STARWOOD PROPERTY TRUST, INC. (STWD) FY 2022 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Company should be read in conjunction with our accompanying Consolidated Financial Statements included in Item 8 of this Form 10‑K. Certain statements we make under this Item 7 constitute “forward‑looking statements” under the Private Securities Litigation Reform Act of 1995. See “Special Note Regarding Forward‑Looking Statements” preceding Part I of this Form 10‑K. You should consider our forward‑looking statements in light of our Consolidated Financial Statements and other financial information appearing elsewhere in this Form 10‑K and our other filings with the SEC.

Business Objectives

Our objective is to provide attractive risk‑adjusted returns to our investors over the long‑term, primarily through dividends and secondarily through capital appreciation. We intend to achieve our objective by originating and acquiring target assets to create a diversified investment portfolio that is financed in a manner that is designed to deliver attractive returns across a variety of market conditions and economic cycles. We are focused on our three core competencies: transaction access, asset analysis and selection, and identification of attractive relative values within the real estate debt and equity markets.

Since our IPO in August 2009, we have evolved from a company focused on opportunistic acquisitions of real estate debt assets from distressed sellers to that of a full‑service real estate finance platform that is primarily focused on the origination and acquisition of commercial real estate debt and equity investments across the capital structure, in the U.S., Europe and Australia. With the Starwood brand, market presence, and lending/asset management platform that we have developed, we are focused primarily on the following opportunities:

(1)Continue to expand our market presence as a leading provider of acquisition, refinance, development and expansion capital to large real estate projects (greater than $75 million) in infill locations, and other attractive market niches where our size and scale give us an advantage to provide a “one-stop” lending solution for real estate developers, owners and operators;

(2)Continue to expand our investment activities in subordinate CMBS and revenues from special servicing;

(3)Continue to expand our capabilities in syndication and securitization, which serve as a source of attractively priced, matched-term financing;

(4)Continue to leverage our Investing and Servicing Segment’s sourcing and credit underwriting capabilities to expand our overall footprint in the commercial real estate debt markets;

(5)Expand our investment activities in both (i) targeted real estate equity investments and (ii) residential mortgage finance; and

(6)Expand our originations and acquisitions of infrastructure debt investments.

COVID-19 Pandemic

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

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Developments During the Fourth Quarter of 2022

Commercial and Residential Lending Segment

•Originated $266.0 million of commercial loans during the quarter, including the following:

◦$112.0 million first mortgage and mezzanine loan for the construction of a 798,000 square foot build-to-suit industrial building for an investment grade tenant located in North Carolina, of which the Company funded $6.6 million and sold the $78.5 million first mortgage loan.

◦$77.5 million first mortgage and mezzanine loan for the refinancing of a 364-key hotel located in Philadelphia, Pennsylvania, which the Company fully funded.

•Funded $394.9 million of previously originated commercial loan commitments.

•Received gross proceeds of $297.4 million ($252.3 million, net of debt repayments) from maturities and principal repayments on our commercial loans and HTM debt securities.

•Acquired $745.0 million of residential loans.

•Amended several residential credit facilities resulting in an aggregate net upsize of $629.5 million.

Infrastructure Lending Segment

•Acquired $75.8 million of infrastructure loans and funded $7.3 million of pre-existing infrastructure loan commitments.

•Received proceeds of $47.7 million from principal repayments on our infrastructure loans and bonds and $26.8 million from sales of infrastructure loans.

Investing and Servicing Segment

•Originated commercial conduit loans of $105.1 million.

•Received proceeds of $160.1 million from sales of previously originated commercial conduit loans.

•Obtained four new special servicing assignments for CMBS trusts with a total unpaid principal balance of $4.0 billion, bringing our total named special servicing portfolio to $108.9 billion.

•Sold commercial real estate for gross proceeds of $38.1 million and recognized a gain of $25.5 million.

Corporate

•Entered into a term loan facility totaling $600.0 million that carries a five-year term and an annual interest rate of SOFR + 3.25%, subject to a 0.50% SOFR floor, and an issue discount of 3.0%.

•Issued 0.8 million shares under the Starwood Property Trust, Inc. Common Stock Sales Agreement (the “ATM Agreement”) for gross proceeds of $15.9 million at an average share price of $21.17.

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Developments During 2022

Commercial and Residential Lending Segment

•In February 2022, we refinanced a pool of our commercial loans held-for-investment through a collateralized loan obligation (“CLO”), STWD 2022-FL3. The CLO has a contractual maturity of November 2038 and a weighted average cost of financing of SOFR + 1.93%, inclusive of the amortization of deferred issuance costs. On the closing date, the CLO issued $1.0 billion of notes and preferred shares, of which $842.5 million of notes were purchased by third party investors. We retained $82.5 million of notes, along with preferred shares with a liquidation preference of $75.0 million. The CLO contains a reinvestment feature that, subject to certain eligibility criteria, allows us to contribute new loans or participation interests in loans to the CLO in exchange for cash for a period of two years.

•Originated or acquired $5.3 billion of commercial loans during the year, including the following:

◦A$1.3 billion ($960.5 million) first mortgage loan for the acquisition of three of the largest hotel and gaming resorts located across Australia, which the Company fully funded.

◦$324.2 million of first mortgage and mezzanine loans for the acquisition of a 1,684 unit portfolio of six multifamily properties located in Florida, Texas, Tennessee, South Carolina and Georgia, of which the Company funded $306.0 million.

◦$282.9 million first mortgage and mezzanine loan to refinance the existing debt and fund construction of a multi-story industrial facility located in New York, of which the Company funded $132.4 million.

◦$263.6 million of first mortgage loans for the acquisition of a 1,828 unit portfolio of eight multifamily properties located in Texas, of which the Company funded $245.0 million.

◦$250.0 million participation in a first mortgage loan for the construction of 235 luxury residences, a 136-key hotel and 78,000 square feet of commercial space located in New York, of which the Company funded $164.9 million.

◦$226.0 million first mortgage and mezzanine loan for the acquisition and refinancing of a 41-property, 4,967-key hotel portfolio located in Florida, Georgia, Massachusetts, North Carolina, South Carolina and Virginia, of which the Company funded $195.0 million.

◦$200.0 million first mortgage loan to refinance existing debt on a 22 property luxury cabin portfolio and finance the acquisition of 18 future properties located across the U.S., of which the Company funded $135.0 million.

◦€162.7 million ($186.2 million) first mortgage loan for the acquisition of a 382,000 square foot office and retail property located in Germany, of which the Company funded $154.3 million.

◦$174.1 million first mortgage loan for the acquisition and renovation of two garden-style multifamily properties located in Florida, of which the Company funded $166.1 million.

◦$165.0 million first mortgage and mezzanine loan for the construction of a 65-story, 100% pre-sold residential project located in South Florida, of which the Company funded $17.8 million.

•Funded $782.5 million of previously originated commercial loan commitments.

•Received gross proceeds of $1.9 billion ($1.1 billion, net of debt repayments) from maturities and principal repayments on our commercial loans and HTM debt securities.

•Received gross proceeds of $10.2 million and $64.6 million ($10.2 million and $48.5 million, net of debt repayments) from sales of senior interests in first mortgage loans and whole loan interests, respectively.

•Sold commercial real estate in Florida that was previously acquired through foreclosure in April 2019 for gross proceeds of $114.8 million and recognized a gain of $86.6 million.

•Entered into commercial credit facilities of $1.5 billion. Also amended several commercial credit facilities resulting in an aggregate net upsize of $364.2 million.

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•Acquired $3.7 billion of residential loans.

•Received proceeds of $1.9 billion, including retained RMBS of $226.2 million, from the securitization of $1.9 billion of residential loans. Also received proceeds of $1.1 billion from sales of $1.1 billion of residential loans.

•Amended certain of our residential loan repurchase facilities to increase available non-mark-to-market capacity by $250.0 million to $800.0 million. The margin call provisions under these facilities do not permit valuation adjustments based on capital market events and are limited to collateral-specific credit marks. Other amendments resulted in an additional aggregate net upsize of $284.1 million.

Infrastructure Lending Segment

•In January 2022, we refinanced a pool of our infrastructure loans held-for-investment through a CLO, STWD 2021-SIF2. The CLO has a contractual maturity of January 2033 and a weighted average cost of financing of SOFR + 2.11%, inclusive of the amortization of deferred issuance costs. On the closing date, the CLO issued $500.0 million of notes and preferred shares, of which $410.0 million of notes were purchased by third party investors. We retained preferred shares with a liquidation preference of $90.0 million. The CLO contains a reinvestment feature that, subject to certain eligibility criteria, allows us to contribute new loans or participation interests in loans to the CLO in exchange for cash for a period of three years.

•Acquired $725.9 million of infrastructure loans and bonds and funded $32.0 million of pre-existing infrastructure loan commitments.

•Received proceeds of $296.4 million from principal repayments on our infrastructure loans and bonds and $26.8 million from sales of infrastructure loans.

