BLACKSTONE MORTGAGE TRUST, INC. (BXMT) FY 2021 MD&A

ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

Introduction

Blackstone Mortgage Trust is a real estate finance company that originates senior loans collateralized by commercial real estate in North America, Europe, and Australia. Our portfolio is composed primarily of loans secured by high-quality, institutional assets in major markets, sponsored by experienced, well-capitalized real estate investment owners and operators. These senior loans are capitalized by accessing a variety of financing options, including borrowing under our credit facilities, issuing CLOs or single-asset securitizations, and syndicating senior loan participations, depending on our view of the most prudent financing option available for each of our investments. We are not in the business of buying or trading securities, and the only securities we own are the retained interests from our securitization financing transactions, which we have not financed. We are externally managed by BXMT Advisors L.L.C., or our Manager, a subsidiary of Blackstone Inc., or Blackstone, and are a real estate investment trust, or REIT, traded on the New York Stock Exchange, or NYSE, under the symbol “BXMT.”

We benefit from the deep knowledge, experience and information advantages of our Manager, which is a part of Blackstone’s real estate platform. Blackstone has built the world's preeminent global real estate business, with a proven track record of successfully navigating market cycles and emerging stronger through periods of volatility. The market-leading real estate expertise derived from the strength of the Blackstone platform deeply informs our credit and underwriting process, and we believe gives us the tools to expertly manage the assets in our portfolio and work with our borrowers throughout periods of economic stress and uncertainty.

We conduct our operations as a REIT for U.S. federal income tax purposes. We generally will not be subject to U.S. federal income taxes on our taxable income to the extent that we annually distribute all of our net taxable income to stockholders and maintain our qualification as a REIT. We also operate our business in a manner that permits us to maintain an exclusion from registration under the Investment Company Act of 1940, as amended. We are organized as a holding company and conduct our business primarily through our various subsidiaries.

Recent Developments

COVID-19

The novel coronavirus, or COVID-19, pandemic has evolved from its emergence in early 2020, so has its global impact. Many countries have re-instituted, or strongly encouraged, varying levels of quarantines and restrictions on travel and in some cases have at times limited operations of certain businesses and taken other restrictive measures designed to help slow the spread of COVID-19 and its variants. Governments and businesses have also instituted vaccine mandates and testing requirements for employees. While vaccine availability and uptake has increased, the longer-term macro-economic effects on global supply chains, inflation, labor shortages and wage increases continue to impact many industries, including the collateral underlying certain of our loans. Moreover, with the potential for new strains of COVID-19 to emerge, governments and businesses may re-impose aggressive measures to help slow its spread in the future. For this reason, among others, as the COVID-19 pandemic continues, the potential global impacts are uncertain and difficult to assess.

Reference Rate Reform

LIBOR and certain other floating rate benchmark indices to which our floating rate loans and other loan agreements are tied, including, without limitation, the Euro Interbank Offered Rate, or EURIBOR, the Stockholm Interbank Offered Rate, or STIBOR, the Australian Bank Bill Swap Reference Rate, or BBSY, the Canadian Dollar Offered Rate, or CDOR, and the Swiss Average Rate Overnight, or SARON, or collectively, IBORs, are the subject of recent national, international and regulatory guidance and proposals for reform. As of December 31, 2021, the ICE Benchmark Association, or IBA, ceased publication of all non-USD LIBOR and previously announced its intention to cease publication of remaining U.S. dollar LIBOR settings immediately after June 30, 2023.

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The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, has identified the Secured Overnight Financing Rate, or SOFR, a new index calculated using short-term repurchase agreements backed by Treasury securities, as its preferred alternative rate for USD LIBOR. Market participants have started to transition to the Sterling Overnight Index Average, or SONIA, in line with guidance from the U.K. regulators. As of December 31, 2021, one-month SOFR is utilized as the floating benchmark rate on 16 of our loans, the financing provided on the 2020 FL3 and 2020 FL2 CLOs, plus a credit spread adjustment, and one of our credit facilities. Additionally, as of December 31, 2021, daily compounded SONIA is utilized as the floating benchmark rate on nine of our loans and five of our credit facilities.

At this time, it is not possible to predict how markets will respond to SOFR, SONIA, or other alternative reference rates as the transition away from USD LIBOR and GBP LIBOR proceeds. Despite the LIBOR transition in other markets, benchmark rate methodologies in Europe, Australia, Canada, and Switzerland have been reformed and rates such as EURIBOR, STIBOR, BBSY, CDOR, and SARON may persist as International Organization of Securities Commissions, or IOSCO, compliant reference rates moving forward. However, multi-rate environments may persist in these markets as regulators and working groups have suggested market participants adopt alternative reference rates.

Refer to “Part I. Item 1A. Risk Factors—Risks Related to Our Lending and Investment Activities—The recent and expected discontinuation of currently used financial reference rates and use of alternative replacement reference rates may adversely affect net interest income related to our loans and investments or otherwise adversely affect our results of operations, cash flows and the market value of our investments.” of this Annual Report on Form 10-K.

2021 Highlights

Operating results:

•Net income of $419.2 million, or $2.77 per share, and Distributable Earnings of $396.7 million, or $2.62 per share, with dividends declared of $383.9 million, or $2.48 per share. Net income includes a $39.9 million decrease to the current expected credit loss, or CECL, reserve that is excluded from Distributable Earnings, as further described below.

•Increased book value per share $0.80 to $27.22 as of December 31, 2021, which is net of a $0.78 cumulative CECL reserve.

Loan portfolio:

•Loan originations of $14.6 billion. During the year we had loan fundings of $12.9 billion and loan repayments of $7.2 billion, resulting in net fundings of $5.7 billion.

•Portfolio of 189 investments as of December 31, 2021, with a weighted-average origination loan-to-value ratio of 64.4% and weighted-average all-in yield of + 3.54%.

•Maintained our disciplined focus on institutional quality assets and sponsors while accelerating our activities in sectors and markets with the highest potential for growth, including increasing our portfolio exposure to multifamily to 24% from 10% and to the Sunbelt to 27% from 19%.

Capital markets and financing activity:

•Closed $10.5 billion of new financings under our secured debt facilities, adding two new credit facilities with innovative structures to finance our investments.

•Closed a $1.0 billion collateralized loan obligation, or CLO, securitization resulting in an aggregate $3.5 billion of our loans financed through our CLO securitizations as of December 31, 2021.

•Increased the borrowings under our senior term loan facilities by an aggregate $300.0 million, decreased the spread on our B-2 senior term loan facility by 2.00% to L + 2.75%, and issued $400.0 million of 3.75% senior secured notes due 2027.

