STARWOOD PROPERTY TRUST, INC. (STWD) FY 2024 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.

Economic Environment

During 2023, inflation began to moderate as a result of the monetary policy tightening actions taken by the Federal Reserve, including repeatedly raising interest rates. While the Federal Reserve began to lower interest rates in September 2024, interest rates may remain near recent highs which creates uncertainty for the economy and for our borrowers. Elevated interest rates over time may adversely affect our existing borrowers and lead to nonperformance as higher costs may dampen consumer spending and slow income growth, which may negatively impact the collateral underlying certain of our loans. Additionally, elevated interest rates could adversely affect the value of commercial real estate we own and that collateralizes our loans. It remains difficult to predict the full impact of recent events and any future changes in interest rates or inflation.

In addition, following the onset of the COVID-19 pandemic, the U.S. office sector has been adversely affected by the increase in remote working arrangements and, over the past several years, the retail sector has been adversely affected by electronic commerce. These negative factors have been considered in the determination of our current expected credit loss (“CECL”) allowance as discussed in Note 5 to the Consolidated Financial Statements. We may be required to record further increases to our CECL reserves in the future, depending on the performance of our portfolio and broader market conditions, and there may be volatility in the level of our CECL reserves, particularly if market conditions relevant to the office sector do not improve. Any such reserve increases are difficult to predict.

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Developments During the Fourth Quarter of 2024

Commercial and Residential Lending Segment

•Originated or acquired $477.1 million of commercial loans during the quarter, including the following:

◦€107.5 million ($111.4 million) first mortgage loan secured by a shopping center located in Ireland, which the Company fully funded subsequent to year end.

◦$63.5 million first mortgage loan secured by a multifamily property located in Florida, of which the Company funded $51.6 million.

◦€51.7 million ($53.5 million) upsize to an existing $93.9 million first mortgage loan to add a hotel asset to an existing portfolio located in Ireland, of which the Company funded $49.4 million.

◦$48.1 million first mortgage and mezzanine loan secured by a multifamily property located in New York, of which the Company funded $46.0 million.

◦$100.0 million bridge loan secured by a portfolio of six data center assets located across the western United States.

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

•Received gross proceeds of $967.3 million ($484.7 million, net of debt repayments) from maturities and principal repayments on our commercial loans and investment securities.

•Sold $40.1 million of participating interests in first mortgage and mezzanine loans at par.

Infrastructure Lending Segment

•Acquired $532.0 million of infrastructure loans and funded $25.8 million of pre-existing infrastructure loan commitments.

•Received proceeds of $365.9 million from principal repayments on our infrastructure loans and bonds.

•In October 2024, we refinanced a pool of our infrastructure loans held-for-investment through a CLO, Starwood 2024-SIF4. The CLO has a contractual maturity of October 2036 and a weighted average cost of financing of SOFR + 2.10%, inclusive of the amortization of deferred issuance costs. On the closing date, the CLO issued $600.0 million of notes, of which $496.2 million of notes was purchased by third party investors and $103.8 million of subordinated notes were retained by us. In connection therewith, we redeemed at par the third party financing for our STWD 2021-SIF1 CLO for $402.8 million and contributed certain loans previously held in that CLO to Starwood 2024-SIF4.

Investing and Servicing Segment

•Originated commercial conduit loans of $539.2 million.

•Received proceeds of $666.4 million from sales of previously originated commercial conduit loans.

•Acquired CMBS for a purchase price of $53.6 million, of which $5.0 million related to non-controlling interests.

•Obtained six new special servicing assignments for CMBS trusts with a total unpaid principal balance of $5.1 billion, while $2.8 billion matured, bringing our total named special servicing portfolio to $109.6 billion.

•Acquired a hotel in Arkansas from a consolidated CMBS trust for a purchase price of $7.7 million.

•Acquired a 25% equity interest in a retail center in Hawaii for $6.2 million.

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Corporate

•Repaid the entire $400.0 million of 3.75% Senior Notes at maturity on December 31, 2024.

•In December 2024, we issued $500.0 million of 6.50% Senior Notes due 2030 and swapped the notes to a floating rate of SOFR + 2.55%.

•In December 2024, we amended our $589.5 million term loan facility, increasing the facility by $100.0 million, to $689.5 million, and reducing the spread by 50 bps from SOFR + 2.75% to SOFR + 2.25%.

•In November 2024, we early redeemed $250.0 million of our $500.0 million Senior Notes due March 2025.

•In October 2024, we issued $400.0 million of 6.00% Senior Notes due 2030 and swapped the notes to a floating rate of SOFR + 2.70%.

Developments During 2024

Commercial and Residential Lending Segment

•Originated or acquired $1.7 billion of commercial loans during the year, including the following:

◦$301.4 million first mortgage loan (of which $41.8 million is classified as investment securities) secured by a portfolio of 34 high-quality big-box logistics assets located across the United Kingdom and Europe, which the Company has fully funded.

◦£176.0 million ($219.8 million) first mortgage loan participation on a portfolio of vacation cottages, caravan homes and resorts across the United Kingdom, which the Company fully funded. Prior to acquisition, we had an existing participation in this loan, of which the outstanding balance was £352.0 million.

◦$189.4 million first mortgage loan to refinance a residential development located in New York, of which the Company funded $155.8 million.

◦$175.0 million first mortgage loan to renovate a 593-key beach resort located in Bermuda, of which the Company funded $27.4 million.

◦€107.5 million ($111.4 million) first mortgage loan secured by a shopping center located in Ireland, which the Company fully funded subsequent to year end.

◦$110.0 million first mortgage and mezzanine loan to refinance a 26-story luxury multifamily property located in New Jersey, of which the Company funded $98.7 million.

◦$83.7 million first mortgage and mezzanine loan to refinance the existing debt of three multifamily properties and two new modular multifamily developments located in Georgia, Tennessee and Florida, of which the Company funded $60.8 million.

◦$63.5 million first mortgage loan secured by a multifamily property located in Florida, of which the Company funded $51.6 million.

◦$59.6 million first mortgage loan to refinance a Class A industrial property located in New York, of which the Company funded $56.8 million.

◦$100.0 million bridge loan secured by a portfolio of six data center assets located across the western United States.

•Funded $506.8 million of previously originated commercial loan commitments and investment securities.

•Received gross proceeds of $3.6 billion ($1.5 billion, net of debt repayments) from maturities and principal repayments on our commercial loans and investment securities.

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•Sold three units in a residential conversion project in New York for $12.1 million.

•Sold $40.1 million of participating interests in first mortgage and mezzanine loans at par.

Infrastructure Lending Segment

•Acquired $1.4 billion of infrastructure loans and funded $110.6 million of pre-existing infrastructure loan commitments.

•Received proceeds of $1.3 billion from principal repayments on our infrastructure loans and bonds and $47.1 million from the sale of an infrastructure loan.

•Entered into a credit facility to finance infrastructure loans with a maximum facility size of $250.0 million.

