarily attributable to net unrealized losses on our residential loans.

Net Income Attributable to Non-controlling Interests

During the three months ended March 31, 2023, net income attributable to non-controlling interests decreased $21.4 million to $7.8 million, compared to $29.2 million during the three months ended December 31, 2022. The decrease was primarily due to non-controlling interests in lower income, reflecting lower unrealized gains in fair value, of the Woodstar Fund in the first quarter of 2023.

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Three Months Ended March 31, 2023 Compared to the Three Months Ended March 31, 2022

Commercial and Residential Lending Segment

Revenues

For the three months ended March 31, 2023, revenues of our Commercial and Residential Lending Segment increased $185.4 million to $410.6 million, compared to $225.2 million for the three months ended March 31, 2022. This increase was primarily due to increases in interest income from loans of $173.1 million and investment securities of $11.7 million. The increase in interest income from loans reflects (i) a $166.6 million increase from commercial loans, reflecting higher average index rates and loan balances, and (ii) a $6.5 million increase from residential loans principally due to higher average balances, reflecting the timing of purchases and securitizations, and higher average coupon rates. The increase in interest income from investment securities was primarily due to higher RMBS yields and average investment balances and the effect of higher index rates on certain commercial investments.

Costs and Expenses

For the three months ended March 31, 2023, costs and expenses of our Commercial and Residential Lending Segment increased $195.9 million to $274.4 million, compared to $78.5 million for the three months ended March 31, 2022. This increase was primarily due to (i) a $157.8 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 $34.1 million increase in credit loss provision from a reversal of $3.3 million in the first quarter of 2022 to a provision of $30.8 million in first quarter of 2023. The increase in interest expense was primarily due to higher average index rates and higher average borrowings outstanding. The credit loss provision in the first quarter of 2023 was primarily due to rising index rates and its potential effect on borrower cash flows in our estimate of current expected credit losses.

Net Interest Income (amounts in thousands)


	For the Three Months Ended March 31,
	2023		2022		Change
Interest income from loans	$	375,601	$	202,470	$	173,131
Interest income from investment securities	32,521		20,836		11,685
Interest expense	(226,393)		(68,602)		(157,791)
Net interest income	$	181,729	$	154,704	$	27,025

For the three months ended March 31, 2023, net interest income of our Commercial and Residential Lending Segment increased $27.0 million to $181.7 million, compared to $154.7 million for the three months ended March 31, 2022. This increase reflects the 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 three months ended March 31, 2023 and 2022, the weighted average unlevered yields on the Commercial and Residential Lending Segment’s loans and investment securities, excluding retained RMBS and loans for which interest income is not recognized, were as follows:


	For the Three Months Ended March 31,
	2023		2022
Commercial	8.6	%	5.2	%
Residential	4.9	%	4.3	%
Overall	8.1	%	5.1	%

The weighted average unlevered yield on our commercial loans increased primarily due to higher average index rates. The unlevered yield on our residential loans increased primarily due to higher weighted average coupons.

During the three months ended March 31, 2023 and 2022, the Commercial and Residential Lending Segment’s weighted average secured borrowing rates, inclusive of the amortization of deferred financing fees, were 6.7% and 2.4%, respectively. The increase in borrowing rates primarily reflects higher average index rates. Interest rate hedges had the effect of adjusting these weighted average borrowing costs to 6.2% and 2.5% during the three months ended March 31, 2023 and March 31, 2022, respectively.

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Other Income

For the three months ended March 31, 2023, other income of our Commercial and Residential Lending Segment decreased $55.1 million to $2.0 million, compared to $57.1 million for the three months ended March 31, 2022. This decrease primarily reflects (i) a $152.8 million unfavorable change in (loss) gain on derivatives and (ii) the nonrecurrence of an $86.6 million gain on sale of a foreclosed property in the first quarter of 2022, partially offset by (iii) a $124.5 million favorable change in fair value of residential loans, (iv) a $41.2 million favorable change in foreign currency gain (loss) and (v) a $17.0 million favorable change in fair value of primarily RMBS investment securities. The unfavorable change in (loss) gain on derivatives during the three months ended March 31, 2023 reflects a $118.3 million unfavorable change in interest rate swaps principally related to residential loans, which partially offsets the favorable change in fair value of those loans, and a $34.5 million unfavorable change in foreign currency hedges. The interest rate swaps are used primarily to hedge our interest rate risk on residential loans held-for-sale and to fix our interest rate payments on certain variable rate borrowings which fund fixed rate investments. 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 unfavorable change in foreign currency hedges and the favorable change in foreign currency gain (loss) reflect the weakening of the U.S. dollar against the GBP and EUR, partially offset by a strengthening against the AUD, during the first quarter of 2023 compared to a strengthening of the U.S. dollar against the GBP and EUR, partially offset by a weakening against the AUD, in the first quarter of 2022.

Infrastructure Lending Segment

Revenues

For the three months ended March 31, 2023, revenues of our Infrastructure Lending Segment increased $28.5 million to $56.3 million, compared to $27.8 million for the three months ended March 31, 2022. This increase was primarily due to an increase in interest income from loans of $27.8 million, principally due to higher average index rates and loan balances.

Costs and Expense s

For the three months ended March 31, 2023, costs and expenses of our Infrastructure Lending Segment increased $34.0 million to $49.2 million, compared to $15.2 million for the three months ended March 31, 2022. The increase was primarily due to (i) a $20.9 million increase in interest expense associated with the various secured financing facilities used to fund this segment’s investment portfolio and (ii) a $12.8 million increase in credit loss provision. The increase in interest expense was primarily due to higher average index rates and borrowings outstanding. The increase in the credit loss provision was primarily due to specific allowances for a credit-deteriorated loan and investment security provided during the first quarter of 2023.

Net Interest Income (amounts in thousands)


	For the Three Months Ended March 31,
	2023		2022		Change
Interest income from loans	$	54,760	$	26,983	$	27,777
Interest income from investment securities	1,338		747		591
Interest expense	(32,818)		(11,930)		(20,888)
Net interest income	$	23,280	$	15,800	$	7,480

For the three months ended March 31, 2023, net interest income of our Infrastructure Lending Segment increased $7.5 million to $23.3 million, compared to $15.8 million for the three months ended March 31, 2022. The increase reflects the increase in interest income, partially offset by the increase in interest expense on the secured financing facilities, both as discussed in the sections above.

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During the three months ended March 31, 2023 and 2022, the weighted average unlevered yields on the Infrastructure Lending Segment’s loans and investment securities, excluding those for which interest income is not recognized, were 9.4% and 5.0%, respectively.

During the three months ended March 31, 2023 and 2022, the Infrastructure Lending Segment’s weighted average secured borrowing rates, inclusive of the amortization of deferred financing fees, were 7.1% and 2.8%, respectively.

Other Income

For the three months ended March 31, 2023 and 2022, other income of our Infrastructure Lending Segment increased $1.3 million to $1.8 million, compared to $0.5 million for the three months ended March 31, 2022. The increase primarily reflects a $1.4 million increase in earnings from unconsolidated entities.

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	$	691	$	5	$	—	$	—	$	686
Medical Office Portfolio	634		6,916		(18,763)		—		(25,045)


Woodstar Fund	15		(19)		—		(221,076)		(221,042)
Other/Corporate	43		(111)		—		13		167
Total	$	1,383	$	6,791	$	(18,763)	$	(221,063)	$	(245,234)

Revenues

For the three months ended March 31, 2023, revenues of our Property Segment increased $1.4 million to $23.8 million, compared to $22.4 million for the three months ended March 31, 2022.

Costs and Expenses

For the three months ended March 31, 2023, costs and expenses of our Property Segment increased $6.8 million to $27.2 million, compared to $20.4 million for the three months ended March 31, 2022. The increase is primarily due to an increase of $6.5 million in interest expense reflecting higher index rates on variable rate borrowings of the Medical Office Portfolio.

