BLACKSTONE MORTGAGE TRUST, INC. (BXMT) FY 2022 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

Macroeconomic Environment

The year ended December 31, 2022 has been characterized by steep declines and significant volatility in global markets, driven by investor concerns over inflation, rising interest rates, slowing economic growth and geopolitical uncertainty. Inflation across many key economies reached generational highs, prompting central banks to take monetary policy tightening actions that are likely to create headwinds to economic growth. The ongoing war between Russia and Ukraine is also contributing to economic and geopolitical uncertainty.

Inflation continues to rise and has caused the Federal Reserve to raise interest rates with indications of future increases, which has created further uncertainty for the economy and for our borrowers. Although our business model is such that rising interest rates will, all else being equal, correlate to increases in our net income, increases in interest rates may adversely affect our existing borrowers. Additionally, rising rates and increasing costs may dampen consumer spending and slow corporate profit growth, which may negatively impact the collateral underlying certain of our loans. While there is debate among economists as to whether such factors, coupled with recent periods of economic contraction in the U.S., indicate that the U.S. has entered, or in the near term will enter, a recession, it remains difficult to predict the full impact of recent changes and any future changes in interest rates or inflation.

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, the

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Swiss Average Rate Overnight, or SARON, and the Copenhagen Interbank Offering Rate, or CIBOR, or collectively, IBORs, have been the subject of national, international and regulatory guidance and proposals for reform. As of December 31, 2021, the ICE Benchmark Association, or IBA, ceased publication of most non-USD LIBOR settings. IBA also previously announced its intention to cease publication of remaining U.S. dollar LIBOR settings immediately after June 30, 2023; however, in November 2022 the U.K. Financial Conduct Authority, which regulates IBA, announced a public consultation regarding whether it should compel IBA to continue publishing “synthetic” USD LIBOR settings from June 2023 to the end of September 2024. Further, on March 15, 2022, the Consolidated Appropriations Act of 2022, which includes the Adjustable Interest Rate (LIBOR) Act, or LIBOR Act, was signed into law in the U.S. This legislation establishes a uniform benchmark replacement process for financial contracts maturing after June 30, 2023 that do not contain clearly defined or practicable fallback provisions. Under the LIBOR Act, such contracts will automatically transition as a matter of law to a Secured Overnight Financing Rate, or SOFR, based replacement rate identified by the Board of Governors of the Federal Reserve System, or Federal Reserve. The legislation also creates a safe harbor that shields lenders from litigation if they choose to utilize a replacement rate recommended by the Federal Reserve. In July 2022, the Federal Reserve issued a notice of proposed rulemaking implementing the LIBOR Act. As of December 31, 2022, no regulations have been promulgated.

The Federal Reserve, in conjunction with the Alternative Reference Rates Committee, or ARRC, a steering committee composed of large U.S. financial institutions, identified SOFR, a new index calculated using short-term repurchase agreements backed by U.S. Treasury securities, as its preferred alternative rate for USD LIBOR. According to the ARRC, data from the cash and derivatives markets show continued momentum in the transition from LIBOR to SOFR, and SOFR is currently predominant across cash and derivatives markets. As of December 31, 2022, one-month term SOFR is utilized as the floating benchmark rate on 76 of our loans, the financing provided on the 2020 FL3 and 2020 FL2 CLOs, one of our asset-specific financings, certain borrowings under twelve of our credit facilities, and our B-4 Term Loan. As of December 31, 2022, one-month term SOFR was 4.36% and one-month USD LIBOR was 4.39%. Additionally, market participants have continued to transition from GBP LIBOR to the Sterling Overnight Index Average, or SONIA, in line with guidance from the U.K. regulators. As of December 31, 2022, daily compounded SONIA is utilized as the floating benchmark rate for all of our floating rate British Pound Sterling loans and related financings. As of December 31, 2022, 63.5% of our aggregate loan principal balance has either transitioned to the applicable replacement benchmark rate, or its existing benchmark rate is not expected to be replaced, and we expect to transition the remaining 36.5% in 2023.

At this time, it is not possible to predict how markets will respond in the future 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, Switzerland and Denmark have been reformed and rates such as EURIBOR, STIBOR, BBSY, CDOR, SARON and CIBOR 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 transition away from reference rates and the 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.