•Entered into a credit facility with a maximum facility size of $500.0 million and a three-year revolving period with two one-year extension options. The margin call provisions under this facility do not permit valuation adjustments based on capital market events and are limited to collateral-specific credit marks.

Investing and Servicing Segment

•Originated commercial conduit loans of $0.9 billion.

•Received proceeds of $1.2 billion from sales of previously originated commercial conduit loans.

•Acquired CMBS for a purchase price of $63.7 million, of which $17.1 million related to non-controlling interests.

•Obtained 27 new special servicing assignments for CMBS trusts with a total unpaid principal balance of $24.5 billion, bringing our total named special servicing portfolio to $108.9 billion.

•Sold commercial real estate for gross proceeds of $92.1 million and recognized a total gain of $50.9 million.

Corporate

•Issued $500.0 million of 4.375% Senior Notes due 2027 (the “2027 Senior Notes”) and swapped the notes to a floating rate of SOFR + 2.95%.

•Entered into the ATM Agreement with a syndicate of financial institutions to sell shares of the Company’s common stock of up to $500.0 million from time to time, through an “at the market” equity offering program. During the year, issued 2.2 million shares under the ATM Agreement for gross proceeds of $49.3 million at an average share price of $22.72.

•Entered into a term loan facility totaling $600.0 million that carries a five-year term and an annual interest rate of SOFR + 3.25%, subject to a 0.50% SOFR floor, and an issue discount of 3.0%.

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Results of Operations

The discussion below is based on GAAP and therefore reflects the elimination of certain key financial statement line items related to the consolidation of securitization VIEs, particularly within revenues and other income, as discussed in Note 2 to the Consolidated Financial Statements. For a discussion of our results of operations excluding the impact of ASC 810 as it relates to the consolidation of securitization VIEs, refer to the section captioned “Non-GAAP Financial Measures”.

The following table compares our summarized results of operations for the years ended December 31, 2022, 2021 and 2020 by business segment (amounts in thousands):

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Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021

Commercial and Residential Lending Segment

Revenues

For the year ended December 31, 2022, revenues of our Commercial and Residential Lending Segment increased $388.7 million to $1.2 billion, compared to $779.3 million for the year ended December 31, 2021. This increase was primarily due to increases in interest income from loans of $352.8 million, and investment securities of $34.5 million. The increase in interest income from loans reflects (i) a $299.7 million increase from commercial loans, reflecting higher average balances and index rates, partially offset by the timing effect of certain loans being placed on nonaccrual, and (ii) a $53.1 million increase from residential loans principally due to higher average balances reflecting the timing of purchases and securitizations, partially offset by lower average coupon rates. The increase in interest income from investment securities was primarily due to higher commercial and RMBS average investment balances and the effect of higher index rates on certain commercial investments.

Costs and Expenses

For the year ended December 31, 2022, costs and expenses of our Commercial and Residential Lending Segment increased $361.9 million to $611.6 million, compared to $249.7 million for the year ended December 31, 2021. This increase was primarily due to (i) a $294.8 million increase in interest expense associated with the various secured financing facilities used to fund a portion of this segment’s investment portfolio, (ii) a $43.4 million increase in credit loss provision from a reversal of $3.6 million during the year ended December 31, 2021 to a provision of $39.8 million during the year ended December 31, 2022 and (iii) a $10.7 million increase in primarily legal related general and administrative expenses. The increase in interest expense was primarily due to higher average borrowings outstanding and higher average index rates. The credit loss provision during the year ended December 31, 2022 was primarily due to rising index rates and its potential effect on borrower cash flows in our estimate of current expected credit losses (“CECL”).

Net Interest Income (amounts in thousands)

For the year ended December 31, 2022, net interest income of our Commercial and Residential Lending Segment increased $92.6 million to $659.3 million, compared to $566.7 million for the year ended December 31, 2021. This increase reflects the increase in interest income, partially offset by the increase in interest expense on our secured financing facilities, both as discussed in the sections above.

During the years ended December 31, 2022 and 2021, the weighted average unlevered yields on the Commercial and Residential Lending Segment’s loans and investment securities, excluding retained RMBS and loans for which interest income is not recognized, were as follows:

The weighted average unlevered yield on our commercial loans increased primarily due to higher index rates partially offset by the repayment of loans with higher LIBOR floors being replaced by newer loans with lower floating rate floors. The weighted average unlevered yield on our residential loans was unchanged, reflecting lower weighted average coupons which resulted from market spread tightening as well as a change in composition of our residential loan portfolio to include agency loans which generally carry a lower coupon than non-agency loans, the effect of which was offset by a decline in fair value of residential loans during the year ended December 31, 2022.

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During the years ended December 31, 2022 and 2021, the Commercial and Residential Lending Segment’s weighted average secured borrowing rates, inclusive of interest rate hedging costs and the amortization of deferred financing fees, were 4.0% and 2.5%, respectively. The increase in borrowing rates primarily reflects higher index rates, partially offset by decreases in weighted average spreads particularly due to increased use of lower cost CLO financing.

Other Income (Loss)

For the year ended December 31, 2022, other income of our Commercial and Residential Lending Segment decreased $174.4 million to a loss of $115.8 million, compared to income of $58.6 million for the year ended December 31, 2021. This decrease primarily reflects (i) a $366.2 million unfavorable change in fair value of residential loans, (ii) an $88.4 million loss contingency provision related to residential loans sold in February 2022 and later repurchased (refer to Note 5 to the Consolidated Financial Statements) and (iii) a $60.6 million increase in foreign currency loss, all partially offset by (iv) a $265.8 million increase in net gains on derivatives and (v) a $68.9 million increased gain on sale of foreclosed properties. The unfavorable change in fair value of residential loans was principally related to a rapid rise in interest rates and widening of credit spreads in 2022, which resulted in mark-to-market losses on our fixed coupon residential loans. The increased gains on derivatives during the year ended December 31, 2022 reflect a $190.2 million increased gain on interest rate swaps principally related to residential loans, which partially offsets the unfavorable change in fair value of those loans, and a $75.6 million increased gain on foreign currency hedges. The interest rate swaps are used primarily to hedge our interest rate risk on residential loans held-for-sale and to fix our interest rate payments on certain variable rate borrowings which fund fixed rate investments. The foreign currency hedges are used to fix the U.S. dollar amounts of cash flows (both interest and principal payments) we expect to receive from our foreign currency denominated loans and investments. The increased gain on foreign currency hedges and the increase in foreign currency loss reflect the strengthening of the U.S. dollar against the pound sterling (“GBP”), Euro (“EUR”) and Australian dollar (“AUD”) during the year ended December 31, 2022 compared to a lesser overall strengthening of the U.S. dollar against those currencies during the year ended December 31, 2021.

Infrastructure Lending Segment

Revenues

For the year ended December 31, 2022, revenues of our Infrastructure Lending Segment increased $66.8 million to $154.3 million, compared to $87.5 million for the year ended December 31, 2021. This increase was primarily due to an increase in interest income from loans of $65.2 million, principally due to higher average loan balances and index rates.

Costs and Expenses

For the year ended December 31, 2022, costs and expenses of our Infrastructure Lending Segment increased $35.8 million to $100.6 million, compared to $64.8 million for the year ended December 31, 2021. The increase was primarily due to a $41.5 million increase in interest expense associated with the various secured financing facilities used to fund this segment’s investment portfolio, partially offset by a $5.0 million decrease in credit loss provision. The increase in interest expense was primarily due to higher average borrowings outstanding and higher average index rates. The decrease in the credit loss provision was primarily due to a lesser increase in the specific reserve for a credit-deteriorated loan.

Net Interest Income (amounts in thousands)

For the year ended December 31, 2022, net interest income of our Infrastructure Lending Segment increased $25.2 million to $74.8 million, compared to $49.6 million for the year ended December 31, 2021. The increase reflects the increase in interest income, partially offset by the increase in interest expense on the secured financing facilities, both as discussed in the sections above.

During the years ended December 31, 2022 and 2021, the weighted average unlevered yields on the Infrastructure Lending Segment’s loans and investment securities held-for-investment (excluding those for which interest income is not recognized) were 6.6% and 5.0%, respectively. During the year ended December 31, 2021, the weighted average unlevered

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yield on the Infrastructure Lending Segment’s loans held-for-sale was 2.9%. There were no loans held-for-sale during the year ended December 31, 2022.

During the years ended December 31, 2022 and 2021, the Infrastructure Lending Segment’s weighted average secured borrowing rates, inclusive of the amortization of deferred financing fees, were 4.3% and 2.8%, respectively.

Other Income

For the year ended December 31, 2022, other income of our Infrastructure Lending Segment increased $3.2 million to $4.4 million, compared to $1.2 million for the year ended December 31, 2021. The increase primarily reflects a $2.8 million increase in earnings from an unconsolidated entity and a $0.8 million lower loss on extinguishment of debt.