I. Key Financial Measures and Indicators

As a real estate finance company, we believe the key financial measures and indicators for our business are earnings per share, dividends declared, Distributable Earnings, and book value per share. For the three months ended December 31, 2021, we recorded earnings per share of $0.76, declared a dividend of $0.62 per share, and reported $0.78 per share of Distributable Earnings. In addition, our book value as of December 31, 2021 was $27.22 per share, which is net of a $0.78 cumulative CECL reserve. For the year ended December 31, 2021, we recorded earnings per share of $2.77, declared aggregate dividends of $2.48 per share, and reported $2.62 per share of Distributable Earnings.

As further described below, Distributable Earnings is a measure that is not prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, which helps us to evaluate our performance excluding the effects of certain transactions and GAAP adjustments that we believe are not necessarily indicative of our

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current loan portfolio and operations. In addition, Distributable Earnings is a performance metric we consider when declaring our dividends.

Earnings Per Share and Dividends Declared

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

(1)Represents net income attributable to Blackstone Mortgage Trust.

Distributable Earnings

Distributable Earnings is a non-GAAP measure, which we define as GAAP net income (loss), including realized gains and losses not otherwise recognized in current period GAAP net income (loss), and excluding (i) non-cash equity compensation expense, (ii) depreciation and amortization, (iii) unrealized gains (losses), and (iv) certain non-cash items. Distributable Earnings may also be adjusted from time to time to exclude one-time events pursuant to changes in GAAP and certain other non-cash charges as determined by our Manager, subject to approval by a majority of our independent directors. Distributable Earnings mirrors the terms of our management agreement between our Manager and us, or our Management Agreement, for purposes of calculating our incentive fee expense.

Our 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 concluded 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 class A common stock as historically, over time, Distributable Earnings has been a strong indicator of our dividends per share. As a REIT, we generally must distribute annually at least 90% of our net taxable income, subject to certain adjustments, and therefore we believe our dividends are one of the principal reasons stockholders may invest in our class A common stock. Refer to Note 14 to our consolidated financial statements for further discussion of our distribution requirements as a REIT. 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.

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, 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.

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The following table provides a reconciliation of Distributable Earnings to GAAP net income ($ in thousands, except per share data):

(1)Represents net income attributable to Blackstone Mortgage Trust.

(2)Represents a realized loss related to loan principal amounts deemed nonrecoverable following a realization event during the three months ended December 31, 2021. This amount was previously recognized as a component of GAAP net income as an increase in our current expected credit loss reserve.

(3)For the three months and year ended December 31, 2021, represents realized gains (losses) on the repatriation of unhedged foreign currency. For the year ended December 31, 2020, primarily represents the forward points earned on our foreign currency forward contracts, which reflect the interest rate differentials between the applicable base rate for our foreign currency investments and USD LIBOR. These forward contracts effectively convert the rate exposure to USD LIBOR, resulting in additional interest income earned in U.S. dollar terms. These amounts were not included in GAAP net income, but rather as a component of Other Comprehensive Income in our consolidated financial statements.

(4)Includes favorable Distributable Earnings impact, net of incentive fees, of $19.1 million, or $0.12 and $0.13 per share for the three months and year ended December 31, 2021 relating to (i) prepayment income and acceleration of deferred origination fees related to a certain loan repayment during the three months ended December 31, 2021 and (ii) the charge-off of a certain previously recorded current expected credit loss reserve above.

Book Value Per Share

The following table calculates our book value per share ($ in thousands, except per share data):

II. Loan Portfolio

During the year ended December 31, 2021, we originated or acquired $14.6 billion of loans. Loan fundings during the year totaled $12.9 billion, including $393.9 million of non-consolidated senior interests. Loan repayments and sales during the year totaled $7.2 billion, including $475.5 million of non-consolidated senior interests and the loan held by our non-consolidated securitized debt obligation. We generated interest income of $854.7 million and incurred interest expense of $340.2 million during the year, which resulted in $514.5 million of net interest income during the year ended December 31, 2021.

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Portfolio Overview

The following table details our loan origination activity ($ in thousands):

(1)Includes new loan originations and additional commitments made under existing loans.

(2)Loan fundings during the three months and year ended December 31, 2021 include $109.3 million and $393.9 million, respectively, of additional fundings under related non-consolidated senior interests.

(3)Loan repayments and sales during the three months and year ended December 31, 2021 include $148.3 and $475.5 million, respectively, of additional repayments or reduction of loan exposure under related non-consolidated senior interests and the loan held by our non-consolidated securitized debt obligation.

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The following table details overall statistics for our investment portfolio as of December 31, 2021 ($ in thousands):

(1)Excludes investment exposure to the $79.2 million subordinate position we own in the $379.3 million 2018 Single Asset Securitization. Refer to Notes 4 and 17 to our consolidated financial statements for further discussion of the 2018 Single Asset Securitization.

(2)In certain instances, we finance our loans through the non-recourse sale of a senior loan interest that is not included in our consolidated financial statements. Total loan exposure encompasses the entire loan we originated and financed, including $1.5 billion of such non-consolidated senior interests that are not included in our balance sheet portfolio.

(3)Includes investment exposure to the $379.3 million 2018 Single Asset Securitization. We do not consolidate the 2018 Single Asset Securitization on our consolidated financial statements, and instead reflect our $79.2 million subordinate position as a component of other assets on our consolidated balance sheet. Refer to Notes 4 and 17 to our consolidated financial statements for further discussion of the 2018 Single Asset Securitization.

(4)Unfunded commitments will primarily be funded to finance our borrowers’ construction or development of real estate-related assets, capital improvements of existing assets, or lease-related expenditures. These commitments will generally be funded over the term of each loan, subject in certain cases to an expiration date.

(5)The weighted-average cash coupon and all-in yield are expressed as a spread over the relevant floating benchmark rates, which include USD LIBOR, SOFR, GBP LIBOR, SONIA, EURIBOR, and other indices as applicable to each investment. As of December 31, 2021, 98% of our investments by total investment exposure earned a floating rate of interest, primarily indexed to USD LIBOR. The other 2% of our investments earned a fixed rate of interest, which we reflect as a spread over the relevant floating benchmark rates, as of December 31, 2021, for purposes of the weighted-averages. In addition to cash coupon, all-in yield includes the amortization of deferred origination and extension fees, loan origination costs, and purchase discounts, as well as the accrual of exit fees. Excludes a loan accounted for under the cost-recovery method.

(6)Maximum maturity assumes all extension options are exercised by the borrower, however our loans and other investments may be repaid prior to such date. As of December 31, 2021, 56% of our loans and other investments by total investment exposure were subject to yield maintenance or other prepayment restrictions and 44% were open to repayment by the borrower without penalty.

(7)Based on LTV as of the dates loans and other investments were originated or acquired by us.

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The following table details the index rate floors for our loans receivable portfolio as of December 31, 2021 ($ in thousands):

(1)Includes Euro, British Pound Sterling, Swedish Krona, Australian Dollar, Canadian Dollar, and Swiss Franc currencies.