Other Income

For the three months ended March 31, 2023, other income of our Property Segment decreased $239.8 million to $11.8 million, compared to $251.6 million for the three months ended March 31, 2022. The decrease is primarily due to (i) a $221.1 million decrease in income attributable to investments of the Woodstar Fund, mainly reflecting lower unrealized increases in fair value during the first quarter of 2023, and (ii) an $18.8 million unfavorable change in (loss) gain on derivatives which primarily hedge our interest rate risk on borrowings secured by our Medical Office Portfolio

Investing and Servicing Segment

Revenues

For the three months ended March 31, 2023, revenues of our Investing and Servicing Segment decreased $17.6 million to $40.2 million, compared to $57.8 million for the three months ended March 31, 2022. The decrease in revenues was primarily due to (i) an $8.2 million decrease in interest income reflecting lower CMBS interest recoveries and conduit loan inventories, (ii) a $4.4 million decrease in other fee income related to the origination of certain loans contributed into CMBS transactions in the first quarter of 2022 and (iii) a $4.2 million decrease in servicing fees.

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Costs and Expenses

For the three months ended March 31, 2023, costs and expenses of our Investing and Servicing Segment decreased $2.5 million to $33.9 million, compared to $36.4 million for the three months ended March 31, 2022. The decrease in costs and expenses primarily reflects decreased incentive compensation principally due to lower securitization volume.

Other (Loss) Income

For the three months ended March 31, 2023, other income of our Investing and Servicing Segment decreased $37.2 million to a loss of $16.5 million, compared to income of $20.7 million for the three months ended March 31, 2022. The decrease in other income was primarily due to (i) a $31.3 million unfavorable change in (loss) gain on derivatives which primarily hedge our interest rate risk on conduit loans and CMBS investments, (ii) an $11.7 million decreased gain on sales of operating properties and (iii) a $5.2 million greater decrease in fair value of CMBS investments, all partially offset by (iv) a $10.2 million favorable change in fair value of conduit loans.

Corporate and Other Items

Corporate Costs and Expenses

For the three months ended March 31, 2023, corporate expenses increased $7.3 million to $100.8 million, compared to $93.5 million for the three months ended March 31, 2022. This increase was primarily due to (i) an increase of $22.4 million in interest expense on higher average outstanding term loan and unsecured senior note balances, as well as higher index rates on our term loans, partially offset by (ii) a $15.7 million decrease in management fees, primarily reflecting lower incentive fees attributable to nonrecurring transactions in the first quarter of 2022.

Corporate Other Income (Loss)

For the three months ended March 31, 2023, corporate other income (loss) improved $43.5 million to income of $6.3 million, compared to a loss of $37.2 million for the three months ended March 31, 2022. This improvement was primarily due to a favorable change in gain (loss) on fixed-to-floating interest rate swaps which hedge a portion of our unsecured senior notes.

Securitization VIE Eliminations

Refer to the preceding comparison of the three months ended March 31, 2023 to the three months ended December 31, 2022 for a discussion of the effect of securitization VIE eliminations.

Income Tax Benefit

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 three months ended March 31, 2023, our income tax benefit increased $6.3 million to $8.8 million, compared to $2.5 million for the three months ended March 31, 2022 due to higher tax losses of our TRSs in the first quarter of 2023 compared to the first quarter of 2022. The tax losses in both quarters were primarily attributable to net unrealized losses on our residential loans.

Net Income Attributable to Non-controlling Interests

For the three months ended March 31, 2023, net income attributable to non-controlling interests decreased $51.9 million to $7.8 million, compared to $59.7 million for the three months ended March 31, 2022. The decrease was primarily due to non-controlling interests in lower income, reflecting lower unrealized gains in fair value, of the Woodstar Fund in the first quarter of 2023.

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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; 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 REIT 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.

As discussed in Note 2 to the Consolidated Financial Statements, consolidation of securitization variable interest entities (“VIEs”) results in the elimination of certain key financial statement line items, particularly within revenues and other income, including unrealized changes in fair value of loans and investment securities. These line items are essential to understanding the true financial performance of our business segments and the Company as a whole. For this reason, as referenced in Note 2 to our Condensed Consolidated Financial Statements, we present business segment data in Note 23 without consolidation of these VIEs. This is how we manage our business and is the basis for all data reviewed with our board of directors, investors and analysts. This presentation also allows for a more transparent reconciliation of the unrealized gain (loss) adjustments below to the segment data presented in Note 23.

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.

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(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.

(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
	March 31, 2023	December 31, 2023	March 31, 2022
Diluted weighted average shares - GAAP EPS	308,996	317,588	313,329
Add: Unvested stock awards	4,193	3,543	3,695
Add: Woodstar II Class A Units	9,773	9,773	9,773
Less: Convertible Notes dilution	—	(9,649)	(9,649)
Diluted weighted average shares - Distributable EPS	322,962	321,255	317,148

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 three months ended March 31, 2023.

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The following table presents our summarized results of operations and reconciliation to Distributable Earnings for the three months ended March 31, 2023, 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	$	410,606	$	56,314	$	23,798	$	40,162	$	278	$	531,158
Costs and expenses	(274,415)		(49,224)		(27,208)		(33,859)		(100,846)		(485,552)
Other income (loss)	2,032		1,764		11,762		(16,468)		6,270		5,360
Income (loss) before income taxes	138,223		8,854		8,352		(10,165)		(94,298)		50,966
Income tax benefit	6,557		46		—		2,192		—		8,795
Income attributable to non-controlling interests	(3)		—		(6,978)		(806)		—		(7,787)
Net income (loss) attributable to Starwood Property Trust, Inc.	144,777		8,900		1,374		(8,779)		(94,298)		51,974
Add / (Deduct):
Non-controlling interests attributable to Woodstar II Class A Units	—		—		4,691		—		—		4,691
Non-controlling interests attributable to unrealized gains/losses	—		—		(263)		(2,798)		—		(3,061)
Non-cash equity compensation expense	2,087		312		74		1,595		6,868		10,936
Management incentive fee	—		—		—		—		12,365		12,365
Acquisition and investment pursuit costs	(22)		—		(82)		—		—		(104)
Depreciation and amortization	1,742		20		8,185		2,771		—		12,718
Interest income adjustment for securities	5,220		—		—		5,420		—		10,640
Extinguishment of debt, net	—		—		—		—		(246)		(246)
Consolidated income tax benefit associated with fair value adjustments	(6,557)		(46)		—		(2,192)		—		(8,795)
Other non-cash items	3		—		352		74		—		429
Reversal of GAAP unrealized and realized (gains) / losses on: (1)
Loans	(8,262)		—		—		(639)		—		(8,901)
Credit loss provision, net	30,790		12,404		—		—		—		43,194
Securities	(14,866)		—		—		14,459		—		(407)
Woodstar Fund investments	—		—		(12,965)		—		—		(12,965)
Derivatives	34,363		51		1,217		3,467		(6,270)		32,828
Foreign currency	(14,930)		(75)		(14)		—		—		(15,019)
(Earnings) from unconsolidated entities	(939)		(1,740)		—		(679)		—		(3,358)
Sales of properties	—		—		—		(190)		—		(190)
Recognition of Distributable realized gains / (losses) on:
Loans (2)	(1,720)		—		—		1,763		—		43

Securities (3)	—		—		—		(2,076)		—		(2,076)
Woodstar Fund investments (4)	—		—		14,243		—		—		14,243

Derivatives (5)	19,946		91		4,212		(111)		(6,529)		17,609
Foreign currency (6)	(714)		(30)		14		—		—		(730)
Earnings (loss) from unconsolidated entities (7)	939		(96)		—		497		—		1,340
Sales of properties (8)	—		—		—		79		—		79
Distributable Earnings (Loss)	$	191,857	$	19,791	$	21,038	$	12,661	$	(88,110)	$	157,237
Distributable Earnings (Loss) per Weighted Average Diluted Share	$	0.60	$	0.06	$	0.06	$	0.04	$	(0.27)	$	0.49