Property Segment

Change in Results by Portfolio (amounts in thousands)

See Notes 7 and 8 to the Consolidated Financial Statements for a description of the above-referenced Property Segment portfolios and fund.

Revenues

For the year ended December 31, 2022, revenues of our Property Segment decreased $143.2 million to $91.8 million, compared to $235.0 million for the year ended December 31, 2021. The decrease is primarily due to the conversion of the Woodstar Portfolios to the Woodstar Fund on November 5, 2021.

Costs and Expenses

For the year ended December 31, 2022, costs and expenses of our Property Segment decreased $133.9 million to $92.7 million, compared to $226.6 million for the year ended December 31, 2021, primarily due to the Woodstar Fund conversion referred to above.

Other Income

For the year ended December 31, 2022, other income of our Property Segment increased $778.4 million to $789.7 million, compared to $11.3 million for the year ended December 31, 2021. The increase in other income is primarily due to (i) $749.3 million of higher income attributable to investments of the Woodstar Fund, including $699.2 million of unrealized increases in fair value, during the year ended December 31, 2022 and (ii) a $24.9 million increased gain on derivatives which primarily hedge our interest rate risk on borrowings secured by our Medical Office Portfolio.

Investing and Servicing Segment

Revenues

For the year ended December 31, 2022, revenues of our Investing and Servicing Segment decreased $4.9 million to $205.3 million, compared to $210.2 million for the year ended December 31, 2021. The decrease in revenues was primarily due to (i) an $8.3 million decrease in rental income principally reflecting fewer properties held and (ii) a $4.1 million decrease in servicing fees, partially offset by (iii) a $4.8 million increase in other fee income related to the origination of certain loans

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contributed into CMBS transactions and (iv) a $2.5 million increase in interest income from CMBS investments and conduit loans.

Costs and Expenses

For the year ended December 31, 2022, costs and expenses of our Investing and Servicing Segment decreased $6.3 million to $137.8 million, compared to $144.1 million for the year ended December 31, 2021. The decrease was primarily due to lower costs and expenses of rental operations, reflecting fewer properties held.

Other Income

For the year ended December 31, 2022, other income of our Investing and Servicing Segment decreased $62.8 million to $56.1 million, compared to $118.9 million for the year ended December 31, 2021. The decrease in other income was primarily due to (i) a $71.4 million unfavorable change in fair value of CMBS investments reflecting widening credit spreads and (ii) a $49.0 million lesser increase in fair value of conduit loans, partially offset by (iii) a $33.4 million increased gain on derivatives which primarily hedge our interest rate risk on conduit loans and CMBS investments and (iv) a $28.7 million increased gain on sales of operating properties.

Corporate and Other Items

Corporate Costs and Expenses

For the year ended December 31, 2022, corporate expenses increased $26.3 million to $330.8 million, compared to $304.5 million for the year ended December 31, 2021. This increase was primarily due to (i) a $37.7 million increase in interest expense on higher average outstanding term loan and unsecured senior note balances, as well as higher index rates on our term loan, partially offset by (ii) a $12.6 million decrease in management fees, primarily reflecting lower incentive fees partially offset by higher base fees.

Corporate Other Loss

For the year ended December 31, 2022, corporate other loss increased $72.0 million to $83.0 million, compared to $11.0 million for the year ended December 31, 2021. This increase was primarily due to a greater loss on fixed-to-floating interest rate swaps which hedge a portion of our unsecured senior notes.

Securitization VIE Eliminations

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

Income Tax Benefit (Provision)

Our consolidated income taxes principally relate to the taxable nature of our loan servicing and loan securitization businesses which are housed in TRSs. For the year ended December 31, 2022, our income taxes decreased $70.2 million to a benefit of $61.5 million, compared to a provision of $8.7 million for the year ended December 31, 2021 due to tax losses of our TRSs during the year ended December 31, 2022 compared to taxable income of our TRSs during the year ended December 31, 2021. The tax losses during the year ended December 31, 2022 were primarily attributable to net unrealized losses on our residential loans resulting from elevated market volatility. This market dislocation resulted in us choosing to hold more residential loans rather than securitize them, which resulted in higher net unrealized losses on those loans during the year ended December 31, 2022.

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Net Income Attributable to Non-controlling Interests

For the year ended December 31, 2022, net income attributable to non-controlling interests increased $142.9 million to $187.6 million, compared to $44.7 million for the year ended December 31, 2021. The increase was primarily due to non-controlling interests in increased income, including unrealized gains in fair value, of the Woodstar Fund for the full year ended December 31, 2022.

Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020

Commercial and Residential Lending Segment

Revenues

For the year ended December 31, 2021, revenues of our Commercial and Residential Lending Segment increased $29.7 million to $779.3 million, compared to $749.6 million for the year ended December 31, 2020. This increase was primarily due to increases in interest income from loans of $40.0 million, partially offset by a decrease in interest income from investment securities of $10.9 million. The increase in interest income from loans reflects a $37.2 million increase from commercial loans, reflecting higher average balances partially offset by lower prepayment related income, loans placed on nonaccrual and lower average LIBOR rates (partly mitigated by the LIBOR floors on most of our commercial loans) and a $2.8 million increase from residential loans principally due to higher average balances reflecting the timing of purchases and securitizations. The decrease in interest income from investment securities was primarily due to lower commercial and residential average investment balances, reflecting net repayments and liquidations, and lower average LIBOR rates affecting certain commercial investments.

Costs and Expenses

For the year ended December 31, 2021, costs and expenses of our Commercial and Residential Lending Segment decreased $24.1 million to $249.7 million, compared to $273.8 million for the year ended December 31, 2020. This decrease was primarily due to a $50.8 million decrease in credit loss provision, partially offset by a $30.1 million increase in interest expense associated with the various secured financing facilities used to fund a portion of this segment’s investment portfolio. The credit loss provision decreased from a provision of $47.2 million during the year ended December 31, 2020 to a $3.6 million reversal during the year ended December 31, 2021. The large provision in the year ended December 31, 2020 was due to the significant deterioration in macroeconomic forecasts resulting from the initial disruption caused by the COVID-19 pandemic and its effect on our then estimate of CECL. The credit loss reversal during the year ended December 31, 2021 was primarily due to an improvement in macroeconomic forecasts. The increase in interest expense was primarily due to higher average borrowings outstanding, partially offset by lower average LIBOR rates.

Net Interest Income (amounts in thousands)

For the year ended December 31, 2021, net interest income of our Commercial and Residential Lending Segment decreased $1.1 million to $566.7 million, compared to $567.8 million for the year ended December 31, 2020. This decrease reflects the net increase in interest income which was slightly more than offset by the increase in interest expense on our secured financing facilities, both as discussed in the sections above.

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During the years ended December 31, 2021 and 2020, the weighted average unlevered yields on the Commercial and Residential Lending Segment’s loans and investment securities, excluding retained RMBS and loans for which interest income is not recognized, were as follows:

The overall weighted average unlevered yield on our commercial loans decreased primarily due to repayment of loans with higher LIBOR floors being replaced by newer loans with lower floating rate floors and lower prepayment related income. The unlevered yield on our residential loans decreased due to lower weighted average coupons which resulted from market spread tightening as well as a change in the composition of our residential loan portfolio to include more agency loans which generally carry a lower coupon than non-agency loans.

During the years ended December 31, 2021 and 2020, the Commercial and Residential Lending Segment’s weighted average secured borrowing rates, inclusive of interest rate hedging costs and the amortization of deferred financing fees, were 2.5% and 2.8%, respectively. The decrease in borrowing rates primarily reflects decreases in LIBOR.

Other Income

For the year ended December 31, 2021, other income of our Commercial and Residential Lending Segment increased $5.5 million to $58.6 million, compared to $53.1 million for the year ended December 31, 2020. This increase primarily reflects (i) a $131.8 million favorable change in gain (loss) on derivatives, (ii) a $17.7 million gain on sale of a foreclosed property in the first quarter of 2021 and (iii) a $6.8 million lesser decrease in fair value of investment securities, partially offset by (iv) a $78.2 million unfavorable change in foreign currency gain (loss), (v) a $63.1 million lesser increase in fair value of residential loans and (vi) $4.6 million of transfer taxes related to the foreclosure of a residential conversion project. The favorable change in gain (loss) on derivatives during the year ended December 31, 2021 reflects a $73.1 million favorable change in gain (loss) on foreign currency hedges and a $58.7 million favorable change in gain (loss) on interest rate swaps. The foreign currency hedges are used to fix the U.S. dollar amounts of cash flows (both interest and principal payments) we expect to receive from our foreign currency denominated loans and investments. The unfavorable change in foreign currency gain (loss) and favorable change in foreign currency hedges reflect the strengthening of the U.S. dollar against the GBP, EUR and AUD during the year ended December 31, 2021 compared to a weakening of the U.S. dollar against those currencies during the year ended December 31, 2020. The interest rate swaps are used primarily to fix our interest rate payments on certain variable rate borrowings which fund fixed rate investments and to hedge our interest rate risk on residential loans held-for-sale.