(2)Includes a $286.3 million loan accounted for under the cost-recovery method.

(3)Includes investment exposure to the $79.2 million subordinate position we own in the $379.3 million 2018 Single Asset Securitization. Refer to Notes 4 and 17 to our consolidated financial statements for further discussion of the 2018 Single Asset Securitization.

(4)In certain instances, we finance our loans through the non-recourse sale of a senior loan interest that is not included in our consolidated financial statements. Total loan exposure encompasses the entire loan we originated and financed, including $1.5 billion of such non-consolidated senior interests that are not included in our balance sheet portfolio.

(5)As of December 31, 2021, the weighted-average index rate floor of our loan portfolio was 0.42%. Excluding 0.0% index rate floors, the weighted-average index rate floor was 0.70%. As of December 31, 2020, the weighted-average index rate floor of our loan portfolio was 0.82%. Excluding 0.0% index rate floors, the weighted-average index rate floor was 1.35%.

The following table details the floating benchmark rates for our investment portfolio as of December 31, 2021 (total investment portfolio amounts in thousands):

(1)We use foreign currency forward contracts to protect the value or fix the amount of certain investments or cash flows in terms of the U.S. dollar. We earn forward points on our forward contracts that reflect the interest rate differentials between the applicable base rate for our foreign currency investments and USD LIBOR. These forward contracts effectively convert the foreign currency rate exposure for such investments to USD LIBOR.

(2)The cash coupon and all-in yield of our fixed rate loans are reflected as a spread over USD LIBOR for purposes of the weighted-averages. In addition to cash coupon, all-in yield includes the amortization of deferred origination and extension fees, loan origination costs, and purchase discounts, as well as the accrual of exit fees. Excludes a loan accounted for under the cost-recovery method.

(3)As of December 31, 2021, $15.6 billion and $1.5 billion of loans were indexed to USD LIBOR and SOFR, respectively. The remaining $37.5 million of our United States Dollar loans are fixed rate. As of December 31, 2021, one-month USD LIBOR was 0.10% and SOFR was 0.05%.

(4)As of December 31, 2021, £874.8 million and £848.4 million of loans were indexed to SONIA and GBP LIBOR, respectively. The remaining £233.4 million of our British Pound Sterling loans are fixed rate. As of December 31, 2021, SONIA was 0.19% and three-month GBP LIBOR was 0.26%.

(5)Includes floating rate loans indexed to STIBOR, BBSY, CDOR, and SARON indices.

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The charts below detail the geographic distribution and types of properties securing our investment portfolio, as of December 31, 2021:

Refer to section VI of this Item 7 for details of our loan portfolio, on a loan-by-loan basis.

Portfolio Management

During the year ended December 31, 2021, we collected 100.0% of the contractual interest payments that were due under our loans, with virtually no interest deferrals, including with respect to loans collateralized by hospitality assets, which we believe demonstrates the overall strength of our loan portfolio and the commitment and financial wherewithal of our borrowers generally, which are primarily affiliated with large real estate private equity funds and other strong, well-capitalized, experienced sponsors.

We maintain a robust asset management relationship with our borrowers and utilize these relationships to maximize the performance of our portfolio, including during periods of volatility, such as the COVID-19 pandemic. We believe that we will benefit from these relationships and from our long-standing core business model of originating senior loans collateralized by large assets in major markets with experienced, well-capitalized institutional sponsors. Our investment portfolio’s low origination weighted-average LTV of 64.4% as of December 31, 2021 reflects significant equity value that our sponsors are motivated to protect through periods of cyclical disruption. While we believe the principal amounts of our loans are generally adequately protected by underlying collateral value, there is a risk that we will not realize the entire principal value of certain investments.

Our Manager’s portfolio monitoring and asset management operations benefit from the deep knowledge, experience, and information advantages derived from its position as part of Blackstone’s real estate platform. Blackstone has built the world's preeminent global real estate business, with a proven track record of successfully navigating market cycles and emerging stronger through periods of volatility. The market-leading real estate expertise derived from the strength of the Blackstone platform deeply informs our credit and underwriting process, and gives us the tools to expertly asset manage our portfolio and work with our borrowers throughout periods of economic stress and uncertainty.

As discussed in Note 2 to our consolidated financial statements, our Manager performs a quarterly review of our loan portfolio, assesses the performance of each loan, and assigns it a risk rating between “1” and “5,” from less risk to greater risk. The weighted-average risk rating of our total loan exposure was 2.8 and 3.0 as of December 31, 2021 and December 31, 2020, respectively. The decrease in risk rating reflects the ongoing recovery from COVID-19 and the improvement of our portfolio’s credit.

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The following table allocates the principal balance and total loan exposure balances based on our internal risk ratings ($ in thousands):

(1)In certain instances, we finance our loans through the non-recourse sale of a senior loan interest that is not included in our consolidated financial statements. See Note 2 to our consolidated financial statements for further discussion. Total loan exposure encompasses the entire loan we originated and financed, including $1.5 billion of such non-consolidated senior interests as of December 31, 2021.

(2)Excludes investment exposure to the $379.3 million 2018 Single Asset Securitization. Refer to Notes 4 and 17 to our consolidated financial statements for details of the subordinate position we own in the 2018 Single Asset Securitization.

Current Expected Credit Loss Reserve

The CECL reserve required by GAAP reflects our current estimate of potential credit losses related to our loans and debt securities included in our consolidated balance sheets. Other than a few narrow exceptions, GAAP requires that all financial instruments subject to the CECL model have some amount of loss reserve to reflect the GAAP principal underlying the CECL model that all loans, debt securities, and similar assets have some inherent risk of loss, regardless of credit quality, subordinate capital, or other mitigating factors.

During the year ended December 31, 2021, we recorded an aggregate $39.9 million decrease in the CECL reserve related to loans receivable, debt securities, and unfunded loan commitments, and $14.4 million of charge-offs, bringing our total reserve to $131.0 million as of December 31, 2021. This CECL reserve reflects the macroeconomic impact of the COVID-19 pandemic on commercial real estate markets generally, as well as certain loans assessed for impairment in our portfolio. The decrease in the CECL reserve during the year ended December 31, 2021 reflects the ongoing market recovery from COVID-19 and the resulting improvement in the performance of the collateral assets underlying our portfolio. See Notes 2 and 3 to our consolidated financial statements for further discussion of our CECL reserve.

During 2020 and 2021, we entered into loan modifications related to a multifamily asset in New York City, which are classified as troubled debt restructurings under GAAP. During the three months ended June 30, 2020, we recorded a $14.8 million CECL reserve on this loan. During the three months ended December 31, 2021, the borrower committed significant additional capital to the property and engaged new management to oversee property operations, and we reduced the loan's outstanding principal balance to $37.5 million. As a result of the modification, we charged-off $14.4 million of the $14.8 million asset-specific CECL reserve we recorded on this loan during the three months ended June 30, 2020, and reversed the remaining $360,000 CECL reserve. We have no remaining asset-specific CECL reserve against this loan as of December 31, 2021. The loan is paying interest income current and we resumed income accrual for this loan as of December 31, 2021. See Note 2 to our consolidated financial statements for further discussion on the CECL reserve.