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The following table presents our summarized results of operations and reconciliation to Distributable Earnings for the three months ended December 31, 2022, 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	$	376,426	$	50,854	$	23,801	$	44,544	$	66	$	495,691
Costs and expenses	(244,276)		(33,021)		(26,635)		(32,632)		(93,812)		(430,376)
Other income (loss)	(28,867)		1,611		97,790		21,800		(968)		91,366
Income (loss) before income taxes	103,283		19,444		94,956		33,712		(94,714)		156,681
Income tax benefit	11,517		5		—		1,002		—		12,524
Income attributable to non-controlling interests	(4)		—		(24,219)		(4,955)		—		(29,178)
Net income (loss) attributable to Starwood Property Trust, Inc.	114,796		19,449		70,737		29,759		(94,714)		140,027
Add / (Deduct):
Non-controlling interests attributable to Woodstar II Class A Units	—		—		4,691		—		—		4,691
Non-controlling interests attributable to unrealized gains/losses	—		—		17,713		(1,788)		—		15,925
Non-cash equity compensation expense	1,853		266		76		1,459		6,828		10,482
Management incentive fee	—		—		—		—		14,465		14,465
Acquisition and investment pursuit costs	(22)		—		(82)		(223)		—		(327)
Depreciation and amortization	1,728		67		8,231		3,071		—		13,097
Interest income adjustment for securities	4,434		—		—		7,601		—		12,035
Extinguishment of debt, net	—		—		—		—		(247)		(247)
Income tax benefit associated with unrealized fair value adjustments	(11,517)		(5)		—		(1,001)		—		(12,523)
Other non-cash items	3		—		362		77		—		442
Reversal of GAAP unrealized and realized (gains) / losses on: (1)
Loans	24,669		—		—		(5,184)		—		19,485
Credit loss provision (reversal), net	26,753		(219)		—		—		—		26,534
Securities	(16,837)		—		—		4,326		—		(12,511)
Woodstar Fund investments	—		—		(97,003)		—		—		(97,003)
Derivatives	126,837		(7)		(1,919)		2,027		968		127,906
Foreign currency	(116,021)		(253)		29		—		—		(116,245)
Loss (earnings) from unconsolidated entities	8,644		(1,351)		—		(370)		—		6,923
Sales of properties	—		—		—		(25,480)		—		(25,480)
Recognition of Distributable realized gains / (losses) on:
Loans (2)	(385)		—		—		5,197		—		4,812

Securities (3)	—		—		—		(10,715)		—		(10,715)
Woodstar Fund investments (4)	—		—		10,887		—		—		10,887

Derivatives (5)	15,279		64		3,240		(1,181)		(4,792)		12,610
Foreign currency (6)	222		34		(29)		—		—		227
(Loss) earnings from unconsolidated entities (7)	(8,616)		—		—		478		—		(8,138)
Sales of properties (8)	—		—		—		23,167		—		23,167
Distributable Earnings (Loss)	$	171,820	$	18,045	$	16,933	$	31,220	$	(77,492)	$	160,526
Distributable Earnings (Loss) per Weighted Average Diluted Share	$	0.53	$	0.06	$	0.05	$	0.10	$	(0.24)	$	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 March 31, 2022, 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	$	225,180	$	27,798	$	22,415	$	57,809	$	—	$	333,202
Costs and expenses	(78,494)		(15,188)		(20,417)		(36,369)		(93,488)		(243,956)
Other income (loss)	57,084		480		251,588		20,661		(37,168)		292,645
Income (loss) before income taxes	203,770		13,090		253,586		42,101		(130,656)		381,891
Income tax benefit (provision)	5,140		4		—		(2,694)		—		2,450
Income attributable to non-controlling interests	(3)		—		(52,411)		(7,328)		—		(59,742)
Net income (loss) attributable to Starwood Property Trust, Inc.	208,907		13,094		201,175		32,079		(130,656)		324,599
Add / (Deduct):
Non-controlling interests attributable to Woodstar II Class A Units	—		—		4,691		—		—		4,691
Non-controlling interests attributable to unrealized gains/losses	—		—		44,902		2,556		—		47,458
Non-cash equity compensation expense	2,417		297		58		1,275		6,046		10,093
Management incentive fee	—		—		—		—		28,955		28,955
Acquisition and investment pursuit costs	(298)		—		(78)		(169)		—		(545)
Depreciation and amortization	234		95		8,292		3,152		—		11,773
Interest income adjustment for securities	2,490		—		—		(1,708)		—		782
Extinguishment of debt, net	—		—		—		—		(246)		(246)

Other non-cash items	3		—		456		122		—		581
Reversal of GAAP unrealized and realized (gains) / losses on: (1)
Loans	116,228		—		—		9,555		—		125,783
Credit loss reversal, net	(3,299)		(359)		—		—		—		(3,658)
Securities	2,105		—		—		9,291		—		11,396
Woodstar Fund investments	—		—		(234,041)		—		—		(234,041)
Derivatives	(118,395)		(632)		(17,546)		(27,863)		37,168		(127,268)
Foreign currency	27,254		28		(1)		—		—		27,281
Loss (earnings) from unconsolidated entities	1,340		(345)		—		(151)		—		844
Sales of properties	(86,610)		—		—		(11,858)		—		(98,468)
Recognition of Distributable realized gains / (losses) on:
Loans (2)	(36,208)		—		—		(10,561)		—		(46,769)

Securities (3)	(2,768)		—		—		26		—		(2,742)
Woodstar Fund investments (4)	—		—		15,659		—		—		15,659

Derivatives (5)	34,116		(53)		(1,659)		23,413		3,605		59,422
Foreign currency (6)	(178)		112		1		—		—		(65)
(Loss) earnings from unconsolidated entities (7)	(1,239)		345		—		470		—		(424)
Sales of properties (8)	84,738		—		—		177		—		84,915
Distributable Earnings (Loss)	$	230,837	$	12,582	$	21,909	$	29,806	$	(55,128)	$	240,006
Distributable Earnings (Loss) per Weighted Average Diluted Share	$	0.73	$	0.04	$	0.07	$	0.09	$	(0.17)	$	0.76

______________________________________________________________________________________________________________________

(1) The reconciling items in this section are exactly equivalent to the amounts recognized within GAAP net income (before the consolidation of VIEs), each of which can be agreed back to the respective lines within Note 23 to our Condensed Consolidated Financial Statements. They reflect both unrealized and realized (gains) and losses. For added transparency and consistency of presentation, the entire amount recognized in GAAP income is reversed in this section, and the realized components of these amounts are reflected in the next section entitled “Recognition of Distributable realized gains / (losses).”

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(2) Represents the realized portion of GAAP gains (losses) on residential and commercial conduit loans carried under the fair value option that were sold during the period. The amount is calculated as the difference between (i) the net proceeds received in connection with a securitization or sale of loans and (ii) such loans’ historical cost basis.

(3) Represents the realized portion of GAAP gains (losses) on CMBS and RMBS carried under the fair value option that are sold or impaired during the period. Upon sale, the difference between the cash proceeds received and the historical cost basis of the security is treated as a realized gain or loss for Distributable Earnings purposes. We consider a CMBS or an RMBS credit loss to be realized when such amounts are deemed nonrecoverable. Non-recoverability is generally at the time the underlying assets within the securitization are liquidated, but non-recoverability may also be determined if, in our determination, it is nearly certain that all amounts due will not be collected. The amount is calculated as the difference between the cash received and the historical cost basis of the security.

(4) Represents GAAP income from the Woodstar Fund investments excluding unrealized changes in the fair value of its underlying assets and liabilities. The amount is calculated as the difference between the Woodstar Fund’s GAAP net income and its unrealized gains (losses), which represents changes in working capital and actual cash distributions received.