2022 Highlights

Operating results:

•Net income of $248.6 million, or $1.46 per share, and Distributable Earnings of $489.8 million, or $2.87 per share, with dividends declared of $423.6 million, or $2.48 per share. Net income includes a $211.5 million increase to the current expected credit loss, or CECL, reserve that is excluded from Distributable Earnings, as further described below.

•Book value per share of $26.26 as of December 31, 2022, which is net of a $1.99 cumulative CECL reserve, and is within 1% of our book value of $26.42 as of December 31, 2020, despite an increase of $171.6 million in our CECL reserve since that time.

•Increased our liquidity to $1.8 billion as of December 31, 2022.

Loan portfolio:

•Loan originations of $7.1 billion. During the year we had loan fundings of $7.2 billion and loan repayments of $3.7 billion, resulting in net fundings of $3.4 billion.

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•Portfolio of 203 investments as of December 31, 2022, with a weighted-average origination loan-to-value ratio of 63.9% and weighted-average all-in yield of + 3.76%.

Capital markets and financing activity:

•Closed $4.6 billion of new financings under our secured debt facilities, adding two new credit facilities with innovative structures to finance our investments.

•Borrowed an additional $825.0 million under our term loan facilities with an interest rate of SOFR plus 3.50% and maturity in 2029, issued $300.0 million aggregate principal amount of 5.50% convertible senior notes due 2027, and issued an aggregate 2.3 million shares of our class A common stock, providing aggregate net proceeds of $70.7 million.

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, 2022, we recorded a net loss per share of $0.28, declared a dividend of $0.62 per share, and reported $0.87 per share of Distributable Earnings. In addition, our book value as of December 31, 2022 was $26.26 per share, which is net of a $1.99 per share cumulative CECL reserve. For the year ended December 31, 2022, we recorded earnings per share of $1.46, declared aggregate dividends of $2.48 per share, and reported $2.87 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 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 net income (loss) per share and dividends declared per share ($ in thousands, except per share data):

(1)Represents net income attributable to Blackstone Mortgage Trust. Refer to Note 13 to our consolidated financial statements for the calculation of diluted net income per share.

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.

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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 15 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.

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

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

(2)Represents a realized loss related to loan principal amounts deemed nonrecoverable following a realization event during the year 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)Represents realized (losses) on the repatriation of unhedged foreign currency. These amounts were not included in GAAP net income, but rather as a component of Other Comprehensive Income in our consolidated financial statements.

(4)The weighted-average shares outstanding, basic, exclude shares issuable from a potential conversion of our Convertible Notes. Consistent with the treatment of other unrealized adjustments to Distributable Earnings, these potentially issuable shares are excluded until a conversion occurs. Refer to Note 13 to our consolidated financial statements for the calculation of diluted net income per share.

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Book Value Per Share

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

(1)The book value per share excludes shares issuable from a potential conversion of our Convertible Notes. Refer to Note 13 to our consolidated financial statements for the calculation of diluted net income per share.

II. Loan Portfolio

During the year ended December 31, 2022, we originated or acquired $7.1 billion of loans. Loan fundings during the year totaled $7.2 billion and loan repayments and sales during the year totaled $3.7 billion. We generated interest income of $1.3 billion and incurred interest expense of $710.9 million during the year, which resulted in $628.1 million of net interest income during the year ended December 31, 2022.

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, 2022, include $90.5 million and $344.9 million, respectively, of additional fundings under related non-consolidated senior interests.

(3)Loan repayments and sales during the year ended December 31, 2022 include $441.6 million of additional repayments or reduction of loan exposure under related non-consolidated senior interests. Loan repayments and sales during the year ended December 31, 2022 include $300.1 million of additional repayments by the loan held by our non-consolidated securitized debt obligation. There were no such related loan repayments during the three months ended December 31, 2022.

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The following table details overall statistics for our loan portfolio as of December 31, 2022 ($ 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. Total loan exposure encompasses the entire loan we originated and financed, including $1.6 billion of such non-consolidated senior interests that are not included in our balance sheet portfolio.