Infrastructure Lending Segment

Revenues

For the year ended December 31, 2021, revenues of our Infrastructure Lending Segment increased $6.5 million to $87.5 million, compared to $81.0 million for the year ended December 31, 2020. This increase was primarily due to an increase in interest income from loans of $7.2 million principally due to higher average balances outstanding, partially offset by lower average LIBOR rates.

Costs and Expenses

For the year ended December 31, 2021, costs and expenses of our Infrastructure Lending Segment increased $10.8 million to $64.8 million, compared to $54.0 million for the year ended December 31, 2020. The increase was primarily due to (i) a $16.0 million increase in credit loss provision, partially offset by (ii) a $3.2 million decrease in interest expense associated with the various secured financing facilities used to fund a portion of this segment’s investment portfolio and (iii) a $1.1 million decrease in general and administrative expenses. The credit loss provision increased to $11.9 million during the year ended December 31, 2021 compared to a $4.1 million reversal during the year ended December 31, 2020. The $11.9 million provision in 2021 includes a $10.1 million specific reserve for a loan which became credit deteriorated during the fourth quarter of 2021. The decrease in interest expense was primarily due to lower average LIBOR rates.

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Net Interest Income (amounts in thousands)

For the year ended December 31, 2021, net interest income of our Infrastructure Lending Segment increased $10.0 million to $49.6 million, compared to $39.6 million for the year ended December 31, 2020. The increase reflects the increase in interest income from loans and the decrease in interest expense on the secured financing facilities, both as discussed in the sections above.

During the years ended December 31, 2021 and 2020, the weighted average unlevered yields on the Infrastructure Lending Segment’s investments were as follows:

During the years ended December 31, 2021 and 2020, the Infrastructure Lending Segment’s weighted average secured borrowing rates, inclusive of the amortization of deferred financing fees, were 2.8% and 3.4%, respectively.

Other Income (Loss)

For the year ended December 31, 2021, other income (loss) of our Infrastructure Lending Segment improved $3.9 million to income of $1.2 million, compared to a loss of $2.7 million for the year ended December 31, 2020. The improvement primarily reflects a $2.8 million favorable change in gain (loss) on interest rate and other derivatives and a $1.9 million increase in earnings from an unconsolidated entity.

Property Segment

Change in Results by Portfolio (amounts in thousands)

Revenues

For the year ended December 31, 2021, revenues of our Property Segment decreased $20.7 million to $235.0 million, compared to $255.7 million for the year ended December 31, 2020, primarily reflecting less than a full year of revenues attributable to the Woodstar Portfolios in 2021 due to their November 5, 2021 conversion to the Woodstar Fund.

Costs and Expenses

For the year ended December 31, 2021, costs and expenses of our Property Segment decreased $17.3 million to $226.6 million, compared to $243.9 million for the year ended December 31, 2020, primarily reflecting less than a full year of costs and expenses attributable to the Woodstar Portfolios in 2021 due to their November 5, 2021 conversion to the Woodstar Fund.

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Other Income (Loss)

For the year ended December 31, 2021, other income (loss) of our Property Segment improved $48.1 million to income of $11.3 million, compared to a loss of $36.8 million for the year ended December 31, 2020. The improvement in other income (loss) was primarily due to (i) a $44.5 million favorable change in gain (loss) on derivatives which primarily hedge our interest rate risk on borrowings secured by our Medical Office Portfolio and (ii) $6.4 million of income from the Woodstar Fund, partially offset by (iii) a $3.1 million increase in loss on extinguishment of debt primarily related to the refinancing of certain Woodstar properties before their conversion to the Woodstar Fund.

Investing and Servicing Segment

Revenues

For the year ended December 31, 2021, revenues of our Investing and Servicing Segment increased $27.2 million to $210.2 million, compared to $183.0 million for the year ended December 31, 2020. The increase in revenues was primarily due to (i) a $17.1 million increase in servicing fees reflecting an increased volume of COVID-19 related loan resolutions, (ii) a $5.3 million increase in other fee income related to the origination of certain loans contributed into CMBS transactions and (iii) a $4.1 million increase in interest income from CMBS investments and conduit loans.

Costs and Expenses

For the year ended December 31, 2021, costs and expenses of our Investing and Servicing Segment increased $5.4 million to $144.1 million, compared to $138.7 million for the year ended December 31, 2020. The increase in costs and expenses was primarily due to an increase of $8.8 million in general and administrative expenses reflecting increased incentive compensation principally due to higher securitization volume, partially offset by a $1.8 million decrease in interest expense on borrowings related to conduit loans and properties held.

Other Income

For the year ended December 31, 2021, other income of our Investing and Servicing Segment increased $84.7 million to $118.9 million, compared to $34.2 million for the year ended December 31, 2020. The increase in other income was primarily due to (i) a $79.6 million favorable change in fair value of CMBS investments, (ii) a $29.6 million favorable change in gain (loss) on derivatives which primarily hedge our interest rate risk on conduit loans and CMBS investments and (iii) a $14.2 million increase in gain on sale of properties, partially offset by (iv) a $30.0 million decrease in earnings from unconsolidated entities and (v) a $7.1 million lesser increase in fair value of servicing rights. The fair value of our CMBS investments was adversely affected during the year ended December 31, 2020 by widening credit spreads resulting from market disruption and dislocation caused by the initial impacts of COVID-19. The decrease in earnings from unconsolidated entities reflects the nonrecurrence of realized and unrealized gains totaling $27.9 million resulting from the sale in April 2020 of a portion of our unconsolidated equity interest in a servicing and advisory business.

Corporate and Other Items

Corporate Costs and Expenses

For the year ended December 31, 2021, corporate expenses increased $50.5 million to $304.5 million, compared to $254.0 million for the year ended December 31, 2020. This increase was primarily due to increases of (i) $42.2 million in management fees, primarily reflecting incentive fees related to the Woodstar Fund transaction, (ii) $6.1 million in interest expense on higher average outstanding term loan and unsecured senior note balances and (iii) $2.2 million in general and administrative expenses.

Corporate Other Income (Loss)

For the year ended December 31, 2021, corporate other income decreased $44.1 million to a loss of $11.0 million, compared to income of $33.1 million for the year ended December 31, 2020. This decrease was primarily due to a $44.1 million unfavorable change in gain (loss) on interest rate swaps which hedge a portion of our unsecured senior notes used to repay variable-rate secured financing.

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Securitization VIE Eliminations

Refer to the preceding comparison of the year ended December 31, 2022 to the year ended December 31, 2021 for a discussion of securitization VIE eliminations.

Income Tax Provision

Our consolidated income taxes principally relate to the taxable nature of our loan servicing and loan securitization businesses which are housed in TRSs. For the year ended December 31, 2021, our income tax provision decreased $11.5 million to $8.7 million, compared to $20.2 million for the year ended December 31, 2020 due to a decrease in overall taxable income of our TRSs during the year ended December 31, 2021.

Net Income Attributable to Non-controlling Interests

For the year ended December 31, 2021, net income attributable to non-controlling interests increased $10.3 million to $44.7 million, compared to $34.4 million for the year ended December 31, 2020. The increase was primarily due to non-controlling interests in increased earnings of a consolidated CMBS joint venture in which we hold a 51% interest.

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Non-GAAP Financial Measures

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

(i)non-cash equity compensation expense;

(ii)incentive fees due under our management agreement;

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

(iv)acquisition costs associated with successful acquisitions;

(v)any unrealized gains, losses or other non-cash items recorded in net income (loss) for the period; and

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

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

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

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

As discussed in Note 2 to the Consolidated Financial Statements, consolidation of securitization variable interest entities (“VIEs”) results in the elimination of certain key financial statement line items, particularly within revenues and other income, including unrealized changes in fair value of loans and investment securities. These line items are essential to understanding the true financial performance of our business segments and the Company as a whole. For this reason, as referenced in Note 2 to our Consolidated Financial Statements, we present business segment data in Note 24 without consolidation of these VIEs. This is how we manage our business and is the basis for all data reviewed with our board of directors, investors and analysts. This presentation also allows for a more transparent reconciliation of the unrealized gain (loss) adjustments below to the segment data presented in Note 24.

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

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

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

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

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

The definition of Distributable Earnings allows management to make adjustments, subject to the approval of a majority of our independent directors, in situations where such adjustments are considered appropriate in order for Distributable Earnings to be calculated in a manner consistent with its definition and objective.

We encountered this type of situation during 2021 when we sold a 20.6% interest in the Woodstar Fund to third parties. As a result of the conversion of the Woodstar Fund into an investment company and our consolidation of the Woodstar Fund as discussed in Notes 2 and 8 of our Consolidated Financial Statements, we recorded a $1.2 billion cumulative effect adjustment in stockholders’ equity, computed as the difference between the fair value and previous carrying value of the Woodstar Fund’s investments. Although this amount was recognized from a GAAP perspective, the adjustment was recorded directly to stockholders’ equity and was not reflected in GAAP earnings.