(5) Represents the realized portion of GAAP gains or losses on the termination or settlement of derivatives that are accounted for at fair value. Derivatives are only treated as realized for Distributable Earnings when they are terminated or settled, and cash is exchanged. The amount of cash received or paid to terminate or settle the derivative is the amount treated as realized for Distributable Earnings purposes at the time of such termination or settlement.

(6) Represents the realized portion of foreign currency gains (losses) related to assets and liabilities denominated in a foreign currency. Realization occurs when the foreign currency is converted back to USD. The amount is calculated as the difference between the foreign exchange rate at the time the asset was placed on the balance sheet and the foreign exchange rate at the time cash is received and is offset by any gains or losses on the related foreign currency derivative at settlement.

(7) Represents GAAP earnings (loss) from unconsolidated entities excluding non-cash items and unrealized changes in fair value recorded on the books and records of the unconsolidated entities. The difference between GAAP and Distributable Earnings for these entities principally relates to depreciation and unrealized changes in the fair value of mortgage loans and securities.

(8) Represents the realized gain (loss) on sales of properties held at depreciated cost. Because depreciation is a non-cash expense that is excluded from Distributable Earnings, GAAP gains upon sale of a property are higher, and GAAP losses are lower, than the respective realized amounts reflected in Distributable Earnings. The amount is calculated as net sales proceeds less undepreciated cost, adjusted for any noncontrolling interest.

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Three Months Ended March 31, 2023 Compared to the Three Months Ended December 31, 2022

Commercial and Residential Lending Segment

The Commercial and Residential Lending Segment’s Distributable Earnings increased by $20.1 million, from $171.8 million during the fourth quarter of 2022 to $191.9 million in the first quarter of 2023. After making adjustments for the calculation of Distributable Earnings, revenues were $416.0 million, costs and expenses were $239.9 million, other income was $15.8 million and there was no income tax provision or benefit.

Revenues, consisting principally of interest income on loans, increased by $35.3 million in the first quarter of 2023, primarily due to an increase in interest income from loans of $31.5 million and investment securities of $3.2 million. The increase in interest income from loans reflects (i) a $32.2 million increase from commercial loans, reflecting higher average index rates, slightly offset by (ii) a $0.7 million decrease from residential loans. The increase in interest income from investment securities was primarily due to higher average index rates on commercial investments and higher RMBS yields.

Costs and expenses increased by $26.2 million in the first quarter of 2023, primarily due to a $27.2 million increase in interest expense associated with the various secured financing facilities used to fund a portion of this segment’s investment portfolio reflecting higher average index rates and borrowings outstanding.

Other income increased by $11.0 million in the first quarter of 2023, primarily due to a $9.4 million decreased loss from an unconsolidated mortgage originator sold in January 2023.

Infrastructure Lending Segment

The Infrastructure Lending Segment’s Distributable Earnings increased by $1.8 million, from $18.0 million during the fourth quarter of 2022 to $19.8 million in the first quarter of 2023. After making adjustments for the calculation of Distributable Earnings, revenues were $56.3 million, costs and expenses were $36.5 million and other loss was nominal.

Revenues, consisting principally of interest income on loans, increased by $5.5 million in the first quarter of 2023, primarily due to an increase in interest income from loans of $4.6 million reflecting higher average index rates.

Costs and expenses increased by $3.6 million in the first quarter of 2023, primarily due to an increase in interest expense reflecting higher average index rates.

Other income decreased by $0.1 million to a nominal loss in the first quarter of 2023.

Property Segment

Distributable Earnings by Portfolio (amounts in thousands)


	For the Three Months Ended
	March 31, 2023		December 31, 2022		Change
Master Lease Portfolio	$	5,029	$	4,987	$	42
Medical Office Portfolio	5,034		4,879		155


Woodstar Fund, net of non-controlling interests	11,667		8,956		2,711

Other/Corporate	(692)		(1,889)		1,197
Distributable Earnings	$	21,038	$	16,933	$	4,105

The Property Segment’s Distributable Earnings increased by $4.1 million, from $16.9 million during the fourth quarter of 2022 to $21.0 million in the first quarter of 2023. After making adjustments for the calculation of Distributable Earnings, revenues were $24.2 million, costs and expenses were $19.7 million, other income was $19.1 million and the deduction of income attributable to non-controlling interests in the Woodstar Fund was $2.6 million.

Revenues increased by $0.2 million in the first quarter of 2023.

Costs and expenses increased by $1.1 million in the first quarter of 2023, primarily due to an increase in interest expense reflecting higher index rates on variable rate borrowings of the Medical Office Portfolio.

Other income increased by $5.7 million in the first quarter of 2023 primarily due to a $3.4 million increase in Distributable Earnings from the Woodstar Fund investments and a $1.2 million increase in realized gain on derivatives which primarily hedge our interest rate risk on borrowings secured by our Medical Office Portfolio.

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Income attributable to non-controlling interests in the Woodstar Fund increased $0.7 million in the first quarter of 2023.

Investing and Servicing Segment

The Investing and Servicing Segment’s Distributable Earnings decreased by $18.5 million, from $31.2 million during the fourth quarter of 2022 to $12.7 million in the first quarter of 2023. After making adjustments for the calculation of Distributable Earnings, revenues were $45.7 million, costs and expenses were $29.5 million, other income was $0.1 million, there was no income tax provision and the deduction of income attributable to non-controlling interests was $3.6 million.

Revenues decreased by $6.5 million in the first quarter of 2023, primarily due to a $3.5 million decrease in servicing fees and a $3.1 million decrease in interest income reflecting lower interest recoveries on CMBS investments and reduced interest on lower average balances of 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.

Costs and expenses increased by $1.2 million in the first quarter of 2023.

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 $13.9 million in the first quarter of 2023, primarily due to a $23.1 million decreased gain on sales of operating properties, partially offset by an $8.6 million decrease in recognized credit losses on CMBS.

Income attributable to non-controlling interests decreased $3.1 million, primarily due to non-controlling interests related to the sale of an operating property in the fourth quarter of 2022.

Corporate

Corporate loss increased by $10.6 million, from $77.5 million during the fourth quarter of 2022 to $88.1 million in the first quarter of 2023, primarily due to (i) an $8.3 million increase in interest expense attributable to higher index rates on our term loans and (ii) a $1.7 million decrease in realized gains on fixed-to-floating interest rate swaps which hedge a portion of our unsecured senior notes.

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Three Months Ended March 31, 2023 Compared to the Three Months Ended March 31, 2022

Commercial and Residential Lending Segment

The Commercial and Residential Lending Segment’s Distributable Earnings decreased by $38.9 million, from $230.8 million during the first quarter of 2022 to $191.9 million in the first quarter of 2023. After making adjustments for the calculation of Distributable Earnings, revenues were $416.0 million, costs and expenses were $239.9 million, other income was $15.8 million and there was no income tax provision or benefit.

Revenues, consisting principally of interest income on loans, increased by $188.3 million in the first quarter of 2023, primarily due to increases in interest income from loans of $173.1 million and investment securities of $14.4 million. The increase in interest income from loans reflects (i) a $166.6 million increase from commercial loans, reflecting higher average index rates and loan balances, and (ii) a $6.5 million increase from residential loans principally due to higher average balances, reflecting the timing of purchases and securitizations, and higher average coupon rates. The increase in interest income from investment securities was primarily due to higher RMBS yields and average investment balances and the effect of higher index rates on certain commercial investments.

Costs and expenses increased by $160.5 million in the first quarter of 2023, primarily due to a $157.8 million increase in interest expense associated with the various secured financing facilities used to fund a portion of this segment’s investment portfolio. The increase in interest expense was primarily due to higher average index rates and higher average borrowings outstanding.

Other income decreased by $61.6 million in the first quarter of 2023, primarily due to the nonrecurrence of an $84.7 million gain on sale of a foreclosed property in the first quarter of 2022, partially offset by a $16.2 million decrease in realized losses on residential loans, net of related interest rate derivatives.