(2)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.

(3)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, SONIA, EURIBOR, and other indices as applicable to each investment. As of December 31, 2022, substantially all of our loans by total loan exposure earned a floating rate of interest, primarily indexed to USD LIBOR and SOFR. 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 loans accounted for under the cost-recovery method.

(4)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, 2022, 53% of our loans by total loan exposure were subject to yield maintenance or other prepayment restrictions and 47% were open to repayment by the borrower without penalty.

(5)Based on LTV as of the dates loans were originated or acquired by us.

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The following table details the index rate floors for our loan portfolio based on total loan exposure as of December 31, 2022 ($ 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. Total loan exposure encompasses the entire loan we originated and financed, including $1.6 billion of such non-consolidated senior interests that are not included in our balance sheet portfolio.

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

(3)As of December 31, 2022, the weighted-average index rate floor of our loan portfolio was 0.38%. Excluding 0.0% index rate floors and loans with no floor, the weighted-average index rate floor was 0.65%. As of December 31, 2021, the weighted-average index rate floor of our loan portfolio was 0.42%. Excluding 0.0% index rate floors and loans with no floor, the weighted-average index rate floor was 0.70%.

The following table details the floating benchmark rates for our loan portfolio based on total loan exposure as of December 31, 2022 (total investment portfolio amounts 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. Total loan exposure encompasses the entire loan we originated and financed, including $1.6 billion of such non-consolidated senior interests that are not included in our balance sheet portfolio.

(2)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 prevailing U.S. interest rates. These forward contracts effectively convert the foreign currency rate exposure for such investments to USD-equivalent interest rates.

(3)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 loans accounted for under the cost-recovery method.

(4)As of December 31, 2022, $10.4 billion and $8.0 billion of loans were indexed to USD LIBOR and SOFR, respectively. As of December 31, 2022, one-month USD LIBOR was 4.39% and SOFR was 4.36%.

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

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The charts below detail the geographic distribution and types of properties securing our loan portfolio, as of December 31, 2022:

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, 2022, we collected 100.0% of the contractual interest payments that were due under our loans, with no interest deferrals, 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. 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 loan portfolio’s low weighted-average origination LTV of 63.9% as of December 31, 2022 reflects significant equity value that we expect our sponsors will be 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 portfolio monitoring and asset management operations benefit from the deep knowledge, experience, and information advantages derived from our 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, we perform 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 as of both December 31, 2022 and December 31, 2021, respectively.

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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 $1.6 billion of such non-consolidated senior interests as of December 31, 2022.

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 principle 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, 2022, we recorded an increase of $201.5 million in the CECL reserve against our loans receivable portfolio, bringing our total loans receivable CECL reserve to $326.1 million as of December 31, 2022. This CECL reserve reflects certain loans assessed for impairment in our portfolio, as well as macroeconomic conditions, including inflationary pressures and market volatility.

During the year ended December 31, 2022, we recorded an increase of $134.9 million in the CECL reserve specifically related to four of our loans receivable with an aggregate net book value of $644.3 million as of December 31, 2022. As of December 31, 2022, the income accrual was suspended on these four loans as recovery of income and principal was doubtful. During the three months ended December 31, 2022, we recorded $11.3 million of interest income on these loans. As of December 31, 2022, we had an aggregate $189.8 million CECL reserve specifically related to five of our loans receivable, with an aggregate net book value of $929.1 million. This CECL reserve was recorded based on our estimation of the fair value of each of the loan’s underlying collateral as of December 31, 2022. As of December 31, 2021, we had a $54.9 million CECL reserve specifically related to one of our loans receivable, with a net book value of $284.8 million. No income was recorded on this loan during the years ended December 31, 2022 and 2021. As of December 31, 2022, all borrowers were current with all contractual terms of each respective loan, including payments of interest. Refer to Note 2 for further discussion of our revenue recognition policy and CECL reserve.

During the fourth quarter of 2022, we entered into a loan modification related to an office asset in New York City, which is classified as a troubled debt restructuring under GAAP. This modification included, among other changes, a reduction in the loan's contractual interest payments, an incremental exit fee, and an extension of the loan's maturity date. This loan has an outstanding principal balance of $193.6 million, with commitments to fund an additional $8.2 million, at our discretion, as of December 31, 2022. As of December 31, 2022, this loan was deemed impaired and we recorded an asset-specific CECL reserve against this loan.