•In October 2024, we refinanced a pool of our infrastructure loans held-for-investment through a CLO, Starwood 2024-SIF4. The CLO has a contractual maturity of October 2036 and a weighted average cost of financing of SOFR + 2.10%, inclusive of the amortization of deferred issuance costs. On the closing date, the CLO issued $600.0 million of notes, of which $496.2 million of notes was purchased by third party investors and $103.8 million of subordinated notes were retained by us. In connection therewith, we redeemed at par the third party financing for our STWD 2021-SIF1 CLO for $402.8 million and contributed certain loans previously held in that CLO to Starwood 2024-SIF4.

•In May 2024, we refinanced a pool of our infrastructure loans held-for-investment through a CLO, STWD 2024-SIF3. The CLO has a contractual maturity of April 2036 and a weighted average cost of financing of SOFR + 2.41%, inclusive of the amortization of deferred issuance costs. On the closing date, the CLO issued $400.0 million of notes, of which $330.0 million of notes was purchased by third party investors and $70.0 million of subordinated notes were retained by us.

Property

•In May 2024, we refinanced $600.0 million of outstanding debt on our Medical Office Portfolio due November 2024 with $450.5 million of senior securitized mortgage debt and a $39.5 million mezzanine loan. The new debt carries an initial term of two years, followed by three successive one-year extension options and a weighted average coupon of SOFR + 2.52%.

•In February 2024, we sold the 16 retail properties which comprised our Property Segment's Master Lease Portfolio for net proceeds of $188.0 million, recognizing a net gain of $90.8 million.

Investing and Servicing Segment

•Originated or acquired commercial conduit loans of $1.8 billion.

•Received proceeds of $1.7 billion from sales of previously originated or acquired commercial conduit loans.

•Acquired CMBS for a purchase price of $187.5 million, of which $8.7 million related to non-controlling interests, and sold CMBS for total gross proceeds of $12.9 million, of which $2.8 million related to non-controlling interests.

•Obtained 29 new special servicing assignments for CMBS trusts with a total unpaid principal balance of $24.2 billion, while $13.2 billion matured and $0.1 billion transferred, bringing our total named special servicing portfolio to $109.6 billion.

•Sold commercial real estate for gross proceeds of $18.2 million and recognized a gain of $8.3 million, of which $2.5 million was attributable to non-controlling interests.

•Acquired a hotel in Arkansas from a consolidated CMBS trust for a gross purchase price of $7.7 million.

•Acquired a 25% equity interest in a retail center in Hawaii for $6.2 million.

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Corporate

•Repaid the entire $400.0 million of 3.75% Senior Notes at maturity on December 31, 2024.

•In December 2024, we issued $500.0 million of 6.50% Senior Notes due 2030 and swapped the notes to a floating rate of SOFR + 2.55%.

•In December 2024, we amended our $589.5 million term loan facility, increasing the facility by $100.0 million, to $689.5 million, and reducing the spread by 50 bps from SOFR + 2.75% to SOFR + 2.25%, which had been previously reduced in June 2024, from SOFR + 3.25% to SOFR + 2.75%.

•In November 2024, we early redeemed $250.0 million of our Senior Notes due March 2025.

•In October 2024, we issued $400.0 million of 6.00% Senior Notes due 2030 and swapped the notes to a floating rate of SOFR + 2.70%.

•In September 2024, we issued 20.1 million shares of our common stock for proceeds of $392.5 million.

•In March 2024, we issued $600.0 million of 7.25% Senior Notes due 2029 and swapped the notes to a floating rate of SOFR + 3.25%

Subsequent Events

Refer to Note 25 to the Consolidated Financial Statements for disclosure regarding significant transactions that occurred subsequent to December 31, 2024.

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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, 2024, 2023 and 2022 by business segment (amounts in thousands):

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Year Ended December 31, 2024 Compared to the Year Ended December 31, 2023

Commercial and Residential Lending Segment

Revenues

For the year ended December 31, 2024, revenues of our Commercial and Residential Lending Segment decreased $137.6 million to $1.6 billion, compared to $1.7 billion for the year ended December 31, 2023. This decrease was primarily due to decreases in interest income from loans of $133.4 million and investment securities of $18.3 million, partially offset by a $10.0 million increase in rental income from foreclosed properties. The decrease in interest income from loans reflects (i) a $123.0 million decrease from commercial loans, reflecting lower average balances and additional loans placed on nonaccrual, partially offset by higher prepayment related income, and (ii) a $10.4 million decrease from residential loans principally due to lower average balances. The decrease in interest income from investment securities was primarily due to lower average commercial investment balances due to repayments.

Costs and Expenses

For the year ended December 31, 2024, costs and expenses of our Commercial and Residential Lending Segment decreased $148.0 million to $1.1 billion, compared to $1.3 billion for the year ended December 31, 2023. This decrease was primarily due to decreases of (i) $125.9 million in interest expense associated with the various secured financing facilities used to fund a portion of this segment’s investment portfolio and (ii) $31.5 million in credit loss provision, partially offset by (iii) a $6.8 million increase in depreciation and other costs of rental operations of foreclosed properties. The decrease in interest expense was primarily due to lower average borrowings outstanding due to paydowns from net loan repayments and excess cash balances. The decrease in credit loss provision was primarily due to a lesser deterioration in modeled macroeconomic forecasts in the year ended December 31, 2024 compared to the year ended December, 2023, the effect of which was partially offset by selecting the most unfavorable modeled macroeconomic forecast for office and retail loans in 2024.

Net Interest Income (amounts in thousands)

For the year ended December 31, 2024, net interest income of our Commercial and Residential Lending Segment decreased $25.8 million to $695.9 million, compared to $721.7 million for the year ended December 31, 2023. This decrease reflects the decrease in interest income, partially offset by the decrease in interest expense on our secured financing facilities, both as discussed in the sections above.

During the years ended December 31, 2024 and 2023, 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 prepayment related income. The unlevered yield on our residential loans was relatively unchanged.

During the years ended December 31, 2024 and 2023, the Commercial and Residential Lending Segment’s weighted average secured borrowing rates, inclusive of the amortization of deferred financing fees, were 7.4% and 7.3%, respectively.

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Interest rate hedges had the effect of adjusting these weighted average borrowing costs to 6.5% and 6.6% during the year ended December 31, 2024 and 2023, respectively.

Other Income (Loss)

For the year ended December 31, 2024, other income of our Commercial and Residential Lending Segment increased $129.8 million to income of $128.3 million, compared to a loss of $1.5 million for the year ended December 31, 2023. This increase primarily reflects (i) a $221.6 million favorable change in gain (loss) on derivatives, (ii) the non-recurrence of $124.9 million of impairment losses in 2023 on two foreclosed properties and (iii) a $7.2 million increase in earnings from unconsolidated entities primarily due to an observable price change in an equity investment, partially offset by (iv) a $134.5 million unfavorable change in foreign currency gain (loss), (v) a $69.2 million lesser increase in fair value of primarily RMBS investment securities and (vi) a $22.3 million lesser increase in fair value of residential loans. The favorable change in gain (loss) on derivatives during the year ended December 31, 2024 reflects (i) a $160.2 million favorable change in gain (loss) on foreign currency hedges and (ii) a $61.4 million increased gain on interest rate swaps principally related to residential loans. The interest rate swaps are used primarily to hedge our interest rate risk on residential loans held-for-sale and to fix our interest rate payments on certain variable rate borrowings which fund fixed rate investments. The foreign currency hedges are used to fix the U.S. dollar amounts of cash flows (both interest and principal payments) we expect to receive from our foreign currency denominated loans and investments. The unfavorable change in foreign currency gain (loss) and the favorable change in gain (loss) on foreign currency hedges 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, 2024, compared to a weakening of the U.S. dollar against the GBP and EUR, partially offset by a slight strengthening against the AUD, during the year ended December 31, 2023.