During the third quarter of 2020, we entered into a loan modification related to a hospitality asset in New York City, which is classified as a troubled debt restructuring under GAAP. During the three months ended June 30, 2020, we recorded $54.9 million CECL reserve on this loan, which was unchanged as of December 31, 2021. As of July 1, 2020, the income accrual on this loan was suspended and no income was recorded subsequent to July 1, 2020. This loan has an outstanding principal balance of $286.3 million, net of cost-recovery proceeds, as of December 31, 2021. The CECL reserve was recorded based on our estimation of the fair value of the loan’s underlying collateral as of December 31, 2021.

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Multifamily Joint Venture

As of December 31, 2021, our Multifamily Joint Venture held $746.9 million of loans, which are included in the loan disclosures above. Refer to Note 2 to our consolidated financial statements for additional discussion of our Multifamily Joint Venture.

Portfolio Financing

Our portfolio financing consists of secured debt, securitizations, and asset-specific financings. The following table details our portfolio financing ($ in thousands):

(1)Includes our consolidated securitized debt obligations of $2.9 billion and our non-consolidated securitized debt obligations of $300.1 million. The non-consolidated securitized debt obligation represents the senior non-consolidated investment exposure to the 2018 Single Asset Securitization. We own the related subordinate position, which is classified as a held-to-maturity debt security on our balance sheet. Refer to Note 4 and Note 17 to our consolidated financial statements for details of the 2018 Single Asset Securitization.

(2)Includes our consolidated asset-specific debt of $400.7 million and our non-consolidated senior interests of $1.5 billion. The non-consolidated senior interests provide structural leverage for our net investments which are reflected in the form of mezzanine loans or other subordinate interests on our balance sheet and in our results of operations.

Secured Debt

The following table details our outstanding secured debt ($ in thousands):

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Secured Credit Facilities

The following table details our secured credit facilities as of December 31, 2021 ($ in thousands):

(1)The spread, all-in cost, and all-in yield are expressed over the relevant floating benchmark rates, which include USD LIBOR, SOFR, GBP LIBOR, SONIA, EURIBOR, and other indices as applicable.

(2)Represents borrowings outstanding as of December 31, 2021 for new financings during the year ended December 31, 2021, based on the date collateral was initially pledged to each credit facility.

(3)In addition to spread, the cost includes the associated deferred fees and expenses related to the respective borrowings.

(4)Represents the weighted-average all-in cost as of December 31, 2021 and is not necessarily indicative of the spread applicable to recent or future borrowings.

(5)Represents the principal balance of the collateral assets.

(6)In addition to cash coupon, all-in yield includes the amortization of deferred origination and extension fees, loan origination costs, and purchase discounts, as well as the accrual of exit fees.

(7)Represents the difference between the weighted-average all-in yield and weighted-average all-in cost.

Acquisition Facility

We have a $250.0 million full recourse secured credit facility that is designed to finance eligible first mortgage originations for up to nine months as a bridge to term financing without obtaining discretionary lender approval. The maturity date of the facility is April 4, 2023. As of December 31, 2021, we had one asset pledged to our acquisition facility and there was an aggregate $147.5 million available to be drawn at our discretion.

Securitizations

The following table details our outstanding securitizations ($ in thousands):

(1)These non-consolidated securitized debt obligations represent the senior non-consolidated investment exposure to the 2018 Single Asset Securitization. We own the related subordinate position, which is classified as a held-to-maturity debt security on our balance sheet. Refer to Note 6 and Note 17 to our consolidated financial statements for details of the 2018 Single Asset Securitization.

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Securitized Debt Obligations

We have financed certain pools of our loans through collateralized loan obligations, which include the 2021 FL4 CLO, 2020 FL3 CLO, and 2020 FL2 CLO, or collectively, the CLOs. The following table details our securitized debt obligations ($ in thousands):

(1)In addition to cash coupon, all-in yield includes the amortization of deferred origination and extension fees, loan origination costs, purchase discounts, and accrual of exit fees.

(2)The weighted-average all-in yield and cost are expressed as a spread over the relevant floating benchmark rates, which include USD LIBOR and SOFR, as applicable to each securitized debt obligation. As of December 31, 2021, the floating benchmark rate for the financing provided on the 2020 FL3 and 2020 FL2 CLOs is one-month SOFR, plus a credit spread adjustment of 0.11%. As of December 31, 2021, the one-month SOFR was 0.05% and one-month USD LIBOR was 0.10%.

(3)Loan term represents weighted-average final maturity, assuming all extension options are exercised by the borrower. Repayments of securitized debt obligations are tied to timing of the related collateral loan asset repayments. The term of these obligations represents the rated final distribution date of the securitizations.

(4)During the three and twelve months ended December 31, 2021, we recorded $10.8 million and $46.0 million, respectively, of interest expense related to our securitized debt obligations.

Refer to Note 6 and Note 17 to our consolidated financial statements for additional details of our securitized debt obligations.

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Non-Consolidated Securitized Debt Obligation

In the third quarter of 2018, we contributed a senior loan to the 2018 Single Asset Securitization, and invested in the related subordinate position. We do not consolidate the 2018 Single Asset Securitization on our balance sheet. The non-consolidated securitized debt obligation provides structural leverage for our net investment which is reflected as a held-to-maturity debt security and is included in other assets on our consolidated balance sheets. The following table details our non-consolidated securitized debt obligations ($ in thousands):

(1)In addition to cash coupon, all-in yield includes the amortization of deferred origination and extension fees, loan origination costs, and purchase discounts.

(2)Loan term represents weighted-average final maturity, assuming all extension options are exercised by the borrower. Repayments of non-consolidated securitized debt obligations are tied to timing of the related collateral loan asset repayments. The term of these obligations represents the rated final distribution date of the securitizations.

Asset-Specific Financings

The following table details our outstanding asset-specific financings ($ in thousands):

(1)These non-consolidated senior interests provide structural leverage for our net investments which are reflected in the form of mezzanine loans or other subordinate interests on our balance sheet and in our results of operations.

Asset-Specific Debt

The following table details our asset-specific debt ($ in thousands):

(1)These floating rate loans and related liabilities are indexed to the various benchmark rates relevant in each arrangement in terms of currency and payment frequency. Therefore the net exposure to each benchmark rate is in direct proportion to our net assets indexed to that rate. In addition to cash coupon, yield/cost includes the amortization of deferred origination fees / financing costs.