Previously, we entered into loan modifications related to a multifamily asset in New York City, which were classified as troubled debt restructurings under GAAP. 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, during the three months ended December 31, 2021, we charged-off $14.4 million of the $14.8 million asset-specific CECL reserve we recorded on this loan, and reversed the remaining $360,000 CECL reserve. As of December 31, 2022, this loan has an outstanding principal

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balance of $38.2 million, net of cost-recovery proceeds. As of December 31, 2022, this loan was deemed impaired and we recorded an asset-specific CECL reserve against this loan.

Previously, 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. As of December 31, 2022, this loan has an outstanding principal balance of $286.3 million, net of cost-recovery proceeds. As of June 30, 2020 this loan was deemed impaired and we recorded an asset-specific CECL reserve against this loan. This asset-specific CECL reserve has not changed as of December 31, 2022.

Multifamily Joint Venture

As of December 31, 2022, our Multifamily Joint Venture held $795.6 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 $2.7 billion as of December 31, 2022. Includes our consolidated securitized debt obligations of $2.9 billion and non-consolidated securitized debt of $300.1 million as of December 31, 2021. The non-consolidated securitized debt obligation represents the senior non-consolidated investment exposure to the 2018 Single Asset Securitization. We owned the related subordinate position, which was classified as a held-to-maturity debt security on our balance sheet. During the year ended December 31, 2022, the 2018 Single Asset Securitization was liquidated upon full repayment of its collateral and all senior securities outstanding. Refer to Note 4 and Note 18 to our consolidated financial statements for details of the 2018 Single Asset Securitization.

(2)Includes our asset-specific debt of $950.3 million, our loan participations sold of $224.7 million, and our non-consolidated senior interests of $1.6 billion, as of December 31, 2022. Includes our asset-specific debt of $400.7 million and our non-consolidated senior interests of $1.5 billion, as of December 31, 2021. The loan participations sold and non-consolidated senior interests are non-debt financings that provide structural leverage for our whole loan investments.

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 by spread over the applicable base rates as of December 31, 2022 ($ 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, SONIA, EURIBOR, and other indices as applicable.

(2)Represents borrowings outstanding as of December 31, 2022 for new financings during the year ended December 31, 2022, 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. 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 loans accounted for under the cost recovery method.

(4)Represents the weighted-average all-in cost as of December 31, 2022 and is not necessarily indicative of the spread applicable to recent or future borrowings.

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

(6)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, 2022, we had no assets pledged to our acquisition facility and no outstanding borrowings.

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 owned the related subordinate position, which was classified as a held-to-maturity debt security on our balance sheet. During the year ended December 31, 2022, the 2018 Single Asset Securitization was liquidated upon full repayment of its collateral and all senior securities outstanding. Refer to Note 4 and Note 18 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 and the underlying collateral assets that are financed ($ 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, 2022, the floating benchmark rate for the financing provided on the 2020 FL3 and 2020 FL2 CLOs is one-month SOFR. As of December 31, 2022, one-month SOFR was 4.36% and one-month USD LIBOR was 4.39%. Excludes loans accounted for under the cost recovery method.

(3)Underlying Collateral Assets term represents the weighted-average final maturity of such loans, 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 year ended December 31, 2022, we recorded $87.6 million of interest expense related to our securitized debt obligations.

Refer to Note 6 and Note 18 to our consolidated financial statements for additional details of our securitized debt obligations.

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Asset-Specific Financings

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

(1)These loan participations sold and 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 currency and indexed matched to the applicable benchmark rate relevant in each arrangement. In addition to cash coupon, yield/cost includes the amortization of deferred origination fees and 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. Our asset-specific debt is term-matched in each case to the corresponding collateral loans.

Loan Participations Sold

The following table details our loan participations sold ($ in thousands):

(1)This non-debt participation sold structure is inherently matched in terms of currency and interest rate. In addition to cash coupon, yield/cost includes the amortization of deferred fees and financing costs.