In an effort to reflect the cash received for the 20.6% portion of the Woodstar Fund that was sold to third parties, we modified the definition of Distributable Earnings to allow for the treatment of sales as realized if GAAP would otherwise view them as realized even when not recorded in GAAP earnings. This modification was further refined to not include the entirety of the cumulative effect adjustment in Distributable Earnings, but rather to only include the portion for which cash was received. We believe this is consistent with the definition of Distributable Earnings where changes in fair value are not recognized until realized and is likewise consistent with the determination of taxable income.

The following table summarizes our quarterly Distributable Earnings per weighted average diluted share for the years ended December 31, 2022, 2021 and 2020:

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The following table presents our summarized results of operations and reconciliation to Distributable Earnings for the year ended December 31, 2022, by business segment (amounts in thousands, except per share data):

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The following table presents our summarized results of operations and reconciliation to Distributable Earnings for the year ended December 31, 2021, by business segment (amounts in thousands, except per share data):

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The following table presents our summarized results of operations and reconciliation to Distributable Earnings for the year ended December 31, 2020, by business segment (amounts in thousands, except per share data):

______________________________________________________________________________________________________________________

(1)The reconciling items in this section are equivalent to the amounts recognized within GAAP net income (before the consolidation of VIEs), each of which can be agreed back to the respective lines within Note 24 to our Consolidated Financial Statements. They reflect both unrealized and realized (gains) and losses. For added transparency and consistency of presentation, the entire amount recognized in GAAP income is reversed in this section, and the realized components of these amounts are reflected in the next section entitled “Recognition of Distributable realized gains / (losses).”

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

(3)Represents loan losses that are deemed nonrecoverable, which is generally upon a realization event, such as when a loan is repaid, or in the case of foreclosure, when the underlying asset is sold. Non-recoverability may also be determined if, in our determination, it is nearly certain that amounts due will not be collected. The amount is calculated as the difference between the cash received and the book value of the asset.

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

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

(6)Represents the difference between the proceeds we received in connection with the Woodstar Fund transaction and our amortized cost basis. Because GAAP accounted for the transaction as an adjustment to equity, no GAAP earnings impact resulted. However, the transaction was a taxable event under the tax rules and was thus included in our computation of Distributable Earnings. Refer to the preceding Non-GAAP Financial Measures discussion above for more information.

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

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

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

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

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Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021

Commercial and Residential Lending Segment

The Commercial and Residential Lending Segment’s Distributable Earnings increased by $167.2 million, from $542.3 million during the year ended December 31, 2021 to $709.5 million during the year ended December 31, 2022. After making adjustments for the calculation of Distributable Earnings, revenues were $1.2 billion, costs and expenses were $559.8 million, other income was $85.5 million and income tax benefit was $4.6 million.

Revenues, consisting principally of interest income on loans, increased by $401.3 million during the year ended December 31, 2022, primarily due to increases in interest income from loans of $352.8 million and investment securities of $46.8 million. The increase in interest income from loans reflects (i) a $299.7 million increase from commercial loans, reflecting higher average balances and index rates, partially offset by the timing effect of certain loans being placed on nonaccrual, and (ii) a $53.1 million increase from residential loans principally due to higher average balances reflecting the timing of purchases and securitizations, partially offset by lower average coupon rates. The increase in interest income from investment securities was primarily due to higher commercial and RMBS average investment balances and the effect of higher index rates on certain commercial investments.

Costs and expenses increased by $299.4 million during the year ended December 31, 2022, primarily due to (i) a $294.8 million increase in interest expense associated with the various secured financing facilities used to fund a portion of this segment’s investment portfolio and (ii) a $9.9 million increase in primarily legal related general and administrative expenses. The increase in interest expense was primarily due to higher average borrowings outstanding and higher average index rates.

Other income increased by $53.0 million during the year ended December 31, 2022, primarily due to (i) a $76.4 million increased gain on sale of foreclosed properties and (ii) a $42.6 million decrease in recognized losses on RMBS investments, partially offset by (iii) a $42.8 million unfavorable change in gain (loss) on residential loan sales and securitizations, net of related interest rate derivatives, and (iv) a $25.8 million unfavorable change in Distributable Earnings (Loss) from an unconsolidated residential mortgage originator.

Income taxes, which principally relate to the taxable nature of this segment’s residential loan securitization activities which are housed in TRSs, decreased $12.3 million to a benefit of $4.6 million during the year ended December 31, 2022 compared to a provision of $7.7 million during the year ended December 31, 2021. This decrease was primarily due to a significant reduction in securitization activity during the year ended December 31, 2022 resulting from elevated market volatility during the period. This market dislocation resulted in us choosing to hold more residential loans rather than securitize them.

Infrastructure Lending Segment

The Infrastructure Lending Segment’s Distributable Earnings increased by $27.0 million, from $37.5 million during the year ended December 31, 2021 to $64.5 million during the year ended December 31, 2022. After making adjustments for the calculation of Distributable Earnings, revenues were $154.4 million, costs and expenses were $92.1 million and other income was $2.2 million.

Revenues, consisting principally of interest income on loans, increased by $66.9 million during the year ended December 31, 2022, primarily due to an increase in interest income from loans of $65.2 million, principally due to higher average loan balances and index rates.

Costs and expenses increased by $41.8 million during the year ended December 31, 2022, primarily due to a $41.5 million increase in interest expense reflecting higher average borrowings outstanding and higher average index rates.

Other income (loss) improved by $2.3 million during the year ended December 31, 2022, primarily due to a $1.5 million increase in earnings from an unconsolidated entity and a $0.8 million lower loss on extinguishment of debt.

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Property Segment

Distributable Earnings by Portfolio (amounts in thousands)

The Property Segment’s Distributable Earnings decreased by $182.6 million, from $263.8 million during the year ended December 31, 2021 to $81.2 million during the year ended December 31, 2022. After making adjustments for the calculation of Distributable Earnings, revenues were $93.5 million, costs and expenses were $60.3 million, other income was $58.1 million and the deduction for income attributable to non-controlling interests in the Woodstar Fund was $10.1 million.

Revenues decreased by $140.9 million during the year ended December 31, 2022, primarily due to the conversion of the Woodstar Portfolios to the Woodstar Fund on November 5, 2021.

Costs and expenses decreased by $100.6 million during the year ended December 31, 2022, primarily due to the Woodstar Fund conversion referred to above.

Other income decreased by $133.1 million during the year ended December 31, 2022, primarily due to (i) the nonrecurrence of $196.4 million in Distributable Earnings relating to the 20.6% sale of third party investor interests in the Woodstar Fund (excluding $5.1 million of related professional fees included in costs and expenses for both GAAP and Distributable Earnings) during the year ended December 31, 2021, partially offset by (ii) a $49.4 million increase in Distributable Earnings from the Woodstar Fund investments (before a $9.2 million increase in related non-controlling interests) during the year ended December 31, 2022 and (iii) a $9.7 million favorable change in realized gains (losses) on derivatives which primarily hedge our interest rate risk on borrowings secured by our Medical Office Portfolio.

Investing and Servicing Segment

The Investing and Servicing Segment’s Distributable Earnings decreased by $22.5 million from $150.5 million during the year ended December 31, 2021 to $128.0 million during the year ended December 31, 2022. After making adjustments for the calculation of Distributable Earnings, revenues were $218.3 million, costs and expenses were $121.0 million, other income was $55.1 million, income tax provision was $4.3 million and the deduction of income attributable to non-controlling interests was $20.1 million.

Revenues decreased by $10.4 million during the year ended December 31, 2022, primarily due to (i) an $8.8 million decrease in rental income principally reflecting fewer properties held and (ii) a $4.1 million decrease in servicing fees, partially offset by (iii) a $4.8 million increase in other fee income related to the origination of certain loans contributed into CMBS transactions.

Costs and expenses decreased by $4.4 million during the year ended December 31, 2022.

Other income includes profit realized upon securitization of loans by our conduit business, gains on sales of CMBS and operating properties, gains and losses on derivatives that were either effectively terminated or novated, and earnings from unconsolidated entities. These items are typically offset by a decrease in the fair value of our domestic servicing rights intangible which reflects the expected amortization of this deteriorating asset, net of increases in fair value due to the attainment of new servicing contracts. Derivatives include instruments which hedge interest rate risk and credit risk on our conduit loans. For GAAP purposes, the loans, CMBS and derivatives are accounted for at fair value, with all changes in fair value (realized or unrealized) recognized in earnings. The adjustments to Distributable Earnings outlined above are also applied to the GAAP earnings of our unconsolidated entities. Other income decreased by $16.7 million during the year ended December 31, 2022, primarily due to (i) a $52.3 million decrease in realized gains on conduit loans and (ii) a $14.9 million decrease in realized gains

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and increase in recognized losses on CMBS, partially offset by (iii) a $29.7 million increase in realized gains on derivatives principally related to conduit loans and (iv) a $23.3 million increased gain on sales of operating properties..