Income taxes principally relate to the taxable nature of this segment’s residential loan securitization activities which are housed in a TRS. The income tax benefit decreased from $5.1 million in the first quarter of 2022 to none in the first quarter of 2023. Consistent with our treatment of other adjustments to GAAP in arriving at Distributable Earnings, income tax benefits are generally not recognized in Distributable Earnings until they are realized.

Infrastructure Lending Segment

The Infrastructure Lending Segment’s Distributable Earnings increased by $7.2 million, from $12.6 million during the first quarter of 2022 to $19.8 million in the first quarter of 2023. After making adjustments for the calculation of Distributable Earnings, revenues were $56.3 million, costs and expenses were $36.5 million and other loss was nominal.

Revenues, consisting principally of interest income on loans, increased by $28.5 million in the first quarter of 2023, primarily due to an increase in interest income from loans of $27.8 million, reflecting higher average index rates and loan balances.

Costs and expenses increased by $21.3 million in the first quarter of 2023, primarily due to an increase in interest expense reflecting higher average index rates and borrowings outstanding.

Other loss decreased by a nominal amount in the first quarter of 2023.

Property Segment

Distributable Earnings by Portfolio (amounts in thousands)


	For the Three Months Ended March 31,
	2023		2022		Change
Master Lease Portfolio	$	5,029	$	4,342	$	687
Medical Office Portfolio	5,034		5,656		(622)


Woodstar Fund, net of non-controlling interests	11,667		12,719		(1,052)

Other/Corporate	(692)		(808)		116
Distributable Earnings	$	21,038	$	21,909	$	(871)

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The Property Segment’s Distributable Earnings decreased by $0.9 million, from $21.9 million during the first quarter of 2022 to $21.0 million in the first quarter of 2023. After making adjustments for the calculation of Distributable Earnings, revenues were $24.2 million, costs and expenses were $19.7 million, other income was $19.1 million and the deduction of income attributable to non-controlling interests in the Woodstar Fund was $2.6 million.

Revenues increased by $1.3 million in the first quarter of 2023.

Costs and expenses increased by $7.5 million in the first quarter of 2023, primarily due to an increase in interest expense reflecting higher index rates on variable rate borrowings of the Medical Office Portfolio..

Other income increased by $5.1 million in the first quarter of 2023 primarily due to a $6.5 million increase in realized gain on derivatives which primarily hedge our interest rate risk on borrowings secured by our Medical Office Portfolio, partially offset by a $1.4 million decrease in Distributable Earnings from the Woodstar Fund investments.

Income attributable to non-controlling interests in the Woodstar Fund decreased $0.2 million in the first quarter of 2023.

Investing and Servicing Segment

The Investing and Servicing Segment’s Distributable Earnings decreased by $17.1 million from $29.8 million during the first quarter of 2022 to $12.7 million in the first quarter of 2023. After making adjustments for the calculation of Distributable Earnings, revenues were $45.7 million, costs and expenses were $29.5 million, other income was $0.1 million, there was no income tax provision and the deduction of income attributable to non-controlling interests was $3.6 million.

Revenues decreased by $10.6 million in the first quarter of 2023, primarily due to (i) a $4.4 million decrease in other fee income related to the origination of certain loans contributed into CMBS transactions in the first quarter of 2022 and (ii) a $4.2 million decrease in servicing fees.

Costs and expenses decreased by $2.7 million in the first quarter of 2023, primarily reflecting decreased incentive compensation principally due to lower securitization volume.

Other income decreased by $13.1 million in the first quarter of 2023, primarily due to (i) a $23.5 million unfavorable change in realized (loss) gain on derivatives, principally related to conduit loans, partially offset by (ii) a $12.3 million favorable change in realized gains (losses) on conduit loans.

Income taxes, which principally relate to the taxable nature of this segment’s loan servicing and loan securitization businesses which are housed in a TRS, decreased $2.7 million. Effective January 1, 2023, the TRS which houses these businesses was combined with the TRS which houses our residential loan securitization business into a single TRS. The combined TRS was in a net loss position during the first quarter of 2023, versus a net income position of the individual Investing and Servicing Segment TRS during the first quarter of 2022. Consistent with our treatment of other adjustments to GAAP in arriving at Distributable Earnings, the income tax benefit of the combined TRS will not be recognized in Distributable Earnings until realized.

Income attributable to non-controlling interests decreased $1.2 million.

Corporate

Corporate loss increased by $33.0 million, from $55.1 million during the first quarter of 2022 to $88.1 million in the first quarter of 2023, primarily due to (i) a $22.4 million increase in interest expense on higher average outstanding term loan and unsecured senior note balances, as well as higher index rates on our term loans, and (ii) a $10.1 million unfavorable change in realized (loss) gain on fixed-to-floating interest rate swaps which hedge a portion of our unsecured senior notes.

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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, 2022. Refer to our Form 10-K for a description of these strategies.

Sources of Liquidity

Our primary sources of liquidity are as follows:

Cash Flows for the Three Months Ended March 31, 2023 (amounts in thousands)


	GAAP		VIE Adjustments		Excluding Securitization VIEs
Net cash used in operating activities	$	(28,558)	$	(4)	$	(28,562)
Cash Flows from Investing Activities:
Origination, purchase and funding of loans held-for-investment	(431,615)		—		(431,615)
Proceeds from principal collections on loans	407,199		—		407,199
Purchase and funding of investment securities	(591)		—		(591)
Proceeds from principal collections on investment securities	40,778		15,329		56,107
Proceeds from sales of real estate	543		—		543
Purchases and additions to properties and other assets	(5,839)		—		(5,839)
Net cash flows from other investments and assets	2,542		—		2,542
Net cash provided by investing activities	13,017		15,329		28,346
Cash Flows from Financing Activities:
Proceeds from borrowings	1,202,077		—		1,202,077
Principal repayments on and repurchases of borrowings	(892,238)		(104)		(892,342)
Payment of deferred financing costs	(2,924)		—		(2,924)
Proceeds from common stock issuances, net of offering costs	1,269		—		1,269
Payment of dividends	(149,765)		—		(149,765)

Distributions to non-controlling interests	(9,390)		—		(9,390)

Repayment of debt of consolidated VIEs	(108)		108		—
Distributions of cash from consolidated VIEs	15,329		(15,329)		—
Net cash provided by financing activities	164,250		(15,325)		148,925
Net increase in cash, cash equivalents and restricted cash	148,709		—		148,709
Cash, cash equivalents and restricted cash, beginning of period	382,133		—		382,133
Effect of exchange rate changes on cash	594		—		594
Cash, cash equivalents and restricted cash, end of period	$	531,436	$	—	$	531,436

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, principal collections and redemptions 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 increased by $148.7 million during the three months ended March 31, 2023, reflecting net cash provided by financing activities of $148.9 million and investing activities of $28.3 million, partially offset by net cash used in operating activities of $28.5 million.

Net cash used in operating activities of $28.5 million during the three months ended March 31, 2023 related primarily to cash interest expense of $322.9 million, a net change in operating assets and liabilities of $110.0 million, general and

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administrative expenses of $67.9 million, and originations and purchases of loans held-for-sale, net of sales and principal collections of $14.9 million. Offsetting these cash outflows was cash interest income of $374.4 million from our loans and $50.4 million from our investment securities, other income of $26.7 million, net rental income of $19.4 million and servicing fees of $11.5 million.

Net cash provided by investing activities of $28.3 million for the three months ended March 31, 2023 related primarily to proceeds received from principal collections and sales of loans of $407.2 million and investment securities of $56.1 million, partially offset by the origination and acquisition of loans held-for-investment of $431.6 million and purchase and additions to property and other assets of $5.8 million.