Infrastructure Lending Segment

Revenues

For the year ended December 31, 2024, revenues of our Infrastructure Lending Segment increased $21.0 million to $261.0 million, compared to $240.0 million for the year ended December 31, 2023. This increase was primarily due to increases in interest income of (i) $18.8 million from loans, principally due to higher average loan balances and prepayment related income, and (ii) $3.5 million from cash balances, partially offset by (iii) a $1.3 million decrease in interest income from investment securities, primarily due to lower average balances resulting from repayments.

Costs and Expenses

For the year ended December 31, 2024, costs and expenses of our Infrastructure Lending Segment increased $0.1 million to $174.8 million, compared to $174.7 million for the year ended December 31, 2023. The slight increase reflects (i) a $10.1 million increase in interest expense associated with the various secured financing facilities used to fund this segment’s investment portfolio and (ii) a $4.9 million increase in general, administrative and other expenses, primarily for compensation and professional fees, substantially offset by (iii) a $14.9 million decrease in credit loss provision primarily due to the nonrecurrence of specific allowances for a credit-deteriorated loan and investment security provided during 2023. The increase in interest expense was primarily due to higher average borrowings outstanding and interest rates.

Net Interest Income (amounts in thousands)

For the year ended December 31, 2024, net interest income of our Infrastructure Lending Segment increased $7.3 million to $105.0 million, compared to $97.7 million for the year ended December 31, 2023. The increase reflects the net 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, 2024 and 2023, the weighted average unlevered yields on the Infrastructure Lending Segment’s loans and investment securities, excluding those for which interest income is not recognized, were 10.6% and 10.2%, respectively, primarily reflecting higher prepayment related income in 2024.

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During the years ended December 31, 2024 and 2023, the Infrastructure Lending Segment’s weighted average secured borrowing rates, inclusive of the amortization of deferred financing fees, were 7.8% and 7.6%, respectively.

Other Income

For the year ended December 31, 2024, other income of our Infrastructure Lending Segment decreased $5.6 million to $0.4 million, compared to $6.0 million for the year ended December 31, 2023. The decrease primarily reflects a $4.3 million decrease in earnings from unconsolidated entities and a $1.5 million loss on extinguishment of debt in 2024.

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, 2024, revenues of our Property Segment decreased $24.2 million to $70.0 million, compared to $94.2 million for the year ended December 31, 2023, primarily due to the sale of our Master Lease Portfolio on February 29, 2024.

Costs and Expenses

For the year ended December 31, 2024, costs and expenses of our Property Segment decreased $17.0 million to $96.5 million, compared to $113.5 million for the year ended December 31, 2023. The decrease is primarily due to the sale of our Master Lease Portfolio on February 29, 2024.

Other Income

For the year ended December 31, 2024, other income of our Property Segment decreased $100.8 million to $192.5 million, compared to $293.3 million for the year ended December 31, 2023. The decrease is primarily due to (i) a $189.1 million decrease in income attributable to investments of the Woodstar Fund due to lower unrealized increases in fair value, partially offset by (ii) a $90.8 million net gain on sale of the Master Lease Portfolio in the first quarter of 2024.

Investing and Servicing Segment

Revenues

For the year ended December 31, 2024, revenues of our Investing and Servicing Segment increased $34.0 million to $208.8 million, compared to $174.8 million for the year ended December 31, 2023. The increase in revenues is primarily due to (i) a $27.7 million increase in servicing fees principally related to loan modifications and (ii) a $10.1 million increase in interest income primarily due to higher average conduit loan balances due to increased origination and securitization activity, partially offset by (iii) a $5.4 million decrease in rental income due to fewer operating properties held.

Costs and Expenses

For the year ended December 31, 2024, costs and expenses of our Investing and Servicing Segment increased $10.6 million to $155.7 million, compared to $145.1 million for the year ended December 31, 2023. The increase in costs and expenses primarily reflects (i) an $11.9 million increase in general and administrative expenses, principally reflecting increased

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incentive compensation due to higher loan securitization volume and (ii) a $2.3 million increase in interest expense primarily on higher conduit loan balances, partially offset by (iii) a $4.4 million decrease in depreciation and other costs of rental operations due to fewer operating properties held.

Other Income

For the year ended December 31, 2024, other income of our Investing and Servicing Segment decreased $12.6 million to $2.7 million, compared to $15.3 million for the year ended December 31, 2023. The decrease in other income was primarily due to (i) a $31.9 million greater decrease in fair value of CMBS investments, (ii) a $17.4 million decreased gain on sale of operating properties and (iii) a $7.4 million decrease in earnings from unconsolidated entities, partially offset by (iv) a $35.5 million greater increase in fair value of conduit loans and (v) a $7.8 million favorable change in gain (loss) on derivatives which primarily hedge our interest rate risk on conduit loans and CMBS investments.

Corporate and Other Items

Corporate Costs and Expenses

For the year ended December 31, 2024, corporate expenses increased $38.1 million to $432.1 million, compared to $394.0 million for the year ended December 31, 2023. This increase was primarily due to a $35.7 million increase in interest expense reflecting higher average unsecured borrowings outstanding.

Corporate Other Loss

For the year ended December 31, 2024, corporate other loss increased $32.5 million to $43.8 million, compared to $11.3 million for the year ended December 31, 2023. This was primarily due to a $32.2 million increased 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 (Provision) Benefit

Our consolidated income taxes principally relate to the taxable nature of our loan servicing and loan securitization businesses which are housed in TRSs. For the year ended December 31, 2024, our income taxes increased $26.1 million to a provision of $25.4 million, compared to a benefit $0.7 million for the year ended December 31, 2023 due to taxable income of our TRSs during the year ended December 31, 2024 compared to a net tax loss during the year ended December 31, 2023.

Net Income Attributable to Non-controlling Interests

For the year ended December 31, 2024, net income attributable to non-controlling interests decreased $58.3 million to $20.6 million, compared to $78.9 million for the year ended December 31, 2023. The decrease was primarily due to non-controlling interests in (i) lower income of the Woodstar Fund, reflecting lower unrealized increases in fair value, and (ii) losses of a consolidated CMBS joint venture during the year ended December 31, 2024.

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Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022

Commercial and Residential Lending Segment

Revenues

For the year ended December 31, 2023, revenues of our Commercial and Residential Lending Segment increased $536.2 million to $1.7 billion, compared to $1.2 billion for the year ended December 31, 2022. This increase was primarily due to increases in interest income from loans of $499.3 million, and investment securities of $33.0 million. The increase in interest income from loans reflects (i) a $485.1 million increase from commercial loans, reflecting higher average index rates and loan balances, and (ii) a $14.2 million increase from residential loans principally due to higher average balances, reflecting the timing of purchases and securitizations. The increase in interest income from investment securities was primarily due to the effect of higher index rates on certain commercial investments and higher RMBS yields and average investment balances.