Income taxes, which principally relate to the taxable nature of this segment’s loan servicing and loan securitization businesses which are housed in TRSs, decreased $3.1 million due to lower taxable income of those TRSs during the year ended December 31, 2022.

Income attributable to non-controlling interests increased $2.9 million.

Corporate

Corporate loss increased by $57.0 million, from $199.9 million during the year ended December 31, 2021 to $256.9 million during the year ended December 31, 2022, primarily due to (i) a $38.1 million increase in interest expense on higher average outstanding term loan and unsecured senior note balances, as well as higher index rates on our term loan, (ii) a $9.6 million decrease in realized gains on fixed-to-floating interest rate swaps which hedge a portion of our unsecured senior notes and (iii) an $8.8 million increase in base management fees.

Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020

Commercial and Residential Lending Segment

The Commercial and Residential Lending Segment’s Distributable Earnings decreased by $9.3 million, from $551.6 million during the year ended December 31, 2020 to $542.3 million during the year ended December 31, 2021. After making adjustments for the calculation of Distributable Earnings, revenues were $777.9 million, costs and expenses were $260.4 million, other income was $32.5 million and income tax provision was $7.7 million.

Revenues, consisting principally of interest income on loans, increased by $29.1 million during the year ended December 31, 2021, primarily due to increases in interest income from loans of $40.0 million, partially offset by a decrease in interest income from investment securities of $11.5 million. The increase in interest income from loans reflects a $37.2 million increase from commercial loans reflecting higher average balances partially offset by lower prepayment related income, loans placed on nonaccrual and lower average LIBOR rates (partly mitigated by the LIBOR floors on most of our commercial loans) and a $2.8 million increase from residential loans principally due to higher average balances reflecting the timing of purchases and securitizations. The decrease in interest income from investment securities was primarily due to lower commercial and residential average investment balances, reflecting net repayments and liquidations, and lower average LIBOR rates affecting certain commercial investments.

Costs and expenses increased by $38.8 million during the year ended December 31, 2021, primarily due to (i) a $30.1 million increase in interest expense associated with the various secured financing facilities used to fund a portion of this segment’s investment portfolio and (ii) a $13.8 million increase in commercial loan write-offs, partially offset by (iii) a $2.7 million decrease in general and administrative expenses. The increase in interest expense was primarily due to higher average borrowings outstanding, partially offset by lower average LIBOR rates.

Other income decreased by $6.5 million during the year ended December 31, 2021, primarily due to (i) a $26.6 million increase in recognized losses on RMBS investments primarily due to higher than projected prepayment rates on the underlying residential loans, (ii) a $12.0 million decrease in gains on sales of RMBS and (iii) $4.6 million of transfer taxes relating to the foreclosure of a residential conversion project, all partially offset by (iv) a $28.5 million favorable change in realized gains (losses) on derivatives and foreign currency transactions and (v) an $8.3 million gain on sale of a foreclosed property.

Income taxes, which principally relate to the taxable nature of this segment’s residential loan securitization activities which are housed in TRSs, decreased $6.9 million primarily due to lower taxable income of those TRSs during the year ended December 31, 2021 compared to the year ended December 31, 2020. During 2020, we recorded a GAAP net tax provision related to unrealized fair value increases in our residential loans. Because the net fair value increases were unrealized in 2020, they along with their corresponding income tax provision were previously adjusted in our reconciliation to Distributable Earnings. Upon recognition of the realized gains in the first quarter of 2021 for Distributable Earnings purposes, the corresponding income tax provision was likewise recognized.

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Infrastructure Lending Segment

The Infrastructure Lending Segment’s Distributable Earnings increased by $14.6 million, from $22.9 million during the year ended December 31, 2020 to $37.5 million during the year ended December 31, 2021. After making adjustments for the calculation of Distributable Earnings, revenues were $87.5 million, costs and expenses were $50.3 million and other loss was $0.1 million.

Revenues, consisting principally of interest income on loans, increased by $6.5 million during the year ended December 31, 2021, primarily due to an increase in interest income from loans of $7.2 million principally due to higher average balances outstanding, partially offset by lower average LIBOR rates.

Costs and expenses decreased by $6.4 million during the year ended December 31, 2021, primarily due to (i) a $3.2 million decrease in interest expense on the secured debt facilities used to finance this segment’s investment portfolio principally due to lower average LIBOR rates and (ii) a $2.2 million decrease in general and administrative expenses reflecting lower compensation costs and professional fees.

Other loss decreased by $1.1 million during the year ended December 31, 2021, primarily due to an increase in earnings from an unconsolidated entity.

Property Segment

Distributable Earnings by Portfolio (amounts in thousands)

The Property Segment’s Distributable Earnings increased by $184.7 million, from $79.1 million during the year ended December 31, 2020 to $263.8 million during the year ended December 31, 2021. After making adjustments for the calculation of Distributable Earnings, revenues were $234.4 million, costs and expenses were $160.9 million, other income was $191.2 million and income attributable to non-controlling interests in the Woodstar Fund was $0.9 million.

Revenues decreased by $19.7 million during the year ended December 31, 2021, primarily reflecting less than a full year of revenues attributable to the Woodstar Portfolios in 2021 due to their November 5, 2021 conversion to the Woodstar Fund.

Costs and expenses decreased by $7.5 million during the year ended December 31, 2021, primarily reflecting less than a full year of costs and expenses attributable to the Woodstar Portfolios in 2021 due to their November 5, 2021 conversion to the Woodstar Fund.

Other income increased by $197.8 million during the year ended December 31, 2021 primarily due to (i) a $196.4 million Distributable Earnings gain relating to the 20.6% sale of third party investor interests in the Woodstar Fund (excluding $5.1 million of related professional fees included in costs and expenses for both GAAP and Distributable Earnings) and (ii) $7.2 million of Distributable Earnings (before non-controlling interests of $0.9 million) from the Woodstar Fund subsequent to the sale.

Investing and Servicing Segment

The Investing and Servicing Segment’s Distributable Earnings increased by $29.7 million from $120.8 million during the year ended December 31, 2020 to $150.5 million during the year ended December 31, 2021. After making adjustments for the calculation of Distributable Earnings, revenues were $228.7 million, costs and expenses were $125.4 million, other income

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was $71.8 million, income tax provision was $7.4 million and the deduction of income attributable to non-controlling interests was $17.2 million.

Revenues increased by $29.3 million during the year ended December 31, 2021, primarily due to (i) a $17.1 million increase in servicing fees reflecting an increased volume of COVID-19-related loan resolutions, (ii) a $6.3 million increase in interest income from CMBS investments and conduit loans and (iii) a $5.3 million increase in other fee income related to the origination of certain loans contributed into CMBS transactions.

Costs and expenses increased by $5.4 million during the year ended December 31, 2021, primarily due to an increase of $8.3 million in general and administrative expenses reflecting increased incentive compensation principally due to higher securitization volume, partially offset by a $1.8 million decrease in interest expense on borrowings related to conduit loans and properties held.

Other income increased by $13.1 million during the year ended December 31, 2021, primarily due to (i) a $17.8 million favorable change in realized gains (losses) on derivatives and (ii) a $15.8 million decrease in recognized losses on CMBS, partially offset by (iii) a $15.8 million decrease in distributable earnings from unconsolidated entities, mostly representing nonrecurring gains in 2020 and (iv) a $7.1 million lesser increase in fair value of servicing rights.

Income taxes, which principally relate to the taxable nature of this segment’s loan servicing and loan securitization businesses which are housed in TRSs, increased $8.0 million from a benefit of $0.6 million to a provision of $7.4 million due to taxable income of those TRSs during the year ended December 31, 2021 compared to losses during the year ended December 31, 2020.

Income attributable to non-controlling interests decreased $0.7 million primarily relating to certain properties in which we have minority interest partners.

Corporate

Corporate loss increased by $10.8 million, from $189.1 million during the year ended December 31, 2020 to $199.9 million during the year ended December 31, 2021, primarily due to (i) a $6.3 million increase in interest expense on higher average outstanding term loan and unsecured senior note balances and (ii) a $4.3 million decrease in realized gains on interest rate swaps which hedge a portion of our unsecured senior notes used to repay variable-rate secured financing.

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Liquidity and Capital Resources

Liquidity is a measure of our ability to meet our cash requirements, including ongoing commitments to repay borrowings, fund and maintain our assets and operations, make new investments where appropriate, pay dividends to our stockholders and other general business needs. We closely monitor our liquidity position and believe that we have sufficient current liquidity and access to additional liquidity to meet our financial obligations for at least the next 12 months.