Net cash provided by financing activities of $148.9 million for the three months ended March 31, 2023 related primarily to borrowings on our debt, net of repayments and deferred loan costs, of $306.8 million, partially offset by dividend distributions of $149.8 million.

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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 March 31, 2023 and December 31, 2022 (dollars in thousands):


	Face Amount		Carrying Value			Asset Specific Financing		Net Investment		Unlevered Return on Asset (6)
March 31, 2023
First mortgages (1)	$	15,675,259	$	15,600,726		$	10,900,024	$	4,700,702	8.8	%
Subordinated mortgages (2)	73,244		72,379			—		72,379		15.2	%
Mezzanine loans (1)	469,176		472,404			—		472,404		14.2	%

Other loans	58,927		58,071			—		58,071		12.1	%
Loans held-for-sale, fair value option, residential	3,054,552		2,733,358			2,440,882		292,476		4.5	%	(5)

RMBS, available-for-sale	200,257		111,069			61,393		49,676		10.5	%
RMBS, fair value option	326,274		427,629		(3)	165,760		261,869		14.8	%
CMBS, fair value option	102,900		97,236		(3)	49,798		47,438		8.8	%
HTM debt securities (4)	607,184		612,052			133,143		478,909		10.1	%
Credit loss allowance	—		(118,633)			—		(118,633)
Equity security	11,272		10,134			—		10,134
Investments in unconsolidated entities	N/A		24,955			—		24,955
Properties, net	N/A		464,183			204,387		259,796
	$	20,579,045	$	20,565,563		$	13,955,387	$	6,610,176

December 31, 2022
First mortgages (1)	$	15,638,781	$	15,552,875		$	10,883,417	$	4,669,458	8.2	%
Subordinated mortgages (2)	72,118		71,100			—		71,100		14.6	%
Mezzanine loans (1)	442,339		445,363			—		445,363		14.1	%

Other loans	59,393		58,393			—		58,393		12.0	%
Loans held-for-sale, fair value option, residential	3,092,915		2,763,458			2,155,078		608,380		4.5	%	(5)

RMBS, available-for-sale	202,818		113,386			74,798		38,588		11.0	%
RMBS, fair value option	326,274		423,183		(3)	166,560		256,623		12.1	%
CMBS, fair value option	102,900		97,218		(3)	49,798		47,420		8.4	%
HTM debt securities (4)	603,497		607,438			133,143		474,295		9.4	%
Credit loss allowance	N/A		(88,973)			—		(88,973)
Equity security	11,057		9,840			—		9,840
Investments in unconsolidated entities	N/A		25,326			—		25,326
Properties, net	N/A		463,492			204,387		259,105
	$	20,552,092	$	20,542,099		$	13,667,181	$	6,874,918

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(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 methodology resulted in mezzanine loans with carrying values of $1.3 billion being classified as first mortgages as of both March 31, 2023 and December 31, 2022, 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.

(5) Represents the weighted average coupon of residential mortgage loans.

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(6) Calculated using applicable index rates for variable rate investments as of the respective period end and excludes loans for which interest income is not recognized. In addition to cash coupon, unlevered return includes the amortization of deferred origination and extension fees, loan origination costs, and purchase discounts, as well as the accrual of exit fees.

As of March 31, 2023 and December 31, 2022, 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	March 31, 2023		December 31, 2022
Multifamily	33.6	%	33.3	%
Office	22.5	%	23.1	%
Hotel	16.6	%	16.5	%
Mixed Use	9.5	%	9.7	%
Industrial	6.4	%	6.0	%
Residential	1.8	%	1.8	%
Retail	1.7	%	1.6	%

Other	7.9	%	8.0	%
	100.0	%	100.0	%


Geographic Location	March 31, 2023		December 31, 2022
U.S. Regions:
South East	16.5	%	16.7	%
North East	16.4	%	16.0	%
South West	15.5	%	15.6	%
West	10.3	%	10.3	%
Mid Atlantic	9.1	%	9.3	%
Midwest	2.7	%	2.7	%
International:
United Kingdom	13.6	%	13.8	%
Other Europe	6.9	%	6.4	%
Australia	7.2	%	7.4	%
Bahamas/Bermuda	1.8	%	1.8	%
	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 March 31, 2023 and December 31, 2022 (dollars in thousands):


	Face Amount		Carrying Value		Asset Specific Financing		Net Investment		Unlevered Return on Asset (1)
March 31, 2023
First priority infrastructure loans and HTM securities	$	2,446,735	$	2,404,709	$	1,863,084	$	541,625	9.4	%

Credit loss allowance	N/A		(26,037)		—		(26,037)
Investments in unconsolidated entities	N/A		48,819		—		48,819
	$	2,446,735	$	2,427,491	$	1,863,084	$	564,407

December 31, 2022
First priority infrastructure loans and HTM securities	$	2,474,994	$	2,432,758	$	1,856,692	$	576,066	9.1	%

Credit loss allowance	N/A		(13,622)		—		(13,622)
Investments in unconsolidated entities	N/A		47,078		—		47,078
	$	2,474,994	$	2,466,214	$	1,856,692	$	609,522

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(1) Calculated using applicable index rates for variable rate investments as of the respective period end and excludes loans for which interest income is not recognized. In addition to cash coupon, unlevered return includes the amortization of deferred purchase discounts.

As of March 31, 2023 and December 31, 2022, our Infrastructure Lending Segment’s investment portfolio had the following characteristics based on carrying values:


Collateral Type	March 31, 2023		December 31, 2022
Natural gas power	60.3	%	61.2	%
Midstream/downstream oil & gas	36.5	%	37.5	%
Renewables	2.0	%	—	%
Other thermal power	1.2	%	1.3	%
	100.0	%	100.0	%


Geographic Location	March 31, 2023		December 31, 2022
U.S. Regions:
North East	39.9	%	39.0	%
South West	22.0	%	21.9	%
Midwest	20.6	%	21.9	%
South East	8.2	%	7.4	%
West	4.1	%	4.6	%
Mid-Atlantic	2.0	%	1.8	%
Other	2.1	%	2.1	%
International:
Mexico	0.5	%	0.5	%
Other	0.6	%	0.8	%
	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 March 31, 2023 and December 31, 2022 (amounts in thousands):


	March 31, 2023		December 31, 2022
Properties, net	$	860,220	$	864,778
Lease intangibles, net	27,375		28,470
Woodstar Fund	1,762,162		1,761,002
	$	2,649,757	$	2,654,250

The following table sets forth our net investment and other information regarding the Property Segment’s properties and lease intangibles as of March 31, 2023 (dollars in thousands):


	Carrying Value		Asset Specific Financing		Net Investment		Occupancy Rate		Weighted Average Remaining Lease Term
Office—Medical Office Portfolio	$	770,779	$	596,850	$	173,929	91.7	%	5.6 years
Retail—Master Lease Portfolio	343,790		193,449		150,341		100.0	%	19.1 years
Subtotal—undepreciated carrying value	1,114,569		790,299		324,270
Accumulated depreciation and amortization	(226,974)		—		(226,974)
Net carrying value	$	887,595	$	790,299	$	97,296

As of March 31, 2023 and December 31, 2022, our Property Segment’s investment portfolio had the following geographic characteristics based on carrying values:


Geographic Location	March 31, 2023		December 31, 2022
South East	81.4	%	81.2	%
South West	5.1	%	5.2	%
Midwest	5.0	%	5.0	%
North East	4.6	%	4.7	%
West	3.9	%	3.9	%
	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 March 31, 2023 and December 31, 2022 (amounts in thousands):