Costs and Expenses

For the year ended December 31, 2023, costs and expenses of our Commercial and Residential Lending Segment increased $660.2 million to $1.3 billion, compared to $611.6 million for the year ended December 31, 2022. This increase was primarily due to (i) a $469.9 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 $185.9 million increase in credit loss provision. The increase in interest expense was primarily due to higher average index rates and borrowings outstanding. The increase in credit loss provision was primarily due to a deterioration in modeled macroeconomic forecasts during the year ended December 31, 2023.

Net Interest Income (amounts in thousands)

For the year ended December 31, 2023, net interest income of our Commercial and Residential Lending Segment increased $62.4 million to $721.7 million, compared to $659.3 million for the year ended December 31, 2022. This increase reflects the increase in interest income, partially offset by the increase in interest expense on our secured financing facilities, both as discussed in the sections above.

During the years ended December 31, 2023 and 2022, the weighted average unlevered yields on the Commercial and Residential Lending Segment’s loans and investment securities, excluding retained RMBS and loans for which interest income is not recognized, were as follows:

The weighted average unlevered yield on our commercial loans increased primarily due to higher average index rates. The weighted average unlevered yield on our residential loans increased primarily due to a decline in fair value of the residential loans.

During the years ended December 31, 2023 and 2022, 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 7.3% and 4.0%, respectively. The increase in borrowing rates primarily reflects higher average index rates. Interest rate hedges had the effect of reducing these weighted average borrowing costs to 6.6% and 3.9% during the year ended December 31, 2023 and 2022, respectively.

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Other Loss

For the year ended December 31, 2023, other loss of our Commercial and Residential Lending Segment decreased $114.3 million to $1.5 million, compared to $115.8 million for the year ended December 31, 2022. This decrease primarily reflects (i) a $378.3 million favorable change in fair value of residential loans, (ii) a $157.3 million favorable change in foreign currency gain (loss), (iii) the nonrecurrence of an $88.4 million loss contingency provision related to residential loans sold and later repurchased in 2022 (refer to Note 5 to the Consolidated Financial Statements) and (iv) a $57.4 million favorable change in fair value of primarily RMBS investment securities, all partially offset by (v) a $364.2 million unfavorable change in net gain (loss) on derivatives, (vi) $124.9 million of impairment losses on two properties which had been acquired through loan foreclosures in 2022 (refer to Note 7 to the Consolidated Financial Statements) and (vii) the nonrecurrence of an $86.6 million gain on sale of a foreclosed property in 2022. The unfavorable change in net gain (loss) on derivatives during the year ended December 31, 2023 reflects (i) a $182.7 million decreased gain on interest rate swaps principally related to residential loans, which partially offsets the favorable change in fair value of those loans, and (ii) a $181.5 million unfavorable change in gain (loss) 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 favorable change in foreign currency gain (loss) and the unfavorable change in gain (loss) on foreign currency hedges reflect the weakening of the U.S. dollar against the GBP and EUR, partially offset by a slight strengthening against the AUD, during the year ended December 31, 2023 compared to a strengthening of the U.S. dollar against each of those currencies during the year ended December 31, 2022.

Infrastructure Lending Segment

Revenues

For the year ended December 31, 2023, revenues of our Infrastructure Lending Segment increased $85.6 million to $240.0 million, compared to $154.4 million for the year ended December 31, 2022. This increase was primarily due to an increase in interest income from loans of $86.7 million, principally due to higher average index rates and loan balances.

Costs and Expenses

For the year ended December 31, 2023, costs and expenses of our Infrastructure Lending Segment increased $74.1 million to $174.7 million, compared to $100.6 million for the year ended December 31, 2022. The increase was primarily due to a $61.9 million increase in interest expense associated with the various secured financing facilities used to fund this segment’s investment portfolio and an $11.1 million increase in credit loss provision. The increase in interest expense was primarily due to higher average index rates. The increase in the credit loss provision was primarily due to specific allowances for a credit-deteriorated loan and investment security provided during the year.

Net Interest Income (amounts in thousands)

For the year ended December 31, 2023, net interest income of our Infrastructure Lending Segment increased $22.9 million to $97.7 million, compared to $74.8 million for the year ended December 31, 2022. The increase reflects the net 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, 2023 and 2022, the weighted average unlevered yields on the Infrastructure Lending Segment’s loans and investment securities, excluding those for which interest income is not recognized, were 10.2% and 6.6%, respectively, primarily reflecting higher average index rates in 2023.

During the years ended December 31, 2023 and 2022, the Infrastructure Lending Segment’s weighted average secured borrowing rates, inclusive of the amortization of deferred financing fees, were 7.6% and 4.3%, respectively.

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Other Income

For the year ended December 31, 2023, other income of our Infrastructure Lending Segment increased $1.6 million to $6.0 million, compared to $4.4 million for the year ended December 31, 2022. The increase primarily reflects a $1.7 million increase in earnings from unconsolidated entities.

Property Segment

Change in Results by Portfolio (amounts in thousands)

Revenues

For the year ended December 31, 2023, revenues of our Property Segment increased $2.4 million to $94.2 million, compared to $91.8 million for the year ended December 31, 2022, primarily due to rent increases in our Master Lease Portfolio.

Costs and Expenses

For the year ended December 31, 2023, costs and expenses of our Property Segment increased $20.8 million to $113.5 million, compared to $92.7 million for the year ended December 31, 2022. The increase was primarily due to an increase of $20.6 million in interest expense reflecting higher index rates on variable rate borrowings of the Medical Office Portfolio.

Other Income

For the year ended December 31, 2023, other income of our Property Segment decreased $496.4 million to $293.3 million, compared to $789.7 million for the year ended December 31, 2022. The decrease in other income was primarily due to (i) a $464.5 million decrease in income attributable to investments of the Woodstar Fund, mainly reflecting lower unrealized increases in fair value during the year ended December 31, 2023 and (ii) a $33.0 million lower 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, 2023, revenues of our Investing and Servicing Segment decreased $30.5 million to $174.8 million, compared to $205.3 million for the year ended December 31, 2022. The decrease in revenues was primarily due to (i) a $9.9 million decrease in servicing fees, (ii) a $10.3 million decrease in other fee income related to the origination of certain loans contributed into CMBS transactions and (iii) a $7.3 million decrease in interest income reflecting lower CMBS interest recoveries and conduit loan inventories.

Costs and Expenses

For the year ended December 31, 2023, costs and expenses of our Investing and Servicing Segment increased $7.3 million to $145.1 million, compared to $137.8 million for the year ended December 31, 2022. The increase in costs and expenses was primarily due to a $7.9 million increase in interest expense reflecting higher average index rates on borrowings which finance our CMBS investments and conduit loans.

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Other Income

For the year ended December 31, 2023, other income of our Investing and Servicing Segment decreased $40.8 million to $15.3 million, compared to $56.1 million for the year ended December 31, 2022. The decrease in other income was primarily due to (i) a $46.0 million unfavorable change in gain (loss) on derivatives which primarily hedge our interest rate risk on conduit loans and CMBS investments, (ii) a $25.2 million decreased gain on sales of operating properties and (iii) an $8.7 million greater decrease in fair value of CMBS investments, all partially offset by (iv) a $30.6 million greater increase in fair value of conduit loans and (v) a $6.0 million increase in earnings from unconsolidated entities.