Sources of Liquidity

Our primary sources of liquidity are as follows:

Cash Flows for the Year Ended December 31, 2022 (amounts in thousands)

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

Cash and cash equivalents increased by $61.9 million during the year ended December 31, 2022, reflecting net cash provided by financing activities of $3.0 billion and operating activities of $212.3 million, partially offset by net cash used in investing activities of $3.1 billion.

Net cash provided by operating activities of $212.3 million during the year ended December 31, 2022 related primarily to cash interest income of $948.5 million from our loans and $190.6 million from our investment securities and a net change in

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operating assets and liabilities of $170.0 million. Net rental income provided cash of $81.6 million and servicing fees provided cash of $54.6 million. Offsetting these cash inflows was cash interest expense of $672.1 million, $284.4 million in originations and purchases of loans held-for-sale, net of sales and principal collections, and general and administrative expenses of $253.7 million.

Net cash used in investing activities of $3.1 billion for the year ended December 31, 2022 related primarily to the origination and acquisition of loans held-for-investment of $5.5 billion and the purchase and funding of investment securities of $376.3 million, partially offset by proceeds received from principal collections and sales of loans of $2.2 billion and investment securities of $209.4 million and sales of operating properties for $203.7 million.

Net cash provided by financing activities of $3.0 billion for the year ended December 31, 2022 related primarily to borrowings on our debt, net of repayments and deferred loan costs, of $3.6 billion, partially offset by dividend distributions of $591.5 million.

Financing Arrangements

We utilize a variety of financing arrangements, including:

1)Repurchase Agreements: Repurchase agreements effectively allow us to borrow against loans and securities that we own. Under these agreements, we sell our loans and securities to a counterparty and agree to repurchase the same loans and securities from the counterparty at a price equal to the original sales price plus interest. The counterparty retains the sole discretion over both whether to purchase the loan and security from us and, subject to certain conditions, the market value of such loan or security for purposes of determining whether we are required to pay margin to the counterparty. Generally, if the lender determines (subject to certain conditions) that the market value of the collateral in a repurchase transaction has decreased by more than a defined minimum amount, we would be required to repay any amounts borrowed in excess of the product of (i) the revised market value multiplied by (ii) the applicable advance rate. During the term of a repurchase agreement, we receive the principal and interest on the related loans and securities and pay interest to the counterparty. As of December 31, 2022, we had various repurchase agreements, with details referenced in the table provided below.

2)Secured Property Financings: We use long-term mortgage facilities from commercial lenders and government sponsors of affordable housing loans to finance many of the investment properties that we hold. These facilities accrue interest at either fixed or floating rates. We typically hedge our exposure to floating interest rate changes on these facilities through the use of interest rate swap and cap derivatives.

3)Bank Credit Facilities: We use bank credit facilities (including term loans and revolving facilities) to finance our assets. These financings may be collateralized or non-collateralized and may involve one or more lenders. Credit facilities typically have maturities ranging from two to five years and may accrue interest at either fixed or floating rates. The lender retains the sole discretion, subject to certain conditions, over the market value of such note for purposes of determining whether we are required to pay margin to the lender.

4)Loan Sales, Syndications, Securitizations and/or CLO Transactions: We seek non-recourse long-term financing from loan sales, syndications, securitizations and/or CLOs of our investments in mortgage loans. These financings generally involve a senior portion of our loan but may involve the entire loan. Loan sales and syndications generally involve the sale of a senior note component or participation interest to a third party lender. Securitizations and CLOs generally involve transferring notes to a special purpose vehicle (or the issuing entity), which then issues one or more classes of non-recourse notes pursuant to the terms of an indenture. The notes are secured by the pool of assets. In exchange for the transfer of assets to the issuing entity, we receive cash proceeds from the sale of non-recourse notes. Sales, syndications, securitizations or CLOs of our portfolio investments might magnify our exposure to losses on those portfolio investments because the retained subordinate interest in any particular overall loan would be subordinate to the loan components sold and we would, therefore, absorb all losses sustained with respect to the overall loan before the owners of the senior notes experience any losses with respect to the loan in question.

5)Unsecured Senior Notes and Term Loans: We issue senior notes, some of which are convertible, as well as term loans to finance certain operating and investing activities of the Company. The senior notes accrue interest at fixed interest rates, while the term loans are variable, and vary in tenure. Refer to Notes 11 and 12 to the Consolidated Financial Statements for further discussion.

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Secured Borrowings

The following table is a summary of our secured borrowings as of December 31, 2022 (dollars in thousands):

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

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

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

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

(e)Certain facilities with an outstanding balance of $3.0 billion as of December 31, 2022 are indexed to EURIBOR, BBSY, SARON and SONIA. The remainder are indexed to USD LIBOR and SOFR.

(f)Certain facilities with an aggregate initial maximum facility size of $11.8 billion may be increased to $11.9 billion, subject to certain conditions. The $11.9 billion amount includes such upsizes.

(g)Certain facilities with an outstanding balance of $358.3 million as of December 31, 2022 carry a rolling 11-month or 12-month term which may reset monthly or quarterly with the lender's consent. These facilities carry no maximum facility size.

(h)A facility with an outstanding balance of $262.2 million as of December 31, 2022 has a weighted average fixed annual interest rate of 3.25%. All other facilities are variable rate with a weighted average rate of Index + 2.11%.

(i)Includes: (i) $262.2 million outstanding on a repurchase facility that is not subject to margin calls; and (ii) $42.8 million outstanding on one of our repurchase facilities that represents the 49% pro rata share owed by a non-controlling partner in a consolidated joint venture (see Note 16 to the Consolidated Financial Statements).

(j)The maximum facility size as of December 31, 2022 of $450.0 million may be increased to $750.0 million, subject to certain conditions.

(k)Certain facilities with an aggregate initial maximum facility size of $420.7 million may be increased to $520.7 million, subject to certain conditions. The $520.7 million amount includes such upsizes.

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(l)The weighted average maturity is 4.4 years as of December 31, 2022.

(m)Includes a $600.0 million first mortgage and mezzanine loan secured by our Medical Office Portfolio. This debt has a weighted average interest rate of LIBOR + 2.07% that we swapped to a fixed rate of 3.34%. The remainder have a weighted average rate of Index + 2.60%.

(n)Consists of: (i) a $780.8 million term loan facility that matures in July 2026, of which $387.0 million has an annual interest rate of LIBOR + 2.50% and $393.8 million has an annual interest rate of LIBOR + 3.25%, subject to a 0.75% LIBOR floor, (ii) a $150.0 million revolving credit facility that matures in April 2026 with an annual interest rate of SOFR + 2.50%, and (iii) a $600.0 million term loan facility that matures in November 2027, with an annual interest rate of SOFR + 3.25%, subject to a 0.50% SOFR floor. These facilities are secured by the equity interests in certain of our subsidiaries which totaled $5.9 billion as of December 31, 2022.

The above table no longer reflects property mortgages of the Woodstar Portfolios, which as discussed in Notes 2 and 8 to the Consolidated Financial Statements, are now reflected net within “Investments of consolidated affordable housing fund” on our consolidated balance sheets.

Refer to Note 11 to the Consolidated Financial Statements for further disclosure regarding the terms of our secured financing arrangements.

Variance between Average and Quarter-End Credit Facility Borrowings Outstanding

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

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(a)Variance primarily due to sales and securitizations that occurred late in the quarter.

(b)Variance primarily due to late quarter timing of loan pledges and advances.

(c)Variance primarily due to late quarter timing of debt pay downs from excess cash.

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

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

(b)Variance primarily due to the net increase in debt related to CLO issuances in April and May 2021.

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

(d)Variance primarily due to (i) late quarter draws on commercial, residential and infrastructure loan facilities given the majority of the quarter’s loan closings were back-ended to the last half of the quarter; offset by (ii) the accounting for the Woodstar Fund, which requires property level debt to be presented net within investments of affordable housing fund.

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Borrowings under Unsecured Senior Notes

During the years ended December 31, 2022 and 2021, the weighted average effective borrowing rate on our unsecured senior notes was 4.7% and 5.2%, respectively. The effective borrowing rate includes the effects of underwriter purchase discount.

Refer to Note 12 to the Consolidated Financial Statements for further disclosure regarding the terms of our unsecured senior notes.

Scheduled Principal Repayments on Investments and Overhang on Financing Facilities

The following scheduled and/or projected principal repayments on our investments were based on amounts outstanding and extended contractual maturities of those investments as of December 31, 2022. The projected and/or required repayments of financing were based on the earlier of (i) the extended contractual maturity of each credit facility or (ii) the extended contractual maturity of each of the investments that have been pledged as collateral under the respective credit facility (amounts in thousands):

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(1)Shortfall primarily relates to $810.0 million of repayments under a Residential Loans repurchase facility that carries a one-year term which we can extend every three months with the lender’s consent and $344.3 million of repayments under a securities facility which carries a rolling 12-month term that we have historically extended, and intend to continue to extend with lender’s consent.