	Face Amount		Carrying Value			Asset Specific Financing			Net Investment
March 31, 2023
CMBS, fair value option	$	2,737,344	$	1,149,916	(1)	$	404,529	(2)	$	745,387
Intangible assets - servicing rights	N/A		56,798		(3)	—			56,798
Lease intangibles, net	N/A		8,334			—			8,334
Loans held-for-sale, fair value option, commercial	85,450		77,531			56,957			20,574
Loans held-for-investment	9,492		9,492			—			9,492
Investments in unconsolidated entities	N/A		33,178		(4)	—			33,178
Properties, net	N/A		119,576			129,793			(10,217)
	$	2,832,286	$	1,454,825		$	591,279		$	863,546
December 31, 2022
CMBS, fair value option	$	2,753,810	$	1,165,628	(1)	$	405,665	(2)	$	759,963
Intangible assets - servicing rights	N/A		56,848		(3)	—			56,848
Lease intangibles, net	N/A		8,791			—			8,791
Loans held-for-sale, fair value option, commercial	23,900		21,136			7,519			13,617
Loans held-for-investment	9,577		9,577			—			9,577
Investments in unconsolidated entities	N/A		33,030		(4)	—			33,030
Properties, net	N/A		121,716			130,072			(8,356)
	$	2,787,287	$	1,416,726		$	543,256		$	873,470

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(1) Includes $1.13 billion and $1.15 billion of CMBS eliminated in consolidation against VIE liabilities pursuant to ASC 810 as of March 31, 2023 and December 31, 2022. Also includes $197.0 million and $198.9 million of non-controlling interests in the consolidated entities which hold certain of these CMBS as of March 31, 2023 and December 31, 2022, respectively.

(2) Includes $42.2 million and $42.8 million of non-controlling interests in the consolidated entities which hold certain debt balances as of March 31, 2023 and December 31, 2022, respectively.

(3) Includes $38.7 million and $39.1 million of servicing rights intangibles eliminated in consolidation against VIE assets pursuant to ASC 810 as of March 31, 2023 and December 31, 2022, respectively.

(4) Includes $13.9 million and $13.5 million of investments in unconsolidated entities eliminated in consolidation against VIE assets pursuant to ASC 810 as of March 31, 2023 and December 31, 2022, 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 as of March 31, 2023 and December 31, 2022, respectively:


Property Type	March 31, 2023		December 31, 2022
Retail	49.4	%	49.3	%
Office	29.3	%	29.6	%
Mixed Use	11.9	%	11.7	%
Multifamily	6.8	%	6.8	%
Hotel	2.6	%	2.6	%

	100.0	%	100.0	%


Geographic Location	March 31, 2023		December 31, 2022
North East	28.6	%	28.8	%
Mid Atlantic	22.1	%	21.9	%
West	21.9	%	22.0	%
Midwest	12.2	%	12.2	%
South West	8.4	%	6.8	%
South East	6.8	%	8.3	%
	100.0	%	100.0	%

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New Credit Facilities and Amendments

Refer to Note 10 of our Condensed Consolidated Financial Statements for a detailed discussion of new credit facilities and amendments to existing credit facilities executed since December 31, 2022.

Secured Borrowings

The following table is a summary of our secured borrowings as of March 31, 2023 (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	Jun 2023 to Jun 2027	(d)	Oct 2025 to Dec 2030	(d)	Index + 2.06%	(e)	$	11,206,590		$	12,212,382	(f)	$	7,818,505		$	379,215	$	4,014,662
Residential Loans	Oct 2023 to Apr 2024		N/A		SOFR + 2.22%		2,204,038			3,064,671			1,967,984			356		1,096,331
Infrastructure Loans	Sep 2024		Sep 2026		SOFR + 2.07%		333,957			650,000			274,817			—		375,183
Conduit Loans	Dec 2023 to Jun 2025		Feb 2024 to Jun 2027		SOFR + 2.35%		66,572			375,000			57,960			—		317,040
CMBS/RMBS	Oct 2023 to Apr 2032	(g)	Oct 2023 to Oct 2032	(g)	(h)		1,488,626			1,083,841			824,912		(i)	11,000		247,929
Total Repurchase Agreements							15,299,783			17,385,894			10,944,178			390,571		6,051,145
Other Secured Financing:
Borrowing Base Facility	Nov 2024		Oct 2026		SOFR + 2.11%		12,018			750,000		(j)	9,234			—		740,766
Commercial Financing Facilities	Dec 2023 to Aug 2025		Jul 2025 to Dec 2030		Index + 1.98%		354,323			458,074		(k)	256,247			—		201,827
Residential Financing Facility	Mar 2024		Mar 2027		SOFR + 2.45%		525,297			500,000			474,660			—		25,340
Infrastructure Financing Facilities	Jun 2025 to Oct 2025		Jun 2027 to Jul 2032		Index + 2.08%		1,020,629			1,550,000			776,024			32,865		741,111
Property Mortgages - Fixed rate	Nov 2024 to Sep 2029	(l)	N/A		4.46%		364,090			260,891			260,891			—		—
Property Mortgages - Variable rate	Nov 2023 to Dec 2027		N/A		(m)		1,001,298			850,387			847,625			—		2,762
Term Loans and Revolver	(n)		N/A		(n)		N/A		(n)	1,527,269			1,377,269			150,000		—
STWD 2022-FL3 CLO	Nov 2038		N/A		SOFR + 1.64%		1,010,710			842,500			842,500			—		—
STWD 2021-HTS SASB	Apr 2034		N/A		LIBOR + 2.22%		231,239			210,091			210,091			—		—
STWD 2021-FL2 CLO	Apr 2038		N/A		LIBOR + 1.50%		1,286,362			1,077,375			1,077,375			—		—
STWD 2019-FL1 CLO	Jul 2038		N/A		SOFR + 1.41%		902,795			734,196			734,196			—		—
STWD 2021-SIF2 CLO	Jan 2033		N/A		SOFR + 1.89%		511,809			410,000			410,000			—		—
STWD 2021-SIF1 CLO	Apr 2032		N/A		LIBOR + 1.81%		512,634			410,000			410,000			—		—
Total Other Secured Financing							7,733,204			9,580,783			7,686,112			182,865		1,711,806
							$	23,032,987		$	26,966,677		$	18,630,290		$	573,436	$	7,762,951
Unamortized net discount													(24,750)
Unamortized deferred financing costs													(85,769)
													$	18,519,771

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(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 $2.9 billion as of March 31, 2023 are indexed to EURIBOR, BBSY, SARON and SONIA. The remainder are indexed to USD LIBOR and SOFR.

(f) Certain facilities with an aggregate initial maximum facility size of $12.1 billion may be increased to $12.2 billion, subject to certain conditions. The $12.2 billion amount includes such upsizes.

(g) Certain facilities with an outstanding balance of $356.2 million as of March 31, 2023 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 $261.8 million as of March 31, 2023 has a weighted average fixed annual interest rate of 3.25%. All other facilities are variable rate with a weighted average rate of SOFR + 2.15%.

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(i) Includes: (i) $261.8 million outstanding on a repurchase facility that is not subject to margin calls; and (ii) $42.2 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 15 to the Condensed Consolidated Financial Statements).

(j) The maximum facility size as of March 31, 2023 of $450.0 million may be increased to $750.0 million, subject to certain conditions.

(k) Certain facilities with an aggregate initial maximum facility size of $358.1 million may be increased to $458.1 million, subject to certain conditions. The $458.1 million amount includes such upsizes.

(l) The weighted average maturity is 4.2 years as of March 31, 2023.

(m) 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 Index + 3.35%.

(n) Consists of: (i) a $778.8 million term loan facility that matures in July 2026, of which $386.0 million has an annual interest rate of LIBOR + 2.50% and $392.8 million has an annual interest rate of LIBOR + 3.25%, subject to a 0.75% LIBOR floor, (ii) a $150.0 million revolving credit facility that matures in April 2026 with an annual interest rate of SOFR + 2.50%, and (iii) a $598.5 million term loan facility that matures in November 2027, with an annual interest rate of SOFR + 3.25%, subject to a 0.50% SOFR floor. These facilities are secured by the equity interests in certain of our subsidiaries which totaled $5.4 billion as of March 31, 2023.