Corporate and Other Items

Corporate Costs and Expenses

For the year ended December 31, 2023, corporate expenses increased $63.2 million to $394.0 million, compared to $330.8 million for the year ended December 31, 2022. This increase was primarily due to (i) a $78.7 million increase in interest expense reflecting higher average outstanding term loan and unsecured senior note balances, as well as higher interest rates, partially offset by (ii) a $13.9 million decrease in management fees, primarily reflecting lower incentive fees.

Corporate Other Loss

For the year ended December 31, 2023, corporate other loss decreased $71.7 million to $11.3 million, compared to $83.0 million for the year ended December 31, 2022. This decrease was due to a lower loss on fixed-to-floating interest rate swaps which hedge a portion of our unsecured senior notes.

Securitization VIE Eliminations

Refer to the preceding comparison of the year ended December 31, 2024 to the year ended December 31, 2023 for a discussion of securitization VIE eliminations.

Income Tax Benefit

Our consolidated income taxes principally relate to the taxable nature of our loan servicing and loan securitization businesses which are housed in TRSs. For the year ended December 31, 2023, our income tax benefit decreased $60.8 million to $0.7 million, compared to $61.5 million for the year ended December 31, 2022 due to lower tax losses of our TRSs during the year ended December 31, 2023 compared to the year ended December 31, 2022. The tax losses 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 particularly during the year ended December 31, 2022.

Net Income Attributable to Non-controlling Interests

For the year ended December 31, 2023, net income attributable to non-controlling interests decreased $108.7 million to $78.9 million, compared to $187.6 million for the year ended December 31, 2022. The decrease was primarily due to non-controlling interests in lower income, reflecting lower unrealized gains in fair value, of the Woodstar Fund during the year ended December 31, 2023.

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Non-GAAP Financial Measures

Distributable Earnings is a non-GAAP financial measure. We calculate Distributable Earnings as GAAP net income (loss) excluding the following: (i) non-cash equity compensation expense; (ii) the incentive fee due under our management agreement; (iii) acquisition and investment pursuit costs associated with successful acquisitions; (iv) depreciation and amortization of real estate and associated intangibles; (v) unrealized gains (losses), net of realized gains (losses), as described further below; (vi) other non-cash items; and (vii) to the extent deducted from net income (loss), distributions payable with respect to equity securities of subsidiaries issued in exchange for properties or interests therein (i.e. the Woodstar II Class A units), with each of the above adjusted for any related non-controlling interest. Distributable Earnings may be adjusted to exclude one-time events pursuant to changes in GAAP and certain other non-cash adjustments as determined by our Manager and approved by a majority of our independent directors.

As noted in (v) above, we exclude unrealized gains and losses from our calculation of Distributable Earnings and include realized gains and losses. The nature of these adjustments is described more fully in the footnotes to our reconciliation tables. In order to present each of these items within our Distributable Earnings reconciliation tables in a manner which can be agreed more easily to our GAAP financial statements, we reverse the entirety of those items within our GAAP financial statements which contain unrealized and realized components (i.e. those assets and liabilities carried at fair value, including loans or securities for which the fair value option has been elected, investment company assets and liabilities, derivatives, foreign currency conversions, and accumulated depreciation related to sold properties). The realized portion of these items is then separately included in the reconciliation table, along with a description as to how the amount was determined.

The CECL reserve and any property impairment losses have been excluded from Distributable Earnings consistent with other unrealized losses pursuant to our existing policy for reporting Distributable Earnings. We expect to only recognize such potential credit or property impairment 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 a foreclosure or other property, when the underlying asset is sold. Non-recoverability may also be determined if, in our determination, it is nearly certain the carrying amounts will not be collected or realized upon sale. The realized loss amount reflected in Distributable Earnings will equal the difference between the cash received, or expected to be received, and the Distributable Earnings basis of the asset, and is reflective of our economic experience as it relates to the ultimate realization of the asset. The timing of any such loss realization in our Distributable Earnings may differ materially from the timing of the corresponding CECL reserves, charge-offs or impairments in our consolidated financial statements prepared in accordance with GAAP.

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.

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

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

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

(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):

As noted above, the definition of Distributable Earnings allows management to make adjustments, subject to the approval of a majority of our independent directors. This is done in situations where such adjustments are considered appropriate in order for Distributable Earnings to be calculated in a manner consistent with its definition and objective. No adjustments to the definition of Distributable Earnings became effective during the years ended December 31, 2024, 2023 and 2022.

The following table summarizes our quarterly Distributable Earnings per weighted average diluted share for the years ended December 31, 2024, 2023 and 2022:

Distributable Earnings per weighted average diluted share for the year ended December 31, 2024 does not equal the sum of the individual quarters due to rounding and other computational factors.

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The following table presents our summarized results of operations and reconciliation to Distributable Earnings for the year ended December 31, 2024, 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, 2023, 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, 2022, by business segment (amounts in thousands, except per share data):

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______________________________________________________________________________________________________________________

(1)The reconciling items in this section are exactly equivalent to the amounts recognized within GAAP net income (before the consolidation of VIEs), each of which can be agreed back to the respective lines within Note 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).”

(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 or expected to be sold in the near term subject to a binding agreement. The amount is calculated as the difference between (i) the net proceeds received or expected to be 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 the carrying amounts will not be collected or realized upon sale. The loss amount is calculated as the difference between the cash received or expected to be received and the Distributable Earnings basis 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 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.

(7)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.

(8)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.

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

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Year Ended December 31, 2024 Compared to the Year Ended December 31, 2023

Commercial and Residential Lending Segment

The Commercial and Residential Lending Segment’s Distributable Earnings decreased by $9.5 million, from $786.2 million during the year ended December 31, 2023 to $776.7 million during the year ended December 31, 2024. After making adjustments for the calculation of Distributable Earnings, revenues were $1.6 billion, costs and expenses were $910.4 million, other income was $99.5 million and there was no income tax provision or benefit.

Revenues, consisting principally of interest income on loans, decreased by $139.8 million during the year ended December 31, 2024, primarily due to decreases in interest income from loans of $133.4 million and investment securities of $20.5 million, partially offset by a $9.9 million increase in rental income from foreclosed properties. The decrease in interest income from loans reflects (i) a $123.0 million decrease from commercial loans, reflecting lower average balances and additional loans placed on nonaccrual, partially offset by higher prepayment related income, and (ii) a $10.4 million decrease from residential loans principally due to lower average balances. The decrease in interest income from investment securities was primarily due to lower average commercial investment balances due to repayments.

Costs and expenses decreased by $132.3 million during the year ended December 31, 2024, primarily due to (i) a $125.9 million decrease in interest expense associated with the various secured financing facilities used to fund a portion of this segment’s investment portfolio, reflecting lower average borrowings outstanding due to paydowns from net loan repayments and excess cash balances, and (ii) the nonrecurrence of a $12.3 million realized credit loss on a commercial loan in 2023, partially offset by (iii) a $4.4 million increase in costs of rental operations of foreclosed properties.