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

Issuances of Equity Securities

We may raise funds through capital market transactions by issuing capital stock. There can be no assurance, however, that we will be able to access the capital markets at any particular time or on any particular terms. We have authorized 100,000,000 shares of preferred stock and 500,000,000 shares of common stock. At December 31, 2022, we had 100,000,000 shares of preferred stock available for issuance and 189,324,830 shares of common stock available for issuance.

Refer to Note 18 to the Consolidated Financial Statements for a discussion of our issuances of equity securities in recent years.

Other Potential Sources of Financing

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

Leverage Policies

We employ leverage, to the extent available, to fund the acquisition of our target assets, increase potential returns to our stockholders, or provide temporary liquidity. Leverage can be either direct by utilizing private third party financing or indirect through originating, acquiring or retaining subordinated mortgages, B-Notes, subordinated loan participations or mezzanine loans. Although the type of leverage we deploy is dependent on the underlying asset that is being financed, we intend, when possible, to utilize leverage whose maturity is equal to or greater than the maturity of the underlying asset and minimize to the greatest extent possible exposure to the Company of credit losses associated with any individual asset. In

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addition, we intend to mitigate the impact of potential future interest rate increases on our borrowings through utilization of hedging instruments, primarily interest rate swap agreements.

The amount of leverage we deploy for particular investments in our target assets depends upon our assessment of a variety of factors, which may include the anticipated liquidity and price volatility of the assets in our investment portfolio, the potential for losses and extension risk in our portfolio, the gap between the duration of our assets and liabilities, including hedges, the availability and cost of financing the assets, our opinion of the creditworthiness of our financing counterparties, the health of the U.S., European and Australian economies and commercial, residential and infrastructure markets, our outlook for the level, slope and volatility of interest rates, the credit quality of our assets, the collateral underlying our assets and our outlook for asset spreads relative to the applicable reference rate curve. Our secured debt agreements contain customary affirmative and negative covenants, including financial covenants, that in some cases restrict our total leverage (as defined therein). As of December 31, 2022, we were in compliance with all such covenants.

Cash Requirements

Dividends

U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains, and that it pay tax at regular corporate rates to the extent that it annually distributes less than 100% of its net taxable income. We generally intend to distribute substantially all of our taxable income (which does not necessarily equal our GAAP net income) to our stockholders each year, if and to the extent authorized by our board of directors. Before we pay any dividend, whether for U.S. federal income tax purposes or otherwise, we must first meet both our operating and debt service requirements. If our cash available for distribution is less than our net taxable income, we could be required to sell assets or borrow funds to make cash distributions or we may make a portion of the required distribution in the form of a taxable stock distribution or distribution of debt securities. Refer to Note 18 to the Consolidated Financial Statements for a detailed dividend history.

The tax treatment for our aggregate distributions per share of common stock paid with respect to the 2022 tax year is as follows:

Of the $0.48 per share 2021 fourth quarter distribution paid in January 2022, $0.4045 was previously treated as a 2021 distribution and $0.0755 is being treated as a 2022 distribution for federal tax purposes.

Contractual Obligations and Commitments

Our material contractual obligations and commitments as of December 31, 2022 are as follows (amounts in thousands):

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(a)Represents the contractual maturity of the respective credit facility, inclusive of available extension options.  If investments that have been pledged as collateral repay earlier than the contractual maturity of the debt, the related portion of the debt

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would likewise require earlier repayment. Refer to Note 11 to the Consolidated Financial Statements for the expected maturities by year.

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

(c)Excludes $213.6 million of loan funding commitments in which management projects the Company will not be obligated to fund in the future due to repayments made by the borrower earlier than, or in excess of, expectations.

(d)Represents contractual commitments of $132.8 million under revolvers and letters of credit and $15.5 million under delayed draw term loans.

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

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

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

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

Critical Accounting Estimates

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

Credit Losses

Loans and Debt Securities Measured at Amortized Cost

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

As we do not have a history of realized credit losses on our HFI loans and HTM securities, we have subscribed to third party database services to provide us with historical industry losses for both commercial real estate and infrastructure loans. Using these losses as a benchmark, we determine expected credit losses for our loans and securities on a collective basis within our commercial real estate and infrastructure portfolios. Such determination also incorporates significant assumptions and estimates regarding, among other things, prepayments, future fundings and economic forecasts. See Note 5 to the Consolidated Financial Statements for further discussion of our methodologies.

We also evaluate each loan and security measured at amortized cost for credit deterioration at least quarterly. Credit deterioration occurs when it is deemed probable that we will not be able to collect all amounts due according to the contractual

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terms of the loan or security. If a loan or security is considered to be credit deteriorated, we depart from the industry loss rate approach described above and determine the credit loss allowance as any excess of the amortized cost basis of the loan or security over (i) the present value of expected future cash flows discounted at the contractual effective interest rate or (ii) the fair value of the collateral, if repayment is expected solely from the collateral.

Significant judgment is required when estimating future credit losses; therefore, actual results over time could be materially different. As of December 31, 2022, we held $19.2 billion of loans and HTM securities measured at amortized cost with expected future funding commitments of $2.3 billion. During the years ended December 31, 2022, 2021 and 2020, we recognized credit loss provisions of $46.7 million, $8.3 million and $43.2 million, respectively, and the related credit loss allowance was $112.5 million and $82.7 million at December 31, 2022 and 2021, respectively.

Available-for-Sale Debt Securities

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

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

Significant judgment is required when estimating expected cash flows used in determining the credit loss allowance for AFS debt securities; therefore, actual results over time could be materially different. As of December 31, 2022, we held $113.4 million of AFS debt securities. We did not recognize any provision for credit losses with respect to our AFS debt securities during the three years ended December 31, 2022 and there was no related credit loss allowance as of December 31, 2022.

Valuation of Assets and Liabilities Carried at Fair Value

We measure our VIE assets and liabilities, mortgage-backed securities, investments of consolidated affordable housing fund, derivative assets and liabilities, domestic servicing rights intangible asset and any assets or liabilities where we have elected the fair value option at fair value. When actively quoted observable prices are not available, we either use implied pricing from similar assets and liabilities or valuation models based on net present values of estimated future cash flows, adjusted as appropriate for liquidity, credit, market and/or other risk factors. See Note 21 to the Consolidated Financial Statements for details regarding the various methods and inputs we use in measuring the fair value of our assets and liabilities. As of December 31, 2022, we had $57.3 billion and $50.8 billion of assets and liabilities, respectively, that are measured at fair value, including $52.5 billion of VIE assets and $50.8 billion of VIE liabilities we consolidate pursuant to ASC 810.

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

Goodwill Impairment

Our goodwill at December 31, 2022 of $259.8 million represents the excess of consideration transferred over the fair value of net assets acquired in connection with the acquisitions of LNR in April 2013 and the Infrastructure Lending Segment in September 2018 and October 2018. In testing goodwill for impairment, we follow ASC 350, Intangibles—Goodwill and Other, which permits a qualitative assessment of whether it is more likely than not that the fair value of a reporting unit is less than its carrying value including goodwill. If the qualitative assessment determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying value including goodwill, then no impairment is determined to exist for the reporting unit. However, if the qualitative assessment determines that it is more likely than not that the fair value of the

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reporting unit is less than its carrying value including goodwill, or we choose not to perform the qualitative assessment, then we compare the fair value of that reporting unit with its carrying value, including goodwill, in a quantitative assessment. If the carrying value of a reporting unit exceeds its fair value, goodwill is considered impaired with the impairment loss measured as the excess of the reporting unit’s carrying value (inclusive of goodwill) over its fair value.

Based on our qualitative assessment during the fourth quarter of 2022, we believe that the Investing and Servicing Segment reporting unit to which the LNR acquisition goodwill was attributed is not currently at risk of failing a quantitative assessment. This qualitative assessment required judgment to be applied in evaluating the effects of multiple factors, including actual and projected financial performance of the reporting unit, macroeconomic conditions, industry and market conditions, and relevant entity specific events in determining whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount, including goodwill.

Based on our quantitative assessment during the fourth quarter of 2022, we determined that the fair value of the Infrastructure Lending Segment reporting unit to which goodwill is attributed exceeded its carrying value including goodwill. This quantitative assessment required judgment to be applied in determining the fair value of our equity in the Infrastructure Lending Segment, which included estimates of future cash flows, terminal equity multiple and market discount rate.

Valuation of Deferred Tax Assets

The ability to realize deferred tax assets depends on the ability to generate sufficient taxable income within the carryback or carryforward periods provided for in the tax law for each applicable tax jurisdiction. The assessment regarding whether a valuation allowance is required or should be adjusted is based on an evaluation of possible sources of taxable income and also considers all available positive and negative evidence factors. Our accounting for the valuation of deferred tax assets represents our best estimate of future events. Changes in our current estimates, due to unanticipated market conditions or events, could have a material effect on our ability to utilize deferred tax assets. Refer to Note 22 to our consolidated financial statements for additional information on the composition of our deferred taxes.

Recent Accounting Developments

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