The above table no longer reflects property mortgages of the Woodstar Portfolios which, as discussed in Notes 2 and 7 to the Condensed Consolidated Financial Statements, are now reflected within “Investments of consolidated affordable housing fund” on our condensed consolidated balance sheets.

Refer to Note 10 to 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, 2022	18,299,267	18,084,425	214,842	(a)


March 31, 2023	18,630,290	18,331,322	298,968	(b)

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(a) Variance primarily related to late quarter pledge of a Euro denominated loan and exchange rate fluctuations.

(b) Variance primarily related to late quarter draws to fund $250 million convertible notes repayment on April 1, 2023.

Borrowings under Unsecured Senior Notes

During the three months ended March 31, 2023 and 2022, the weighted average effective borrowing rate on our unsecured senior notes was 4.7% and 4.8%, respectively. The effective borrowing rate includes the effects of underwriter purchase discount.

Refer to Note 11 to 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 March 31, 2023. 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
Second Quarter 2023	$	838,741	$	7,371	$	(771,995)	$	74,117
Third Quarter 2023	567,259		3,200		(414,394)		156,065
Fourth Quarter 2023	592,947		29,412		(1,627,468)		(1,005,109)		(1)
First Quarter 2024	209,365		5,456		(797,900)		(583,079)		(2)
Total	$	2,208,312	$	45,439	$	(3,611,757)	$	(1,358,006)

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(1) Shortfall primarily relates to (i) $864.6 million of repayments under a Residential Loans repurchase facility that matures in October 2023 that we intend to either extend or refinance with another counterparty; and (ii) $300.0 million of our Senior Notes that mature in November 2023 that we intend to repay with funds generated in the normal course of business.

(2) Shortfall primarily relates to (i) $350.7 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; and (ii) $303.2 million of repayments under a Residential Loans repurchase facility that matures in March 2024 that we intend to either extend or refinance with another counterparty.

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 March 31, 2023, we had 100,000,000 shares of preferred stock available for issuance and 187,779,154 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, 2022. 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

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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.

The Company’s board of directors declared the following dividends during the three months ended March 31, 2023:

Declaration Date

Record Date

Payment Date

Amount

Frequency

3/16/23

3/31/23

4/14/23

0.48

Quarterly

Contractual Obligations and Commitments

Our material contractual obligations and commitments as of March 31, 2023 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)	$	14,946,128	$	1,751,249	$	2,243,684	$	9,053,717	$	1,897,478
CLOs and SASB (b)	3,684,162		685,713		1,380,162		1,466,409		151,878
Unsecured senior notes	2,350,000		550,000		900,000		900,000		—
Future loan commitments:
Commercial Lending (c)	1,989,959		1,310,085		673,843		6,031		—

Infrastructure Lending (d)	154,835		154,835		—		—		—

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(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 10 to the Condensed Consolidated Financial Statements for the expected maturities by year.

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

(c) Excludes $275.1 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 contractual commitments of $121.3 million under revolvers and letters of credit, $15.5 million under delayed draw term loans and $18.0 million of outstanding infrastructure loan purchase commitments.

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.

Critical Accounting Estimates

Refer to the section of our Form 10-K entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates” for a full discussion of our critical accounting estimates. Our critical accounting estimates have not materially changed since December 31, 2022.

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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, 2022 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 instruments. The following table presents our credit instruments as of March 31, 2023 and December 31, 2022 (dollars in thousands):


	Face Value of Loans Held-for-Sale		Aggregate Notional Value of Credit Instruments		Number of Credit Instruments
March 31, 2023	$	85,450	$	49,000	3
December 31, 2022	$	23,900	$	49,000	3

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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 March 31, 2023 and December 31, 2022 (dollars in thousands):


	Face Value of Hedged Instruments		Aggregate Notional Value of Credit Instruments		Number of Credit Instruments
Instrument hedged as of March 31, 2023
Loans held-for-sale	$	3,140,002	$	3,549,700	45
RMBS, available-for-sale	200,257		85,000		2
CMBS, fair value option	86,177		58,800		2
HTM debt securities	11,422		11,422		1
Secured financing agreements	683,017		1,339,560		7
Unsecured senior notes	1,000,000		970,000		2
	$	5,120,875	$	6,014,482	59
Instrument hedged as of December 31, 2022
Loans held-for-sale	$	3,116,815	$	2,718,900	36
RMBS, available-for-sale	202,818		85,000		2
CMBS, fair value option	42,793		58,800		2
HTM debt securities	12,005		12,005		1
Secured financing agreements	681,823		1,471,446		9
Unsecured senior notes	1,000,000		970,000		2
	$	5,056,254	$	5,316,151	52

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):


Income (Expense) Subject to Interest Rate Sensitivity	Variable rate investments and indebtedness (1)		1.00% Decrease		.50% Decrease		0.50% Increase		1.00% Increase
Investment income from variable rate investments	$	18,706,319	$	(187,053)	$	(93,532)	$	93,155	$	186,311
Interest expense from variable rate debt, net of interest rate derivatives	(14,030,851)		146,506		72,976		(71,653)		(143,307)
Net investment income from variable rate instruments	$	4,675,468	$	(40,547)	$	(20,556)	$	21,502	$	43,004

______________________________________________________________________________________________________________________

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

Foreign Currency Risk

Our loans and investments that are denominated in a foreign currency are also subject to risks related to fluctuations in exchange rates. We generally mitigate this exposure by matching the currency of our foreign currency assets to the currency of the borrowings that finance those assets. As a result, we substantially reduce our exposure to changes in portfolio value related to changes in foreign exchange rates.

We intend to hedge our net 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.

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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.

The following table represents our assets and liabilities that are denominated in Pounds Sterling (“GBP”), Euros (“EUR”), Australian dollars (“AUD”) and Swiss Francs (“CHF”), as well as our expected future net interest receipts (amounts in thousands):


	March 31, 2023
	GBP		EUR		AUD		CHF
Foreign currency assets	£	1,891,172	€	1,015,607	A$	1,838,882	Fr.	62,724
Foreign currency liabilities	(1,381,372)		(376,151)		(1,390,093)		(45,948)
Foreign currency contracts - notional, net	(556,150)		(717,846)		(628,916)		(21,138)
Expected future net interest cash flows	46,350		78,390		180,127		4,362
Net exposure to exchange rate fluctuations	£	—	€	—	A$	—	Fr.	—
Net exposure to exchange rate fluctuations in USD (1)	$	—	$	—	$	—	$	—

______________________________________________________________________________________________________________________

(1) Represents the U.S. dollar equivalent using the GBP closing rate of 1.2333, EUR closing rate of 1.0842, AUD closing rate of 0.6685 and CHF closing rate of 1.0931 as of March 31, 2023.

Substantially all of our net asset exposure to the GBP, EUR, AUD and CHF has been hedged with foreign currency forward contracts as of March 31, 2023, as indicated in the table above. Refer to Note 13 of the Condensed Consolidated Financial Statements for further detail regarding our foreign currency derivatives and their contractual maturities.

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 March 31, 2023 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 March 31, 2023.

Issuer Purchases of Equity Securities

There were no purchases of common stock during the three months ended March 31, 2023.

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

10.1						Form of Restricted Stock Award Agreement (Starwood Property Trust, Inc. 2022 Equity Plan) *
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)

__________________________________________

* Indicates management contract or compensatory plan or arrangement.

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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: May 4, 2023	By:	/s/ BARRY S. STERNLICHT
		Barry S. Sternlicht Chief Executive Officer Principal Executive Officer

Date: May 4, 2023	By:	/s/ RINA PANIRY
		Rina Paniry Chief Financial Officer, Treasurer, Chief Accounting Officer and Principal Financial Officer

100

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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

10.1 Form of Restricted Stock Award Agreement (Starwood Property Trust, Inc. 2022 Equity Plan)* 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 March 31, 2023

Exhibits