Other income decreased by $2.0 million during the year ended December 31, 2024, primarily due to (i) an $18.8 million increase in realized foreign currency losses and (ii) a $9.7 million increase in recognized losses on RMBS investments, partially offset by (iii) a $24.4 million increase in realized gains on interest rate and foreign currency derivatives and (iv) a $1.2 million increase in earnings from unconsolidated entities.

Infrastructure Lending Segment

The Infrastructure Lending Segment’s Distributable Earnings increased by $16.2 million, from $72.5 million during the year ended December 31, 2023 to $88.7 million during the year ended December 31, 2024. After making adjustments for the calculation of Distributable Earnings, revenues were $261.0 million, costs and expenses were $171.2 million and other loss was $1.1 million.

Revenues, consisting principally of interest income on loans, increased by $21.0 million during the year ended December 31, 2024, primarily due to increases in interest income of (i) $18.8 million from loans, principally due to higher average loan balances and prepayment related income, and (ii) $3.5 million from cash balances, partially offset by (iii) a $1.3 million decrease in interest income from investment securities, primarily due to lower average balances resulting from repayments.

Costs and expenses increased by $5.2 million during the year ended December 31, 2024, primarily due to (i) a $10.1 million increase in interest expense, reflecting higher average borrowings outstanding and interest rates, and (ii) a $3.9 million increase in general and administrative expenses, primarily for compensation and professional fees, partially offset by (iii) a $9.2 million decrease in recognized credit losses.

Other loss decreased by $0.4 million during the year ended December 31, 2024.

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Property Segment

Distributable Earnings by Portfolio (amounts in thousands)

The Property Segment’s Distributable Earnings increased by $13.0 million, from $87.6 million during the year ended December 31, 2023 to $100.6 million during the year ended December 31, 2024. After making adjustments for the calculation of Distributable Earnings, revenues were $71.7 million, costs and expenses were $79.2 million, other income was $121.1 million and the deduction for income attributable to non-controlling interests in the Woodstar Fund was $13.0 million.

Revenues decreased by $24.1 million during the year ended December 31, 2024, primarily due to the sale of our Master Lease Portfolio on February 29, 2024.

Costs and expenses decreased by $5.3 million during the year ended December 31, 2024, primarily due to the sale of our Master Lease Portfolio on February 29, 2024.

Other income increased by $33.6 million during the year ended December 31, 2024, primarily due to a $37.4 million net gain on sale of our Master Lease Portfolio and an $8.8 million increase in distributable income from the Woodstar Fund, partially offset by an $11.3 million decrease in realized gains on derivatives which primarily hedge our interest rate risk on borrowings secured by our Medical Office Portfolio.

Income attributable to non-controlling interests in the Woodstar Fund increased $1.8 million in the year ended December 31, 2024.

Investing and Servicing Segment

The Investing and Servicing Segment’s Distributable Earnings increased by $39.8 million from $83.4 million during the year ended December 31, 2023 to $123.2 million during the year ended December 31, 2024. After making adjustments for the calculation of Distributable Earnings, revenues were $244.7 million, costs and expenses were $143.4 million, other income was $39.3 million, there was no income tax provision or benefit and the deduction of income attributable to non-controlling interests was $17.4 million.

Revenues increased by $40.9 million during the year ended December 31, 2024, primarily due to (i) a $27.7 million increase in servicing fees principally related to loan modifications and a $17.4 million increase in interest income from conduit loans and CMBS investments, partially offset by a $5.7 million decrease in rental income due to fewer operating properties held. The treatment of CMBS interest income on a GAAP basis is complicated by our application of the ASC 810 consolidation rules. In an attempt to treat these securities similar to the trust’s other investment securities, we compute distributable interest income pursuant to an effective yield methodology. In doing so, we segregate the portfolio into various categories based on the components of the bonds’ cash flows and the volatility related to each of these components. We then accrete interest income on an effective yield basis using the components of cash flows that are reliably estimable. Other minor adjustments are made to reflect management’s expectations for other components of the projected cash flow stream.

Costs and expenses increased by $14.0 million during the year ended December 31, 2024, primarily due to a $12.1 million increase in general and administrative expenses reflecting increased incentive compensation due to higher loan securitization volume.

Other income includes profit realized upon securitization of loans by our conduit business, gains on sales of CMBS and operating properties, gains and losses on derivatives that were either effectively terminated or novated, and earnings from unconsolidated entities. These items are typically offset by a decrease in the fair value of our domestic servicing rights intangible which reflects the expected amortization of this deteriorating asset, net of increases in fair value due to the attainment of new servicing contracts. Derivatives include instruments which hedge interest rate risk and credit risk on our conduit loans

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and CMBS investments. For GAAP purposes, the loans, CMBS and derivatives are accounted for at fair value, with all changes in fair value (realized or unrealized) recognized in earnings. The adjustments to Distributable Earnings outlined above are also applied to the GAAP earnings of our unconsolidated entities. Other income increased by $14.6 million during the year ended December 31, 2024, primarily due to a $36.8 million increase in realized gains on conduit loans and an $11.8 million favorable change in gain (loss) on derivatives, partially offset by a $27.9 million increase in recognized credit losses on CMBS and a $5.7 million decrease in earnings from unconsolidated entities.

Income attributable to non-controlling interests increased $1.7 million.

Corporate

Corporate loss increased by $47.1 million, from $367.1 million during the year ended December 31, 2023 to $414.2 million during the year ended December 31, 2024, primarily due to (i) a $35.7 million increase in interest expense reflecting higher average unsecured borrowings outstanding and (ii) a $10.6 million increase in realized losses on fixed-to-floating interest rate swaps which hedge a portion of our unsecured senior notes.

Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022

Commercial and Residential Lending Segment

The Commercial and Residential Lending Segment’s Distributable Earnings increased by $76.7 million, from $709.5 million during the year ended December 31, 2022 to $786.2 million during the year ended December 31, 2023. After making adjustments for the calculation of Distributable Earnings, revenues were $1.7 billion, costs and expenses were $1.0 billion, other income was $101.5 million and there was no income tax provision or benefit.

Revenues, consisting principally of interest income on loans, increased by $548.6 million during the year ended December 31, 2023, primarily due to increases in interest income from loans of $499.3 million and investment securities of $44.6 million. The increase in interest income from loans reflects (i) a $485.1 million increase from commercial loans, reflecting higher average index rates and loan balances, and (ii) a $14.2 million increase from residential loans principally due to higher average balances, reflecting the timing of purchases and securitizations. The increase in interest income from investment securities was primarily due to higher RMBS yields and average investment balances and the effect of higher index rates on certain commercial investments.

Costs and expenses increased by $483.3 million during the year ended December 31, 2023, primarily due to (i) a $469.9 million increase in interest expense associated with the various secured financing facilities used to fund a portion of this segment’s investment portfolio, reflecting higher average index rates and borrowings outstanding, and (ii) a $12.3 million credit loss on a commercial loan recognized in the year ended December 31, 2023.

Other income increased by $16.0 million during the year ended December 31, 2023, primarily due to (i) a $69.3 million decrease in realized losses on residential loans, (ii) a $22.5 million increase in realized gains on interest rate and foreign currency derivatives and (iii) a $15.2 million favorable change in earnings (loss) from unconsolidated entities, all partially offset by (iv) the nonrecurrence of an $84.7 million gain on sale of a foreclosed property in 2022.