(2)The term is determined based on the maximum maturity of the loan, assuming all extension options are exercised by the borrower. Our loan participation sold is inherently non-recourse and term-matched to the corresponding collateral loan.

(3)During the year ended December 31, 2022, we recorded $7.9 million of interest expense related to our loan participations sold.

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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. Our non-consolidated senior interests are inherently term-matched and non-recourse.

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 includes USD LIBOR and SOFR, as applicable to each investment. This non-debt participation sold structure is inherently matched in terms of currency and interest rate. In addition to cash coupon, yield/cost includes the amortization of deferred fees and financing costs.

Corporate Financing

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

Term Loans

As of December 31, 2022, the following senior term loan facilities, or Term Loans, were outstanding ($ in thousands):

(1)The B-3 Term Loan and the B-4 Term Loan borrowings are subject to a floor of 0.50%. The B-1 Term Loan and B-3 Term Loan are indexed to one-month USD LIBOR and the B-4 Term Loan is indexed to one-month SOFR.

(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 9 to our consolidated financial statements for additional discussion of our Term Loans.

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Senior Secured Notes

As of December 31, 2022, the following Senior Secured Notes, were outstanding ($ in thousands):

(1)Includes transaction expenses that are amortized through interest expense over the life of the Senior Secured Notes.

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

Convertible Notes

As of December 31, 2022 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 price of class A common stock per share based on a conversion rate of 27.6052 and 27.5702, respectively, for the March 2018 and March 2022 convertible notes. The conversion rate represents the number of shares of class A common stock issuable per $1,000 principal amount of Convertible Notes. The cumulative dividend threshold as defined in the respective March 2018 and March 2022 convertible notes supplemental indentures have not been exceeded as of December 31, 2022.

Refer to Note 2 and Note 11 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, 2022, substantially all of our investments by total loan 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.

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, 2022 (amounts in thousands):

(1)Includes Australian Dollar, Canadian Dollar, Danish Krone, Swedish Krona, and Swiss Franc currencies.

(2)Our floating rate loans and related liabilities are currency and indexed matched to the applicable benchmark rate relevant in each arrangement.

(3)As of December 31, 2022, $10.4 billion and $8.0 billion of floating rate loans were indexed to USD LIBOR and SOFR, respectively. As of December 31, 2022, $8.3 billion and $6.6 billion of floating rate debt was indexed to USD LIBOR and SOFR, respectively. As of December 31, 2022, one-month SOFR was 4.36% and one-month USD LIBOR was 4.39%.

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

(5)Represents the U.S. Dollar equivalent as of December 31, 2022.

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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, 2022, 2021 and 2020 ($ in thousands, except per share data):

Income from loans and other investments, net

Income from loans and other investments, net increased $113.6 million during the year ended December 31, 2022 compared to the year ended December 31, 2021. The increase was primarily due to (i) an increase in USD LIBOR, SOFR, SONIA, and other floating rate indices during 2022 and (ii) an increase in the weighted-average principal balance of our loan portfolio by $5.7 billion for the year ended December 31, 2022, as compared to the year ended December 31, 2021. This was primarily offset by an increase in the weighted-average principal balance of our outstanding financing arrangements by $5.0 billion for the year ended December 31, 2022, as compared to the year ended December 31, 2021.

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

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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.

Other expenses

Other expenses include management and incentive fees payable to our Manager and general and administrative expenses. Other expenses increased by $30.9 million during the year ended December 31, 2022 compared to the year ended December 31, 2021 due to an increase of (i) $13.0 million of incentive fees payable to our Manager, primarily due to an increase in Distributable Earnings, (ii) $8.8 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 2022 and 2021, (iii) $7.3 million of general operating expenses, and (iv) $1.7 million of non-cash restricted stock amortization related to shares issued under our long-term incentive plans.

Other expenses increased by $7.8 million during the year ended December 31, 2021 compared to the year ended December 31, 2020 due to an increase of (i) $6.8 million of incentive fees payable to our Manager, primarily due to an increase in Distributable Earnings, and (ii) $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.