(2)The weighted-average term is determined based on the maximum maturity of the corresponding loans, assuming all extension options are exercised by the borrower. Each of our asset-specific debt is term-matched to the corresponding collateral loans.

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Non-Consolidated Senior Interests

In certain instances, we finance our loans through the non-recourse sale of a senior loan interest that is not included in our consolidated financial statements. These non-consolidated senior interests provide structural leverage for our net investments which are reflected in the form of mezzanine loans or other subordinate interests on our balance sheet and in our results of operations.

The following table details the subordinate interests retained on our balance sheet and the related non-consolidated senior interests ($ in thousands):

(1)The weighted-average spread and all-in yield are expressed as a spread over the relevant floating benchmark rates, which include USD LIBOR and GBP LIBOR, as applicable to each investment. As of December 31, 2021, 83% of these loans’ total investment exposure earned a floating rate of interest indexed to USD LIBOR or SOFR. The other 17% of our investments earned a fixed rate of interest, which we reflect as a spread over GBP LIBOR, as of December 31, 2021, for purposes of the weighted-averages. In addition to spread, all-in yield includes the amortization of deferred origination and extension fees, loan origination costs, and purchase discounts, as well as the accrual of exit fees.

Corporate Financing

The following table details our outstanding corporate financing ($ in thousands):

Term Loans

As of December 31, 2021, the following senior term loan facilities, or Term Loans, were outstanding ($ in thousands):

(1)The B-2 Term Loan borrowing is subject to a LIBOR floor of 0.50%.

(2)Includes issue discount and transaction expenses that are amortized through interest expense over the life of the Term Loans.

Refer to Note 2 and Note 8 to our consolidated financial statements for additional discussion of our Term Loans.

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Senior Secured Notes

As of December 31, 2021, the following Senior Secured Notes, were outstanding ($ in thousands):

(1)Includes issue discount and transaction expenses that are amortized through interest expense over the life of the Notes.

Refer to Note 2 and Note 9 to our consolidated financial statements for additional discussion of our Senior Secured Notes.

Convertible Notes

As of December 31, 2021 the following convertible senior notes, or Convertible Notes, were outstanding ($ in thousands):

(1)Includes issuance costs that are amortized through interest expense over the life of the Convertible Notes using the effective interest method.

(2)Represents the number of shares of class A common stock issuable per $1,000 principal amount of Convertible Notes, which is equivalent to a conversion price of $35.67 and $36.23 per share of class A common stock, respectively, for the May 2017 and March 2018 convertible notes. The cumulative dividend threshold as defined in the respective May 2017 and March 2018 convertible notes supplemental indentures have not been exceeded as of December 31, 2021.

Refer to Note 2 and Note 10 to our consolidated financial statements for additional discussion of our Convertible Notes.

Floating Rate Portfolio

Generally, our business model is such that rising interest rates will increase our net income, while declining interest rates will decrease net income. As of December 31, 2021, 98% of our investments by total investment exposure earned a floating rate of interest and were financed with liabilities that pay interest at floating rates, which resulted in an amount of net equity that is positively correlated to rising interest rates, subject to the impact of interest rate floors on certain of our floating rate investments. As of December 31, 2021, the remaining 2% of our investments by total investment exposure earned a fixed rate of interest, but are financed with liabilities that pay interest at floating rates, which resulted in a negative correlation to rising interest rates to the extent of our financing. In certain instances where we have financed fixed rate assets with floating rate liabilities, we have purchased interest rate caps to limit our exposure to increases in interest rates on such liabilities.

Our liabilities are generally currency and index-matched to each collateral asset, resulting in a net exposure to movements in benchmark rates that varies by currency silo based on the relative proportion of floating rate assets and liabilities.

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The following table details our investment portfolio’s net exposure to interest rates by currency as of December 31, 2021 (amounts in thousands):

(1)Our floating rate investments and related liabilities are indexed to the various benchmark rates relevant in each case in terms of currency and payment frequency. Therefore the net exposure to each benchmark rate is in direct proportion to our net assets indexed to that rate.

(2)Includes investment exposure and related financing of the 2018 Single Asset Securitization. Refer to Note 4 and Note 17 to our consolidated financial statements for details of the subordinate position we own in the 2018 Single Asset Securitization.

(3)As of December 31, 2021, £874.8 million and £848.4 million of floating rate loans were indexed to SONIA and GBP LIBOR, respectively. As of December 31, 2021, £856.6 million and £431.8 million of floating rate debt was indexed to SONIA and GBP LIBOR, respectively. As of December 31, 2021, SONIA was 0.19%. and three-month GBP LIBOR was 0.26%.

(4)Includes borrowings under secured debt, securitizations, asset-specific financings, and term loans.

(5)As of December 31, 2021, $15.6 billion and $1.5 billion of floating rate debt was indexed to USD LIBOR and SOFR, respectively. As of December 31, 2021, the floating benchmark rate for the financing provided on the 2020 FL3 and 2020 FL2 CLOs is one-month SOFR, plus a credit spread adjustment of 0.11%. As of December 31, 2021, one-month SOFR was 0.05% and one-month USD LIBOR was 0.10%.

(6)Represents the U.S. Dollar equivalent as of December 31, 2021.

(7)Includes Swedish Krona, Australian Dollar, Canadian Dollar, and Swiss Franc currencies.

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III. Our Results of Operations

Operating Results

The following table sets forth information regarding our consolidated results of operations for the years ended December 31, 2021, 2020, and 2019 ($ in thousands, except per share data):

Income from loans and other investments, net

Income from loans and other investments, net increased $82.3 million during the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase was primarily due to (i) an increase in prepayment fee income, (ii) an increase in the weighted-average principal balance of our loan portfolio by $2.0 billion for the year ended December 31, 2021, as compared to the year ended December 31, 2020, and (iii) the impact of declining LIBOR and other floating rate indices, which had a larger impact on interest expense than interest income as a result of certain of our loans earning interest based on floors that were above the applicable floating rate index during the period. This was offset by an increase in the weighted-average principal balance of our outstanding financing arrangements by $1.9 billion for the year ended December 31, 2021, as compared to the year ended December 31, 2020.

Income from loans and other investments, net increased $8.0 million during the year ended December 31, 2020 compared to the year ended December 31, 2019. The increase was primarily due to (i) $13.7 billion of our loans earning interest based on floors that were above the applicable floating rate index, as of December 31, 2020, and (ii) an increase in the weighted-average principal balance of our loan portfolio by $1.7 billion during the year ended December 31, 2020, as compared to the year ended December 31, 2019. This was offset by (i) a decrease in weighted-average LIBOR and other floating rate indices in 2020, (ii) an increase in the weighted-average principal balance of our outstanding financing arrangements by $1.6 billion during year ended December 31, 2020, as compared to the year ended December 31, 2019, (iii) a decrease in prepayment fee income, and (iv) a decline in interest income related to two loans that are accounted for under the cost-recovery method effective June 30, 2020.