Income taxes principally relate to the taxable nature of this segment’s residential loan securitization activities which are housed in TRSs. The income tax benefit decreased from $4.6 million during the year ended December 31, 2022 to none during the year ended December 31, 2023. Consistent with our treatment of other adjustments to GAAP in arriving at Distributable Earnings, income tax benefits are generally not recognized in Distributable Earnings until they are realized.

Infrastructure Lending Segment

The Infrastructure Lending Segment’s Distributable Earnings increased by $8.0 million, from $64.5 million during the year ended December 31, 2022 to $72.5 million during the year ended December 31, 2023. After making adjustments for the calculation of Distributable Earnings, revenues were $240.0 million, costs and expenses were $166.0 million and other loss was $1.5 million.

Revenues, consisting principally of interest income on loans, increased by $85.6 million during the year ended December 31, 2023, primarily due to an increase in interest income from loans of $86.7 million, reflecting higher average index rates and loan balances.

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Costs and expenses increased by $73.9 million during the year ended December 31, 2023, primarily due to a $61.9 million increase in interest expense, reflecting higher average index rates, and a $10.8 million credit loss recognized in the year ended December 31, 2023.

Other income decreased by $3.7 million to a loss during the year ended December 31, 2023, primarily due to a $4.5 million unfavorable change in earnings (loss) from unconsolidated entities.

Property Segment

Distributable Earnings by Portfolio (amounts in thousands)

The Property Segment’s Distributable Earnings increased by $6.4 million, from $81.2 million during the year ended December 31, 2022 to $87.6 million during the year ended December 31, 2023. After making adjustments for the calculation of Distributable Earnings, revenues were $95.8 million, costs and expenses were $84.5 million, other income was $87.5 million and the deduction for income attributable to non-controlling interests in the Woodstar Fund was $11.2 million.

Revenues increased by $2.3 million during the year ended December 31, 2023, primarily due to rent increases in our Master Lease Portfolio.

Costs and expenses increased by $24.2 million during the year ended December 31, 2023, primarily due to a $23.2 million increase in interest expense reflecting higher index rates on variable rate borrowings of the Medical Office Portfolio.

Other income increased by $29.4 million during the year ended December 31, 2023, primarily due to (i) a $23.4 million increased gain on derivatives which primarily hedge our interest rate risk on borrowings secured by our Medical Office Portfolio and (ii) a $4.9 million increase in Distributable Earnings from the Woodstar Fund investments.

Income attributable to non-controlling interests in the Woodstar Fund increased $1.1 million in the year ended December 31, 2023.

Investing and Servicing Segment

The Investing and Servicing Segment’s Distributable Earnings decreased by $44.6 million from $128.0 million during the year ended December 31, 2022 to $83.4 million during the year ended December 31, 2023. After making adjustments for the calculation of Distributable Earnings, revenues were $203.8 million, costs and expenses were $129.4 million, other income was $24.7 million, there was no income tax provision or benefit and the deduction of income attributable to non-controlling interests was $15.7 million.

Revenues decreased by $14.5 million during the year ended December 31, 2023, primarily due to (i) a $9.9 million decrease in servicing fees and (ii) a $10.3 million decrease in other fee income related to the origination of certain loans contributed into CMBS transactions, partially offset by (iii) an $8.7 million increase in interest income principally from CMBS investments.

Costs and expenses increased by $8.4 million during the year ended December 31, 2023, primarily due to a $7.9 million increase in interest expense reflecting higher average index rates on borrowings which finance our CMBS investments and conduit loans.

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Other income decreased by $30.4 million during the year ended December 31, 2023, primarily due to (i) a $35.1 million unfavorable change in realized gain (loss) on derivatives, principally related to conduit loans, and (ii) a $31.1 million decrease in realized gains on sales of operating properties, all partially offset by (iii) a $30.9 million increase in realized gains on conduit loans.

Income taxes, which principally relate to the taxable nature of this segment’s loan servicing and loan securitization businesses which are housed in TRSs, decreased $4.3 million to no provision or benefit in the year ended December 31, 2023. Effective January 1, 2023, the TRS which houses these businesses was combined with the TRS which houses our residential loan securitization business into a single TRS. The combined TRS was in a net loss position during the year ended December 31, 2023, versus a net income position of the individual Investing and Servicing Segment TRS during the year ended December 31, 2022. Consistent with our treatment of other adjustments to GAAP in arriving at Distributable Earnings, the income tax benefit of the combined TRS will not be recognized in Distributable Earnings until realized.

Income attributable to non-controlling interests decreased $4.4 million.

Corporate

Corporate loss increased by $110.2 million, from $256.9 million during the year ended December 31, 2022 to $367.1 million during the year ended December 31, 2023, primarily due to (i) a $78.7 million increase in interest expense reflecting higher average outstanding term loan and unsecured senior note balances, as well as higher interest rates, and (ii) a $32.9 million unfavorable change in realized gain (loss) on fixed-to-floating interest rate swaps which hedge a portion of our unsecured senior notes.

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Liquidity and Capital Resources

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

Sources of Liquidity

Our primary sources of liquidity are as follows:

Cash Flows for the Year Ended December 31, 2024 (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 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 $244.6 million during the year ended December 31, 2024, reflecting net cash provided by investing activities of $2.0 billion and operating activities of $646.6 million. partially offset by net cash used in financing activities of $2.4 billion.

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Net cash provided by operating activities of $646.6 million during the year ended December 31, 2024 related primarily to cash interest income of $1.6 billion from our loans and $183.8 million from our investment securities. Other cash inflows included sales and principal collections, net of originations and purchases of loans held-for-sale of $202.9 million, receipts from our interest rate derivatives of $73.7 million, servicing fees of $72.9 million, net rental income of $55.6 million and distributions from our affordable housing fund investments of $41.4 million. Offsetting these cash inflows was cash interest expense of $1.3 billion, general and administrative expenses of $277.5 million and a net change in operating assets and liabilities of $5.1 million.

Net cash provided by investing activities of $2.0 billion for the year ended December 31, 2024 related primarily to proceeds received from principal collections and sale of loans held-for-investment of $4.7 billion and investment securities of $349.2 million, as well as net proceeds from the sale of real estate of $216.8 million. Offsetting these cash inflows was the origination, purchase and funding of loans held-for-investment of $3.0 billion and investment securities of $268.3 million.

Net cash used in financing activities of $2.4 billion for the year ended December 31, 2024 related primarily to repayments and deferred loan costs on our debt, net of borrowings, of $2.1 billion and dividend distributions of $620.0 million. Offsetting these cash outflows was net proceeds from issuances of common stock of $395.5 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, 2024, 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

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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 of our financing arrangements.

Secured Borrowings

The following table is a summary of our secured borrowings as of December 31, 2024 (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. The facility with a current and extended maturity of February 2025 was extended to October 2025 subsequent to December 31, 2024.

(e)Certain facilities with an outstanding balance of $2.3 billion as of December 31, 2024 are indexed to EURIBOR, BBSY, SARON and SONIA. The remainder are indexed to SOFR.