Changes in current expected credit loss reserve

During the year ended December 31, 2022, we recorded a $211.5 million increase in the CECL reserve, as compared to a $39.9 million decrease during the year ended December 31, 2021. This CECL reserve reflects certain loans assessed for impairment in our portfolio, as well as macroeconomic conditions, including inflationary pressures and market volatility.

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 reflected 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.

Dividends per share

During the year ended December 31, 2022, we declared aggregate dividends of $2.48 per share, or $423.6 million. During 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.

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The following table sets forth information regarding our consolidated results of operations for the three months ended December 31, 2022 and September 30, 2022 ($ in thousands, except per share data):

Income from loans and other investments, net

Income from loans and other investments, net increased $34.9 million during the three months ended December 31, 2022 compared to the three months ended September 30, 2022. The increase was primarily due to (i) an increase in USD LIBOR, SOFR, SONIA, EURIBOR, and other floating rate indices for the three months ended December 31, 2022 and (ii) an increase in prepayment fee income.

Other expenses

Other expenses include management and incentive fees payable to our Manager and general and administrative expenses. Other expenses increased by $9.5 million during the three months ended December 31, 2022 compared to the three months ended September 30, 2022 primarily due to an increase of (i) $7.8 million of incentive fees payable to our Manager, primarily due to an increase in Distributable Earnings, and (ii) $1.7 million of general operating expenses.

Changes in current expected credit loss reserve

During the three months ended December 31, 2022, we recorded a $188.8 million increase in the CECL reserve, as compared to a $12.2 million increase during the three months ended September 30, 2022. This CECL reserve reflects certain loans assessed for impairment in our portfolio, as well as macroeconomic conditions, including inflationary pressures and market volatility. See Notes 2 and 3 to our consolidated financial statements for further discussion of our CECL reserve.

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Dividends per share

During the three months ended December 31, 2022, we declared aggregate dividends of $0.62 per share, or $106.5 million. During the three months ended September 30, 2022, we declared aggregate dividends of $0.62 per share, or $106.0 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 financings. As of December 31, 2022, our capitalization structure included $4.5 billion of common equity, $3.1 billion of corporate debt, and $19.0 billion of asset-level financings. Our $3.1 billion of corporate debt includes $2.2 billion of term loan borrowings, $400.0 million of senior secured notes, and $520.0 million of convertible notes. Our $19.0 billion of asset-level financings includes $13.5 billion of secured debt, $2.7 billion of securitizations, and $2.8 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, 2022, we have $1.8 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, 10, and 11 to our consolidated financial statements for additional details regarding our secured debt, securitized debt obligations, asset-specific debt, loan participations sold, 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, in each case at period end, (i) total outstanding secured debt, asset-specific debt, term loans, senior secured notes, and convertible notes, less cash, to (ii) total equity.

(2)Represents, in each case at period end, (i) total outstanding secured debt, asset-specific debt, term loans, senior secured notes, and convertible notes, less cash, to (ii) total equity, excluding our aggregate CECL reserve of $342.5 million and $131.0 million, as of December 31, 2022, and December 31, 2021, respectively.

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

(4)Represents, in each case at period end, (i) total outstanding secured debt, securitizations, asset-specific financings, term loans, senior secured notes, and convertible notes, less cash, to (ii) total equity, excluding our aggregate CECL reserve of $342.5 million and $131.0 million, as of December 31, 2022, and December 31, 2021, respectively.

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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.

During the year ended December 31, 2022, we generated cash flow from operating activities of $396.8 million and received (i) $3.3 billion from loan principal collections and sales proceeds, (ii) $1.7 billion of net proceeds from secured debt borrowings, (iii) $807.8 million of net proceeds from secured term loan borrowings, (iv) $562.0 million of net proceeds from asset-specific debt, (v) $294.0 million of net proceeds from the issuance of convertible notes, (vi) $330.3 million of net cash settlements on our foreign currency forward contracts, (vii) $245.3 million from the sale of a senior loan participation, and (viii) $70.7 million of net proceeds from the issuance of shares of class A common stock. Furthermore, we are able to generate incremental liquidity through the replenishment provisions of certain of our 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 further liquidity through public offerings of debt and equity securities. To facilitate such offerings, in July 2022, we filed a shelf registration statement with the SEC that is effective for a term of three years and expires in July 2025. 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) depositary shares representing preferred stock; (iv) debt securities; (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 our dividend reinvestment plan and direct stock purchase plan, under which 9,981,548 shares of class A common stock were available for issuance as of December 31, 2022, and our at the market stock offering program, pursuant to which we may sell, from time to time, up to $480.9 million of additional shares of our class A common stock as of December 31, 2022. Refer to Note 13 to our consolidated financial statements for additional details.