Other expenses

Other expenses include management and incentive fees payable to our Manager and general and administrative expenses. Other expenses increased by $7.8 million during the year ended December 31, 2021 compared to the year ended

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December 31, 2020 due to (i) an increase of $6.8 million of incentive fees payable to our Manager, primarily due to an increase in Distributable Earnings, and (ii) an increase of $3.8 million of management fees payable to our Manager, primarily as a result of net proceeds received from the sale of shares of our class A common stock during 2021 and 2020. This was offset by a decrease of $3.0 million of non-cash restricted stock amortization related to shares issued under our long-term incentive plans in 2021 and 2020, primarily due to the difference in the grant date share price.

Other expenses increased by $6.5 million during the year ended December 31, 2020 compared to the year ended December 31, 2019 due to (i) an increase of $5.1 million of management fees payable to our Manager, primarily as a result of net proceeds received from the sale of shares of our class A common stock during 2019 and 2020, (ii) $3.9 million of additional non-cash restricted stock amortization related to shares awarded under our long-term incentive plans, and (iii) an increase of $3.1 million of other general operating expenses. This was offset by a decrease of $5.7 million of incentive fees payable to our Manager.

Changes in current expected credit loss reserve

We adopted ASU 2016-13, which implemented the CECL accounting model, on January 1, 2020. During year ended December 31, 2021, we recorded a $39.9 million decrease in the CECL reserve, as compared to a $167.7 million increase during the year ended December 31, 2020. This CECL reserve reflects the macroeconomic impact of the COVID-19 pandemic on commercial real estate markets generally, as well as certain loans assessed for impairment in our portfolio. See Notes 2 and 3 to our consolidated financial statements for further discussion of our CECL reserve.

Net income attributable to non-controlling interests

During the years ended December 31, 2021, 2020, and 2019, we recorded $3.1 million, $2.7 million, and $1.8 million, respectively, of net income attributable to non-controlling interests related to our Multifamily Joint Venture.

Dividends per share

During the year ended December 31, 2021, we declared aggregate dividends of $2.48 per share, or $383.9 million. During 2020, we declared aggregate dividends of $2.48 per share, or $356.2 million. During 2019, we declared aggregate dividends of $2.48 per share, or $328.1 million.

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The following table sets forth information regarding our consolidated results of operations for the three months ended December 31, 2021 and September 30, 2021 ($ in thousands, except per share data):

Income from loans and other investments, net

Income from loans and other investments, net increased $56.5 million during the three months ended December 31, 2021 compared to the three months ended September 30, 2021. The increase was primarily due to (i) an increase in prepayment fee income and (ii) an increase in the weighted-average principal balance of our loan portfolio by $2.8 billion for the three months ended December 31, 2021, as compared to the three months ended September 30, 2021. This was offset by an increase in the weighted-average principal balance of our outstanding financing arrangements by $2.7 billion for the three months ended December 31, 2021, as compared to the three months ended September 30, 2021.

Other expenses

Other expenses include management and incentive fees payable to our Manager and general and administrative expenses. Other expenses increased by $9.3 million during the three months ended December 31, 2021 compared to the three months ended September 30, 2021 primarily due to (i) an increase of $7.6 million of incentive fees payable to our Manager, primarily due to an increase in Distributable Earnings, (ii) an increase of $1.5 million of management fees payable to our Manager, primarily as a result of net proceeds received from the sale of shares of our class A common stock during the three months ended December 31, 2021, and (iii) an increase of $847,000 of general operating expense. This was offset by a decrease of $618,000 of non-cash restricted stock amortization related to the timing of shares issued under our long-term incentive plans.

Changes in current expected credit loss reserve

During the three months ended December 31, 2021, we recorded a $9.6 million increase in the CECL reserve, as compared to a $2.8 million increase during the three months ended September 30, 2021. Our CECL reserve reflects the macroeconomic impact of the COVID-19 pandemic on commercial real estate markets generally, as well as certain loans assessed for impairment in our portfolio.

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Net income attributable to non-controlling interests

During the three months ended December 31, 2021 and September 30, 2021, we recorded $922,000 and $647,000, respectively, of net income attributable to non-controlling interests related to our Multifamily Joint Venture.

Dividends per share

During the three months ended December 31, 2021, we declared aggregate dividends of $0.62 per share, or $104.3 million. During the three months ended September 30, 2021, we declared aggregate dividends of $0.62 per share, or $97.3 million.

IV. Liquidity and Capital Resources

Capitalization

We have capitalized our business to date primarily through the issuance and sale of shares of our class A common stock, corporate debt, and asset-level financing. As of December 31, 2021, our capitalization structure included $4.6 billion of common equity, $2.4 billion of corporate debt, and $17.4 billion of asset-level financing. Our $2.4 billion of corporate debt includes $1.3 billion of term loan borrowings, $400.0 million of senior secured notes, and $622.5 million of convertible notes, of which $402.5 million matures in 2022. Our $17.4 billion of asset-level financing includes $12.3 billion of secured debt, $3.2 billion of securitizations, and $1.9 billion of asset-specific financings all of which are structured to produce term, currency and index matched funding with no margin call provisions based upon capital markets events.

As of December 31, 2021, we have $1.3 billion of liquidity that can be used to satisfy our short-term cash requirements and as working capital for our business.

See Notes 5, 6, 7, 8, 9, and 10 to our consolidated financial statements for additional details regarding our secured debt, securitized debt obligations, asset-specific debt, Term Loans, Senior Secured Notes, and Convertible Notes, respectively.

Debt-to-Equity Ratio and Total Leverage Ratio

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

(1)Represents (i) total outstanding secured debt, asset-specific debt, term loans, senior secured notes, and convertible notes, less cash, to (ii) total equity, in each case at period end.

(2)Represents (i) total outstanding secured debt, securitizations, asset-specific financings, term loans, senior secured notes, and convertible notes, less cash, to (ii) total equity, in each case at period end.

Sources of Liquidity

Our primary sources of liquidity include cash and cash equivalents, available borrowings under our secured debt facilities, and net receivables from servicers related to loan repayments, which are set forth in the following table ($ in thousands):

(1)Represents loan principal payments held by our third-party servicer as of the balance sheet date which were remitted to us during the subsequent remittance cycle, net of the related secured debt balance.

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During the year ended December 31, 2021, we generated cash flow from operating activities of $382.5 million and received $6.7 billion of loan repayments, $4.7 billion of net proceeds from secured debt borrowings, $638.0 million of net proceeds from the issuance of shares of class A common stock, $400.0 million from the issuance of senior secured notes, and $298.5 million of net proceeds from borrowings under term loans. Furthermore, we are able to generate incremental liquidity through the replenishment provisions of our 2021 FL4, 2020 FL3, and 2020 FL2 CLOs, which allow us to replace a repaid loan in the CLO by increasing the principal amount of existing CLO collateral assets to maintain the aggregate amount of collateral assets in the CLO, and the related financing outstanding.