(f)Certain facilities with an aggregate initial maximum facility size of $10.7 billion may be increased to $11.1 billion, subject to certain conditions. The $11.1 billion amount includes such upsizes.

(g)The facility with a current maturity of February 2025 was extended to February 2026 subsequent to December 31, 2024.

(h)Certain facilities with an outstanding balance of $342.6 million as of December 31, 2024 carry a rolling 12-month term which may reset monthly or quarterly with the lender's consent. These facilities carry no maximum facility size.

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(i)A facility with an outstanding balance of $323.5 million as of December 31, 2024 has a weighted average fixed annual interest rate of 3.94%. All other facilities are variable rate with a weighted average rate of SOFR + 2.06%.

(j)Includes: (i) $323.5 million outstanding on a repurchase facility that is not subject to margin calls; and (ii) $30.3 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).

(k)The maximum facility size as of December 31, 2024 of $410.0 million may be increased to $750.0 million, subject to certain conditions.

(l)Certain facilities with an aggregate initial maximum facility size of $637.1 million may be increased to $737.1 million, subject to certain conditions. The $737.1 million amount includes such upsizes.

(m)Consists of: (i) a $764.8 million term loan facility that matures in July 2026, of which $379.0 million has an annual interest rate of SOFR + 2.60% and $385.8 million has an annual interest rate of SOFR + 3.35%, subject to a 0.75% SOFR floor, (ii) a $150.0 million revolving credit facility that matures in April 2026 with an annual interest rate of SOFR + 2.60%, and (iii) a $687.8 million term loan facility that matures in November 2027, with an annual interest rate of SOFR + 2.25%, subject to a 0.50% SOFR floor. These facilities are secured by the equity interests in certain of our subsidiaries which totaled $6.0 billion as of December 31, 2024.

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):

(a)Variance primarily related to secured debt pay downs from unsecured senior note issuance and the sale of the Master Lease Portfolio.

Borrowings under Unsecured Senior Notes

During the years ended December 31, 2024 and 2023, the weighted average effective borrowing rate on our unsecured senior notes was 5.5% and 4.9%, 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.

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Scheduled Principal Repayments on Investments and Overhang on Financing Facilities

The following scheduled and/or projected principal repayments on our investments were based on amounts outstanding and extended contractual maturities of those investments as of December 31, 2024. 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):

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, 2024, we had 100,000,000 shares of preferred stock available for issuance and 162,590,312 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 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, 2024, we were in compliance with all such covenants.

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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 2024 tax year is as follows:

The cash dividend of $0.48 per share of common stock (with a record date of December 31, 2024, that was paid on January 15, 2025) is a split-year dividend, of which $0.1392 is allocable to 2024 for federal income tax purposes and the remaining $0.3408 will be allocable to 2025 for federal income tax purposes.

Contractual Obligations and Commitments

Our material contractual obligations and commitments as of December 31, 2024 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 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 $181.2 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 $90.0 million under revolvers and letters of credit, $101.8 million under delayed draw term loans and $291.7 million of outstanding infrastructure loan purchase commitments.

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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 pool 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 there is a significant decline in credit quality of the loan or security since origination or acquisition and it is deemed probable that we will not be able to fully recover the amortized cost of the loan or security. Recovery may be by way of repayment by the borrower, sale of the loan or security, possible foreclosure or exercise of control over a borrower’s pledged equity interests. The determination of whether a loan or security is credit deteriorated requires significant judgment by management and is based on various factors including (i) the underlying collateral performance and its estimated current and stabilized market values, including projected cash flows, (ii) discussions with the borrower, (iii) availability of reserves and substantive recourse guarantees and (iv) other factors deemed relevant by us. If a loan or security is considered to be credit deteriorated, it is considered to have different risk characteristics from the rest of the loans and securities being evaluated on the collective industry loss rate pool approach described above. In those cases, we depart from the collective pool approach and determine the credit loss allowance as any excess of the amortized cost basis of the loan or security over (i) the present value of expected future cash flows discounted at the contractual effective interest rate or (ii) the fair value of the collateral, if repayment is expected solely from the collateral.

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Significant judgment is required when estimating future credit losses; therefore, actual results over time could be materially different. As of December 31, 2024, we held $16.3 billion of loans and HTM securities measured at amortized cost with expected future funding commitments of $1.2 billion. During the years ended December 31, 2024, 2023 and 2022, we recognized credit loss provisions of $197.4 million, $243.7 million and $46.7 million, respectively, and the related credit loss allowance was $504.3 million and $333.1 million at December 31, 2024 and 2023, 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 allowance for credit losses. However, the allowance is limited to the amount by which the AFS debt security’s amortized cost exceeds its fair value. Favorable changes in expected cash flows are first recognized as a decrease to the allowance for credit losses (recognized currently in earnings). Such changes would be recognized as a prospective yield adjustment only when the allowance for credit losses is reduced to zero. A change in expected cash flows that is attributable solely to a change in a variable interest reference rate does not result in a credit loss and is accounted for as a prospective yield adjustment.

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, 2024, we held $93.8 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, 2024 and there was no related credit loss allowance as of December 31, 2024.

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, 2024, we had $43.9 billion and $37.4 billion of assets and liabilities, respectively, that are measured at fair value, including $38.9 billion of VIE assets and $37.3 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.

Property Impairment

We review properties for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability is determined by comparing the carrying amount of the property to the undiscounted future net cash flows it is expected to generate. If such carrying amount exceeds the expected undiscounted future net cash flows, we adjust the carrying amount of the property to its estimated fair value. The estimation of expected future net cash flows and fair values of our properties involves significant judgments by our management, and changes to these judgments could significantly impact our reported results of operations.

As of December 31, 2024, we had properties held-for-investment with a carrying value of $1.4 billion. There were no property impairment losses recognized in the years ended December 31, 2024 and 2022. During the year ended December 31, 2023, we recognized $124.9 million of impairment losses on two foreclosed properties in the Commercial and Residential Lending Segment, as discussed in Note 7 to the Consolidated Financial Statements. We estimated the fair values of those properties based on either a third party appraisal or the sale price specified in an executed letter of intent to sell the property.

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Goodwill Impairment

Our goodwill at December 31, 2024 of $259.8 million represents the excess of consideration transferred over the fair value of net assets acquired in connection with the acquisitions of LNR in April 2013 and the Infrastructure Lending Segment in September 2018 and October 2018. In testing goodwill for impairment, we follow ASC 350, Intangibles—Goodwill and Other, which permits a qualitative assessment of whether it is more likely than not that the fair value of a reporting unit is less than its carrying value including goodwill. If the qualitative assessment determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying value including goodwill, then no impairment is determined to exist for the reporting unit. However, if the qualitative assessment determines that it is more likely than not that the fair value of the reporting unit is less than its carrying value including goodwill, or we choose not to perform the qualitative assessment, then we compare the fair value of that reporting unit with its carrying value, including goodwill, in a quantitative assessment. If the carrying value of a reporting unit exceeds its fair value, goodwill is considered impaired with the impairment loss measured as the excess of the reporting unit’s carrying value (inclusive of goodwill) over its fair value.

Based on our qualitative assessment during the fourth quarter of 2024, 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 2024, 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 the 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.

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