Liquidity Needs

In addition to our loan origination and funding activity and general operating expenses, our primary liquidity needs include interest and principal payments under our $13.5 billion of outstanding borrowings under secured debt, our asset-specific debt, our Term Loans, our Senior Secured Notes, and our Convertible Notes. From time to time we may also repurchase our outstanding debt or shares of our class A common stock. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions, and other factors. The amounts involved in any such purchase transactions, individually or in the aggregate, may be material.

As of December 31, 2022, we had unfunded commitments of $3.8 billion related to 121 loans receivable and $2.4 billion of committed or identified financing for those commitments resulting in net unfunded commitments of $1.4 billion. The unfunded loan commitments comprise funding for capital expenditures and construction, leasing costs, and interest and carry costs, and their fundability varies 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 3.0 years.

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Contractual Obligations and Commitments

Our contractual obligations and commitments as of December 31, 2022 were as follows ($ in thousands):

(1)Represents known and 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)Our secured debt and asset-specific debt agreements are generally term-matched to their underlying collateral. Therefore, the allocation of both principal and interest payments under such agreements is generally allocated based on the maximum maturity date of the collateral loans, assuming all extension options are exercised by the borrower. In limited instances, the maturity date of the respective debt agreement is used.

(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 9 for further details on our term loans.

(5)Reflects the outstanding principal balance of convertible notes, excluding any potential conversion premium. Refer to Note 11 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, senior secured notes, and convertible notes. Future interest payment obligations are estimated assuming the interest rates in effect as of December 31, 2022 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 $2.7 billion of consolidated securitized debt obligations, $1.6 billion of non-consolidated senior interests, and $224.7 million of loan participations sold, 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 12 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 14 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 decrease in cash and cash equivalents of $249.5 million for the year ended December 31, 2022, compared to a net increase of $263.2 million for the year ended December 31, 2021. During the year ended December 31, 2022, we (i) funded $6.8 billion of loans, (ii) repaid $402.5 million of convertible notes, and (iii) paid $421.4 million of dividends on our class A common stock. During the year ended December 31, 2022, we received (i) $3.3 billion from loan principal collections and sales proceeds, (ii) $1.7 billion of net proceeds from secured debt borrowings, (iii) $807.8 million of net proceeds from secured term loan borrowings, (iv) $562.0 million of net proceeds from asset-specific debt, (v) $330.3 million of net cash settlements on our foreign currency forward contracts, (vi) $294.0 million of net proceeds from the issuance of convertible notes, (vii) $245.3 million from the sale of a senior loan participation, and (viii) $70.7 million of net proceeds from the issuance of shares of class A common stock.

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 the year ended December 31, 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.

Refer to Note 3 to our consolidated financial statements for further discussion of our loan activity. Refer to Notes 5, 7, 8, 9, 11, and 13 to our consolidated financial statements for additional discussion of our secured debt, asset-specific debt, loan participations sold, term loans, convertible notes, and equity, respectively.

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. 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, 2022 and 2021, we were in compliance with all REIT requirements.

Furthermore, our taxable REIT subsidiaries are subject to federal, state, and local income tax on their net taxable income. Refer to Note 15 to our consolidated financial statements for additional discussion of our income taxes.

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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 2022, 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:

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, 2022. 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. We perform 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, inflation, 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. We may also incorporate information from other sources, including information and opinions available to our Manager, to further inform these estimations. This process requires 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, 2022.

•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

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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 us. 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, 2022, we recorded an aggregate $211.5 million increase in the CECL reserve related to our loans receivable, debt securities, and unfunded loan commitments, bringing our total reserve to $342.5 million as of December 31, 2022. 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 our opinion, 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, 2022 ($ in millions):

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