We have access to liquidity through public offerings of debt and equity securities. To facilitate such offerings, in July 2019, we filed a shelf registration statement with the SEC that is effective for a term of three years and expires at the end of July 2022. The amount of securities to be issued pursuant to this shelf registration statement was not specified when it was filed and there is no specific dollar limit on the amount of securities we may issue. The securities covered by this registration statement include: (i) class A common stock; (ii) preferred stock; (iii) debt securities; (iv) depositary shares representing preferred stock; (v) warrants; (vi) subscription rights; (vii) purchase contracts; and (viii) units consisting of one or more of such securities or any combination of these securities. The specifics of any future offerings, along with the use of proceeds of any securities offered, will be described in detail in a prospectus supplement, or other offering materials, at the time of any offering.

We may also access liquidity through a dividend reinvestment plan and direct stock purchase plan, under which 9,989,790 shares of class A common stock were available for issuance as of December 31, 2021, and our at-the-market stock offering program, pursuant to which we may sell, from time to time, up to $353.8 million of additional shares of our class A common stock as of December 31, 2021. Refer to Note 11 to our consolidated financial statements for additional details.

Liquidity Needs

In addition to our loan origination activity and general operating expenses, our primary liquidity needs include interest and principal payments under our $12.3 billion of outstanding borrowings under secured debt, our asset-specific debt, our Term Loans, our Senior Secured Notes, and our Convertible Notes.

As of December 31, 2021, we had unfunded commitments of $4.2 billion related to 118 loans receivable and $2.5 billion of committed or identified financing for those commitments resulting in net unfunded commitments of $1.7 billion. The unfunded loan commitments comprise funding for capital expenditures and construction, leasing costs, and interest and carry costs, and their fundability will vary depending on the progress of capital projects, leasing, and cash flows at the properties securing our loans. Therefore, the exact timing and amounts of such future loan fundings are uncertain and will depend on the current and future performance of the underlying collateral assets. We expect to fund our loan commitments over the remaining term of the related loans, which have a weighted-average future funding period of 3.6 years.

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Contractual Obligations and Commitments

Our contractual obligations and commitments as of December 31, 2021 were as follows ($ in thousands):

(1)Represents our known, estimated short-term cash requirements related to our contractual obligations and commitments. Refer to the sources of liquidity section above for our sources of funds to satisfy our short-term cash requirements.

(2)The allocation of our unfunded loan commitments is based on the earlier of the commitment expiration date or the final loan maturity date, however we may be obligated to fund these commitments earlier than such date.

(3)The allocation of repayments under our secured debt and asset-specific debt for both principal and interest payments is based on the earlier of (i) the maturity date of each agreement, or (ii) the maximum maturity date of the collateral loans, assuming all extension options are exercised by the borrower.

(4)The Term Loans are partially amortizing, with an amount equal to 1.0% per annum of the initial principal balance due in quarterly installments. Refer to Note 8 for further details on our term loans.

(5)Reflects the outstanding principal balance of convertible notes, excluding any potential conversion premium. Refer to Note 10 to our consolidated financial statements for further details on our convertible notes.

(6)Represents interest payments on our secured debt, asset-specific debt, Term Loans, and convertible notes. Future interest payment obligations are estimated assuming the interest rates in effect as of December 31, 2021 will remain constant into the future. This is only an estimate as actual amounts borrowed and interest rates will vary over time.

(7)Total does not include $2.9 billion of consolidated securitized debt obligations, $1.5 billion of non-consolidated senior interests, and $300.1 million of non-consolidated securitized debt obligations, as the satisfaction of these liabilities will not require cash outlays from us.

We are also required to settle our foreign exchange derivatives with our derivative counterparties upon maturity which, depending on exchange rate movements, may result in cash received from or due to the respective counterparty. The table above does not include these amounts as they are not fixed and determinable. Refer to Note 11 to our consolidated financial statements for details regarding our derivative contracts.

We are required to pay our Manager a base management fee, an incentive fee, and reimbursements for certain expenses pursuant to our Management Agreement. The table above does not include the amounts payable to our Manager under our Management Agreement as they are not fixed and determinable. Refer to Note 13 to our consolidated financial statements for additional terms and details of the fees payable under our Management Agreement.

As a REIT, we generally must distribute substantially all of our net taxable income to stockholders in the form of dividends to comply with the REIT provisions of the Internal Revenue Code. Our taxable income does not necessarily equal our net income as calculated in accordance with GAAP, or our Distributable Earnings as described above.

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Cash Flows

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

We experienced a net increase in cash and cash equivalents of $263.2 million for the year ended December 31, 2021, compared to a net increase of $137.6 million for the year ended December 31, 2020. During 2021, we received (i) $6.7 billion from loan principal collections and sales proceeds, (ii) $4.7 billion of net proceeds from secured debt borrowings, (iii) $638.0 million of net proceeds from the issuance of shares of class A common stock, (iv) $395.0 million of net proceeds from the issuance of senior secured notes, and (v) $298.5 million of net proceeds from secured term loan borrowings. We used the proceeds from these activities to fund $12.6 billion of new loans.

We experienced a net increase in cash and cash equivalents of $137.6 million for the year ended December 31, 2020, compared to a net increase of $45.4 million for the year ended December 31, 2019. During 2020, we received (i) $2.1 billion of proceeds from the issuance of collateralized loan obligations, (ii) $1.9 billion from loan principal collections and sales proceeds, (iii) $315.4 million of net proceeds from secured term loan borrowings, and (iv) $278.3 million in net proceeds from the issuance of shares of class A common stock. We used the proceeds from these activities to (i) repay a net $2.1 billion under our secured debt agreements and (ii) fund $1.9 billion of new loans.

Refer to Note 3 to our consolidated financial statements for further discussion of our loan activity. Refer to Notes 5, 8, and 12 to our consolidated financial statements for additional discussion of our secured debt, term loans, and equity.

V. Other Items

Income Taxes

We have elected to be taxed as a REIT under the Internal Revenue Code for U.S. federal income tax purposes. We generally must distribute annually at least 90% of our net taxable income, subject to certain adjustments and excluding any net capital gain, in order for U.S. federal income tax not to apply to our earnings that we distribute. To the extent that we satisfy this distribution requirement, but distribute less than 100% of our net taxable income, we will be subject to U.S. federal income tax on our undistributed taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we pay out to our stockholders in a calendar year is less than a minimum amount specified under U.S. federal tax laws.

Our qualification as a REIT also depends on our ability to meet various other requirements imposed by the Internal Revenue Code, which relate to organizational structure, diversity of stock ownership, and certain restrictions with regard to the nature of our assets and the sources of our income. Even if we qualify as a REIT, we may be subject to certain U.S. federal income and excise taxes and state and local taxes on our income and assets. If we fail to maintain our qualification as a REIT for any taxable year, we may be subject to material penalties as well as federal, state and local income tax on our taxable income at regular corporate rates and we would not be able to qualify as a REIT for the subsequent four full taxable years. As of December 31, 2021 and 2020, we were in compliance with all REIT requirements.

Furthermore, our taxable REIT subsidiaries, or TRSs, are subject to federal, state, and local income tax on their net taxable income. Refer to Note 14 to our consolidated financial statements for additional discussion of our income taxes.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires our Manager to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Actual results could differ from these estimates. During 2021, our Manager reviewed and evaluated our critical accounting policies and believes them to be appropriate. The following is a summary of our significant accounting policies that we believe are the most affected by our Manager’s judgments, estimates, and assumptions:

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Current Expected Credit Losses

The current expected credit loss, or CECL, reserve required under Accounting Standard Update, or ASU, 2016-13 “Financial Instruments – Credit Losses – Measurement of Credit Losses on Financial Instruments (Topic 326),” or ASU 2016-13, reflects our current estimate of potential credit losses related to our loans and debt securities included in our consolidated balance sheets. We estimate our CECL reserve primarily using the Weighted Average Remaining Maturity, or WARM method, which has been identified as an acceptable loss-rate method for estimating CECL reserves in the Financial Accounting Standards Board Staff Q&A Topic 326, No. 1. Estimating the CECL reserve requires judgment, including the following assumptions:

•Historical loan loss reference data: To estimate the historic loan losses relevant to our portfolio, we have augmented our historical loan performance with market loan loss data licensed from Trepp LLC. This database includes commercial mortgage-backed securities, or CMBS, issued since January 1, 1999 through November 30, 2021. Within this database, we focused our historical loss reference calculations on the most relevant subset of available CMBS data, which we determined based on loan metrics that are most comparable to our loan portfolio including asset type, geography, and origination loan-to-value, or LTV. We believe this CMBS data, which includes month-over-month loan and property performance, is the most relevant, available, and comparable dataset to our portfolio.

•Expected timing and amount of future loan fundings and repayments: Expected credit losses are estimated over the contractual term of each loan, adjusted for expected prepayments. As part of our quarterly review of our loan portfolio, we assess the expected repayment date of each loan, which is used to determine the contractual term for purposes of computing our CECL reserve. Additionally, the expected credit losses over the contractual period of our loans are subject to the obligation to extend credit through our unfunded loan commitments. The CECL reserve for unfunded loan commitments is adjusted quarterly, as we consider the expected timing of future funding obligations over the estimated life of the loan. The considerations in estimating our CECL reserve for unfunded loan commitments are similar to those used for the related outstanding loan receivables.

•Current credit quality of our portfolio: Our risk rating is our primary credit quality indicator in assessing our current expected credit loss reserve. Our Manager performs a quarterly risk review of our portfolio of loans, and assigns each loan a risk rating based on a variety of factors, including, without limitation, LTV, debt yield, property type, geographic and local market dynamics, physical condition, cash flow volatility, leasing and tenant profile, loan structure and exit plan, and project sponsorship.

•Expectations of performance and market conditions: Our CECL reserve is adjusted to reflect our estimation of the current and future economic conditions that impact the performance of the commercial real estate assets securing our loans. These estimations include unemployment rates, interest rates, and other macroeconomic factors impacting the likelihood and magnitude of potential credit losses for our loans during their anticipated term. In addition to the CMBS data we have licensed from Trepp LLC, we have also licensed certain macroeconomic financial forecasts to inform our view of the potential future impact that broader economic conditions may have on our loan portfolio’s performance. These estimations require significant judgments about future events that, while based on the information available to us as of the balance sheet date, are ultimately indeterminate and the actual economic condition impacting our portfolio could vary significantly from the estimates we made as of December 31, 2021.

•Impairment: impairment is indicated when it is deemed probable that we will not be able to collect all amounts due to us pursuant to the contractual terms of the loan. Determining that a loan is impaired requires significant judgment from management and is based on several factors including (i) the underlying collateral performance, (ii) discussions with the borrower, (iii) borrower events of default, and (iv) other facts that impact the borrower’s ability to pay the contractual amounts due under the terms of the loan. If a loan is determined to be impaired, we record the impairment as a component of our CECL reserve by applying the practical expedient for collateral dependent loans. The CECL reserve is assessed on an individual basis for these loans by comparing the estimated fair value of the underlying collateral, less costs to sell, to the book value of the respective loan. These valuations require significant judgments, which include assumptions regarding capitalization rates, discount rates, leasing, creditworthiness of major tenants, occupancy rates, availability and cost of financing, exit plan, loan sponsorship, actions of other lenders, and other factors deemed relevant by our Manager. Actual losses, if any, could ultimately differ materially from these estimates. We only expect to realize the impairment losses 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 concluded if, in our determination, it is nearly certain that all amounts due will not be collected.

These assumptions vary from quarter to quarter as our loan portfolio changes and market and economic conditions evolve. The sensitivity of each assumption and its impact on the CECL reserve may change over time and from period to period. During the year ended December 31, 2021, we recorded an aggregate $39.9 million decrease in the CECL reserve related to loans receivable, debt securities, and unfunded loan commitments, and $14.4 million of charge-offs, bringing our total reserve to $131.0 million as of December 31, 2021. The decrease in the CECL reserve during the year ended December 31,

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2021 reflects the ongoing market recovery from COVID-19 and the improvement in the performance of the collateral assets underlying our portfolio. This CECL reserve reflects the macroeconomic impact of the COVID-19 pandemic on commercial real estate markets generally, as well as certain loans assessed for impairment in our portfolio. See Notes 2 and 3 to our consolidated financial statements for further discussion of our CECL reserve.

Revenue Recognition

Interest income from our loans receivable portfolio and debt securities is recognized over the life of each investment using the effective interest method and is recorded on the accrual basis. Recognition of fees, premiums, and discounts associated with these investments is deferred and recorded over the term of the loan or debt security as an adjustment to yield. Income accrual is generally suspended for loans at the earlier of the date at which payments become 90 days past due or when, in the opinion of our Manager, recovery of income and principal becomes doubtful. Interest received is then recorded as a reduction in the outstanding principal balance until accrual is resumed when the loan becomes contractually current and performance is demonstrated to be resumed. In addition, for loans we originate, the related origination expenses are deferred and recognized as a component of interest income, however expenses related to loans we acquire are included in general and administrative expenses as incurred.

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VI. Loan Portfolio Details

The following table provides details of our loan portfolio, on a loan-by-loan basis, as of December 31, 2021 ($ in millions):

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